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Filed Pursuant to Rule 424(b)(3)
Registration Number 333-30768
PROSPECTUS
[PETER KIEWIT SONS', INC. LOGO]
PETER KIEWIT SONS', INC.
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OFFER TO EXCHANGE
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SHARES OF COMMON STOCK OF
KIEWIT MATERIALS COMPANY
FOR
SHARES OF COMMON STOCK OF
PETER KIEWIT SONS', INC.
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The share exchange expires at 11:59 p.m., Omaha time, on September 14,
2000, unless extended.
Kiewit intends to spin off Materials after the share exchange.
Your right to withdraw tendered securities is limited, as described in this
document.
The new securities will not be listed on any securities exchange or market
and will be subject to substantial transfer restrictions.
SEE "RISK FACTORS," BEGINNING ON PAGE 11, FOR A DESCRIPTION OF FACTORS THAT
YOU SHOULD CONSIDER IN EVALUATING THE SHARE EXCHANGE.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 15, 2000
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TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE.............. 1
SUMMARY..................................................... 7
The Companies............................................. 7
The Share Exchange........................................ 7
RISK FACTORS................................................ 11
Risk Factors Relating to the Share Exchange and the
Spin-Off............................................... 11
Risk Factors Regarding Materials.......................... 12
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............. 17
THE SHARE EXCHANGE, THE DEBENTURE EXCHANGE OFFER AND THE
SPIN-OFF.................................................. 18
Background and Purpose.................................... 18
The Debenture Exchange Offer.............................. 19
The Spin-off.............................................. 20
Effects................................................... 20
Dividend Policies......................................... 20
Ownership and Transfer Restrictions....................... 21
No Appraisal Rights....................................... 21
Regulatory Approvals...................................... 22
Capital Contributions to Materials........................ 22
Accounting Treatment...................................... 22
THE SHARE EXCHANGE.......................................... 23
Terms of the Share Exchange............................... 23
No Fractional Shares...................................... 24
Formula Price............................................. 24
Transfer Restrictions..................................... 24
Determining to Participate in the Share Exchange.......... 25
Exchange of Shares of Kiewit Common Stock................. 25
Procedures for Tendering Shares of Kiewit Common Stock.... 25
Lost or Destroyed Certificates............................ 26
Kiewit's Interpretations Are Binding...................... 26
Withdrawal Rights......................................... 27
Extension of Tender Period; Termination; Amendment........ 27
Conditions to the Share Exchange.......................... 28
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
KIEWIT.................................................... 29
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
MATERIALS................................................. 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF KIEWIT....................... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MATERIALS.................... 41
BUSINESS OF MATERIALS....................................... 46
Industry Background/Market Overview....................... 47
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
Business Strategy......................................... 49
Operations and Properties................................. 50
Reserves.................................................. 51
Products.................................................. 52
Customers................................................. 52
Competition............................................... 52
Employees................................................. 52
Governmental and Environmental Regulation................. 53
Legal Proceedings......................................... 53
BUSINESS OF KIEWIT.......................................... 54
The Construction Business................................. 54
Competition............................................... 54
Demand.................................................... 54
Backlog................................................... 55
Joint Ventures............................................ 55
Significant Customer...................................... 55
The Materials Business.................................... 55
Locations................................................. 55
Properties................................................ 55
Environmental Protection.................................. 56
Employees................................................. 56
MANAGEMENT OF MATERIALS..................................... 57
Senior Management and Directors of Materials.............. 57
Other Key Personnel....................................... 57
Committees................................................ 59
SECURITY OWNERSHIP OF MATERIALS COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF
MATERIALS................................................. 60
EXECUTIVE COMPENSATION OF MATERIALS......................... 61
Summary Compensation Table................................ 61
Director Compensation..................................... 61
Other Compensation and Equity Programs.................... 61
MANAGEMENT OF KIEWIT........................................ 63
Senior Management and Directors of Kiewit................. 63
Committees................................................ 65
SECURITY OWNERSHIP OF KIEWIT COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF
KIEWIT.................................................... 66
EXECUTIVE COMPENSATION OF KIEWIT............................ 67
Summary Compensation Table................................ 67
Director Compensation..................................... 67
CERTAIN TRANSACTIONS........................................ 67
Compensation Committee Interlocks and Insider
Participation.......................................... 69
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF KIEWIT COMMON STOCK AND
MATERIALS COMMON STOCK.................................... 69
General................................................... 69
Dividend Policy........................................... 70
Voting Rights............................................. 70
Repurchase Rights......................................... 70
Liquidation Rights........................................ 71
Formula Price............................................. 71
Ownership and Transfer Restrictions....................... 72
Listing................................................... 73
Limitation on Directors' Liability........................ 73
Preferred Stock........................................... 73
Action by Stockholder Consent; Stockholders' Meetings..... 73
RELATIONSHIP BETWEEN KIEWIT AND MATERIALS................... 74
Separation Agreement...................................... 74
Tax Sharing Agreement..................................... 75
Other..................................................... 75
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES............... 75
Non-U.S. Persons.......................................... 76
Reporting Requirements.................................... 76
NEBRASKA TAX LETTER......................................... 77
LEGAL MATTERS............................................... 77
EXPERTS..................................................... 77
WHERE YOU CAN FIND MORE INFORMATION......................... 78
INDEX TO KIEWIT FINANCIAL STATEMENTS........................ F-1
INDEX TO KIEWIT MATERIALS COMPANY FINANCIAL STATEMENTS...... F-33
INDEX TO PACIFIC ROCK PRODUCTS AND RIVER CITY MACHINERY
FINANCIAL STATEMENTS...................................... F-61
INDEX TO PRO FORMA INFORMATION.............................. F-72
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE
Q: WHAT IS THE SHARE EXCHANGE?
A: In the share exchange, Peter Kiewit Sons', Inc. is offering Kiewit
stockholders who are Kiewit Materials Company employees the opportunity to
exchange their shares of Kiewit common stock for shares of Materials common
stock with an equal aggregate formula price. Materials is a wholly owned
subsidiary of Kiewit.
The share exchange is being made in connection with a proposal by Kiewit to
separate its construction and materials businesses into two separate,
independent companies by distributing shares of Materials common stock to
Kiewit stockholders in a spin-off that is intended to be tax-free for U.S.
federal income tax purposes.
Q: WHAT IS THE SPIN-OFF?
A: After the completion of the share exchange and the debenture exchange offer
described below, Kiewit will distribute the shares of Materials common stock
it then holds as a dividend on a pro rata basis to holders of Kiewit common
stock in the spin-off. Kiewit stockholders will receive in the spin-off one
share of Materials common stock for each share of Kiewit common stock held.
Q: WHY IS KIEWIT CONDUCTING THE SHARE EXCHANGE?
A: Kiewit's restated certificate of incorporation generally restricts ownership
of Kiewit common stock to directors and employees of Kiewit and employees of
its subsidiaries. Following the completion of the spin-off, Materials
employees will no longer be employed by Kiewit or a subsidiary of Kiewit and
will no longer meet the requirements for owning Kiewit common stock.
Therefore, they will be required to sell any shares of Kiewit common stock
they then own back to Kiewit immediately following the spin-off.
To provide Materials employees with a larger, more direct equity stake in
the materials business and an alternative to having to sell their Kiewit
common stock back to Kiewit for cash immediately following the spin-off,
Kiewit is offering Kiewit stockholders who are Materials employees the
opportunity to exchange their shares of Kiewit common stock for shares of
Materials common stock with an equal aggregate formula price.
Q: WHAT IS "FORMULA PRICE"?
A: The formula price of Kiewit common stock is the per share price at which
Kiewit buys and sells shares of its common stock and is based on the
adjusted book value of Kiewit at the end of the previous year less the
amount of declared dividends during the current year. The formula price of
Kiewit common stock on August 14, 2000, was $20.35 per share. The Kiewit
formula price will be reduced in the event Kiewit pays a cash dividend prior
to the completion of the share exchange.
The formula price of Materials common stock is the per share price at which
Materials will buy shares of its common stock and is based on the adjusted
book value of Materials at the end of the previous year, less the amount of
declared dividends during the current year. In addition to any adjustments
for declared dividends during the current year, the initial formula price
for Materials common stock is also adjusted for the amount of any capital
contributions made by Kiewit to Materials during fiscal year 2000 prior to
the spin-off, other than amounts contributed in connection with the
debenture exchange offer.
Q: WHAT SHOULD I EXPECT TO RECEIVE IF I PARTICIPATE IN THE SHARE EXCHANGE?
A: We have prepared the following table to illustrate what you would receive if
you participated in the share exchange. The table sets forth Kiewit's
estimate of the number of shares of Materials common stock that will be
received for each share of Kiewit common stock tendered in the share
exchange, assuming that (1) all of the Kiewit common stock held by Materials
employees is exchanged in the share exchange; and
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(2) fifty percent of the Kiewit common stock held by Materials employees is
exchanged in the share exchange.
The table assumes a formula price for Kiewit common stock immediately prior
to the spin-off of $20.35 per share, the formula price as of August 14,
2000. The Kiewit formula price will be reduced in the event Kiewit pays a
cash dividend prior to the completion of the share exchange. The table also
assumes an initial formula price for Materials common stock of (1) $7.14 if
all of the Kiewit common stock held by Materials employees is tendered in
the share exchange; and (2) $7.35 if fifty percent of the Kiewit common
stock held by Materials employees is tendered in the share exchange.
The following are examples for illustrative purposes only and may not be
indicative of what you will actually receive if you participate in the share
exchange.
<TABLE>
<CAPTION>
ESTIMATED TOTAL
ESTIMATED NUMBER OF FORMULA PRICE OF
ASSUMED PERCENTAGE SHARES OF MATERIALS SHARES OF MATERIALS
OF SHARES OF KIEWIT COMMON STOCK YOU COMMON STOCK YOU
COMMON STOCK HELD ASSUMED TOTAL PER SHARE PRICE OF WILL RECEIVE PER ESTIMATED PER SHARE WILL RECEIVE PER
BY MATERIALS NUMBER OF SHARES OF SHARES OF KIEWIT SHARE OF KIEWIT FORMULA PRICE OF SHARE OF KIEWIT
EMPLOYEES THAT IS KIEWIT COMMON COMMON STOCK COMMON STOCK MATERIALS COMMON COMMON STOCK
TENDERED FOR STOCK TENDERED FOR TENDERED FOR TENDERED FOR STOCK YOU WILL TENDERED FOR
EXCHANGE EXCHANGE EXCHANGE EXCHANGE RECEIVE EXCHANGE
<S> <C> <C> <C> <C> <C>
100% 1,081,226 $20.35 2.85 $7.14 $20.35
50% 540,613 $20.35 2.769 $7.35 $20.35
</TABLE>
Q: WHAT IS THE DEBENTURE EXCHANGE OFFER?
A: Kiewit is also offering the holders of its outstanding convertible
debentures the opportunity to exchange their Kiewit debentures for:
- Materials debentures convertible into shares of Materials common stock; or
- both shares of Materials common stock and new reduced principal amount
Kiewit debentures convertible into shares of Kiewit common stock.
Q: WHY HAS KIEWIT DECIDED TO SEPARATE MATERIALS FROM KIEWIT?
A: The board of directors and management of Kiewit have concluded that
separation of its materials business and its construction business by means
of a spin-off is in the best interests of Kiewit and Kiewit's stockholders.
In reaching this conclusion, Kiewit's board of directors and management
considered that, as a result of the spin-off, the share exchange and the
debenture exchange offer:
- the senior management of Materials will acquire a larger, direct interest
in the materials business that reflects solely the performance of
Materials;
- Materials employees will acquire a larger, direct interest in the
materials business, which the Kiewit board of directors believes is
essential to Materials' ability to better retain, attract and motivate its
employees; and
- Materials should improve its ability to make sales to, and secure
contracts from, unrelated construction businesses that have concerns about
doing business with Materials while it is owned and controlled by a direct
competitor.
Q: WHAT IS THE "EXCHANGE RATIO" FOR THE SHARE EXCHANGE?
A: The exchange ratio represents the number of shares of Materials common stock
which Kiewit stockholders who are Materials employees will receive for each
share of Kiewit common stock tendered in the share exchange.
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Q: HOW WILL THE FINAL EXCHANGE RATIO BE DETERMINED?
A: The exchange ratio will be set so that Kiewit stockholders who are Materials
employees who tender their Kiewit common stock in the share exchange will
receive Materials common stock with an equal aggregate formula price. The
exact exchange ratio will not be known until the completion of the share
exchange and the debenture exchange offer. Immediately prior to the
completion of the share exchange and the debenture exchange offer, Materials
will effect a stock split so that after the completion of the share exchange
and the debenture exchange offer, there are a sufficient number of remaining
shares to permit Kiewit stockholders to receive in the spin-off one share of
Materials common stock for each share of Kiewit common stock held.
Q: HOW DO I DECIDE WHETHER TO PARTICIPATE IN THE SHARE EXCHANGE?
A: Whether you should participate in the share exchange depends on whether you
would prefer to sell your shares of Kiewit common stock back to Kiewit for
cash following the spin-off or exchange them for shares of Materials common
stock. If you participate in the share exchange, you will receive shares of
Materials common stock in a transaction that is intended to be tax-free to
stockholders for U.S. federal income tax purposes, but you will not receive
the Materials common stock being distributed to Kiewit stockholders as a
dividend in the spin-off. If you do not participate in the share exchange,
you will be required to sell your Kiewit common stock back to Kiewit in a
taxable transaction, but you will receive the dividend of Materials common
stock in the spin-off. The distribution of shares of Materials common stock
will generally be tax-free for U.S. federal income tax purposes.
You should consider all of the factors described under "Risk Factors"
starting at page 11. Neither Kiewit, Materials nor any of their respective
directors make any recommendation as to whether you should tender your
shares of Kiewit common stock. You must make your own decision as to whether
to tender your shares of Kiewit common stock after reading this document and
consulting with your advisors based on your own financial position and
requirements.
Q: WHO IS ELIGIBLE TO PARTICIPATE IN THE SHARE EXCHANGE?
A: Only Kiewit stockholders who are Materials employees are eligible to
participate in the share exchange.
Q: CAN I PARTICIPATE WITH ONLY A PORTION OF MY SHARES OF KIEWIT COMMON STOCK IN
THE SHARE EXCHANGE?
A: Yes. You can tender some or all of your shares of Kiewit common stock.
However, following the spin-off, you will be required to sell any shares of
Kiewit common stock you then hold back to Kiewit.
Q: DO I HAVE TO DO ANYTHING IF I WANT TO RETAIN MY SHARES OF KIEWIT COMMON
STOCK?
A: No, you do not have to do anything if you want to retain your shares of
Kiewit common stock. However, following the spin-off, you will be required
to sell your shares of Kiewit common stock back to Kiewit.
Q: HOW DO I PARTICIPATE IN THE SHARE EXCHANGE?
A: Complete and sign the letter of transmittal designating the number of shares
of Kiewit common stock you wish to tender. Send it, together with your share
certificates and any other documents required by the letter of transmittal,
by registered mail, return receipt requested, so that it is received by
Kiewit at the address on the back cover of this prospectus before the
expiration of the share exchange.
If your Kiewit common stock has been pledged to a lender, you must make
arrangements with the lender for the valid tender of the certificates
representing the pledged Kiewit common stock. If, however, the lender is
Enterprise Bank, N.A. or U.S. Bank, N.A., Kiewit will arrange directly with
the bank for delivery of the pledged certificates to Kiewit.
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Q: CAN I CHANGE MY MIND AFTER I TENDER MY SHARES OF KIEWIT COMMON STOCK?
A: Yes. You may withdraw tenders of your shares any time before the expiration
of the share exchange. If you change your mind again, you can retender your
shares of Kiewit common stock by following the tender procedures again prior
to the expiration of the share exchange. However, following the spin-off,
you will be required to sell any shares of Kiewit common stock you then hold
back to Kiewit.
Q: ARE THERE ANY CONDITIONS TO KIEWIT'S OBLIGATION TO COMPLETE THE SHARE
EXCHANGE?
A: Yes. Kiewit has received a ruling from the IRS confirming that the share
exchange, the debenture exchange offer and the spin-off generally will be
tax-free transactions for U.S. federal income tax purposes. The share
exchange will not be completed unless that ruling remains in effect.
Kiewit reserves the right to abandon the spin-off at any time prior to the
completion of the share exchange and the debenture exchange offer. If Kiewit
abandons the spin-off, it will not complete the share exchange or the
debenture exchange offer. Kiewit also reserves the right to abandon the
share exchange or the debenture exchange offer at any time prior to its
completion. If Kiewit abandons either the share exchange or the debenture
exchange offer, it will not complete the spin-off or the other exchange.
There is no requirement that any minimum number of shares are tendered for
the share exchange to be completed.
Q: WHEN DOES THE SHARE EXCHANGE EXPIRE?
A: The share exchange and withdrawal rights will expire at 11:59 p.m., Omaha
time, on September 14, 2000, unless extended. You must tender your shares of
Kiewit common stock prior to the expiration date if you wish to participate
in the share exchange.
Q: WILL KIEWIT DISTRIBUTE FRACTIONAL SHARES OF MATERIALS COMMON STOCK IN THE
SHARE EXCHANGE?
A: No. As an administrative and cost-saving convenience, no fractional shares
of Materials common stock will be issued in the share exchange. To the
extent fractional shares of Materials common stock would otherwise be issued
to holders of Kiewit common stock in the share exchange, Kiewit will round
those fractional shares to whole shares in a manner that does not affect the
total number of shares of Materials common stock.
Q: WILL MATERIALS COMMON STOCK BE LISTED ON AN EXCHANGE?
A: The Materials common stock will not be listed on any national securities
exchange or quoted on the Nasdaq National Market.
Q: ARE SHARES OF MATERIALS COMMON STOCK TRANSFERABLE?
A: The Materials common stock will be subject to substantial transfer
restrictions. Specifically, holders of Materials common stock will be
prohibited from transferring the Materials common stock in any manner except
in a sale to Materials or in a transfer for estate planning purposes that
meets specified requirements. Upon the death of a Materials stockholder, the
shares of Materials common stock owned by the deceased stockholder will be
permitted to be transferred to his or her estate, provided that the shares
transferred to the transferee will be subject to the same transfer
restrictions. However, unlike Kiewit common stock, Materials stockholders
will not be required to sell their Materials common stock back to Materials
upon their retirement or other termination of their employment with
Materials or Kiewit, as the case may be. All transfer restrictions may be
terminated by the Materials board at any time.
4
<PAGE> 9
Holders of Materials common stock are permitted to pledge their Materials
common stock for loans in connection with their ownership of Materials
common stock. For a more detailed description of the transfer restrictions
on Materials common stock, see page 72.
Q: HOW CAN I SELL SHARES OF MATERIALS COMMON STOCK TO MATERIALS?
A: At any time on or prior to the 15th day of any calendar month, you may offer
to sell all or part of your Materials common stock to Materials at the
current formula price. Materials will generally be required to accept the
offer within 10 days of receipt of the offer.
Materials' repurchase obligations may be terminated by Materials' board of
directors at any time. However, the board shall not have that authority
unless it has also determined that the Materials common stock is publicly
traded.
Q: WILL I BE TAXED ON THE SHARES OF MATERIALS COMMON STOCK THAT I RECEIVE IN
THE SHARE EXCHANGE?
A: You generally will not recognize taxable gain or loss for U.S. federal
income tax purposes on your receipt of shares of Materials common stock in
exchange for shares of Kiewit common stock.
Q: WHAT WILL BE THE TAX BASIS AND HOLDING PERIOD OF SHARES OF MATERIALS COMMON
STOCK I RECEIVE IN EXCHANGE FOR MY SHARES OF KIEWIT COMMON STOCK FOR U.S.
FEDERAL INCOME TAX PURPOSES?
A: For U.S. federal income tax purposes, the tax basis of the shares of
Materials common stock that you receive generally will be the same as the
tax basis of the shares of Kiewit common stock exchanged, and your holding
period for the shares of Materials common stock that you receive will
include the period during which you held the shares of Kiewit common stock
exchanged, provided that you held the Kiewit common stock as a capital
asset.
Q: WHAT WILL BE THE TAX BASIS IN THE SHARES OF KIEWIT COMMON STOCK THAT ARE NOT
EXCHANGED IN THE SHARE EXCHANGE FOR U.S. FEDERAL INCOME TAX PURPOSES?
A: For U.S. federal income tax purposes, the tax basis of any shares of Kiewit
common stock that are not exchanged will remain the same.
Q: WILL MATERIALS PAY DIVIDENDS ON SHARES OF MATERIALS COMMON STOCK?
A: Materials does not currently intend to pay cash dividends on the Materials
common stock. For a more detailed discussion of Materials' dividend policy,
see "Materials has no current intention to pay dividends" on page 12.
Q: WILL KIEWIT CONTINUE TO PAY DIVIDENDS ON SHARES OF KIEWIT COMMON STOCK?
A: Kiewit intends to continue its current dividend policy of paying a regular
cash dividend on its common stock based upon a percentage of the prior
year's earnings from operations, with any special cash dividends to be based
on earnings from unusual or non-recurring events.
Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE SHARE EXCHANGE?
A: Prior to the spin-off, stockholders with inquiries relating to the share
exchange should contact:
Douglas A. Obermier
Stock Registrar
Peter Kiewit Sons', Inc.
Kiewit Plaza
Omaha, Nebraska 68131
(402) 342-2052
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<PAGE> 10
After the spin-off, stockholders of Materials with inquiries relating to
their investment in Materials common stock should contact:
Mark E. Belmont
Vice President, General Counsel
and Secretary
Kiewit Materials Company
Kiewit Plaza
Omaha, Nebraska 68131
(402) 536-3661
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SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. To understand the
share exchange fully, you should read carefully this entire prospectus and the
documents to which we have referred you. See "Where You Can Find More
Information" on page 78.
THE COMPANIES
Peter Kiewit Sons', Inc.
Kiewit Plaza
Omaha, Nebraska 68131
(402) 342-2052
Peter Kiewit Sons', Inc., together with its subsidiaries, is one of the
largest construction contractors in North America. Kiewit primarily performs its
services as a general contractor, responsible for the overall direction and
management of construction projects. Kiewit was incorporated in Delaware in 1997
to continue a construction business founded in Omaha, Nebraska in 1884. For more
detail on the business of Kiewit, see page 54.
Kiewit Materials Company
Kiewit Plaza
Omaha, Nebraska 68131
(402) 536-3661
Kiewit Materials Company, a wholly owned subsidiary of Kiewit, together
with its subsidiaries, operates ready mix, asphalt and aggregates operations in
Arizona, Washington, Oregon, California, Wyoming, Nebraska, Utah and New Mexico.
For more detail on the business of Materials, see page 46.
THE SHARE EXCHANGE
TERMS OF THE SHARE EXCHANGE... Kiewit is offering Kiewit stockholders who are
Materials employees the opportunity to exchange
their shares of Kiewit common stock for shares
of Materials common stock with an equal
aggregate formula price.
The share exchange is being made in connection
with a proposal by Kiewit to separate its
construction and materials businesses into two
separate, independent companies by distributing
shares of Materials common stock to Kiewit
stockholders in a spin-off that is intended to
be tax-free for U.S. federal income tax
purposes.
Stockholders who choose to participate in the
share exchange will receive shares of Materials
common stock with an initial aggregate formula
price equal to the aggregate formula price of
the shares of Kiewit common stock tendered in
the share exchange.
All shares of Kiewit common stock properly
tendered and not withdrawn will be exchanged on
the terms and conditions of the share exchange.
Kiewit will promptly return to holders of
Kiewit common stock any shares of Kiewit common
stock not accepted for exchange following the
expiration of the share exchange.
7
<PAGE> 12
TRANSFER RESTRICTIONS......... The Materials common stock will be subject to
substantial transfer restrictions.
Specifically, holders of Materials common stock
will be prohibited from transferring the
Materials common stock in any manner except in
a sale to Materials or in a transfer for estate
planning purposes that meets specified
requirements. Upon the death of a Materials
stockholder, the shares of Materials common
stock owned by the deceased stockholder will be
permitted to be transferred to his or her
estate, provided that the shares transferred to
the transferee will be subject to the same
transfer restrictions. However, unlike Kiewit
common stock, Materials stockholders will not
be required to sell their Materials common
stock back to Materials upon their retirement
or other termination of their employment with
Materials or Kiewit, as the case may be. All
transfer restrictions may be terminated by the
Materials board at any time.
Holders of Materials common stock are permitted
to pledge the Materials common stock for loans
in connection with the ownership of the
Materials common stock.
EXPIRATION DATE; EXTENSION;
TERMINATION................. The share exchange will expire at 11:59 p.m.,
Omaha time, on September 14, 2000, unless
extended by Kiewit. You must tender your shares
of Kiewit common stock prior to this date if
you wish to participate. Kiewit may also
terminate the share exchange in the
circumstances described on page 27.
WITHDRAWAL RIGHTS............. You may withdraw tenders of your shares of
Kiewit common stock any time before the
expiration of the share exchange. If you change
your mind again, you can retender your shares
of Kiewit common stock following the tender
procedures again prior to the expiration of the
share exchange.
NO FRACTIONAL SHARES.......... As an administrative and cost-saving
convenience, no fractional shares of Materials
common stock will be issued in the share
exchange. To the extent fractional shares of
Materials common stock would otherwise be
issued to holders of Kiewit common stock in the
share exchange, Kiewit will round the
fractional shares to whole shares without
affecting the total number of shares of
Materials common stock.
CONDITIONS TO THE SHARE
EXCHANGE...................... The share exchange is subject to various
conditions. Kiewit has received a ruling from
the IRS confirming that the share exchange, the
debenture exchange offer and the spin-off
generally will be tax-free transactions for
U.S. federal income tax purposes. If the Kiewit
board of directors determines at any time that
Kiewit may be unable to rely on the ruling or
that the ruling is not otherwise in effect,
Kiewit would not complete the share exchange.
For a more detailed description of the tax
consequences of the share exchange, see page
75.
Kiewit reserves the right to abandon the
spin-off at any time prior to the completion of
the share exchange and the debenture exchange
offer. If Kiewit abandons the spin-off, it will
not complete the share exchange or the
debenture exchange offer. Kiewit also
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<PAGE> 13
reserves the right to abandon the share
exchange or the debenture exchange offer at any
time prior to its completion. If Kiewit
abandons either the share exchange or the
debenture exchange offer, it will not complete
the spin-off or the other exchange.
PROCEDURES FOR TENDERING...... You must complete and sign the letter of
transmittal designating the number of shares of
Kiewit common stock you wish to tender. Send
the letter of transmittal, together with your
share certificates and any other documents
required by the letter of transmittal, by
registered mail, return receipt requested, so
that it is received by Kiewit at the address on
the back cover of this prospectus before the
expiration of the share exchange.
If your Kiewit common stock has been pledged to
a lender, you must make arrangements with the
lender for the valid tender of the share
certificates representing the pledged Kiewit
common stock. If, however, the lender is
Enterprise Bank, N.A. or U.S. Bank, N.A.,
Kiewit will arrange directly with the bank for
delivery of the pledged Kiewit common stock to
Kiewit.
DELIVERY OF SHARES OF
MATERIALS COMMON STOCK........ Kiewit will deliver certificates representing
shares of Materials common stock as soon as
practicable after acceptance of Kiewit common
stock for exchange.
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES................ You generally will not recognize taxable gain
or loss for U.S. federal income tax purposes as
a result of the share exchange. See "Material
Federal Income Tax Consequences" on page 75.
USE OF PROCEEDS............... Neither Kiewit nor Materials will receive any
proceeds from the issuance of Materials common
stock in the share exchange.
RISK FACTORS.................. You should consider carefully the matters
described under the caption "Risk Factors," as
well as the other information set forth in this
prospectus.
DETERMINING WHETHER TO
PARTICIPATE IN THE SHARE
EXCHANGE.................... You should consider all of the factors
described under "Risk Factors" starting at page
11. Neither Kiewit, Materials nor any of their
respective directors make any recommendation as
to whether you should tender your Kiewit common
stock. You must make your own decision as to
whether to tender your Kiewit common stock
after reading this document and consulting with
your advisors based on your own financial
position and requirements.
EFFECTS OF THE SHARE
EXCHANGE...................... The share exchange is being made to Kiewit
stockholders who are Materials employees who
will cease to be employees of Kiewit or a
subsidiary of Kiewit after the spin-off.
Materials employees holding Kiewit common stock
will be affected by the spin-off regardless of
whether they tender their shares of Kiewit
common stock in the share exchange because,
after the spin-off, they will be required to
sell their Kiewit common stock back to Kiewit.
Stockholders who participate in the share
exchange will receive shares of Materials
common stock in a transaction that is intended
to be tax-free to
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stockholders for U.S. federal income tax
purposes, but will not receive the dividend of
Materials common stock in the spin-off.
Stockholders who do not participate in the
share exchange will be required to sell their
shares of Kiewit common stock back to Kiewit
for cash in a taxable transaction immediately
following the spin-off at its then current
formula price, but will receive the dividend of
Materials common stock in the spin-off.
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RISK FACTORS
In considering whether to participate in the share exchange, you should
consider carefully all of the information set forth or incorporated in this
prospectus and, in particular, the following risk factors. In addition, for a
discussion of additional uncertainties associated with forward-looking
statements in this prospectus, please see "Forward-Looking Statements May Prove
Inaccurate" on page 17.
RISK FACTORS RELATING TO THE SHARE EXCHANGE AND THE SPIN-OFF
IF YOU DO NOT PARTICIPATE IN THE SHARE EXCHANGE, YOU WILL HAVE TO SELL YOUR
SHARES OF KIEWIT COMMON STOCK BACK TO KIEWIT AFTER THE SPIN-OFF
If the spin-off occurs, Kiewit stockholders who are employees of Materials
will no longer be employed by Kiewit or a subsidiary of Kiewit. Kiewit's
restated certificate of incorporation generally restricts ownership of Kiewit
common stock to directors and employees of Kiewit and its subsidiaries.
Therefore, immediately following the spin-off, any employees of Materials who
hold Kiewit common stock will be required to sell their Kiewit common stock back
to Kiewit for cash in a taxable transaction, at its then current formula value,
but will receive the dividend of Materials common stock in the spin-off.
YOU MAY BE EXTENDED LESS CREDIT BY LENDERS AGAINST MATERIALS COMMON STOCK
COMPARED TO KIEWIT COMMON STOCK
A lender that has extended credit secured by Kiewit common stock, in making
decisions as to how much credit to extend against the collateral held by the
lender, may assign a different loan-to-value ratio to the Materials common stock
as compared to the Kiewit common stock. A lender may also assign a different
loan-to-value ratio to the Kiewit common stock after the spin-off as compared to
the loan-to-value ratio assigned to the Kiewit common stock before the spin-off.
Further, the Materials formula price may be less readily predictable than the
Kiewit formula price has historically been. A future decline in the formula
price of Materials common stock pledged to a lender could result in the lender
requiring that the borrower pledge additional collateral.
If Kiewit common stock being exchanged pursuant to the share exchange is
pledged to a lender, the Materials common stock received in exchange will also
be subject to the pledge under the terms of the loan documentation between the
stockholder and the lender. As a result, the stockholder may be required to
deliver the Materials common stock to his or her lender.
In light of the foregoing, persons who have pledged Kiewit common stock to
a lender and who are considering participation in the share exchange should
consult with the lender as to the effect of the share exchange and the spin-off
on their loan arrangements.
THE SHARE EXCHANGE, THE DEBENTURE EXCHANGE OFFER AND THE SPIN-OFF WILL RESULT IN
A LOWER FORMULA PRICE FOR KIEWIT COMMON STOCK
After the completion of the share exchange, the debenture exchange offer
and the spin-off, Kiewit will no longer own any of the outstanding common stock
of Materials. The formula price for Kiewit common stock is determined by
reducing the prior year's adjusted book value by the amount of dividends
declared during the current year. The spin-off will be effected by a dividend of
shares of Materials common stock. Consequently, the formula price for Kiewit
common stock immediately after the spin-off will be reduced by the book value of
Materials distributed as a dividend in the spin-off, in respect of each Kiewit
share.
KIEWIT CAN REFUSE A REQUEST TO WITHDRAW TENDERED SHARES OF KIEWIT COMMON STOCK
UNDER SPECIFIED CIRCUMSTANCES
For a withdrawal of tendered shares of Kiewit common stock to be effective,
you must comply with specified procedures described in this offering
circular-prospectus.
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If Kiewit:
- delays its acceptance of shares of Kiewit common stock tendered for
exchange;
- extends the share exchange; or
- is unable to accept shares of Kiewit common stock tendered for exchange
under the share exchange for any reason,
then, without prejudice to Kiewit's rights under the share exchange, Kiewit may
retain shares of Kiewit common stock tendered. Those retained shares may not be
withdrawn except as otherwise provided in this document, subject to provisions
under the Securities Exchange Act that provide that an issuer making an exchange
offer shall either pay the consideration offered or return tendered securities
promptly after the termination or withdrawal of the exchange offer.
RISK FACTORS REGARDING MATERIALS
MATERIALS HAS NO CURRENT INTENTION TO PAY DIVIDENDS
Materials' dividend policy following the spin-off will be determined by its
board of directors. Under Delaware law and Materials' restated certificate of
incorporation, Materials' board of directors will not be required to declare
dividends on any class of Materials capital stock and will be free to adopt the
dividend policy it deems appropriate and to change its dividend policy and
practices from time to time. Materials does not currently intend to pay cash
dividends on the Materials common stock.
Kiewit intends to continue its current dividend policy of paying a regular
cash dividend on its common stock based on a percentage of the prior year's
earnings from operations, with any special cash dividends to be based on
earnings from unusual or non-recurring events.
A DECREASE IN GOVERNMENT FUNDING OF HIGHWAY CONSTRUCTION AND MAINTENANCE AND
OTHER INFRASTRUCTURE PROJECTS MAY REDUCE MATERIALS' SALES AND PROFITS
A decrease or delay in government funding of highway construction and
maintenance and other infrastructure projects could reduce Materials' sales and
profits. This is because many of the customers Materials serves and intends to
serve in the future depend substantially on government funding of highway
construction and maintenance and other infrastructure projects. Unlike some of
its competitors, Materials operates in a limited number of states. As a result,
Materials may be more vulnerable than its more geographically diverse
competitors to decreases in state government highway spending in the states in
which it operates.
BAD WEATHER IN MATERIALS' PEAK SEASON MAY RESULT IN LOWER SALES
Poor weather during the months of April through November could result in
lower sales of materials, which could reduce Materials' net sales and profits.
This is because sales of materials are highest during this period and poor
weather conditions may reduce or delay highway construction and maintenance and
other infrastructure projects. In the past, significant changes in weather
conditions during this period have caused variations in demand for materials. In
addition, because Materials is not as geographically diverse as some of its
competitors, it may be more vulnerable than these competitors to poor weather
conditions in the regions in which it operates.
GENERAL AND LOCAL ECONOMIC DOWNTURNS MAY RESULT IN DECREASED SALES AND PROFITS
General economic downturns or localized downturns in regions where
Materials has operations, including any downturns in the construction industry,
could result in a decrease in sales and profits. A majority of Materials' sales
are to customers in industries and businesses that are cyclical in nature and
subject to changes in general economic conditions, such as the construction
industry. Materials' business is principally located in the Pacific Northwest
and the Southwest and is dependent upon the economies of those regions. Because
its
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business is more geographically concentrated than some of its competitors, it
may be more vulnerable to local economic conditions.
AN INCREASE IN THE PRICE OR DECREASE IN THE AVAILABILITY OF OIL MAY INCREASE THE
PRICE OF ASPHALT, RESULTING IN LESS ASPHALT USE BY MATERIALS' CUSTOMERS
A material rise in the price or a material decrease in the availability of
oil could adversely affect Materials' operating results. Federal, state and
municipal government spending on roads is subject to appropriations by the
particular government entity. Asphalt prices are positively correlated to the
price of oil. Therefore, if there is a material rise in the price or a material
decrease in the availability of oil, there will be a resulting increase in the
cost of producing asphalt, which Materials would likely attempt to pass along to
its customers. As a result of any price increase, Materials' customers may use
less asphalt, which would decrease its asphalt sales volumes. A material
increase in the price or decrease in the availability of oil could also lead to
higher gasoline costs which would also increase Materials' operating costs. An
increase in Materials' operating costs could adversely affect its operating
results if it cannot pass these increased costs through to its customers.
MATERIALS' SUCCESS DEPENDS SIGNIFICANTLY ON A LIMITED NUMBER OF KEY PERSONNEL
Materials will be managed by a small number of executive officers,
including Christopher J. Murphy, its Chief Executive Officer and President. The
loss of any of its key personnel could have a material adverse effect on
Materials. Materials believes that its future success will depend in large part
on its ability to retain and attract highly skilled, knowledgeable,
sophisticated and qualified personnel.
MATERIALS MAY INCUR SIGNIFICANT DEBT IN THE FUTURE WHICH COULD LIMIT ITS GROWTH
AND ITS ABILITY TO RESPOND TO CHANGING CONDITIONS
Materials may incur debt to fund acquisitions it may make as part of its
growth strategy. The extent to which Materials incurs debt, and the resulting
restrictive and financial covenants that Materials may be subject to, will have
important consequences to the Materials stockholders. These include the
following:
- Materials' ability to use operating cash flows in other areas of its
business might be limited because it would have to dedicate a substantial
portion of these funds to pay interest;
- Materials might be unable to obtain additional financing to fund its
growth strategy, working capital, capital expenditures, debt service
requirements or other purposes;
- Materials' ability to adjust to changing market conditions and its
ability to withstand competition might be hampered by the amount of debt
it owes; and
- Materials might be more vulnerable in a market downturn or a recession
than its competitors with less debt.
Future credit agreements that Materials may enter into may impose
limitations on its ability to repurchase its shares of common stock.
ACQUISITIONS, WHICH ARE A PART OF MATERIALS' GROWTH STRATEGY, INVOLVE RISKS THAT
COULD CAUSE ITS ACTUAL GROWTH OR OPERATING RESULTS TO DIFFER FROM ITS
EXPECTATIONS
Materials currently intends to grow in part through the acquisition of
additional materials businesses in exchange for cash or debt securities. If it
is not successful in integrating acquired businesses, Materials may have
difficulty operating its business. Materials may have greater difficulty
integrating acquired businesses and assets than its competitors because of its
size and its rapid growth. Materials has completed thirteen business and asset
acquisitions since 1992. Its future success may be limited because of unforeseen
expenses, difficulties, complications, delays and other risks inherent in the
integration of acquired businesses, including the following:
- Materials may not be able to compete successfully for available
acquisition candidates, complete future acquisitions, or accurately
estimate the financial effect of any businesses it acquires;
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<PAGE> 18
- Future acquisitions may require Materials to spend significant amounts of
cash;
- Materials may have trouble integrating acquired businesses and retaining
personnel;
- Materials may ultimately fail to consummate an acquisition, even if it
announces that it plans to acquire a company;
- Materials may choose to acquire a company that is less profitable than it
is or has lower profit margins than it does;
- Materials may not be able to obtain the necessary financing, on favorable
terms or at all, to finance one or more of its potential acquisitions;
- Acquisitions may disrupt Materials' business and distract its management
from other responsibilities;
- To the extent that any of the companies which Materials acquires fails,
the growth of its business could be harmed; and
- Future acquired companies may have unknown liabilities that could require
Materials to spend significant amounts of additional capital.
MATERIALS MAY BE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE
MATERIALS INDUSTRY
The following factors specific to the materials industry may affect
Materials' business:
- Transporting materials over even relatively short distances is costly in
relation to the value of the delivered materials. Therefore, if Materials
cannot maintain production sites close to its customers, its operating
results may be adversely affected;
- The cost and time involved in locating suitable mineral sources,
obtaining proper permits and establishing operations can be significant
and if Materials does not continue to be successful in these matters, it
may lose growth opportunities and its operating results may be adversely
affected;
- Materials has significant investments in fixed locations in specific
geographic areas. In the event one or more of its materials production
sites loses business in its market, it could have a material adverse
effect on its business, financial condition and results of operations;
- It is possible that Materials could encounter increased competition from
existing competitors or new market entrants that may be significantly
larger and have greater financial and marketing resources; and
- To the extent Materials' existing or future competitors seek to gain or
retain market share by reducing prices, Materials may be required to
lower its prices and rates, which would adversely affect its operating
results.
MATERIALS' OPERATIONS ARE SUBJECT TO RISKS THAT MAY RESULT IN CLAIMS OF PERSONAL
INJURY, PROPERTY DAMAGE OR OTHER LIABILITIES
The drivers of Materials' heavy delivery trucks are subject to traffic and
other hazards associated with providing services on construction sites.
Materials' plant personnel are subject to the hazards associated with moving and
storing large quantities of heavy raw materials. These operating hazards can
cause personal injury and death, damage to or destruction of property and
environmental damage. Materials' insurance coverage may not be adequate to cover
all losses or liabilities it may incur in its operations, and Materials may not
be able to maintain insurance of the types or at levels it deems necessary or
adequate or at rates it considers reasonable. Materials' failure to maintain
adequate insurance could have a material adverse effect on its business,
financial position, results of operations and cash flows.
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MATERIALS HAS NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
Materials does not have an operating history as an independent company and
has historically relied on Kiewit for various financial, administrative and
managerial expertise relevant to operating as an independent company. After the
spin-off, Materials will be responsible for obtaining or providing its own
administrative functions. While Materials has been profitable as part of Kiewit,
it cannot be certain that, as a stand-alone company, its future profits will be
comparable to reported historical consolidated results before the spin-off. In
addition, Materials' credit rating may be lower than that of Kiewit.
ANTI-TAKEOVER PROVISIONS COULD DELAY A CHANGE IN MANAGEMENT OF MATERIALS
Materials' restated certificate of incorporation and by-laws contain
provisions that could make it more difficult or even prevent a third party from
acquiring Materials without the approval of its incumbent board of directors.
These provisions, among other things:
- divide the board of directors into three classes, with members of each
class to be elected in staggered three-year terms;
- prohibit stockholder action by written consent in place of a meeting;
- limit the right of stockholders to call special meetings of stockholders;
- impose significant transfer restrictions on Materials common stock;
- limit the right of stockholders to present proposals or nominate
directors for election at annual meetings of stockholders; and
- authorize the board of directors to issue preferred stock in one or more
series without any action on the part of stockholders.
These provisions could significantly impede the ability of the holders of
Materials common stock to change management.
THE MATERIALS BOARD OF DIRECTORS MAY SUSPEND OR TERMINATE MATERIALS' OBLIGATION
TO REPURCHASE SHARES OF MATERIALS COMMON STOCK IN SPECIFIED CIRCUMSTANCES
Holders of Materials common stock are generally permitted, at any time on
or prior to the 15th day of any calendar month, to offer to sell all or part of
their Materials common stock to Materials at the current formula price.
Materials is generally required to accept the offer within 10 days of receipt of
the offer.
The Materials board of directors may suspend Materials' duties to
repurchase Materials common stock offered by a stockholder for up to one year
upon the Materials board's determination that the Materials adjusted book value
to be determined at the end of the current fiscal year is likely to be less than
the Materials adjusted book value determined at the end of the prior fiscal
year, less dividends declared on Materials common stock since the prior fiscal
year end.
If more than 5% of the outstanding shares of Materials common stock has
been tendered for repurchase in any fiscal year, the Materials board has the
right to decide to conserve Materials' cash by temporarily halting Materials'
duty to repurchase Materials common stock for cash. In that event, payment will
be in the form of interest-bearing promissory notes instead of cash.
In addition, under Delaware law, Materials may not repurchase shares of its
common stock if its capital is impaired or if the repurchase would impair its
capital.
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Materials' repurchase obligations may be terminated by Materials' board of
directors at any time. However, the board shall not have such authority unless
it has also determined that the Materials common stock is publicly traded.
MATERIALS COMMON STOCK IS SUBJECT TO SUBSTANTIAL TRANSFER RESTRICTIONS
Holders of Materials common stock are prohibited from transferring the
common stock in any manner except in a sale to Materials and, with prior
approval by the Materials board of directors, to certain authorized transferees
of the holders.
In the event that the Materials board of directors decides to conduct an
initial public offering of the Materials common stock, officers and directors of
Materials and stockholders owning one percent or more of the Materials common
stock outstanding at the time of the offering will not be permitted to sell or
otherwise transfer any shares held by them for a period of up to one hundred
eighty days following the offering.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Materials and Kiewit have made forward-looking statements in this
prospectus that are subject to risks and uncertainties. Forward-looking
statements include the information concerning possible or assumed future results
of operations of Materials and/or Kiewit. Also, when we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. You should note that many factors, some of which are
discussed elsewhere in this prospectus, could affect the future financial
results of Materials and/or Kiewit and could cause those results to differ
materially from those expressed in the forward-looking statements contained in
this prospectus.
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THE SHARE EXCHANGE,
THE DEBENTURE EXCHANGE OFFER AND THE SPIN-OFF
BACKGROUND AND PURPOSE
The share exchange is being made in connection with a proposal by Kiewit to
separate its materials business and construction business in a spin-off that is
intended to be tax-free to stockholders for U.S. federal income tax purposes.
The board of directors and management of Kiewit have determined that separation
of the materials business and the construction business is in the best interests
of Kiewit and Kiewit's stockholders. In reaching this conclusion, Kiewit's board
of directors and management considered the factors discussed below.
Key Materials Employees
Kiewit's restated certificate of incorporation generally restricts
ownership of Kiewit common stock to directors and employees of Kiewit and
employees of its subsidiaries. Kiewit's policy of employee ownership originated
many years ago as a way of attracting and motivating top-quality employees.
Historically, Kiewit has maintained a relatively low salary structure and few
retirement benefits for its key employees in relation to its competitors,
instead choosing to motivate and reward its employees by linking their personal
economic well-being to the performance and growth of Kiewit common stock.
In recent years, as a result of Materials' acquisition strategy, the
materials business has become an increasingly larger portion of Kiewit's overall
business. However, since the price of Kiewit common stock reflects the
performance of all of Kiewit's operations, it does not directly and distinctly
reflect the results of operations of the materials business. Kiewit believes
that materials employees would be better motivated if there were a clearer
connection between the results of their work and their economic rewards. This
lack of connection between effort and reward is particularly pronounced for key
employees of Materials, whose annual compensation, in keeping with Kiewit's core
philosophy, is particularly low in relation to the value of their Kiewit common
stock.
Kiewit would like to provide Materials' key employees with a larger, direct
ownership interest in the materials business alone, undistorted by the economic
returns of the construction business. Kiewit believes that the future of the
materials business depends to a large degree on the continued efforts of these
individuals and that they will be much more and better motivated to promote its
financial success if they hold an increased interest solely in the enterprise in
which they are employed.
By acquiring an increased equity interest in Materials, which will operate
only the materials business, these employees' economic rewards will be tied much
more closely and directly to their performance. Each of Materials' key employees
is expected to exchange all of his Kiewit common stock for Materials common
stock in the share exchange. If they do, these employees' equity ownership will
change from an approximately 2.08% aggregate interest in Kiewit as of August 14,
2000 to an approximately 5.44% aggregate interest in Materials.
Increased Ownership for All Materials Employees
The share exchange provides all Materials employees who own Kiewit common
stock, approximately 60 individuals (including key employees), with the
opportunity to obtain a substantially larger, direct ownership interest in the
materials business that is unaffected by the results of the construction
business. Kiewit believes this increased correlation between these employees'
work performance and their stock-based financial rewards is essential to
Materials' ability to better retain, attract and motivate its employees broadly
as a group. If all of the Materials employees who own Kiewit common stock
exchange their Kiewit common stock for Materials common stock in the share
exchange, these employees' equity ownership in Materials (including the key
employees) will change from an approximately 3.24% aggregate interest in Kiewit
as of August 14, 2000 to an approximately 8.47% aggregate interest in Materials.
This more closely aligns the economic interests of these
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Materials employees with Materials' interests and is expected to motivate these
employees to work and compete more efficiently.
Competition
The management of Materials believes that there are potential customers who
are reluctant to do business with Materials because of its existing relationship
with Kiewit. These potential customers view the companies operating the
construction business within Kiewit's affiliated group as their direct
competitors. The perception that the materials business is owned and controlled
by Kiewit has limited Materials' ability to obtain business from these potential
customers. The managers of Materials believe that their ability to make sales to
and secure contracts from unrelated construction businesses would be
meaningfully improved if the materials business were separated from the
construction business, so that no entity owning or operating the construction
business would have control over or benefit economically from the materials
business.
THE DEBENTURE EXCHANGE OFFER
Kiewit is also offering the holders of its outstanding convertible
debentures the opportunity to exchange their Kiewit debentures for:
- Materials debentures convertible into shares of Materials common stock;
or
- both shares of Materials common stock and new reduced principal amount
Kiewit debentures convertible into shares of Kiewit common stock.
Holders of Kiewit convertible debentures who exchange their Kiewit
debentures for Materials debentures will receive Materials debentures in the
same principal amount, bearing interest at the same rate as the Kiewit
convertible debentures for which they were exchanged and due on October 31,
2010. The Materials debentures will be convertible into shares of Materials
common stock with an initial aggregate formula price equal to the aggregate
formula price of the Kiewit common stock into which the holder's Kiewit
debenture was convertible at the expiration of the debenture exchange offer. The
Materials debentures will be convertible into shares of Materials common stock
during the same period that the Kiewit debentures were convertible into shares
of Kiewit common stock. The Materials debentures will also be convertible in
other limited circumstances.
Holders of Kiewit convertible debentures who exchange their debentures for
Materials common stock and new reduced principal amount Kiewit convertible
debentures will receive:
- new reduced principal amount Kiewit debentures, bearing interest at the
same rate as the Kiewit convertible debentures for which they were
exchanged and due on October 31, 2010; and
- shares of Materials common stock.
The new Kiewit debenture will be convertible into the same number of shares
of Kiewit common stock as the original Kiewit debentures during the same period
that the original Kiewit debenture was convertible. The principal amount of the
new Kiewit debenture will be the principal amount of the holder's original
Kiewit debenture less the initial formula price of the Materials common stock
received by the holder in the debenture exchange offer. The number of shares of
Materials common stock the holder of a new reduced principal amount Kiewit
debenture will receive will be equal to the number of shares that holder would
have received had he or she converted his or her original Kiewit debenture prior
to the spin-off and received the dividend of Materials common stock in the
spin-off.
Each holder of Kiewit convertible debentures is a party to a repurchase
agreement that requires that the debentures be sold to Kiewit on termination of
the holder's employment with Kiewit or a subsidiary of Kiewit. Following the
completion of the spin-off, Materials employees will no longer be employed by
Kiewit or a subsidiary of Kiewit and will no longer meet the requirements for
owning Kiewit debentures. Therefore, they
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will be required to sell any Kiewit debentures they then own back to Kiewit. The
debenture exchange offer allows debentureholders who are Materials employees the
opportunity to acquire securities of their company and avoid having to sell any
Kiewit debentures they then own back to Kiewit immediately following the spin-
off.
Kiewit debentures do not contain provisions which would enable
debentureholders who are Kiewit employees to participate in the distribution of
shares of Materials common stock in the spin-off or which would adjust the
conversion ratio of the outstanding Kiewit debentures to take into account the
effect of the spin-off. Following the spin-off, the shares of Kiewit common
stock issuable on conversion of the Kiewit debentures will have a lower
aggregate formula price since the formula price for Kiewit common stock
immediately after the spin-off will be reduced by the book value of Materials
distributed as a dividend in the spin-off. The debenture exchange offer allows
debentureholders who are Kiewit employees the opportunity to participate in the
spin-off by receiving Materials common stock and new reduced principal amount
Kiewit debentures.
THE SPIN-OFF
After the completion of the share exchange and the debenture exchange
offer, Kiewit will distribute the shares of Materials common stock it then holds
as a dividend on a pro rata basis to holders of Kiewit common stock in the
spin-off. Kiewit stockholders will receive in the spin-off one share of
Materials common stock for each share of Kiewit common stock held.
EFFECTS
As a result of the spin-off, the share exchange and the debenture exchange
offer, Materials will become a fully independent, separate company. The share
exchange is being made to Kiewit stockholders who are Materials employees who
will cease to be employees of Kiewit or its subsidiary after the spin-off. Those
Materials employees holding Kiewit common stock will be affected by the spin-off
regardless of whether they tender their shares of Kiewit common stock in the
share exchange because, after the spin-off, they will be required to sell their
Kiewit common stock back to Kiewit. Stockholders who participate in the share
exchange will receive shares of Materials common stock in a transaction that is
intended to be tax-free to stockholders for U.S. federal income tax purposes,
but will not receive the dividend of Materials common stock in the spin-off.
Stockholders who do not participate in the share exchange will be required to
sell their Kiewit common stock back to Kiewit for cash in a taxable transaction
immediately following the spin-off at its then formula price, but will receive
the dividend of Materials common stock in the spin-off.
The formula price for Kiewit common stock is determined by reducing the
prior year's adjusted book value by the amount of dividends declared during the
current year. The spin-off will be effected by a dividend of shares of Materials
common stock. Consequently, the formula price for Kiewit common stock
immediately after the spin-off will be reduced by the book value of Materials
distributed as a dividend in the spin-off, in respect of each Kiewit share.
DIVIDEND POLICIES
Materials does not currently intend to pay cash dividends on the Materials
common stock.
Kiewit intends to continue its current dividend policy of paying a regular
cash dividend on its common stock based on a percentage of the prior year's
earnings from operations, with any special cash dividends to be based on
earnings from unusual or non-recurring events.
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OWNERSHIP AND TRANSFER RESTRICTIONS
Holders of Materials common stock are prohibited from transferring the
Materials common stock in any manner except in a sale to Materials and, with
prior approval by the Materials board of directors, to certain authorized
transferees of the holders. Those authorized transferees consist of fiduciaries
for the benefit of the holders and members of the immediate families of the
holders, corporations wholly owned by holders or holders and their spouses
and/or children, fiduciaries for the benefit of such corporations and charities
and fiduciaries for charities designated by any such persons. Upon the death of
a Materials stockholder, the shares of Materials common stock owned by the
deceased stockholder would be permitted to be transferred to his or her estate,
provided that the shares transferred to the transferee would be subject to the
same transfer restrictions. There is no restriction on the maximum amount of
Materials common stock that may be owned by any individual or entity.
Holders of Materials common stock are permitted to pledge the Materials
common stock for loans in connection with the ownership of the Materials common
stock.
In the event that the board of directors decides to conduct an initial
public offering of the Materials common stock, officers and directors of
Materials and stockholders owning one percent or more of the Materials common
stock outstanding at the time of the offering will not be permitted to sell or
otherwise transfer any shares held by them for a period of up to one hundred
eighty days following the offering. In addition to any officers and directors
who may be subject to the 180 day transfer restriction following an initial
public offering, Materials estimates that there may be up to seven additional
stockholders, all of whom are Kiewit employees, who may own 1% or more of
Materials common stock and thus be subject to this transfer restriction.
All transfer restrictions on the Materials common stock may be terminated
by the Materials board at any time.
Kiewit common stock may generally be owned only by directors of Kiewit,
employees of Kiewit and its subsidiaries and, with prior Kiewit board of
directors approval, by certain authorized transferees of such employees (i.e.,
fiduciaries for the benefit of members of the immediate families of employees,
corporations wholly owned by employees or employees and their spouses and/or
children, fiduciaries for the benefit of such corporations, charities, and
fiduciaries for charities designated by any such persons). No more than 10% of
the total Kiewit common stock may be owned by any one employee and certain
transferees at any time.
Each holder of Kiewit common stock is required to execute a repurchase
agreement which provides that a stockholder may offer to sell all or part of the
Kiewit common stock owned by such stockholder to Kiewit at any time at the
current formula price and that Kiewit must accept any such offer. Upon the
tender of a part of such holder's shares of Kiewit common stock, Kiewit is
entitled, at its option, to require the holder to sell any or all remaining
Kiewit common stock held by such holder back to Kiewit. Under the repurchase
agreement, the employee will not be entitled to transfer the shares of Kiewit
common stock held by such employee except in a sale to Kiewit or a transfer to
an authorized transferee (i.e., a charity, etc.). Upon the death, termination of
employment or retirement of such employee, all Kiewit common stock held by the
employee and by such employee's authorized transferees is required to be sold
back to Kiewit.
Holders of Kiewit common stock are permitted to pledge the Kiewit common
stock for loans in connection with the ownership of the Kiewit common stock.
NO APPRAISAL RIGHTS
Because none of the share exchange, the debenture exchange offer or the
spin-off is a merger or consolidation giving rise to appraisal rights under
Section 262 of the Delaware General Corporation Law, no appraisal rights are
available to Kiewit stockholders in connection with these transactions.
21
<PAGE> 26
REGULATORY APPROVALS
Kiewit and Materials do not believe that any material federal or state
regulatory approvals will be necessary to consummate the share exchange, the
debenture exchange offer or the spin-off.
CAPITAL CONTRIBUTIONS TO MATERIALS
Kiewit has made capital contributions to Materials in fiscal year 2000 in
the amount of $50 million. Kiewit will also make a capital contribution to
Materials upon completion of the debenture exchange offer as payment to
Materials for the obligations assumed as a result of the issuance of the
Materials debentures in the debenture exchange offer. Kiewit does not anticipate
making any additional capital contributions to Materials prior to the spin-off.
ACCOUNTING TREATMENT
Share Exchange
The exchange of Materials common stock for Kiewit common stock in the share
exchange will be computed on the basis of their respective formula prices on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by Kiewit as a result of the consummation of the share exchange.
Debenture Exchange Offer
The Materials convertible debentures will be recorded at the same carrying
value as the Kiewit convertible debentures as reflected on Kiewit's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by Kiewit as a result of the consummation of the
debenture exchange offer.
The combined Materials common stock and new reduced principal amount Kiewit
convertible debentures will be recorded at the same carrying value as the Kiewit
convertible debentures as reflected on Kiewit's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by Kiewit as a result of the consummation of the debenture exchange
offer.
Spin-off
Shares of Materials common stock that are distributed in the spin-off will
be accounted for as a dividend through a direct charge to retained earnings. The
amount of the dividend will be equal to Kiewit's carrying value of the shares of
Materials common stock distributed.
After the spin-off, the historical consolidated financial statements of
Kiewit will be retroactively restated, where appropriate, to disaggregate the
historical basis financial information of Materials to present the business of
Materials as discontinued operations. After the spin-off, the business of
Materials will be operated independently from Kiewit and will be reflected in
the separate financial statements of Materials on a historical cost basis.
22
<PAGE> 27
THE SHARE EXCHANGE
TERMS OF THE SHARE EXCHANGE
Kiewit is offering Kiewit stockholders who are Materials employees the
opportunity to exchange their shares of Kiewit common stock for shares of
Materials common stock with an equal aggregate formula price.
The share exchange is being made in connection with a proposal by Kiewit to
separate its construction and its materials businesses into two separate,
independent companies by distributing shares of Materials common stock to Kiewit
stockholders in a spin-off that is intended to be tax-free for U.S. federal
income tax purposes.
Stockholders who choose to participate in the share exchange will receive
shares of Materials common stock with an initial aggregate formula price equal
to the aggregate formula price of the shares of Kiewit common stock tendered in
the share exchange.
The remaining shares of Materials common stock held by Kiewit after the
completion of the share exchange and the debenture exchange offer will be
distributed on a pro rata basis to holders of Kiewit common stock. Although
participants in the share exchange will receive shares of Materials common stock
with an aggregate formula price equal to the aggregate formula price of the
shares of Kiewit common stock exchanged, the actual number of shares of
Materials common stock received for each share of Kiewit common stock tendered
in the share exchange will depend on the actual number of shares of Kiewit
common stock tendered in the share exchange and the result of the debenture
exchange offer. Immediately prior to the completion of the share exchange and
the debenture exchange offer, Materials will effect a stock split so that after
the completion of the share exchange and the debenture exchange offer, there are
a sufficient number of remaining shares to permit Kiewit stockholders to receive
in the spin-off one share of Materials common stock for each share of Kiewit
common stock held.
The share exchange and withdrawal rights will expire on September 14, 2000,
unless extended.
This prospectus and the letter of transmittal are being sent to persons who
were employees of Materials and holders of record of Kiewit common stock at the
close of business on August 14, 2000. As of that date, Kiewit stockholders who
were employees of Materials held 1,081,226 shares of the 33,396,272 shares of
Kiewit common stock outstanding.
We have prepared the following table to illustrate what you would receive
if you participated in the share exchange. The table sets forth Kiewit's
estimate of the number of shares of Materials common stock that will be received
for each share of Kiewit common stock tendered in the share exchange, assuming
that (1) all of the Kiewit common stock held by Materials employees is exchanged
in the share exchange; and (2) fifty percent of the Kiewit common stock held by
Materials employees is exchanged in the share exchange. The following are
examples for illustrative purposes only and may not be indicative of what you
will actually receive if you participate in the share exchange.
<TABLE>
<CAPTION>
ASSUMED ESTIMATED NUMBER ESTIMATED TOTAL
PERCENTAGE OF OF SHARES OF FORMULA PRICE OF
SHARES OF KIEWIT MATERIALS ESTIMATED PER SHARES OF MATERIALS
COMMON STOCK ASSUMED TOTAL COMMON STOCK SHARE FORMULA COMMON STOCK YOU
HELD BY NUMBER OF SHARES PER SHARE PRICE YOU WILL RECEIVE PRICE OF WILL RECEIVE PER
MATERIALS OF KIEWIT OF SHARES OF PER SHARE MATERIALS SHARE OF
EMPLOYEES THAT IS COMMON STOCK KIEWIT COMMON OF KIEWIT COMMON COMMON KIEWIT COMMON
TENDERED FOR TENDERED FOR STOCK TENDERED STOCK TENDERED STOCK YOU STOCK TENDERED FOR
EXCHANGE EXCHANGE FOR EXCHANGE FOR EXCHANGE WILL RECEIVE EXCHANGE
------------------ ------------------- ---------------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
100% 1,081,226 $20.35 2.85 $7.14 $20.35
50% 540,613 $20.35 2.769 $7.35 $20.35
</TABLE>
23
<PAGE> 28
The results in the above table were prepared on the basis of the following:
- Based on 33,396,272 shares of Kiewit common stock outstanding on August 14,
2000, of which 1,081,226 shares were held by Materials employees, and
$13,095,000 in principal of Kiewit convertible debentures outstanding on
August 14, 2000, of which $670,000 were held by Materials employees;
- Assumes that the estimated adjusted book value that will be used in
calculating the Materials formula price would be $259,732,655;
- Assumes that, in the debenture exchange offer, holders of Kiewit convertible
debentures who are employees of Materials exchanged $670,000 principal amount
Kiewit debentures for Materials convertible debentures and other holders of
Kiewit debentures exchanged $12,425,000 principal amount Kiewit debentures for
new reduced principal amount Kiewit convertible debentures and shares of
Materials common stock;
- Assumes a formula price for Kiewit common stock immediately prior to the
spin-off of $20.35 per share, the formula price as of August 14, 2000; and
- Assumes a formula price for Materials common stock of (1) $7.14 per share if
all of the Kiewit common stock held by Materials employees is tendered in the
share exchange; and (2) $7.35 if fifty percent of the Kiewit common stock held
by Materials employees is tendered in the share exchange.
NO FRACTIONAL SHARES
As an administrative and cost-saving convenience, no fractional shares of
Materials common stock will be issued in the share exchange. To the extent
fractional shares of Materials common stock would otherwise be issued to holders
of Kiewit common stock in the share exchange, Kiewit will apply a convention
whereby such fractional shares are rounded to whole shares without affecting the
total number of shares of Materials common stock. For this purpose, Kiewit will
calculate the aggregate number of shares of Materials common stock that would
otherwise be issuable as fractional shares. Of such number of shares, one whole
share will be distributed to each holder of Kiewit common stock who would
otherwise be entitled to receive fractional shares of the stock, in the order of
the magnitude of the fractions, until all of those shares have been distributed.
The remaining holders of Kiewit common stock will not be entitled to receive any
consideration in respect of the fractional shares otherwise issuable to them.
FORMULA PRICE
The formula price of Kiewit common stock is the per share price at which
Kiewit buys and sells shares of its common stock and is based on the adjusted
book value of Kiewit at the end of the previous year less the amount of declared
dividends during the current year. The formula price of Kiewit common stock on
August 14, 2000 was $20.35 per share. The Kiewit formula price will be reduced
in the event Kiewit pays a cash dividend prior to the completion of the share
exchange.
The formula price of Materials common stock is the per share price at which
Materials will buy shares of its common stock and is based on the adjusted book
value of Materials at the end of the previous year less the amount of declared
dividends during the current year. In addition to any adjustments for declared
dividends during the current year, the initial formula price for Materials
common stock is also adjusted for the amount of any capital contributions made
by Kiewit to Materials during fiscal year 2000 prior to the spin-off, other than
with respect to amounts contributed in connection with the issuance of Materials
debentures in the debenture exchange offer.
TRANSFER RESTRICTIONS
The Materials common stock will be subject to substantial transfer
restrictions. Specifically, holders of Materials common stock will be prohibited
from transferring the Materials common stock in any manner except in a sale to
Materials or in a transfer for estate planning purposes that meets specified
requirements. Upon the death of a Materials stockholder, the shares of Materials
common stock owned by the deceased
24
<PAGE> 29
stockholder will be permitted to be transferred to his or her estate, provided
that the shares transferred to the transferee will be subject to the same
transfer restrictions. However, unlike Kiewit common stock, Materials
stockholders will not be required to sell their Materials common stock back to
Materials upon their retirement or other termination of their employment with
Materials or Kiewit, as the case may be. All transfer restrictions may be
terminated by the Materials board at any time.
Holders of Materials common stock are permitted to pledge their Materials
common stock for loans in connection with ownership of the Materials common
stock.
DETERMINING TO PARTICIPATE IN THE SHARE EXCHANGE
Whether you should participate in the share exchange depends on whether you
would prefer to sell your shares of Kiewit common stock back to Kiewit for cash
following the spin-off or exchange them for shares of Materials common stock. If
you participate in the share exchange, you will receive shares of Materials
common stock in a transaction that is intended to be tax-free to stockholders
for U.S. federal income tax purposes, but you will not receive the Materials
common stock being distributed to Kiewit stockholders as a dividend in the
spin-off. If you do not participate in the share exchange, you will be required
to sell your Kiewit common stock back to Kiewit for cash in a taxable
transaction at the then current formula price, but you will receive the dividend
of Materials common stock in the spin-off.
You should consider all of the factors described under "Risk Factors"
starting at page 11. Neither Kiewit, Materials nor any of their respective
directors make any recommendation as to whether you should tender your shares of
Kiewit common stock. You must make your own decision as to whether to tender
your shares of Kiewit common stock after reading this document and consulting
with your advisors based on your own financial position and requirements.
EXCHANGE OF SHARES OF KIEWIT COMMON STOCK
If all of the conditions to the share exchange are met, Kiewit will accept
for exchange shares of Kiewit common stock that have been validly tendered and
not properly withdrawn or deemed withdrawn prior to the expiration date, except
as described in "-- Extension of Tender Period; Termination; Amendment" on page
27. Kiewit may, subject to the rules under the Securities Act, delay accepting
or exchanging any shares of Kiewit common stock in order to comply in whole or
in part with any applicable law. For a description of Kiewit's right to delay,
terminate or amend the share exchange, see "-- Extension of Tender Period;
Termination; Amendment" on page 27.
Holders who tender their shares of Kiewit common stock for exchange will
generally not be obligated to pay any transfer tax in connection with the share
exchange. However, if the payment of any stock transfer taxes is required,
tendering stockholders will be responsible for the payment of those taxes.
Kiewit will not pay interest under the share exchange, regardless of any delay
in making the exchange or crediting or delivering shares.
PROCEDURES FOR TENDERING SHARES OF KIEWIT COMMON STOCK
To tender your shares of Kiewit common stock, you must send to Kiewit, by
registered mail, return receipt requested, the following documents to be
received by Kiewit before the expiration date for the share exchange:
- a completed and executed letter of transmittal indicating the number of
shares of Kiewit common stock to be tendered and any other documents
required by the letter of transmittal; and
- the actual certificates representing the shares of Kiewit common stock.
Kiewit's address is listed on the back cover of this document.
25
<PAGE> 30
If Kiewit common stock has been pledged to a lender, the registered holder
of the pledged Kiewit common stock must make appropriate arrangements with the
lender for the valid tender of the certificates representing the pledged Kiewit
common stock. If, however, the lender is Enterprise Bank, N.A. or U.S. Bank,
N.A., Kiewit will arrange directly with the bank for the delivery of the pledged
certificates to Kiewit. Kiewit will deliver the Materials common stock issued in
exchange for Kiewit common stock directly to any lending institution to which
the Kiewit common stock was pledged if so directed by the registered holder of
the pledged stock in the holder's letter of transmittal. If the Kiewit common
stock received in exchange for the tendered Kiewit common stock is to be
delivered to a lender other than Enterprise Bank, N.A. or U.S. Bank, N.A., the
letter of transmittal must state with specificity the necessary information,
including the name, address and contact person of the lender, to effect the
delivery. If a holder of pledged Kiewit common stock does not designate the
lending institution to which the Materials common stock received in exchange for
tendered Kiewit common stock is to be delivered, Kiewit may deliver the
Materials common stock to the exchanging stockholder, but reserves the right to
deliver the stock directly to a lending institution if Kiewit believes in good
faith that the lending institution is entitled to receive the Materials common
stock under a borrowing arrangement with the exchanging stockholder.
Persons who have pledged Kiewit common stock to a lender and who are
considering participation in the share exchange should consult with the lender
as to the effect of the share exchange on their loan arrangements.
LOST OR DESTROYED CERTIFICATES
If any certificate representing shares of Kiewit common stock has been
mutilated, destroyed, lost or stolen, the stockholder must:
- furnish to Kiewit evidence, satisfactory to it in its discretion, of the
ownership of and the destruction, loss or theft of the certificate;
- furnish to Kiewit indemnity, satisfactory to it in its discretion; and
- comply with any other reasonable regulations Kiewit may prescribe.
KIEWIT'S INTERPRETATIONS ARE BINDING
Kiewit will determine at its own discretion all questions as to the form of
documents, including notices of withdrawal, and the validity, form, eligibility,
including time of receipt, and acceptance for exchange of any tender of shares
of Kiewit common stock. This determination will be final and binding on all
tendering stockholders. However, a tendering stockholder who disagrees with an
interpretation by Kiewit may seek recourse under state law, to the extent that
any such recourse is available. Kiewit reserves the right to:
- reject any and all tenders of any shares of Kiewit common stock not
properly tendered;
- waive any defects or irregularities in the tender of shares of Kiewit
common stock or any conditions of the share exchange either before or
after the expiration date; and
- request any additional information from any Kiewit stockholder that
Kiewit deems necessary.
Neither Kiewit nor Materials will be under any duty to notify tendering
stockholders of any defect or irregularity in tenders or notices of withdrawal.
26
<PAGE> 31
WITHDRAWAL RIGHTS
You may withdraw tenders of shares of Kiewit common stock at any time prior
to the expiration date and, unless Kiewit has accepted your tender as provided
in this document, after the expiration of 40 business days from the commencement
of the share exchange. If Kiewit:
- delays its acceptance of shares of Kiewit common stock tendered for
exchange;
- extends the share exchange; or
- is unable to accept shares of Kiewit common stock tendered for exchange
under the share exchange for any reason,
then, without prejudice to Kiewit's rights under the share exchange, Kiewit may
retain shares of Kiewit common stock tendered, and those shares of Kiewit common
stock may not be withdrawn except as provided in the immediately preceding
sentence, subject to provisions under the Securities Exchange Act that provide
that an issuer making a share exchange shall either pay the consideration
offered or return tendered securities promptly after the termination or
withdrawal of the share exchange.
For a withdrawal to be effective, a written notice of withdrawal must be
received by Kiewit at its address set forth on the back cover of this document.
The notice of withdrawal must:
- specify the name of the person having tendered the shares of Kiewit
common stock to be withdrawn; and
- identify the number of shares of Kiewit common stock to be withdrawn.
If certificates for the shares of Kiewit common stock have been delivered
or otherwise identified to Kiewit, then, before the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn, and a signed notice of withdrawal with
signatures guaranteed by an eligible institution, unless the holder is an
eligible institution.
Any shares of Kiewit common stock withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the share exchange. Properly
withdrawn shares may be retendered by following one of the procedures described
under "-- Procedures for Tendering Shares of Kiewit Common Stock" above at any
time on or before the expiration date.
Except as otherwise provided above, any tender of shares of Kiewit common
stock made under the share exchange is irrevocable.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
Kiewit expressly reserves the right, in its discretion, for any reason,
including the non-satisfaction of the conditions for completion set forth below,
to extend the period of time during which the share exchange is open or to amend
the share exchange in any respect.
If Kiewit materially changes the terms of or information concerning the
share exchange, Kiewit will extend the share exchange. The SEC has stated that,
as a general rule, it believes that an offer should remain open for a minimum of
five business days from the date that notice of the material change is first
given. The actual length of time will depend on the particular facts and
circumstances. Subject to the preceding paragraph, the share exchange will be
extended so that it remains open for a minimum of ten business days following
the announcement if:
- Kiewit changes the exchange ratio, the number of Kiewit shares eligible
for exchange or imposes a minimum condition; or
- the share exchange is scheduled to expire within ten business days of
announcing a material change.
27
<PAGE> 32
If the conditions indicated in the next section have not been met, Kiewit
reserves the right, in its sole discretion, so long as shares of Kiewit common
stock have not been accepted for exchange, to delay acceptance for exchange of
or exchange for any shares of Kiewit common stock or to terminate the share
exchange and not accept for exchange any shares of Kiewit common stock.
If Kiewit extends the share exchange, is delayed in accepting any shares of
Kiewit common stock or is unable to accept for exchange any shares of Kiewit
common stock under the share exchange for any reason, then, without affecting
Kiewit's rights under the share exchange, it may retain all shares of Kiewit
common stock tendered. These shares of Kiewit common stock may not be withdrawn
except as provided in "-- Withdrawal Rights" above. Kiewit's reservation of the
right to delay acceptance of any shares of Kiewit common stock is subject to
applicable law, which requires that Kiewit pay the consideration offered or
return the shares of Kiewit common stock deposited promptly after the
termination or withdrawal of the share exchange.
Kiewit will issue a press release or other public announcement no later
than 9:00 a.m., Omaha time, on the next business day following any extension,
amendment, non-acceptance or termination of the previously scheduled expiration
date.
CONDITIONS TO THE SHARE EXCHANGE
Kiewit has received a ruling from the IRS confirming that, based on certain
factual representations by Kiewit and Materials, the share exchange, the
debenture exchange offer and the spin-off generally will be tax-free
transactions for U.S. federal income tax purposes. The ruling is based, in part,
on those Kiewit stockholders who are key Materials employees obtaining a
meaningful increase in their percentage ownership of Materials as a result of
the share exchange. If the Kiewit board of directors determines at any time that
Kiewit may be unable to rely on the ruling or that the ruling is not otherwise
in effect, Kiewit would not complete the share exchange.
Kiewit expressly reserves the right to abandon the share exchange and not
accept for exchange any shares of Kiewit common stock if the Kiewit board of
directors reasonably determines that any material change in the business,
financial condition, results of operations or prospects of Kiewit or Materials
has occurred, or in any other circumstance, and that, as a result, completion of
the share exchange would no longer be in the best interest of Kiewit and its
stockholders. Kiewit also expressly reserves the right to abandon the debenture
exchange offer. If Kiewit abandons either the share exchange or the debenture
exchange offer, it will not complete the spin-off or the other exchange. Kiewit
also reserves the right to abandon the spin-off at any time prior to the
completion of the debenture exchange offer and the share exchange. If Kiewit
abandons the spin-off, it will not complete the share exchange or the debenture
exchange offer.
Kiewit also expressly reserves the right, at any time or from time to time,
whether or not the conditions to the share exchange have been satisfied, (1) to
extend the expiration date or (2) if the Kiewit board of directors determines
for any reason that such action would be in the best interest of Kiewit and its
stockholders, to modify the share exchange in any respect, by giving written
notice of such extension or modification to Kiewit stockholders.
If Kiewit abandons the share exchange, it will return all tendered shares
of Kiewit common stock to the tendering stockholders promptly after the
termination of the share exchange.
28
<PAGE> 33
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
DATA OF KIEWIT
The following table presents selected historical and pro forma financial
data of Kiewit. The historical income statement information as of and for each
of the fiscal years ended 1997 through 1999, and historical balance sheet
information for each of the fiscal years ended 1998 and 1999, is derived from
Kiewit's historical consolidated financial statements and the notes to those
financial statements included elsewhere in this prospectus. The balance sheet
information as of the fiscal years ended 1995, 1996 and 1997 and the income
statement information for the fiscal years ended 1995 and 1996 were derived from
audited consolidated financial statements not included in this document. The
historical information for the six months ended June 30, 1999 and June 30, 2000
is derived from the unaudited consolidated condensed financial statements
included elsewhere in this prospectus which, in the opinion of management,
reflect all adjustments, which are of a recurring nature necessary to present
fairly the financial position and results of operations and cash flows for the
interim periods. Results for the six months ended June 30, 1999 and June 30,
2000 are not necessarily indicative of the results of operations to be expected
for the full fiscal year.
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------
SIX MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------ -----------------
1995 1996 1997 1998 1999 6/30/99 6/30/00
---- ---- ---- ---- ---- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue...................... $2,330 $2,303 $2,742 $3,379 $4,013 $1,769 $2,396
Net Earnings................. 104 108 155 136 165 47 64
Per Common Share:
Net Earnings
Basic...................... 1.95 2.53 4.00 4.07 4.81 1.39 2.01
Diluted.................... 1.91 2.44 3.84 4.02 4.71 1.36 1.95
Dividends(4)................. 0.26 0.33 0.38 0.43 0.52 0.475 0.55
Stock Price(5)............... 8.10 10.18 12.80 15.90 20.63 15.65 20.35
Book Value................... 10.73 12.76 16.10 19.35 24.01 20.54 26.05
Financial Position:
Total Assets................. 978 1,039 1,342 1,379 1,599 1,455 1,645
Current Portion of Long-term
Debt....................... 2 -- 5 8 4 9 2
Long-term Debt, Net of
Current Portion............ 9 12 22 13 18 13 18
Redeemable Common Stock(6)..... 467 562 652 691 837 720 829
<CAPTION>
PRO FORMA(1)(2)(3)
-------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
12/25/99 6/30/00
----------------------- -----------------------
SCENARIO 1 SCENARIO 2 SCENARIO 1 SCENARIO 2
---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Results of Operations:
Revenue...................... $3,586 $3,586 $2,174 $2,174
Net Earnings................. 139 139 54 54
Per Common Share:
Net Earnings
Basic...................... 4.20 4.20 1.75 1.75
Diluted.................... 4.11 4.11 1.70 1.70
Dividends(4)................. 0.52 0.52 -- --
Stock Price(5)............... 14.75 14.40 14.55 14.25
Book Value................... 18.16 17.74 18.39 18.07
Financial Position:
Total Assets................. 1,291 1,280 1,287 1,276
Current Portion of Long-term
Debt....................... 3 3 1 1
Long-term Debt, Net of
Current Portion............ 7 10 5 4
Redeemable Common Stock(6)..... 603 589 566 556
</TABLE>
---------------
(1) Completion of the share exchange, the debenture exchange offer and the
spin-off has been assumed to be as of December 26, 1998 in the pro forma
results of operations data for the year ended December 25, 1999 and the six
months ended June 30, 2000 and as of June 30, 2000 in the pro forma
financial position data.
(2) The pro forma results of operations, per common share and financial position
data assume the earnings statement and balance sheet accounts of Materials
have been removed, the share exchange, the debenture exchange offer and the
spin-off have been completed, and Kiewit has made a $50 million capital
contribution to Materials.
(3) The pro forma results of operations are based upon ownership information of
Kiewit securities as of June 30, 2000 and assume that (i) in Scenario 1, (a)
all Materials employees who hold shares of Kiewit common stock and Kiewit
convertible debentures exchanged their Kiewit shares in the share exchange
and their Kiewit debentures for Materials debentures in the debenture
exchange offer, and (b) all Kiewit employees who hold Kiewit debentures
exchanged them for new reduced principal amount Kiewit debentures and shares
of Materials common stock in the debenture exchange offer, and (ii) in
Scenario 2, (a) those Materials employees exchanged 50% of their Kiewit
shares in the share exchange with the other 50% of their Kiewit shares being
sold back to Kiewit for cash immediately after the spin-off and exchanged
50% of the principal amount of their Kiewit debentures for Materials
debentures in the debenture exchange offer with the other 50% of the
principal amount of their Kiewit debentures being
29
<PAGE> 34
sold back to Kiewit for cash immediately after the spin-off, and (b) all
Kiewit employees who hold Kiewit debentures exchanged them for new reduced
principal amount Kiewit debentures and shares of Materials common stock in
the debenture exchange offer.
(4) The 1995, 1996, 1997, 1998 and 1999 Kiewit dividends include $.15, $.175,
$.20, $.225 and $.27 for dividends declared in those years, respectively,
but paid in January of the subsequent year.
(5) Pursuant to Kiewit's restated certificate of incorporation, the formula
price calculation is calculated annually at the end of the fiscal year,
except that adjustments to reflect dividends are made when declared.
(6) Ownership of Kiewit common stock is restricted to employees conditioned upon
the execution of repurchase agreements which restrict employees from
transferring the stock. Kiewit is generally required to purchase all of its
common stock at the formula price. The aggregate redemption value of Kiewit
common stock at June 30, 2000 was $648 million.
30
<PAGE> 35
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
DATA OF MATERIALS
The following table presents selected historical and pro forma financial
data of Materials. The historical income statement information as of and for
each of the fiscal years ended 1997 through 1999, and historical balance sheet
information for each of the fiscal years ended 1998 and 1999, is derived from
Materials' historical consolidated financial statements and the notes to those
financial statements included elsewhere in this prospectus. The balance sheet
information as of the fiscal years ended 1995, 1996 and 1997 and the income
statement information for the fiscal years ended 1995 and 1996 were derived from
audited consolidated financial statements not included in this document. The
historical information for the six months ended June 30, 1999 and June 30, 2000
is derived from the unaudited consolidated condensed financial statements
included elsewhere in this prospectus which, in the opinion of management,
reflect all adjustments, which are of a recurring nature necessary to present
fairly the financial position and results of operations and cash flows for the
interim periods. Results for the six months ended June 30, 1999 and June 30,
2000 are not necessarily indicative of the results of operations to be expected
for the full fiscal year.
For all historical periods presented, Materials operated as a part of
Kiewit. Because Materials did not operate as an independent company during these
periods, the data may not reflect the results of operations or the financial
condition which would have resulted if Materials had operated as a separate,
independent company. In addition, the data may not necessarily be indicative of
Materials' future results of operations or financial position.
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 6/30/99 6/30/00
---- ---- ---- ---- ---- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of
Operations:
Revenue............. $233,068 $246,083 $277,309 $333,060 $437,058 $208,747 $227,471
Net Earnings........ 13,161 14,204 16,542 15,378 25,828 8,196 10,382
Per Common Share:
Net Earnings
Basic............. 131,609 142,043 165,423 153,783 258,280 81,961 103,823
Diluted........... 131,609 142,043 165,423 153,783 258,280 81,961 103,823
Dividends(4)........ 80,975 143,553 39,700 -- -- -- --
Book Value.......... 915,115 986,516 1,216,306 1,392,870 2,097,326 1,928,479 2,199,871
Financial Position:
Total Assets........ 133,882 152,771 181,699 207,054 276,891 257,130 306,747
Current Portion of
Long-term Debt.... -- -- 387 740 562 432 571
Long-term Debt, Net
of Current
Portion........... -- -- 1,492 761 3,753 2,675 5,231
Stockholders'
Equity............ 91,512 98,652 121,631 139,287 209,733 192,848 219,987
<CAPTION>
PRO FORMA (1)(2)(3)
-------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
12/25/99 6/30/00
----------------------- -----------------------
SCENARIO 1 SCENARIO 2 SCENARIO 1 SCENARIO 2
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Results of
Operations:
Revenue............. $437,058 $437,058 $227,471 $227,471
Net Earnings........ 25,793 25,811 10,364 10,374
Per Common Share:
Net Earnings
Basic............. 0.65 0.72 0.30 0.31
Diluted........... 0.67 0.72 0.30 0.31
Dividends(4)........ -- -- -- --
Book Value.......... 2,401,350 2,399,410 7.81 8.16
Financial Position:
Total Assets........ 307,963 307,434 357,791 357,269
Current Portion of
Long-term Debt.... 562 562 571 571
Long-term Debt, Net
of Current
Portion........... 4,423 4,088 5,901 5,566
Stockholders'
Equity............ 240,135 239,941 270,361 270,174
</TABLE>
---------------
(1) Completion of the share exchange, the debenture exchange offer and the
spin-off has been assumed to be as of December 26, 1998 in the pro forma
results of operations data for the year ended December 25, 1999 and six
months ended June 30, 2000 and as of June 30, 2000 in the pro forma
financial position data.
(2) The pro forma results of operations, per common share and financial position
data assume the share exchange, the debenture exchange offer and the
spin-off have been completed, and that Kiewit has made a $50 million capital
contribution to Materials.
(3) The pro forma results of operations are based upon ownership information of
Kiewit securities as of June 30, 2000 and assume that (i) in Scenario 1, (a)
all Materials employees who hold shares of Kiewit common stock and Kiewit
convertible debentures exchanged their Kiewit shares in the share exchange
and their Kiewit debentures for Materials debentures in the debenture
exchange offer, and (b) all Kiewit employees who hold Kiewit debentures
exchanged them for new reduced principal Kiewit debentures and shares of
31
<PAGE> 36
Materials common stock in the debenture exchange offer, and (ii) in Scenario
2, (a) those Materials employees exchanged 50% of their Kiewit shares in the
share exchange with the other 50% of their Kiewit shares being sold back to
Kiewit for cash immediately after the spin-off and exchanged 50% of the
principal amount of their Kiewit debentures for Materials debentures in the
debenture exchange offer with the other 50% of the principal amount of their
Kiewit debentures being sold back to Kiewit for cash immediately after the
spin-off, and (b) all Kiewit employees who hold Kiewit debentures exchanged
them for new reduced principal Kiewit debentures and shares of Materials
common stock in the debenture exchange offer.
(4) The 1996 dividends include $100,000 for dividends declared in 1996, but paid
in January of the subsequent year. The 1995 and 1996 dividends per share
include $40,975 and $3,553 of non-cash dividends, respectively.
32
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF KIEWIT
The following discussion is based upon and should be read in conjunction
with Kiewit's Consolidated Financial Statements, including the notes thereto,
included elsewhere in this offering circular-prospectus. Kiewit became an
independent company in March 1998 when Level 3 Communications, Inc., then known
as "Peter Kiewit Sons', Inc.", separated its construction and materials
businesses from its other businesses in a spin-off. As a result of that
transaction, Kiewit holds Level 3's former construction and materials businesses
and Level 3 continues to hold the other businesses.
Management has proposed to separate its materials and construction
businesses in the form of a spin-off. Consequently, in the event that the
spin-off is effected, Kiewit will no longer have any interest in its materials
operations. The materials operations will be owned and operated solely by
Materials. The spin-off will result in a decrease in equity, revenue and net
income for Kiewit, but it is not expected to have an adverse impact on the
future liquidity of Kiewit. The construction operations have historically
generated cash flows sufficient to fund their operations, and this trend is
expected to continue.
RESULTS OF OPERATIONS -- SECOND QUARTER 2000 VS. SECOND QUARTER 1999
Revenue from each of Kiewit's segments was (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30,
--------------
2000 1999
------ ----
<S> <C> <C>
Construction........................................ $1,189 $887
Materials........................................... 124 109
------ ----
$1,313 $996
====== ====
</TABLE>
Included in the construction segment are construction revenues and margins
earned by two Materials subsidiaries which perform construction in addition to
their materials operations. Those subsidiaries had $2.7 million of construction
revenue in the second quarter of 2000 and $3.7 million of construction revenue
in the second quarter of 1999.
Construction. Construction revenue for the second quarter of 2000
increased $302 million or 34% from the same period in 1999. The most significant
factor contributing to this increase was a large fiber optic project where
installation was being performed only in selected locations during the second
quarter of 1999 as compared to nationwide installation being performed during
the second quarter of 2000.
Contract backlog at June 30, 2000 was $3.8 billion, of which 4.5% is
attributable to foreign operations located in Canada. Domestic projects are
spread geographically throughout the U.S.
Margins, as a percentage of revenue, for the second quarter of 2000
increased to 7.9% compared to 7.2% for the same period in 1999. Margins may vary
between periods due to the inherent uncertainties associated with fixed price
contracts, as well as seasonality and the stage of completion of individual
projects.
Materials. Revenues increased $15 million or 14% in the second quarter of
2000 to $124 million, as compared to $109 million for the same period in 1999.
The increase is comprised of a 3% increase in average selling prices, a 4%
increase in unit volumes and the inclusion of additional revenues of $7 million
from acquired companies. Unit volumes were greater for both ready mix concrete
and aggregates which were mitigated by a decline in asphalt sales. Asphalt sales
declined, as Kiewit became more selective in supplying the market in an effort
to improve product margins.
Margins increased to 10% in the second quarter of 2000 as compared to 8%
for the same period in 1999. The increased unit volumes and average selling
prices were responsible for the improved margins.
33
<PAGE> 38
General and Administrative Expenses. General and administrative expenses
for the second quarter of 2000 increased $12 million to $44 million when
compared to the same period in 1999. The increase was attributed to increased
compensation and travel costs. As a percentage of revenue, general and
administrative expenses increased from 3.2% in the second quarter of 1999 to
3.4% for the same period in 2000.
Investment Income and Equity Earnings. Investment income for the second
quarter of 2000 increased $1 million to $4 million as compared to the same
period in 1999. An increase in interest income, due to higher interest rates,
was responsible for the improved results.
Other, net. Other income is comprised primarily of mine management fee
income from Level 3 and gains and losses on the disposition of property, plant
and equipment and other assets.
Kiewit manages three active coal mines for Level 3. Fees for these services
for the second quarter 2000 were $8 million as compared to $7 million for the
same period in 1999. The increase is due to timing of revenues generated from a
coal customer. Kiewit's fee is a percentage of adjusted operating earnings of
the coal mines, as defined in the mine management agreement with Level 3. The
mines managed by Kiewit for Level 3 earn the majority of their revenues under
long-term contracts. The remainder of the mines' sales are made on the spot
market where prices are substantially lower than those of the long-term
contracts. After a significant long-term contract expires in 2000, adjusted
operating earnings at the mines will decrease substantially, thereby decreasing
the annual management fee earned by Kiewit to approximately $6 million in 2001.
Additionally, the Minerals Management Service and Montana Department of
Revenue have issued separate assessments to the Level 3 mines for the
underpayment of royalties and production taxes. On May 9, 2000, the Montana
Supreme Court issued an order dismissing the assessment of the Montana
Department of Revenue. Level 3 is vigorously contesting the Minerals Management
Service assessment. If Level 3 is ultimately required to pay the Minerals
Management Service assessment of approximately $18.9 million, of which $9.3
million is principal and $9.6 million is interest, the payment would decrease
future mine management fees in total by as much as $2.8 million, but will not
affect fees previously received.
Net gains on the disposition of property, plant and equipment and other
assets increased to $7 million in the second quarter of 2000 from $6 million in
the same period in 1999. The decrease is due to additional sales of excess
construction equipment.
Provision for income taxes. The effective income tax rates during the
second quarter of 2000 and 1999 were 40%. These rates differ from the federal
statutory rate of 35% primarily due to state income taxes.
RESULTS OF OPERATIONS -- SIX MONTHS 2000 VS. SIX MONTHS 1999
Revenue from each of Kiewit's segments was (in millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
2000 1999
------ ------
<S> <C> <C>
Construction....................................... $2,180 $1,569
Materials.......................................... 216 200
------ ------
$2,396 $1,769
====== ======
</TABLE>
Included in the construction segment are construction revenues and margins
earned by two Materials subsidiaries which perform construction in addition to
their materials operations. Those subsidiaries had $6.6 million of construction
revenue for the first six months of 2000 and $9.5 million of construction
revenue for the first six months of 1999.
Construction. Construction revenue for the first six months of 2000
increased $611 million or 39% from the same period in 1999. The most significant
factor contributing to this increase was a large fiber optic project where
installation work was being performed only in selected locations during the
first six months of 1999 as compared to nationwide installation during the first
six months of 2000.
34
<PAGE> 39
Margins, as a percentage of revenue, for the first six months of 2000
increased to 6.4% compared to 6.3% for the same period in 1999. Margins may vary
between periods due to the inherent uncertainties associated with fixed price
contracts, as well as seasonality and the stage of completion of individual
projects.
Materials. Materials revenues increased $16 million or 8% in the first six
months of 2000 to $216 million, as compared to $200 million in the same period
of 1999. The increase is primarily due to a 3% increase in average selling
prices and the inclusion of additional revenues of $17 million from acquired
companies. Offsetting the increases were declines in unit volumes of asphalt
sales. Asphalt sales declined, as Kiewit became more selective in supplying the
market in an effort to improve product margins.
Margins remained consistent between the first six months of 2000 and the
same period of 1999. Higher margin sales from acquired companies, a higher
average selling price and a more selective approach to supplying asphalt demand
were offset by increases in asphalt oil costs and higher fuel prices.
General and Administrative Expenses. General and administrative expenses
for the first six months of 2000 increased $14 million to $89 million when
compared to the same period in 1999. The increase was attributed to increased
compensation and travel costs. As a percentage of revenue, general and
administrative expenses decreased from 4.2% in the first six months of 1999 to
3.7% in the same period of 2000 as a proportionate increase in administrative
costs was not necessary to support Kiewit's revenue growth.
Investment Income and Equity Earnings. Investment income for the first six
months of 2000 increased $3 million to $10 million as compared to the same
period in 1999. An increase in interest income, due to higher interest rates,
was responsible for the improved results.
Other, net. Other income is primarily comprised of mine management fee
income from Level 3 and gains and losses on the disposition of property, plant
and equipment and other assets.
Kiewit manages three active coal mines for Level 3. Fees for these services
for the first six months of 2000 were $16 million as compared to $14 million for
the same period in 1999. The increase is due to timing of revenues generated
from a customer. Kiewit's fee is a percentage of adjusted operating earnings of
the coal mines, as defined in the mine management agreement with Level 3. The
mines managed by Kiewit for Level 3 earn the majority of their revenues under
long-term contracts. The remainder of the mines' sales are made on the spot
market where prices are substantially lower than those of the long-term
contracts. After a significant long-term contract expires in 2000, adjusted
operating earnings at the mines will decrease substantially, thereby decreasing
the annual management fee earned by Kiewit to approximately $6 million in 2001.
Additionally, the Minerals Management Service and Montana Department of
Revenue have issued separate assessments to the Level 3 mines for the
underpayment of royalties and production taxes. On May 9, 2000, the Montana
Supreme Court issued an order dismissing the assessment of the Montana
Department of Revenue. Level 3 is vigorously contesting the Minerals Management
Service assessment. If Level 3 is ultimately required to pay the Minerals
Management Service assessment of approximately $18.9 million, of which $9.3
million is principal and $9.6 million is interest, the payment would decrease
future mine management fees in total by as much as $2.8 million, but will not
affect fees previously received.
Net gains on the disposition of property, plant and equipment and other
assets decreased to $11 million for the first six months of 2000 from $13
million in the same period in 1999. The decrease is due to a decline in sales of
excess construction equipment.
Provision for income taxes. The effective income tax rates for the first
six months of 2000 and 1999 were 40%. These rates differ from the federal
statutory rate of 35% primarily due to state income taxes.
35
<PAGE> 40
RESULTS OF OPERATIONS -- 1999 VS. 1998
Revenue from each of Kiewit's segments was (in millions):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Construction....................................... $3,594 $3,057
Materials.......................................... 419 322
------ ------
$4,013 $3,379
====== ======
</TABLE>
Included in the construction segment are construction revenues and margins
earned by two Materials subsidiaries which perform construction in addition to
their materials operations. Those subsidiaries had $16.6 million of construction
revenue in 1999 and $10.6 million of construction revenue in 1998.
During 1998, the materials segment included revenues of $6 million and
losses of $3 million from the Oak Mountain coal operations venture, which were
disposed of during 1998.
Construction. Revenues for the construction business increased $537
million or 18% from the same time period in 1998. The increase is due to
favorable market conditions in the business sectors that Kiewit operates.
Construction backlog at December 25, 1999 was nearly $4 billion, of which
6% was attributable to foreign operations located primarily in Canada. Domestic
projects are spread geographically throughout the U.S.
Margins on construction projects as a percentage of revenue for the twelve
months ended December 25, 1999 were consistent with margins in the same period
in 1998, increasing from 8.6% to 8.7%.
Materials. Revenues for the materials business increased $97 million or
30% from the same time period in 1998. The consolidation of Pacific Rock
Products, L.L.C. in 1999 contributed $54 million of the increase. A continued
strong market for materials products in the Southwest that resulted in
additional unit sales of asphalt, ready mix and aggregates accounted for 80% of
the balance of the increase. The remaining 20% of the balance of the increase
resulted from increased selling prices.
Materials margins increased from 7% to 11% when compared to the same time
period in 1998. The consolidation of Pacific Rock combined with the elimination
of $3 million in losses taken in 1998 for the Oak Mountain coal operations
contributed to the increase.
General and Administrative Expenses. General and administrative expenses
for the twelve months ended December 25, 1999 were consistent with 1998,
increasing from $142 million to $144 million.
Investment Income and Equity Earnings, Net. During 1999, Kiewit determined
that the decline in market value of an investment security was
other-than-temporary. This investment was written down to the current market
value and a loss of $18 million was recognized in the Statement of Earnings.
This investment had previously been carried at market value and the write-down
had been recorded as an unrealized loss as a separate component of other
comprehensive income. As a result, this write-down had no effect on total
comprehensive income or total redeemable common stock. Subsequent changes in the
market value of the security will be included as a separate component of
comprehensive income.
Other, net. Other income is primarily comprised of mine management fee
income from Level 3 and gains and losses on the disposition of property, plant
and equipment and other assets.
Kiewit manages 3 active coal mines for Level 3. Fees for these services
were $33 million in 1999 compared to $34 million in 1998. Kiewit's fee is a
percentage of adjusted operating earnings of the coal mines. The mines managed
by Kiewit for Level 3 earn the majority of their revenues under long-term
contracts. The remainder of the mines' sales are made on the spot market where
prices are substantially lower than those of the long-term contracts. After a
significant long-term contract expires next year, adjusted operating earnings at
the mines will decrease substantially, thereby similarly decreasing the
management fee earned by Kiewit to approximately $6 million in 2001.
36
<PAGE> 41
Additionally, the Minerals Management Service and Montana Department of
Revenue have issued assessments to the Level 3 mines for the underpayment of
royalties and production taxes. The assessment of the Montana Department of
Revenue was dismissed on May 9, 2000. Level 3 is vigorously contesting the
Minerals Management Service assessment. If Level 3 pays the Minerals Management
Service assessment, the payment could materially decrease future mine management
fees, but will not affect fees previously received.
Net gains on the disposition of property, plant and equipment were $20
million for each of 1999 and 1998.
Provision for Income Taxes. The effective income tax rates in 1999 and
1998 differ from the federal statutory rate of 35% due primarily to state income
taxes. The effective income tax rates for 1999 and 1998 were 37.6% and 36.2%,
respectively.
RESULTS OF OPERATIONS -- 1998 VS. 1997
Revenue from Kiewit's segments for the twelve months ended December 26,
1998 and December 27, 1997 was (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Construction....................................... $3,057 $2,474
Materials.......................................... 322 268
------ ------
$3,379 $2,742
====== ======
</TABLE>
Included in the construction segment are construction revenues and margins
earned by two Materials subsidiaries which perform construction in addition to
their materials operations. Those subsidiaries had $10.6 million of construction
revenue in 1998 and $12.3 million of construction revenue in 1997.
During 1998 and 1997, the materials segment included revenues of $6 million
and $11 million and losses of $3 million and $16 million, respectively, from the
Oak Mountain coal operations mining venture which operations were disposed of
during 1998.
Construction. Revenues for the construction business increased $583
million or 23.6% from the same time period in 1997. $210 million of the increase
in revenues resulted from several new domestic power production facilities.
Joint ventures performing electrical work on railway systems contributed another
$82 million. Another major factor was the "I-15" project, a $1.4 billion design
build joint venture, of which Kiewit's share is $780 million, to reconstruct 16
miles of interstate through the Salt Lake City, Utah area which contributed $135
million to the increase. Several new projects account for the remainder of the
increase.
Contract backlog at December 26, 1998 was nearly $5 billion, of which 3.5%
was attributable to foreign operations located primarily in Canada. Domestic
projects are spread geographically throughout the U.S.
Margins on construction projects as a percentage of revenue for the twelve
months ended December 26, 1998 decreased to 8.6% from 13% for the same time
period in 1997. Favorable resolutions of project uncertainties, change order
settlements and bonuses for cost savings and early completion increased margins
for the twelve months ended December 27, 1997. Margins in 1996 and 1995 were
9.6% and 7.7%, respectively.
Materials. Revenues for the materials business were up 20%, from $268
million to $322 million, for the twelve months ended December 26, 1998 as
compared to the same time period in 1997. Greater sales volume and higher
average selling prices for aggregates, ready mix concrete and asphalt products
resulted in a 27% increase which was partially offset by the decrease in
revenues from $11 million in 1997 to $6 million in 1998 from the Oak Mountain
Coal operations. The investment in Oak Mountain was sold on June 9, 1998. The
Oak Mountain investment was previously written off as an impaired asset in
December 1997. In 1998, Kiewit realized operating losses of $3 million.
Margins from materials sales as a percentage of revenue for the twelve
months ended December 26, 1998 increased from 4% in 1997 to 7% in 1998. The
increase in margins was attributable to higher average selling
37
<PAGE> 42
prices and improvements in the performance of recent acquisitions. Also
contributing to the increase was the reduction of losses from the Oak Mountain
Coal operations.
General and Administrative Expenses. General and administrative expenses
decreased in 1998. General and administrative expenses, as a percent of revenue,
decreased from 5.4% in 1997 to 4.2% in 1998, as a proportionate increase in
administration costs were not necessary to support Kiewit's revenue growth.
Investment Income and Equity Earnings, Net. Net investment income and
equity earnings decreased by $5 million. The decrease was predominantly due to
the increased interest expense on long-term debt of $2 million and a decrease in
gains on sales of marketable securities of $2 million from 1997.
Other, Net. Other income is primarily comprised of mine management fee
income from Level 3 and gains and losses on the disposition of property, plant
and equipment and other assets.
Kiewit manages 3 active coal mines for Level 3. Fees for these services
were $34 million in 1998 and $32 million in 1997. Kiewit's fee is a percentage
of adjusted operating earnings of the coal mines, as defined. The mines managed
by Kiewit for Level 3 earn the majority of their revenues under long-term
contracts. The remainder of the mines' sales are made on the spot market where
prices are substantially lower than those of the long-term contracts. As a
significant long-term contract expires over the next two years, adjusted
operating earnings at the mines will decrease substantially, thereby similarly
decreasing the management fee earned by Kiewit to approximately $6 million in
2001.
Additionally, the Minerals Management Service and Montana Department of
Revenue have issued assessments to the Level 3 mines for the underpayment of
royalties and production taxes. The assessment of the Montana Department of
Revenue was dismissed on May 9, 2000. Level 3 is vigorously contesting the
Minerals Management Service assessment. If Level 3 pays the Minerals Management
Service assessment, the payments could materially decrease future mine
management fees, but will not affect fees previously received.
Net gains on the disposition of property, plant and equipment and other
assets decreased to $20 million in 1998 from $24 million in 1997 as a result of
a decrease in the amount of equipment sold in the ordinary course of business.
Provision for Income Taxes. The effective income tax rates in 1998 and
1997 differ from the expected rate of 35% primarily due to state income taxes
and prior year tax adjustments. The income tax rates were 36.2% for 1998 and
40.5% for 1997.
FINANCIAL CONDITION -- JUNE 30, 2000
Cash and cash equivalents decreased $50 million to $288 million at June
2000 from $338 million at December 1999. The decrease reflects net cash provided
by operations of $114 million offset by net cash used in investing activities of
$72 million and $92 million used in financing activities.
Net cash provided by operating activities for the first six months of 2000
of $114 million represented an increase of $1 million from the same period in
1999. A net income increase of $17 million for the first six months of 2000
compared to the same period in 1999 was offset by increased working capital
requirements for construction contracts. 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 through changes in current
assets and liabilities.
Net cash used in investing activities for the first six months of 2000
increased by $26 million to $72 million as compared to the same period in 1999.
This increase was due to increases in acquisitions of $4 million, additional
capital expenditures of $20 million, decreases in proceeds from the sale of
property, plant and equipment in the ordinary course of business of $6 million,
a decrease in distributions from investees of $2 million and additions to notes
receivable of $4 million. These changes were partially offset by a decrease in
purchases of marketable securities of $2 million and an $8 million increase in
proceeds from the sale of marketable securities.
38
<PAGE> 43
Net cash used in financing activities for the first six months of 2000
increased by $45 million to $92 million as compared to the same time period in
1999. This increase was due to an increase in repurchases of Kiewit common stock
of $26 million, decrease in issuance of common stock of $25 million, increase in
dividends paid of $2 million and change in outstanding checks in excess of funds
on deposit of $6 million over 1999 amounts. These changes were partially offset
by a decrease in payments on long-term debt of $14 million.
Kiewit anticipates investing between $50 and $100 million annually in its
construction and materials businesses. In the event that the spin-off of
Kiewit's materials business is effected, Kiewit anticipates investing a similar
amount in its construction business. Kiewit continues to explore opportunities
to acquire additional businesses. Other long-term liquidity uses include the
payment of income taxes and the payment of dividends. As of June 30, 2000,
Kiewit had no material firm binding purchase commitments related to the
investments described in Note 5 of the financial statements other than meeting
the normal course of business needs of the construction partnership as well as
other construction joint ventures. There are also no significant commitments
between the construction and materials businesses. The current portion of
long-term debt is $2 million. Kiewit paid dividends during the first six months
of 2000 and 1999 of $18 million and $16 million, respectively. These amounts
were determined by the Board of Directors and were paid in January and May of
each such year. Kiewit also has the commitment to repurchase stock at any time
during the year from shareholders.
Kiewit does not believe that the spin-off of its materials business, if
effected, will have an adverse impact on its liquidity or material commitments
since earnings generated from the materials business have historically been
reinvested in the materials business. Kiewit's current financial condition,
together with anticipated cash flows from operations, should be sufficient for
immediate cash requirements and future investing activities. Kiewit does not
presently have any committed bank credit facilities. In the past, Kiewit has
been able to borrow on terms satisfactory to it. Kiewit believes that, to the
extent necessary, it will likewise be able to borrow funds on acceptable terms
for the foreseeable future.
FINANCIAL CONDITION -- DECEMBER 25, 1999
Cash and cash equivalents increased $111 million to $338 million at
December 1999 from $227 million at December 1998. The increase reflects net cash
provided by operations of $192 million offset by net cash used in investing
activities of $80 million and $4 million used in financing activities.
Net cash generated from operating activities of $192 million represented a
decrease of $4 million from 1998. Although net income had increased for 1999
compared to 1998, the decrease in cash and cash equivalents generated from
operating activities was due primarily to increased working capital requirements
for construction contracts. Cash provided or used by operating activities is
affected to a large degree by the mix, timing, and state of completion and terms
of the individual contracts, which are reflected through changes in current
assets and liabilities.
Net cash used in investing activities in 1999 of $80 million increased $7
million when compared to 1998. Kiewit had an additional $7 million in proceeds
from the sale of property, plant and equipment in the ordinary course of
business, a decrease in capital expenditures of $12 million and issued notes
receivable of $2 million in 1999 compared to $20 million in 1998. Proceeds from
sales and maturities of marketable securities decreased by $21 million. Kiewit
made $23 million of additional investments in acquisitions.
Net cash used in financing activities in 1999 decreased by $121 million
from 1998. This decrease was substantially attributable to the exchange of Level
3's Class C Stock for Level 3's Class D Stock in 1998, which was no longer an
option for shareholders in 1999.
FINANCIAL CONDITION -- DECEMBER 26, 1998
Cash and cash equivalents decreased $5 million to $227 million at December
1998 from $232 million at December 1997. The decrease reflects net cash provided
by operations of $196 million offset by net cash used in investing activities of
$73 million and $125 million used in financing activities.
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Net cash provided by operating activities of $196 million represented an
increase of $54 million over 1997. Of the increase, $19 million was due to the
increase in net income. The remaining increase was due to the change in working
capital requirements for construction contracts. Cash provided or used by
operating activities is affected to a large degree by the mix, timing, and state
of completion and terms of the individual contracts, which are reflected in
changes in current assets and liabilities.
Net cash used in investing activities in 1998 of $73 million was an
increase of $15 million when compared to 1997. Kiewit decreased capital
expenditures by $20 million, purchased $32 million less in marketable securities
and invested $8 million less in partnerships and acquisitions. Kiewit issued $20
million of notes receivable and received $5 million in payments on those notes.
Kiewit also received $49 million less on the sale of marketable securities than
in 1997 as well as $11 million less on the sale of property, plant and
equipment.
Net cash used in financing activities amounted to $125 million in 1998,
which was an increase of $102 million from 1997. $50 million of this change
resulted from the additional exchange of Level 3's Class C Stock for Level 3's
Class D Stock related to the March 1998 spin-off. Long-term borrowings decreased
$8 million and net payments on short-term borrowings increased net cash used by
$5 million. Net stock sales, repurchases and dividends provided $1 million less
than in 1997. The remaining $38 million increase in net cash used related to the
increase in the outstanding checks in excess of funds on deposits.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments and
for hedging activities. This statement is effective for all fiscal years
beginning after June 15, 2000. Management does not expect adoption of this
statement to materially affect Kiewit's financial statements as Kiewit has no
significant derivative instruments or hedging activities.
YEAR 2000 UPDATE
Kiewit's Year 2000 effort, which was comprised of internal updating and
replacement of computer systems and external coordination with its customers,
was completed on schedule. Kiewit has not experienced any material Year 2000
related difficulties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Kiewit does not believe that its business is subject to significant market
risks arising from interest rates, foreign exchange rates or equity prices.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MATERIALS
The following discussion is based upon and should be read in conjunction
with Materials' Consolidated Financial Statements, including the notes thereto,
included elsewhere in this offering circular-prospectus.
Management has proposed to separate Kiewit's materials and construction
businesses by means of a spin-off. Consequently, in the event that the spin-off
is effected, Kiewit will no longer have any interest in its materials
operations. The materials operations will be owned and operated solely by
Materials. The spin-off is not expected to adversely impact Materials' equity,
revenue or net income. Current cash flows are expected to be sufficient to fund
current operations. Materials' ability to execute its future growth strategy
will, however, be dependent upon the ability to obtain borrowings on terms
deemed appropriate.
RESULTS OF OPERATIONS -- SECOND QUARTER 2000 VS. SECOND QUARTER 1999
Revenue. Revenues increased $18,672,054 or 17% in the second quarter of
2000 to $127,930,873 compared to $109,258,819 for the same period in 1999. The
increase is comprised of a 3% increase in average selling prices, a 4% increase
in unit volumes and the inclusion of $6,517,352 of additional revenues from
acquired companies. Unit volumes were greater for both ready mix concrete and
aggregates which were mitigated by a decline in asphalt sales. Asphalt sales
declined as Materials became more selective in supplying the market in an effort
to improve product margins.
Gross Profit. Gross profit margins increased to 12.8% in the second
quarter of 2000 from 10.6% for the same period in 1999. The increased unit
volumes and average selling prices were responsible for the improved margins.
General and Administrative Expenses. General and administrative expenses
were relatively constant for the second quarter of 2000 when compared to the
same period in 1999. As a percentage of sales, this expense decreased to 4.2% in
2000 from 5.4% in 1999. This was due to the increase in revenues without a
proportionate increase in expenses.
Other Income and Expense. Other income increased $236,296 to $1,102,069 in
the second quarter of 2000 from $865,773 in the same period in 1999. An increase
in interest income, due to higher interest rates, was responsible for the
increase.
Income Tax Expense. The effective income tax rates during the second
quarter of 2000 and 1999 were 40%. These rates differ from the federal statutory
rates of 35% primarily due to state income taxes.
RESULTS OF OPERATIONS -- SIX MONTHS 2000 VS. SIX MONTHS 1999
Revenue. Revenues increased $18,723,891 or 9% in the first six months of
2000 to $227,470,710, as compared to $208,746,819 for the same period of 1999.
The increase is primarily due to a 3% increase in average selling prices and the
inclusion of additional revenues of $16,725,884 from acquired companies.
Offsetting the increases were declines in unit volumes of asphalt sales. Asphalt
sales declined as the company became more selective in supplying the market in
an effort to improve product margins.
Gross Profit. Gross profit margins remained consistent between the first
six months of 2000 and the same period of 1999. Higher margin sales from
acquired companies, a higher average selling price and a more selective approach
to supplying asphalt demand were offset by increases in asphalt oil costs and
higher fuel prices.
General and Administrative Expenses. General and administrative expenses
for the first six months of 2000 remained relatively constant when compared to
the same period in 1999. As a percentage of sales, general and administrative
expenses decreased to 5.2% in 2000 from 6.0% in 1999. This was due to the
increase in revenues without a proportionate increase in expenses.
Other Income and Expense. Other income decreased $134,697 to $1,971,378
for the first six months of 2000 from $2,106,076 for the same period in 1999.
Increases in interest income, due to higher interest rates,
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<PAGE> 46
were offset by a reduction in equity earnings due to the consolidation of
Pacific Rock in the first quarter of 1999.
Income Tax Expense. The effective income tax rates for the first six
months of 2000 and 1999 were 40%. These rates differ from the federal statutory
rate of 35% primarily due to state income taxes.
RESULTS OF OPERATIONS -- 1999 VS. 1998
Revenue. In 1999 and 1998, 82% and 95% of revenues, respectively, were
earned in the Southwest region of the United States. The remainder was earned
through other locations in the United States. Revenue increased $103,997,646,
from $333,060,002 in 1998 to $437,057,648 in 1999. The consolidation of Pacific
Rock (see footnote 13 of the December 25, 1999 financial statements), due to the
increase in Materials' ownership from 40% to 100%, contributed $54,510,558, and
additional ballast sales at quarries in Wyoming and Utah accounted for
$4,351,486 of the increase. Approximately 80% of the balance of the increase in
revenues was derived from additional unit sales with the other 20% of the
balance resulting from higher average selling prices for ready mix concrete and
aggregates.
Gross Profit. Gross profit margins increased from 10.5% in 1998 to 14.2%
in 1999. The consolidation of Pacific Rock which had a higher margin on its
sales was responsible for the percentage increase.
General and Administrative Expenses. General and administrative expenses
increased $5,620,915 in 1999 when compared to 1998. Increases in unit volume and
the inclusion of Pacific Rock account for $3,690,754 of the additional expense.
Other Income and Expense. Other income is comprised of investment income,
equity earnings from Pacific Rock, interest expense and gains and losses on the
sale of property, plant and equipment. Other income declined $5,253,501 in 1999
from 1998 as a result of the decline in equity earnings due to the consolidation
of Pacific Rock, which equity earnings were $5,599,268 in 1998.
Income Tax Expense. Income taxes differ from the federal statutory rate
primarily because of state income tax and percentage depletion. The effective
tax rates were 37.7% for 1999 and 38.8% for 1998.
RESULTS OF OPERATIONS -- 1998 VS. 1997
Revenue. In 1998 and 1997, 95% and 96%, respectively, of revenues were
earned in the Southwest region of the United States. The remainder was earned
through other locations in the United States. Revenue increased 20% from
$277,308,896 in 1997 to $333,060,002 in 1998. Approximately 79% of the increase
resulted from additional unit sales. The remaining 21% resulted from higher
average selling prices for ready-mix concrete, asphalt and aggregates.
Gross Profit. Gross profit margins declined from 13% in 1997 to 10.5% in
1998. A 5% increase in cement and other costs, coupled with $1 million of
start-up expenses incurred at a newly developed quarry site offset higher
selling prices and unit volume increases.
General and Administrative Expenses. General and administrative expenses
increased from $16,277,521 in 1997 to $19,062,488 in 1998. As a percentage of
revenue, this expense declined slightly from 5.9% in 1997 to 5.7% in 1998. The
overall increase in expense was necessary to support sales volume increases and
the expansion of product lines.
Other Income and Expense. Other income is comprised of investment income,
equity earnings from Pacific Rock and gains and losses on the sale of equipment
in the ordinary course of business. Other income increased $836,819 during the
twelve months ended 1998 when compared to the same period in 1997. Increases in
equity earnings, primarily from better operating results at Pacific Rock, were
responsible for the change. Higher interest expense and smaller gain from the
sale of equipment mitigated the investment income increase.
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<PAGE> 47
Income Tax Expense. Income tax expense differs from the federal statutory
rate primarily because of state income taxes and percentage depletion. The
effective income tax rates were 38.8% for 1998 and 39.7% for 1997.
FINANCIAL CONDITION -- JUNE 30, 2000
Cash and cash equivalents decreased $24,974,264 to $47,355,863 at June 2000
from $72,330,127 at December 1999. The decrease reflects net cash provided by
operations of $25,605,182 offset by net cash used in investing activities of
$50,505,893 and $73,553 used in financing activities.
Net cash provided by operating activities for the first six months of 2000
of $25,605,182 represented an increase of $32,453,899 from the same period in
1999. Net income increased $2,186,149 for the first six months of 2000 compared
to the same period in 1999. The principal source of the increase in net cash
from operating activities was a reduction in receivables.
Net cash used in investing activities for the first six months of 2000
increased by $6,160,477 to $50,505,893 as compared to the same period in 1999.
This increase was due to additional acquisitions of $1,089,403 and decreases in
proceeds from the sale of property, plant and equipment in the ordinary course
of business of $463,745 and additional capital expenditures of $7,649,261. These
changes were partially offset by a decrease in additions to notes receivable of
$309,420, an increase in payments received on notes receivable of $232,512 and
$2,500,000 of additional proceeds from the sale of marketable securities.
Net cash used in financing activities for the first six months of 2000
increased by $29,929,340 to $73,553 as compared to a net source of cash of
$29,855,787 for the same period in 1999. This change was due to a reduction in
contributions from Kiewit of $45,171,113. This change was partially offset by a
decrease in payments on long-term debt of $15,241,773.
Materials continues to explore opportunities to acquire additional
businesses. Other long-term liquidity uses include the payment of income taxes.
The current portion of long-term debt is $570,514. Materials believes that its
current financial condition, together with anticipated cash flows from
operations, should be sufficient for the operational needs of its business for
the next 12 months.
Materials intends to pursue a growth strategy that will require substantial
capital. These capital requirements will be in addition to amounts necessary to
replace existing equipment and make long-term debt payments, which amounts are
not anticipated to exceed $24 million for the next twelve months. Materials is
unable to estimate capital requirements for its growth strategy for fiscal year
2000. Materials is actively pursuing its growth strategy, but capital
requirements largely depend on the number of acquisition candidates in the
market and the level of success Materials has in completing acquisitions.
For the six-month period ended June 30, 2000, Materials expended
approximately $33.5 million in connection with its growth strategy, which amount
does not include approximately $2 million in acquisition indebtedness payable in
equal installments over the next three years. In the third quarter of 2000,
Materials expended approximately an additional $43.6 million on two aggregates
businesses. Funding for these acquisitions came from a combination of cash
generated from Materials operations and capital contributions from Kiewit.
Following the spin-off, capital requirements for acquisitions that are in
excess of internally generated funds are expected to come from the issuance of
debt securities, which may be senior or junior to, or pari passu with, the
Materials convertible debentures being issued in the debenture exchange offer,
or borrowings under credit facilities. Should Materials obtain any debt
financing, this financing may contain restrictive covenants with respect to
future capital raising activities and other financial and operational matters.
Although Materials has historically received contributions from Kiewit to
fund its acquisitions, Materials does not believe that the spin-off of Kiewit's
materials business, if effected, will have an adverse effect on Materials'
liquidity or material commitments. Materials believes that its working capital
at the time of the spin-off, together with its ability to borrow funds, will
provide flexibility in pursuing its growth strategy and will
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<PAGE> 48
allow it to make significant capital investments in connection with
acquisitions. In addition, Materials has no current intention to pay cash
dividends, but will instead use its capital to fund its growth strategy.
Should Materials be unable to issue sufficient debt securities or obtain
funds on terms deemed appropriate to fund its growth strategy, Materials would
then be limited in its ability to fully execute its growth strategy. While
Materials believes its growth strategy to be important in enhancing shareholder
value, it does not believe that the inability to fully execute it would have a
material adverse impact on current operations, financial condition or liquidity.
Materials receives its revenue by selling ready mix, asphalt and aggregate
products. Materials also generates a small amount of revenue from construction
contracts. Materials does not generate a revenue backlog of any size given the
nature of its business.
Materials typically has a small number of notes receivable that are due
from customers. These notes are usually short in duration and insignificant in
amount. Materials does not have any note receivable commitments with customers
on an on-going basis. Materials does not have any established credit facilities.
At June 30, 2000, Materials had $5.8 million of notes payable.
FINANCIAL CONDITION -- DECEMBER 25, 1999
Cash and cash equivalents increased $6,728,257 to $72,330,127 at December
1999 from $65,601,870 at December 1998. The increase reflects net cash provided
by operations of $31,701,592 and net cash provided by financing activities of
$28,402,215 which were partially offset by net cash used in investing activities
of $53,375,550.
Net cash provided by operating activities of $31,701,592 represented an
increase of $2,072,600 from 1998. Although net earnings increased by $10,449,640
compared to 1998, this increase was offset by an increase in the reduction of
accounts payable by $20,454,352 which was subsequently partially offset by an
increase in income taxes payable of $6,624,167.
Net cash used in investing activities increased by $39,559,000 to
$53,375,550 in 1999 from $13,816,550 in 1998. This increase was primarily due to
increased acquisitions activity of $34,015,297 related mainly to the Pacific
Rock Products and River City Machinery acquisitions and increased capital
expenditures in the normal course of business of $6,096,225.
Net cash provided by financing activities increased by $26,634,711 to
$28,402,215 in 1999 from $1,767,504 in 1998. Additional parent contributions of
$42,015,056 which were partially offset by increased long-term debt reductions
of $15,380,345 accounted for the increase.
FINANCIAL CONDITION -- DECEMBER 26, 1998
Cash and cash equivalents increased $17,579,946 to $65,601,870 at December
1998 from $48,021,924 at December 1997. The increase reflects net cash provided
by operations of $29,628,992 and net cash provided by financing activities of
$1,767,504 which were partially offset by net cash used in investing activities
of $13,816,550.
Net cash provided by operating activities of $29,628,992 represented an
increase of $1,153,431 from 1997. Although net earnings decreased by $1,163,970
compared to 1997, there were various offsetting factors. The undistributed
equity earnings were $3,167,775 less in 1998 compared to 1997 and there was less
reduction of accounts receivable by $2,714,512 compared to 1997. These factors
were offset by less of an increase in accounts payable in 1998 of $7,878,902
compared to 1997.
Net cash used in investing activities decreased by $13,665,454 to
$13,816,550 in 1998 from $27,482,004 in 1997. This decrease was primarily due to
a decrease in cash used in acquisitions of $5,996,007 and decreased capital
expenditures in the normal course of business of $6,862,136.
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Net cash provided by financing activities increased by $4,901,196 to
$1,767,504 in 1998 as compared to a net use of cash of $3,133,692 in 1997. There
were no dividends paid in 1998 compared to $13,970,000 paid in 1997. This was
offset by a decrease in contributions received from Kiewit of $8,567,161.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments and
for hedging activities. This statement is effective for all fiscal years
beginning after June 15, 2000. Management does not expect adoption of this
statement to materially affect Materials' financial statements as Materials has
no significant derivative instruments or hedging activities.
YEAR 2000 UPDATE
Materials' Year 2000 effort, which was comprised of internal updating and
replacement of computer systems and external coordination with its customer was
completed on schedule. Materials has not experienced any material Year 2000
related difficulties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Materials does not believe that its business is subject to significant
market risks arising from interest rates, foreign exchange rates or equity
prices.
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BUSINESS OF MATERIALS
In 1968, Kiewit began its construction materials business in Arizona with
its acquisition of Union Rock & Materials Corporation which principally operated
in Phoenix and Tucson. In 1994, Kiewit acquired United Metro Materials which had
operations throughout Arizona and merged its Arizona materials operations under
the United Metro name. Following the United Metro acquisition, Kiewit has
continued to expand its Arizona materials operations through seven additional
acquisitions.
Kiewit began its materials operations in the Vancouver, Washington and
Portland, Oregon areas in 1981. In 1996, Kiewit merged those materials
operations with Pacific Rock Products, retaining a 40% interest in the combined
entity. In 1999, Kiewit acquired the remaining 60% of Pacific Rock Products. For
a more detailed description of the material terms of the acquisition of Pacific
Rock, see footnote 13 to Materials Consolidated Financial Statements on page
F-52.
Kiewit entered the Northern California market with its acquisition of
Solano Concrete Co., Inc. in the first quarter of 2000. For a more detailed
description of the material terms of the acquisition of Solano Concrete, see
footnote 5 to Materials Consolidated Condensed Financial Statements on page
F-59. Materials also acquired the assets of Dixon Redi-Mix, Inc. in the second
quarter of 2000 for approximately $1.2 million in cash and approximately $2
million in notes, payable in equal installments over the next three years.
Kiewit first entered the quarry business in 1950 with a quarry in Guernsey,
Wyoming. In 1953, it began a quarry operation near Des Moines, New Mexico.
Kiewit also holds a 49% joint venture interest in the Granite Canyon quarry near
Cheyenne, Wyoming and a 51% joint venture interest in quarry operations near
Little Lake and Hector, California. In 1997, Kiewit started a new quarry near
Milford, Utah. Kiewit also acquired Fort Calhoun Stone Company, which has quarry
operations in Nebraska, in the third quarter of 2000. For a more detailed
description of the terms of the acquisition of Fort Calhoun Stone Company, see
footnote 7 to Materials Consolidated Condensed Financial Statements on page
F-60.
From January 1, 2000 through August 14, 2000, Materials had expended
approximately $77 million and completed five acquisitions in connection with its
growth strategy.
Materials was formed in February 1999 to consolidate the materials
businesses of Kiewit under one holding company.
Materials operates aggregate, ready mix, asphalt and materials operations
in Arizona, Washington, Oregon, California, Wyoming, Nebraska, Utah and New
Mexico, with primary operations in Arizona, centered in the Phoenix and Tucson
metropolitan areas and in the Pacific Northwest, centered in the Vancouver,
Washington and Portland, Oregon metropolitan areas. Aggregate products are used
as highway construction materials, railroad ballast, decorative landscape rock,
roofing aggregate and building stone. Materials also provides construction
services in and around Yuma, Arizona, focusing mainly on paving and related
projects. In 1999, Materials produced in excess of 28 million tons of
construction materials and generated approximately $437 million of revenue.
Materials' Arizona and Pacific Northwest markets have been some of the
highest growth markets in the United States. Factors contributing to this growth
include large population increases and increases in public sector spending on
highway projects. Materials believes that it should continue to experience
strong demand for its products, due in large part to federally funded highway
construction projects under the Transportation Equity Act for the 21st Century.
This act provides $218 billion for highway, transit and safety spending for
years 1998 through 2003, which represents a 40% increase in average annual
federal highway spending when compared to federal funding programs for the
preceding six years.
Materials has a favorable market position with the combination of its
strong market presence, extensive, high quality aggregate reserves, efficient
operations and experienced management team. Materials seeks to be a low cost
producer, facilitate employee involvement, promote favorable community relations
and be a safety conscious employer. It intends to leverage these attributes with
a growth strategy to expand its presence in existing markets and to enter new
markets with high-growth potential. Materials believes that there exists a
significant opportunity for growth through acquisitions given the large number
of independent materials
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companies that operate in the United States. These acquisition opportunities
coupled with its current expertise and the expected strong demand for its
products provide for a positive environment in which to pursue its growth
oriented business plan.
INDUSTRY BACKGROUND/MARKET OVERVIEW
Materials is a vertically integrated manufacturer of aggregates, ready-mix
concrete and hot-mix asphalt for use primarily in construction.
Aggregates
Aggregates are a basic construction material, comprising sand, gravel and
crushed stone, used extensively for highway and infrastructure construction and
maintenance as well as for commercial and residential construction. In addition,
Materials also produces aggregates for use as railroad track ballast. For these
purposes, aggregates have few, if any, substitutes. The United States market for
all aggregates was approximately 2.9 billion tons in 1999 with a value of $13.7
billion. This represents an increase of 2.7% in volume and 5.1% in dollar value
above 1998 levels.
Historically, demand for aggregates has been only moderately cyclical,
especially relative to other building materials such as cement and gypsum
wallboard. In addition to moderate cycles and with the exception of 1998, the
national per ton average price for aggregates has not experienced an annual
decline between 1985 and 1999.
Spending on highway and infrastructure construction and maintenance
significantly drives demand for aggregates. Spending levels are influenced by
public sector expenditures for construction and regional economic conditions.
Residential and commercial construction spending is influenced by general
economic conditions and prevailing interest rates and consequently is generally
more cyclical than public construction spending. Demand is also seasonal because
of the impact of weather conditions on construction activity.
Materials' management believes that the aggregates industry is currently
undergoing significant consolidation, although generally the industry remains
fragmented nationally as well as in many regional areas.
Due to the high cost of transportation relative to the value of the
product, competition within the aggregates industry tends to be localized.
Generally, individual aggregate production sites compete for customers within a
limited geographic area, which may be as small as 20 to 30 miles depending on
local availability of suitable aggregates and the geographic density of demand.
As a result, the proximity of aggregate production sites to customers is an
important factor in competition for customers.
There are four primary factors which limit the availability of economically
viable aggregates reserves in a particular market:
- the geological existence of suitable aggregates within a particular
market;
- the physical characteristics of available aggregates and the difficulty
in satisfying increasingly rigorous specifications required by customers;
- the difficulty in and increasingly higher cost of obtaining the necessary
permits for potential reserves; and
- the feasibility of cost-effectively extracting, processing and delivering
available reserves.
In addition to factors that limit the availability of suitable aggregates,
increasing levels of operational, technical and financial sophistication in the
aggregates industry have rewarded efficient producers with a competitive
advantage in terms of their ability to meet the increasing demand for quality
aggregates and to satisfy increasingly demanding and technically sophisticated
customers.
The difficulty and related expense of complying with environmental and
other regulations may make it difficult for small producers to open new
aggregate production sites, enter new markets and compete
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effectively. In ongoing aggregate mining and processing, aggregates producers
must adhere to various mining regulations, including rules and regulations
regarding:
- dust and water emissions;
- sediment and erosion control;
- noise limitations;
- wetlands protection;
- reclamation of depleted quarry sites; and
- the safety of blasting and other mining techniques.
Often new aggregate production sites require, among other things, zoning
changes and local, state and federal permits and plans regarding mining,
reclamation and air and water emissions. Once appropriate zoning is secured and
approved, it is permanent. Generally, permits must be renewed every five years.
Their renewal can only be denied, however, if the controlling agency is able to
prove that the permit holder has repeatedly violated the set guidelines and has
not taken remedial action when notified of violations. New site approval
procedures may require the preparation of archaeological surveys, endangered
species studies and other studies to assess the environmental impact. Compliance
with these regulatory requirements necessitates a significant up-front
investment and adds to the length of time to develop a new site.
Aggregates producers often face opposition from the communities in which
new aggregate production sites are to be located. Public concerns center on
noise levels and blasting safety, the visual impact of an aggregate production
site on neighboring properties and high volume of truck traffic. To respond to
these issues, producers must operate in a more sophisticated manner, such as
developing blasting techniques to minimize surface vibrations and noise and
developing an effective community communications program. Producers are often
required to acquire larger tracts of property to allow for extended buffer zones
between aggregate production sites and surrounding properties and to invest
significant capital to improve road and highway access.
Ready-mix Concrete
Ready-mix concrete is a versatile, low-cost manufactured material the
construction industry uses in substantially all of its projects. It is a
stone-like compound that results from combining fine and coarse aggregates, such
as sand, gravel and crushed stone, with water, various admixtures and cement.
Ready-mix concrete can be manufactured in thousands of variations, which in each
instance may reflect a specific design use. Manufacturers of ready-mix concrete
generally maintain less than one day's requirements of raw materials and must
coordinate their daily material purchases with the time-sensitive delivery
requirements of their customers.
Annual usage of ready-mix concrete in the United States is currently at a
record level and is projected to continue growing. According to the National
Ready-mix Concrete Association, total sales from production and delivery of
ready-mix concrete in the United States grew from $17.6 billion in 1996 to $19.3
billion in 1997, an increase of 9.7%, and to $21.3 billion in 1998, an increase
of 10.4%, and are expected to grow to $22.1 billion in 1999. Also according to
this industry association, the following segments of the construction industry
accounted for the following approximate percentages of total sales of ready-mix
concrete in the United States in 1998:
<TABLE>
<CAPTION>
SEGMENT PERCENTAGE
------- ----------
<S> <C>
Commercial and industrial construction...................... 18%
Residential construction.................................... 22%
Street and highway construction and paving.................. 32%
Other public works and infrastructure construction.......... 28%
---
Total....................................................... 100%
</TABLE>
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Ready-mix concrete begins to harden when mixed and generally becomes
difficult to place within 60 to 90 minutes after mixing. This characteristic
generally limits the market for a permanently installed plant to an area within
a 25-mile radius of its location. Concrete manufacturers produce ready-mix
concrete in batches at their plants and use mixer and other trucks to distribute
and place it at the job sites of their customers. These manufacturers generally
do not provide paving or other finishing services that construction contractors
or subcontractors typically perform.
Manufacturers generally obtain contracts through local sales and marketing
efforts they direct at general contractors, developers and home builders. As a
result, local relationships are very important.
On the basis of information from the National Ready-mix Concrete
Association, in addition to vertically integrated manufacturers of cement and
ready-mix concrete, more than 3,500 independent producers currently operate a
total of approximately 5,300 plants in the United States. Larger markets
generally have numerous producers competing for business on the basis of price,
timing of delivery and reputation for quality and service. The typical ready-mix
concrete company is family-owned and has limited access to capital, limited
financial and technical expertise and limited exit strategies for its owners.
Given these constraints, many ready-mix concrete companies are finding it
difficult to both grow their businesses and compete effectively against larger,
more cost-efficient and technically capable competitors. These characteristics
present consolidation and growth opportunities.
Hot Mix Asphalt
Hot mix asphalt is a combination of approximately 95% aggregates bound
together by asphalt cement, also known as asphalt oil, a crude oil product. It
is used almost exclusively for paving and related applications.
To make hot mix asphalt, the asphalt cement is heated, combined and mixed
with the aggregates at a hot mix asphalt facility. It is then loaded into trucks
for transport to the paving site. The trucks dump the hot mix asphalt into
hoppers located at the front of paving machines. The asphalt is placed, and then
is compacted using a heavy roller which is driven over the asphalt. Because the
temperature of the hot mix asphalt drops rapidly after spreading and because
compaction of the hot mix asphalt to achieve a specified density must take place
at temperatures above 175 degrees, compaction usually takes place within a
matter of minutes after the paver spreads the hot mix asphalt. This generally
also limits the market a hot mix asphalt facility can serve to within a radius
of approximately 20 miles around the facility.
Hot mix asphalt is recyclable. One hundred percent of an asphalt pavement
can be picked up, remixed with a portion of fresh materials, and used again.
According to the National Asphalt Pavement Association, of the 2.27 million
miles of paved road in the U.S., 94% is surfaced with asphalt, including 65% of
the interstate system. Materials believes the hot mix asphalt industry has
similar characteristics to the ready mix concrete industry in that there are
many local, independent operators as well as some large consolidators. In many
instances, hot mix asphalt will be provided in conjunction with paving services
by integrated paving contractors.
BUSINESS STRATEGY
Materials intends to continue to grow its business over the next 3 to 5
years through a four-part business strategy. First, Materials plans to continue
to build value in markets currently served. In accomplishing this objective,
Materials will strive for significant amounts of negotiated work that command
higher margins by continuing its focus on customer satisfaction and loyalty and
continuing its efforts to retain and improve upon its market share leadership.
Materials also will continue to invest in technology to develop more efficient
and service-oriented truck dispatching, improve production methods to lower
costs and maintain superior equipment maintenance standards.
Second, Materials plans to expand its presence in existing markets through
acquisitions in exchange for cash or debt securities. Materials should have the
opportunity to purchase smaller materials companies that operate in or near
current operations, as these markets remain fragmented and include a large
number of family-owned businesses facing inter-generational transition issues.
Successful acquisition of additional
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<PAGE> 54
operations will allow Materials to eliminate duplicate overhead functions,
improve efficiencies through the use of newer technologies and benefit from cost
savings derived from economies of scale in operations and the purchasing of
parts and supplies.
Third, Materials plans to enter, via acquisition in exchange for cash or
debt securities, new high-growth potential markets. Metropolitan communities
with high rates of expected population growth, coupled with greater than average
increases in spending on retirement and leisure activities, are some of the
variables that are considered in selecting an area for expansion. Materials has
begun to implement this strategy with its recent acquisition of a materials
operation located in Northern California. This business is an integrated
supplier of high quality aggregates, ready mix concrete and asphalt. It serves
the rapidly expanding market between San Francisco and Sacramento.
Finally, Materials will seek to acquire and develop additional strategic
aggregate reserves in selected markets, such as its recent acquisition of Fort
Calhoun Stone Company, which has quarry operations in Nebraska. The successful
implementation of this strategy element will not only replace reserves consumed
by operations, but will enhance Materials' competitive cost position by the
ownership of reserves in attractive locations.
Since 1992, Materials has acquired thirteen materials companies and started
one new site in the implementation of its four-part strategy. The purchase price
payable in these acquisitions ranged from approximately $2 million to $47
million. Three of the acquisitions were in excess of $40 million, one was in
excess of $30 million and the remainder were between $2 million and $7 million.
These acquisitions have allowed Materials to expand its presence in existing
markets in Arizona and the Vancouver, Washington and Portland, Oregon areas and
to enter new markets in Northern California and Nebraska. Revenues have
increased from $40 million in 1992, to approximately $437 million for 1999 and
production tonnage has grown from 5.5 million tons in 1992, to in excess of 28
million tons in 1999. Materials intends to continue its disciplined investment
approach to achieve profitable growth through acquisitions.
From January 1, 2000 through August 14, 2000, Materials had expended
approximately $77 million and completed five acquisitions in connection with its
growth strategy. Although as a part of its growth strategy, Materials evaluates
potential acquisitions from time to time, Materials is not currently a party to
any agreements, which, would be material to its business or which would require
separate disclosure.
OPERATIONS AND PROPERTIES
Materials is organized into four operating divisions: Arizona Operations,
Pacific Northwest Operations, North California Operations and Quarries
Operations. Materials believes that a decentralized management structure allows
for a quicker reaction to localized events and a more profitable operation. Each
division is responsible for maintenance and operation of significant investments
in fixed plant assets and a substantial mobile equipment fleet. Each operation
also is charged with customer relations, dispatching of delivery vehicles,
quality control, scheduling of production and the development and maintenance of
certain computer systems.
Materials is a vertically integrated provider of aggregates, ready-mix
concrete and asphalt products. Its operations employ approximately 2,300 people.
Materials operates 62 ready-mix batch plants or asphalt plants at 23 locations
in Arizona, California, Oregon and Washington. Its aggregates operations are
located in Arizona, California, New Mexico, Nebraska, Utah, Washington and
Wyoming. Materials manages a truck fleet of about 1,000 vehicles, 900 of which
are owned and 100 of which are either leased on a long-term basis or managed on
a day-to-day rental basis. In 1999, Materials' combined operations produced and
sold in excess of 28 million tons of aggregates consisting of construction
materials, ballast, highway aggregates, roofing aggregates, concrete block
aggregates and landscape rock products. Its Arizona operation also manages a
construction service business in the Yuma, Arizona area.
Materials' executive management provides its four operating divisions with
strategic planning, corporate development and acquisitions and operations
oversight. Materials also has a centralized administrative staff
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<PAGE> 55
that provides labor relations, various accounting functions, legal, tax planning
and compliance, equipment purchasing and equipment maintenance support.
RESERVES
Materials estimates that its total recoverable aggregates reserves are in
excess of 726 million tons. The yield from the mining of these reserves is based
on an estimate of volume that can be economically extracted to meet current
market and product applications. Materials' mining plans are developed by
experienced mining engineers and operating personnel using drilling and
geological studies in conjunction with mine planning software. In certain
instances, reserve extraction is limited to phases or yearly amounts. Various
properties also have reserves under lease that have not been included in a
mining permit. These reserves have been excluded from Materials' recoverable
reserve estimate.
Materials owns about 311 million tons of aggregates reserves and leases
another 415 million tons of aggregates reserves. Materials' leases usually
require royalty payments based on either revenue derived from the location or an
amount for each ton of materials removed and sold from a site and have terms
ranging from one year to 85 years. Materials' royalty payments range from $0.38
to $1.00 per ton. Most of its long-term leases also provide an option for the
lease to be renewed.
The following table summarizes Materials principal aggregates production
facilities and estimated reserves at August 14, 2000:
<TABLE>
<CAPTION>
ANNUAL
PRODUCTION YEARS UNTIL
(IN THOUSANDS NATURE RESERVE
PRODUCT TYPE OF FACILITY OF TONS) OF INTEREST DEPLETION
------------------- --------------------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Portland, Oregon/Vancouver,
Washington Area (10
sites)..................... Sand and Gravel(8) Production and Distribution 5,558 5 Leased Average of 12.6
Gray Basalt(2) 5 Owned years
Yolo County, California..... Sand and Gravel Production and Distribution 1,000 Owned 26.9 years
Milford, Utah............... Quartz Latite Production and Distribution 400 Leased 17.6 years
Little Lake, California..... Scoria Production and Distribution 80 Leased 19.4 years
Granite Canyon, Wyoming..... Granite Production and Distribution 4,000 Leased 28.5 years
Des Moines, New Mexico...... Scoria Production and Distribution 125 Leased 31.3 years
Guernsey, Wyoming (3
sites)..................... Dolomite, Limestone Production and Distribution 800 1 Leased Average of over 100
and Quartz 2 Owned years
Phoenix, Arizona Area (11
sites)..................... Sand and Gravel Production and Distribution 14,514 9 Leased Average of 6.9
2 Owned years
Tucson, Arizona Area (4
sites)..................... Sand and Gravel Production and Distribution 2,600 1 Leased Average of 6.3
3 Owned years
Nogales, Arizona............ Sand and Gravel Production and Distribution 160 Leased 23.6 years
Sierra Vista, Arizona....... Sand and Gravel Production and Distribution 400 Leased 17.1 years
Flagstaff, Arizona (3
sites)..................... Sand and Gravel Production and Distribution 485 Leased Average of 52.5
years
Coolidge, Arizona........... Sand and Gravel Production and Distribution 500 Leased 16.4 years
Casa Grande, Arizona........ Sand and Gravel Production and Distribution 750 Leased 16 years
Winkelman, Arizona.......... Gypsum Production 112 Owned Over 100 years
Campe Verde, Arizona........ Sand and Gravel Production and Distribution 700 Owned 6.8 years
Globe, Arizona.............. Sand and Gravel Production and Distribution 275 Owned 14.9 years
Yuma, Arizona............... Sand and Gravel Production and Distribution 600 Leased 52.0 years
Fort Mojave Indian
Reservation, Arizona....... Sand and Gravel Production and Distribution 500 Leased 49.7 years
Bullhead City, Arizona...... Sand and Gravel Production and Distribution 275 Leased 18.2 years
Mammoth, Arizona............ Sand and Gravel Production and Distribution 500 Leased 52 years
Prescott, Arizona........... Sand and Gravel Production and Distribution 150 Owned 4 years
Fort Calhoun, Nebraska (3
sites)..................... Limestone Production and Distribution 1,300 2 Leased Average of over 100
1 Owned years
</TABLE>
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<PAGE> 56
Estimated reserves are the probable reserves that are at each quarry site.
The reserve figures include only saleable tonnage and thus exclude waste
material that is generated in the crushing and processing phases of the
operation. Overall reserve estimates are determined by using a combination of
drill holes, quarry mining plans and historical averages. Sites may have leases
that expire prior to the exhaustion of estimated reserves. The reserve life
anticipates that some leases will be renewed to allow sufficient time to fully
recover this material. The reserve estimate numbers for the property in Yolo
County, California assume that the property will be limited to the current
permit and that the permit will not be extended past its expiration date. The
figures used in the reserve data and remaining life may require revisions due to
changes in customer requirements and unknown geological occurrences. Estimated
useful lives are calculated as total saleable reserves at a location divided by
annual production. Actual useful lives will be subject to, among other things,
fluctuations in customer demand, customer specifications, geological conditions
and changes in mining plans. The life of any site in a city or area with
multiple sites may be exhausted prior to or extend beyond the average life for
the sites in that city or area.
PRODUCTS
Aggregates. Materials primarily sells to third parties and utilizes
internally various types of aggregate products. The production of these products
typically involves extracting the material, crushing and sizing the material and
shipping it to the customer using either trucks, rail or barge. Approximately
37% of the aggregates produced in 1999 were used internally in the production of
value-added concrete and asphalt products.
Ready-mix Concrete. Materials produces ready-mix concrete by combining
aggregates, cement, water and additives. The additives allow Materials to
customize the product to customer specifications for overall strength, drying
speed and other properties. Product ingredients are combined at a batch plant
site and loaded into a mixer truck for delivery to the customer's location.
Asphalt. Materials also produces and sells asphalt products. Asphalt is a
mixture of aggregates and asphalt oil. The asphalt oil is heated and combined at
a plant site and then loaded into dump trucks for transit to the customer's
location. Customer specifications can require the use of certain types or sizes
of aggregates and/or varying proportions of aggregates and asphalt oil.
CUSTOMERS
Materials markets to a wide variety of customers including street and
highway contractors, industrial and residential contractors, public works
contractors, wholesalers and retailers of decorative rock products, interstate
railroads and manufacturers of concrete block products. Produced material is
used in both publicly and privately funded projects, although Materials does not
directly contract with any public entity. No single customer accounts for more
than 3% of sales.
COMPETITION
Due to the high cost of transportation, the materials business is highly
dependent on the availability of high quality aggregates proximate to customers
and production facilities. While price is an important factor in the customer's
purchase decision, qualitative factors such as response time, reliability and
product quality influence the purchase decision as well. With much of the
industry consisting of small to medium sized independent firms, economies of
scale, good site locations and technical knowledge will often provide a
competitive advantage. While Materials believes it possesses these attributes in
the markets it serves, in certain segments of those markets it competes directly
with integrated materials companies that have greater financial resources. It is
also possible that competitors with a lower cost structure or a willingness to
accept lower margins than Materials may have an advantage on price sensitive
projects.
EMPLOYEES
Materials employs approximately 2,300 people. Of these, about 400 are
officers, operations management, sales personnel, technical staff,
administrative personnel and clerical staff. Approximately 1,600 employees are
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<PAGE> 57
represented by labor unions under collective bargaining agreements and
approximately 300 are non-union craft employees. The collective bargaining
agreements have multi-year terms and expiration dates spread out over a period
of time. These agreements call for specified wage rates, payments to pension
plans or benefit trusts and require Materials to comply with various workplace
rules. Materials considers relations with its employees to be good.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Materials' facilities are subject to various evolving federal, state and
local laws and regulations relating to the environment, including those relating
to discharges to air, water and land, the handling and disposal of solid and
hazardous waste and the cleanup of properties affected by hazardous substances.
Certain environmental laws impose substantial penalties for non-compliance and
others, such as the federal Comprehensive Environmental Response, Compensation
and Liability Act, as amended, impose strict, retroactive, joint and several
liability upon persons responsible for releases of hazardous substances.
Materials continually evaluates whether it must take additional steps at
its locations to ensure compliance with certain environmental laws. Materials
believes that its operations are in substantial compliance with applicable laws
and regulations and that any noncompliance is not likely to have a material
adverse effect on its business, financial position, results of operations or
cash flows. However, future events, such as changes in, or modified
interpretations of, existing laws and regulations or enforcement policies, or
further investigation or evaluation of the potential health hazards of certain
products or business activities, may give rise to additional compliance and
other costs that could have a material adverse effect on Materials' business.
Materials, as well as other companies in the aggregates industry, produces
certain products containing varying amounts of crystalline silica. Excessive and
prolonged inhalation of very small particles of crystalline silica has been
associated with non-malignant lung disease. The carcinogenic potential of
excessive exposure to crystalline silica has been evaluated for over a decade by
a number of research groups including the International Agency for Research on
Cancer, the National Institute for Occupational Safety and Health and the
National Toxicology Program, a part of the Department of Health and Human
Services. Results of various studies have ranged from classifying crystalline
silica as a probable to a known carcinogen. Other studies concluded higher
incidences of lung cancer in some operations were due to cigarette smoking, not
silica. Governmental agencies, including the Occupational Safety and Health
Administration and Mine Safety Health Administration, coordinate to establish
standards for controlling permissible limits on crystalline silica. Materials
believes it currently meets government guidelines for crystalline silica
exposure and will continue to employ advanced technologies as they become
available to ensure worker safety and to comply with all applicable regulations.
Materials believes that its compliance with environmental laws has not had
a material adverse effect on its business, financial position, results of
operations or cash flows.
LEGAL PROCEEDINGS
From time to time, Materials has been involved in various legal proceedings
relating to its operations and properties, all of which it believes are routine
in nature and incidental to the conduct of its business. Although the ultimate
legal and financial liability associated with such proceedings cannot be
estimated with certainty, Materials believes, based on its examination of such
matters, that none of these proceedings, if determined adversely, would have a
material adverse effect on its business, financial position, results of
operations or cash flows.
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<PAGE> 58
BUSINESS OF KIEWIT
Kiewit, together with its subsidiaries, is one of the largest construction
contractors in North America and also owns materials businesses. Kiewit was
incorporated in Delaware in 1997 to continue a construction business founded in
Omaha, Nebraska in 1884.
THE CONSTRUCTION BUSINESS
The construction business is conducted by operating subsidiaries of Kiewit.
Kiewit and its joint ventures and partnerships perform construction services for
a broad range of public and private customers primarily in the United States and
Canada. New contract awards during 1999 were distributed among the following
construction markets (approximately, by number): power, heat, cooling -- 34%,
transportation (including highways, bridges, airports, railroads, and mass
transit) -- 33%, commercial buildings -- 27%, water supply/dams -- 3%, oil and
gas -- 2% and other markets -- 1%.
Kiewit primarily performs its services as a general contractor. As a
general contractor, Kiewit 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. Kiewit plans and schedules
the projects, procures materials, hires workers as needed, and awards
subcontracts. Kiewit generally requires performance and payment bonds or other
assurances of operational capability and financial capacity from its
subcontractors.
Contract Types
Kiewit 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. Kiewit's public contracts generally provide for the payment of a
fixed price for the work performed. Profit on a fixed-price contract is realized
on the difference between the contract price and the actual cost of
construction, and the contractor bears the risk that it may not be able to
perform all the work for the specified amount. Construction contracts generally
provide for progress payments as work is completed, with a retainage, ranging
from 0% to 10%, to be paid when performance is substantially complete.
Construction contracts frequently contain penalties or liquidated damages for
late completion and infrequently provide bonuses for early completion.
Government Contracts
Public contracts accounted for approximately 76% of the combined prices of
contracts awarded to Kiewit during 1999. Most of these contracts were awarded by
government and quasi-government units under fixed price contracts after
competitive bidding. Most public contracts are subject to termination at the
election of the government. In the event of termination, the contractor is
entitled to receive the contract price on completed work and payment of
termination related costs.
COMPETITION
A contractor's competitive position is based primarily on its prices for
construction services and its reputation for quality, timeliness, experience,
and financial strength. The construction industry is highly competitive and
lacks firms with dominant market power. In 1999, Engineering News Record, a
construction trade publication, ranked Kiewit as the eighth largest United
States contractor in terms of 1998 revenue and 14th largest in terms of 1998 new
contract awards. It ranked Kiewit first in the transportation market in terms of
1998 revenue.
DEMAND
The volume and profitability of Kiewit'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. Kiewit's construction
operations could be adversely affected
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<PAGE> 59
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 Kiewit.
BACKLOG
At the end of 1999, Kiewit had backlog (anticipated revenue from
uncompleted contracts) of approximately $4 billion, a decrease from
approximately $4.9 billion at the end of 1998. Of current backlog, approximately
$1 billion is not expected to be completed during 2000. In 1999, Kiewit was low
bidder on 168 jobs with total contract prices of approximately $1.5 billion, an
average price of approximately $9.1 million per job. There were 19 new projects
with contract prices over $20 million, accounting for approximately 63% of the
successful bid volume.
JOINT VENTURES
Kiewit 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. Kiewit prefers to act as the sponsor of its joint ventures. The
sponsor generally provides the project manager, the majority of
venturer-provided personnel, and accounting and other administrative support
services. The joint venture generally reimburses the sponsor for such personnel
and services on a negotiated basis. The sponsor is generally allocated a
majority of the venture's profits and losses and usually has a controlling vote
in joint venture decision making. In 1999, Kiewit derived approximately 62% of
its joint venture revenue from sponsored joint ventures and approximately 38%
from non-sponsored joint ventures. Kiewit's share of joint venture revenue
accounted for approximately 25% of its 1999 total revenue.
SIGNIFICANT CUSTOMER
During 1999, Kiewit earned 21.7% of revenues from contracts with Level 3.
THE MATERIALS BUSINESS
Several of Kiewit's subsidiaries, located in Arizona, Washington, Oregon,
California, Wyoming, Nebraska, Utah and New Mexico, produce construction
materials, including ready-mix concrete, asphalt, sand and gravel, limestone,
landscaping materials and railroad ballast. As a result of the spin-off, these
materials operations will no longer be a part of Kiewit. They will be owned and
operated by Materials.
LOCATIONS
Kiewit structures its construction operations around 20 principal operating
offices located throughout North America, including its headquarters located in
Omaha, Nebraska. Through its decentralized system of management, Kiewit has been
able to quickly respond to changes in the local markets. At the end of 1999,
Kiewit had current projects in 47 states, Puerto Rico, Washington, D.C. and 8
Canadian provinces.
PROPERTIES
Kiewit's headquarters facilities are located in Omaha, Nebraska and are
owned by Kiewit. Kiewit also has 19 principal district offices in its
construction operations, 15 of which are located in owned facilities and 4 of
which operate from leased facilities. Kiewit also has 14 area offices in its
construction operation, 2 of which are owned facilities and 12 of which are
leased facilities. Kiewit owns or leases numerous shops, equipment yards,
storage facilities, warehouses, and construction material quarries. Since
construction projects are inherently temporary and location-specific, Kiewit
owns approximately 1,000 portable offices, shops and transport trailers. Kiewit
has a large equipment fleet, including approximately 5,100 trucks, pickups and
automobiles and 3,800 heavy construction vehicles, such as graders, scrapers,
backhoes and cranes. Joint
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ventures in which Kiewit is a participant also own an approximate additional 100
portable offices, shops and transport trailers, 600 trucks, pickups and
automobiles and 1,000 heavy construction vehicles.
ENVIRONMENTAL PROTECTION
Compliance with federal, state, and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not and is not expected to have a material
effect upon the capital expenditures, earnings, or competitive position of
Kiewit and its subsidiaries.
EMPLOYEES
At the end of 1999, Kiewit and its majority-owned subsidiaries employed
approximately 20,300 people. Of these, approximately 2,300 were employees of
Materials and its subsidiaries.
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<PAGE> 61
MANAGEMENT OF MATERIALS
SENIOR MANAGEMENT AND DIRECTORS OF MATERIALS
The following table provides material information concerning Materials'
board of directors and executive officers who will be serving or in office as of
the date of the spin-off.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Christopher J. Murphy................ 45 President, Chief Executive Officer and Director
Donald E. Bowman..................... 51 Vice President and Chief Financial Officer
Mark E. Belmont...................... 47 Vice President, General Counsel and Secretary
Todd A. Freyer....................... 39 Controller
Daniel W. Speck...................... 45 Vice President
John J. Shaffer...................... 49 Vice President
Richard W. Colf...................... 57 Director
Richard Geary........................ 65 Director
James Goodwin........................ 44 Director
Bruce E. Grewcock.................... 46 Director
William L. Grewcock.................. 74 Director
Walter Scott, Jr..................... 69 Director
Kenneth E. Stinson................... 57 Chairman of the Board of Directors
</TABLE>
OTHER KEY PERSONNEL
The following table provides material information concerning other key
personnel of Materials.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John L. Fowler....................... 57 Vice President, United Metro Materials Inc. and Vice
President, Solano Concrete Co., Inc., each a Materials
subsidiary
R. David Jennings.................... 53 Vice President, Twin Mountain Rock Company, a Materials
subsidiary
William G. Heeter.................... 62 Vice President -- Sales and Marketing, United Metro
Materials, Inc.
Rick W. Thomas....................... 43 Director of Business Development, Materials
</TABLE>
Christopher J. Murphy. Mr. Murphy has been a director and the Chief
Executive Officer of Materials since January 1, 2000. Mr. Murphy has been the
President of Materials since February 2, 1999. Mr. Murphy has been the President
of Kiewit Mining Group Inc., a Kiewit subsidiary, since July 1996 and was Vice
President of Kiewit Mining Group Inc. from October 1995 to July 1996. Mr. Murphy
has been the President of United Metro Materials since July 1996, and was Senior
Vice President of United Metro Materials from August 1994 to July 1996. Mr.
Murphy is the Chairman of the Executive Committee of Materials. Following the
spin-off, Mr. Murphy will cease to be an officer of Kiewit Mining Group.
Donald E. Bowman. Mr. Bowman has been Vice President and Chief Financial
Officer of Materials since April 24, 2000. Mr. Bowman was President, Eastern
Region, Construction Materials of Lafrage Corporation from January 1998 to March
1999. Mr. Bowman was President and Chief Executive Officer of Redland Genstar,
Inc., for more than five years prior to January 1998.
Mark E. Belmont. Mr. Belmont has been General Counsel and Secretary of
Materials since January 1, 2000 and a Vice President of Materials since February
2, 1999. Mr. Belmont has been Senior Corporate Counsel of Kiewit since July
1991.
Todd A. Freyer. Mr. Freyer has been Controller of Materials since April 1,
2000 and the Treasurer since February 2, 1999. Mr. Freyer has been Accounting
Manager of Kiewit Mining Group since April 1999
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and was Accounting Supervisor of Kiewit Mining Group for more than five years
prior to April 1999. Following the spin-off, Mr. Freyer will cease to be an
employee of Kiewit Mining Group.
Daniel W. Speck. Mr. Speck has been a Vice President of Materials since
January 1, 2000. Mr. Speck has been Vice President of United Metro Materials
since April 1997. Mr. Speck was the manager of Walnut Creek Mining Company from
March 1993 to March 1997.
John J. Shaffer. Mr. Shaffer has been a Vice President of Materials since
January 1, 2000. Mr. Shaffer has been Vice President of Pacific Rock Products,
L.L.C. since February 1, 1996. Mr. Shaffer was Vice President of Pacific Rock
Products, Inc. for more than five years prior to February 1, 1996.
Richard W. Colf. Mr. Colf has been a director of Materials since January
1, 2000. Mr. Colf has been an Executive Vice President of Kiewit since July
1998. Mr. Colf has been an Executive Vice President of Kiewit Pacific Co., a
Kiewit subsidiary, since September 1998, was a Senior Vice President of Kiewit
Pacific from October 1995 to September 1998 and was a Vice President of Kiewit
Pacific for more than five years prior to October 1995. Mr. Colf is currently
also a director of Kiewit. Mr. Colf is a member of the Audit Committee of
Materials.
Richard Geary. Mr. Geary has been a director of Materials since January 1,
2000. Mr. Geary was an Executive Vice President of Kiewit from August 1997 to
July 1998. Mr. Geary was an Executive Vice President of Kiewit Construction
Group Inc., a Kiewit subsidiary, and President of Kiewit Pacific Co. for more
than five years prior to August 1997. Mr. Geary is currently also a director of
Kiewit, and serves on the board of directors of Standard Insurance Company,
David Evans & Associates and Today's Bank, and is a trustee of the Oregon Health
Sciences University Foundation. Mr. Geary is the Chairman of the Audit Committee
of Materials.
James Goodwin. Mr. Goodwin has been a director of Materials since April 1,
2000. Mr. Goodwin has been a private investor since February 1998. Mr. Goodwin
was a Managing Director at Gleacher NatWest, Inc. for more than five years prior
to February 1998. Mr. Goodwin is also a director of Champps Entertainment, Inc.
Mr. Goodwin is a member of the Compensation Committee of Materials.
Bruce E. Grewcock. Mr. Grewcock has been a director of Materials since
February 2, 1999. Mr. Grewcock has been an Executive Vice President of Kiewit
since August 1997. Mr. Grewcock has been the President of Kiewit Western Co., a
Kiewit subsidiary, since July 1997. Mr. Grewcock was an Executive Vice President
of Kiewit Construction Group Inc. from July 1996 to June 1998 and President of
Kiewit Mining Group Inc., from January 1992 to July 1996. Mr. Grewcock is
currently also a director of Kiewit and Kinross Gold Corporation. Mr. Grewcock
is a member of the Executive Committee and the Compensation Committee of
Materials.
William L. Grewcock. Mr. Grewcock has been a director of Materials since
January 1, 2000. Mr. Grewcock was Vice Chairman of Level 3 Communications, Inc.
for more than five years prior to April 1998. Mr. Grewcock is currently also a
director of Kiewit and Level 3. Mr. Grewcock is a member of the Audit Committee
of Materials.
Walter Scott, Jr. Mr. Scott has been a director of Materials since January
1, 2000. Mr. Scott has been the Chairman Emeritus of Kiewit since August 1997
and has been the Chairman of the Board of Level 3 Communications, Inc. for more
than the last five years. Mr. Scott was the Chief Executive Officer of Level 3
for more than five years prior to August 1997. Mr. Scott is currently also a
director of Berkshire Hathaway Inc., Burlington Resources Inc., MidAmerican
Energy Holding Co., ConAgra, Inc., Commonwealth Telephone Enterprises, Inc., RCN
Corporation, Kiewit, Valmont Industries, Inc. and Level 3. Mr. Scott is a member
of the Compensation Committee of Materials.
Kenneth E. Stinson. Mr. Stinson has been a director and Chairman of
Materials since January 1, 2000. Mr. Stinson has been President of Kiewit since
August 1997 and Chairman and Chief Executive Officer of Kiewit since March 1998.
Mr. Stinson has been the Chairman and Chief Executive Officer of Kiewit
Construction Group Inc. for more than the last five years. Mr. Stinson was
Executive Vice President of Level 3 Communications, Inc. from June 1991 to
August 1997. Mr. Stinson is currently also a director of
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<PAGE> 63
ConAgra, Inc., Valmont Industries, Inc., Kiewit and Level 3. Mr. Stinson is a
member of the Executive Committee and is the Chairman of the Compensation
Committee of Materials.
John L. Fowler. Mr. Fowler has been Vice President of United Metro
Materials since March 1, 1994 and was President of the United Metro Division of
The Tanner Companies from 1985 to 1994. Mr. Fowler has been Vice President of
Solano Concrete Co., Inc. since January 3, 2000.
R. David Jennings. Mr. Jennings has been Vice President of Twin Mountain
Rock Company, a Materials subsidiary, since 1986.
William G. Heeter. Mr. Heeter has been Vice President -- Sales and
Marketing of United Metro Materials and its predecessors since 1971.
Rick W. Thomas. Mr. Thomas has been Director of Business Development of
Materials since January 1999. From 1997 to 1998, Mr. Thomas held a senior
operations position with Kiewit Mining Group Inc. From 1996 to 1997, Mr. Thomas
was Vice President -- Engineering of Anker Energy Corporation. Mr. Thomas was
Vice President -- Operations of Great Western Coal Company for more than five
years prior to 1996.
The Materials board of directors is divided into three classes, designated
Class I, Class II and Class III, each class consisting, as nearly as possible,
of one-third of the total number of directors constituting the Materials board.
The initial Class I directors are: Messrs. Bruce Grewcock, William Grewcock and
Scott. The initial Class II directors are: Messrs. Colf, Geary and Goodwin. The
initial Class III directors are: Messrs. Murphy and Stinson. The term of the
initial Class I directors will terminate on the date of the 2001 annual meeting
of stockholders. The term of the initial Class II directors will terminate on
the date of the 2002 annual meeting of stockholders. The term of the initial
Class III directors will terminate on the date of the 2003 annual meeting of the
stockholders. At each annual meeting of stockholders beginning in 2001,
successors to the class of directors whose term expires at that annual meeting
will be elected for three-year terms.
COMMITTEES
The board of directors has an Audit Committee, a Compensation Committee and
an Executive Committee.
The Audit Committee recommends the selection of and reviews the services
provided by Materials' independent auditors, consults with the independent
auditors and reviews the need for internal auditing procedures and the adequacy
of internal controls and reports and makes recommendations to the full board.
The initial Audit Committee members are Messrs. Geary (Chairman), Colf and
William Grewcock.
The Compensation Committee determines the compensation of the Chief
Executive Officer, recommends the compensation of Materials' key management and
personnel and recommends securities ownership and other benefits. The initial
Compensation Committee members are Messrs. Stinson (Chairman), Goodwin, Bruce
Grewcock and Scott.
The Executive Committee exercises, to the maximum extent permitted by law,
all powers of the board between board meetings, except those functions assigned
to specific committees. The initial Executive Committee members are Messrs.
Murphy (Chairman), Bruce Grewcock and Stinson.
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<PAGE> 64
SECURITY OWNERSHIP OF MATERIALS COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF MATERIALS
The table below shows information about the expected ownership of Materials
common stock as of the date of the spin-off, by each of Materials' directors and
the four most highly compensated executive officers in 1999 and each person who
is expected to beneficially own more than 5 percent of Materials common stock.
The table also shows the expected ownership of Materials common stock by all of
the directors and executive officers as a group as of that date. The ownership
information presented below with respect to all persons:
- is based on the ownership of Materials common stock after the completion
of the share exchange, the debenture exchange offer and the spin-off;
- assumes that, in the share exchange, the persons listed below who are
employees of Materials exchanged any shares of Kiewit common stock they
held for shares of Materials common stock;
- assumes that in the debenture exchange offer, the persons listed below
who are employees of Materials exchanged any Kiewit convertible
debentures they held for Materials convertible debentures;
- assumes that, in the debenture exchange offer, the persons listed below
who are employees of Kiewit exchanged any Kiewit convertible debentures
they held for both new reduced principal amount Kiewit convertible
debentures and shares of Materials common stock;
- assumes a formula price for Kiewit common stock immediately prior to the
spin-off of $20.35 per share, the formula price as of August 14, 2000;
- assumes a formula price for Materials common stock of $7.14 per share;
- reflects the beneficial ownership of Kiewit common stock at August 14,
2000 and the distribution ratio of one share of Materials common stock
for each share of Kiewit common stock in the spin-off, and the Materials
common stock split necessary to achieve that ratio; and
- assumes no change in beneficial ownership of Kiewit common stock between
August 14, 2000 and the date of the spin-off.
"Beneficial ownership" means the sole or shared power to vote, or to direct the
voting of, a security, or the sole or shared power to dispose of, or to direct
the disposition of, a security. A person is deemed, as of any date, to have
"beneficial ownership" of any security that such person has the right to acquire
within 60 days after such date.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENT OF SHARES
---- ------------------ -----------------
<S> <C> <C>
Kenneth E. Stinson(1)(2).................................... 2,880,492 7.92%
Richard W. Colf............................................. 1,725,960 4.75%
Bruce E. Grewcock........................................... 988,804 2.72%
Christopher J. Murphy....................................... 848,954 2.33%
Richard Geary............................................... 717,780 1.97%
Walter Scott, Jr............................................ 400,000 1.1%
Daniel W. Speck............................................. 211,925 *
Mark E. Belmont............................................. 40,837 *
John J. Shaffer............................................. 9,975 *
William L. Grewcock......................................... 8,192 *
James Goodwin............................................... -- *
--------- -----
Directors and Executive Officers as a Group (13
Individuals).............................................. 7,880,231 21.67%
</TABLE>
---------------
* Less than 1%
(1) Includes 766,773 shares of Materials common stock expected to be held in
trusts, for which Mr. Stinson is the trustee with sole voting and investment
powers.
(2) Mr. Stinson's address is c/o Kiewit Plaza, Omaha, Nebraska 68131.
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<PAGE> 65
EXECUTIVE COMPENSATION OF MATERIALS
SUMMARY COMPENSATION TABLE
The following table presents information regarding the compensation paid by
Kiewit to Materials' Chief Executive Officer and each of Materials' three other
most highly compensated executive officers for the fiscal year ended December
25, 1999. Kiewit does not maintain plans under which options, stock appreciation
rights, restricted stock awards, long-term incentive compensation, profit
sharing, or pension benefits were granted to Materials' executive officers.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
--------------------------- ---- --------- --------
<S> <C> <C> <C>
Christopher J. Murphy....................................... 1999 185,700 150,000
President and Chief Executive Officer
John J. Shaffer............................................. 1999 138,312 111,754
Vice President
Mark E. Belmont............................................. 1999 134,875 13,000
Vice President, General Counsel and Secretary
Daniel W. Speck............................................. 1999 117,650 30,000
Vice President
</TABLE>
Other annual compensation is not included because, in 1999, no executive
officer received any other annual compensation in excess of the reporting
threshold.
DIRECTOR COMPENSATION
Directors of Materials who are not employees or officers of Materials or
its subsidiaries or employees, officers or directors of Kiewit or its
subsidiaries will receive directors' fees consisting of an annual retainer of
$35,000 payable in shares of Materials common stock.
OTHER COMPENSATION AND EQUITY PROGRAMS
Materials intends to implement a retention bonus program for certain of its
key employees to ensure their continued employment during Materials' transition
to an independent company. Materials anticipates that any bonuses under this
bonus program will be paid to such key employees who remain employed on January
1, 2001 and January 1, 2002. The amount of any bonuses and the determination of
the individuals to whom bonuses may be paid will be determined by the Materials
board of directors and management in their sole discretion.
The compensation payable to certain of Materials' executive officers who
previously were employees of Kiewit is expected to increase following the
spin-off.
Kiewit has historically offered certain of its employees the opportunity to
purchase securities in annual common stock and debenture offerings. The Kiewit
board of directors and management, in their sole discretion, select the
employees to whom Kiewit's securities will be offered and determine the amount
of securities to be offered. Kiewit securities are offered only to salaried
employees who are satisfactorily performing on a continuing basis in either an
executive, managerial, administrative or professional capacity. The following
factors are among those considered in determining whether an employee will be
offered Kiewit securities and the amount of securities to be offered; the
employee's effort and relative contribution to Kiewit's economic performance;
the employee's level of responsibility; potential displayed by the employee; the
employee's length of service; and the amount of securities presently owned by
the employee. In addition, Kiewit debentures are only offered to those employees
whom the Kiewit board and management determine have contributed significantly to
the growth and performance of Kiewit. Materials intends to follow Kiewit's
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<PAGE> 66
prior practice by regularly selling Materials common stock and debentures to
Materials employees in annual offerings. However, although Materials intends to
follow Kiewit's prior practice, Materials is not required to offer its
securities in any particular year, nor is Materials obligated to offer
securities to any particular employee, whether or not that employee is already a
security holder of Materials, in any particular year. In addition, Materials
does not anticipate selling capital stock that represents, in the aggregate,
more than 12% of the capital stock of Materials outstanding on a fully diluted
basis immediately after the spin-off to employees over the next four to six
years.
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<PAGE> 67
MANAGEMENT OF KIEWIT
SENIOR MANAGEMENT AND DIRECTORS OF KIEWIT
The following table provides material information concerning Kiewit's board
of directors and executive officers who will be serving or in office as of the
date of the spin-off.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mogens C. Bay........................ 51 Director
Gregory D. Brokke.................... 38 Controller
John B. Chapman...................... 54 Vice President -- Human Resources and Administration
Roy L. Cline......................... 62 Executive Vice President and Director
Richard W. Colf...................... 57 Executive Vice President and Director
James Q. Crowe....................... 51 Director
Richard Geary........................ 65 Director
Bruce E. Grewcock.................... 46 Executive Vice President and Director
William L. Grewcock.................. 74 Director
Peter Kiewit, Jr..................... 74 Director
Allan K. Kirkwood.................... 57 Executive Vice President and Director
Ben E. Muraskin...................... 36 Vice President
Gerald S. Pfeffer.................... 54 Vice President
Michael J. Piechoski................. 46 Vice President and Treasurer
Jerry C. Porter...................... 56 Vice President
Tobin A. Schropp..................... 38 Vice President, General Counsel and Secretary
Walter Scott, Jr..................... 69 Director
Stephen A. Sharpe.................... 48 Vice President
Kenneth E. Stinson................... 57 Chief Executive Officer, President and Chairman of the
Board of Directors
George B. Toll, Jr................... 63 Director
</TABLE>
Mogens C. Bay. Mr. Bay has been a director of Kiewit since March 1999. Mr.
Bay has been Chairman of Valmont Industries, Inc. since January 1997 and
President and Chief Executive Officer of Valmont since August 1993. Mr. Bay is
also currently a director of Valmont and ConAgra, Inc. Mr. Bay is a member of
the Compensation Committee and the Executive Compensation Subcommittee of the
Compensation Committee of Kiewit.
Gregory D. Brokke. Mr. Brokke has been the Controller of Kiewit since June
2000. Mr. Brokke was Assistant Treasurer of Kiewit from July 1997 to June 2000.
Mr. Brokke was Audit Supervisor of Kiewit from December 1994 to June 1997.
John B. Chapman. Mr. Chapman has been Vice President of Human Resources
and Administration of Kiewit since August 1997. Mr. Chapman was Vice President
of Human Resources for Kiewit Construction Group Inc. for more than five years
prior to August 1997.
Roy L. Cline. Mr. Cline has been a director and Executive Vice President
of Kiewit since June 1999. Mr. Cline was the President of Kiewit Industrial Co.
from March 1992 until June 1999. Mr. Cline is a member of the Executive
Committee of Kiewit.
Richard W. Colf. Biographical information regarding Mr. Colf is included
in "Management of Materials." Mr. Colf is also a member of the Executive
Committee of Kiewit.
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<PAGE> 68
James Q. Crowe. Mr. Crowe has been a director of Kiewit since August 1997.
Mr. Crowe has been the President and Chief Executive Officer of Level 3
Communications, Inc. since August 1997. Mr. Crowe was Chairman of the Board of
MFS Communications Company, Inc. for more than five years prior to December
1997, Chief Executive Officer from November 1991 until December 1997 and was
President from January 1988 to June 1989 and from April 1990 until January 1992.
Mr. Crowe was Chairman of the Board of MCI WorldCom, Inc. from January 1997
until July 1997. Mr. Crowe is currently also a director of Commonwealth
Telephone Enterprises, Inc., RCN Corporation, InaCom Corp. and Level 3. Mr.
Crowe is a member of the Compensation Committee of Kiewit.
Richard Geary. Biographical information regarding Mr. Geary is included in
"Management of Materials."
Bruce E. Grewcock. Biographical information regarding Mr. Grewcock is
included in "Management of Materials." Mr. Grewcock is also a member of the
Executive Committee of Kiewit.
William L. Grewcock. Biographical information regarding Mr. Grewcock is
included in "Management of Materials." Mr. Grewcock is also a member of the
Compensation Committee of Kiewit.
Kenneth M. Jantz. Mr. Jantz has been a Vice President and Treasurer of
Kiewit since August 1997. Mr. Jantz was a Vice President of Kiewit Construction
Group Inc. from May 1994 to June 1998.
Peter Kiewit, Jr. Mr. Kiewit has been a director of Kiewit since August
1997. Mr. Kiewit has been Of Counsel to the law firm of Gallagher & Kennedy,
Phoenix, Arizona, for more than the last five years. Mr. Kiewit is a member of
the Audit Committee, the Compensation Committee and the Executive Compensation
Subcommittee of the Compensation Committee of Kiewit.
Allan K. Kirkwood. Mr. Kirkwood has been a director of Kiewit since August
1997. Mr. Kirkwood has been an Executive Vice President of Kiewit since July
1998. Mr. Kirkwood has been an Executive Vice President of Kiewit Pacific Co.
since September 1998, was a Senior Vice President of Kiewit Pacific from October
1995 to September 1998 and was a Vice President of Kiewit Pacific for more than
five years prior to October 1995. Mr. Kirkwood is a member of the Executive
Committee and is the Chairman of the Audit Committee of Kiewit.
Ben E. Muraskin. Mr. Muraskin has been a Vice President of Kiewit since
January 2000. Mr. Muraskin was a partner at Alston & Bird LLP from January 1999
to December 1999, and an associate at that firm from May 1992 to January 1999.
Gerald S. Pfeffer. Mr. Pfeffer has been a Vice President of Kiewit since
April 1998. Mr. Pfeffer was a Vice President of Kiewit Construction Group from
December 1997 to June 1998. Mr. Pfeffer was Vice President of Kiewit SR91 Corp.
from January 1993 to December 1997.
Michael J. Piechoski. Mr. Piechoski has been a Vice President and the
Treasurer of Kiewit since June 2000. Mr. Piechoski was Director of Audit of
Kiewit from April 1999 to June 2000. Mr. Piechoski was Chief Accounting Officer
of United Metro Materials from December 1983 to March 1999.
Jerry C. Porter. Mr. Porter has been a Vice President of Kiewit since May
2000. Mr. Porter has been the design/build manager for Kiewit since September
1999. Mr. Porter was a construction design manager for Kiewit Pacific from
September 1996 until September 1999. Mr. Porter was an engineering manager and a
construction manager for Kiewit SR91 Corp. from October 1993 until September
1996.
Tobin A. Schropp. Mr. Schropp has been a Vice President, General Counsel
and Secretary of Kiewit since September 1998. Mr. Schropp was Director of Taxes
of Kiewit from March 1998 to September 1998. Mr. Schropp was Director of Taxes
of Level 3 Communications, Inc. from August 1996 to March 1998, and Director of
Research, Planning and Audit of Level 3 from September 1993 to August 1996.
Walter Scott, Jr. Biographical information regarding Mr. Scott is included
in "Management of Materials." Mr. Scott is also the Chairman of the Compensation
Committee of Kiewit.
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<PAGE> 69
Stephen A. Sharpe. Mr. Sharpe has been a Vice President of Kiewit since
August 1997. Mr. Sharpe was a Vice President of Kiewit Construction Group Inc.
from October 1996 to June 1998. Mr. Sharpe was a Vice President of U.S.
Generating Company for more than five years prior to October 1996.
Kenneth E. Stinson. Biographical information regarding Mr. Stinson is
included in "Management of Materials." Mr. Stinson is also the Chairman of the
Executive Committee of Kiewit.
George B. Toll, Jr. Mr. Toll has been a director of Kiewit since August
1997. Mr. Toll was an Executive Vice President of Kiewit from August 1994 to
June 1999. Mr. Toll was an Executive Vice President of Kiewit Construction Group
Inc. from April 1994 to June 1998, and a Vice President of Kiewit Pacific from
June 1992 to August 1994.
COMMITTEES
The Kiewit board of directors has an Audit Committee, a Compensation
Committee and an Executive Committee.
The Audit Committee recommends the selection of and reviews the services
provided by Kiewit's independent auditors, consults with the independent
auditors and reviews the need for internal auditing procedures and the adequacy
of internal controls and reports and makes recommendations to the full board.
The current Audit Committee members are Messrs. Kirkwood (Chairman), Bay and
Kiewit.
The Compensation Committee determines the compensation of the Chief
Executive Officer and reviews the compensation, securities ownership, and
benefits of Kiewit's executive officers. The current Compensation Committee
members are Messrs. Scott (Chairman), Bay, Crowe, Kiewit and William Grewcock.
The Compensation Committee has an Executive Compensation Subcommittee. The
Executive Compensation Subcommittee reviews and approves or disapproves, all
compensation of whatever nature to be paid to the Chief Executive Officer of
Kiewit and Kiewit's next four highest paid executive officers; establishes and
administers performance goals pursuant to Kiewit's executive bonus plans, if
any, adopted pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended; and approves or disapproves, on behalf of the board, the creation of
any new bonus plans for the executive officers of Kiewit pursuant to Section
162(m) of the Code. The current Executive Compensation Subcommittee members are
Messrs. Kiewit (Chairman) and Bay.
The Executive Committee exercises, to the maximum extent permitted by law,
all powers of the board of directors between board meetings, except those
functions assigned to specific committees. The current Executive Committee
members are Messrs. Stinson (Chairman), Cline, Colf, Bruce Grewcock, and
Kirkwood.
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<PAGE> 70
SECURITY OWNERSHIP OF KIEWIT COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF KIEWIT
The table below shows information about the expected ownership of Kiewit
common stock as of the date of the spin-off by each of Kiewit's directors and
five most highly compensated executive officers in 1999 and each person who is
expected to beneficially own more than 5 percent of Kiewit common stock. The
table also shows the expected ownership of Kiewit common stock by all of the
directors and executive officers as a group as of that date. The ownership
information presented below with respect to all persons reflects the beneficial
ownership of Kiewit common stock at August 14, 2000 and assumes no change in
beneficial ownership of Kiewit common stock between that date and the date of
the spin-off.
"Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security, or the sole or shared power to dispose of, or to
direct the disposition of, a security. A person is deemed, as of any date, to
have "beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED SHARES
---- ------------------ ----------
<S> <C> <C>
Kenneth E. Stinson(1)(2).................................... 2,770,968 8.3%
Richard W. Colf(3).......................................... 1,715,960 5.1%
Allan K. Kirkwood........................................... 1,257,664 3.8%
George B. Toll, Jr.......................................... 1,140,824 3.4%
Bruce E. Grewcock........................................... 941,336 2.8%
Richard Geary............................................... 717,780 2.1%
Roy L. Cline................................................ 573,416 1.7%
Walter Scott, Jr............................................ 400,000 1.2%
William L. Grewcock......................................... 8,192 *
Mogens C. Bay............................................... 4,000 *
James Q. Crowe.............................................. 4,000 *
Peter Kiewit, Jr............................................ 4,000 *
---------- ----
Directors and Executive Officers as a Group (20
Individuals).............................................. 10,070,908 30.2%
</TABLE>
---------------
* Less than 1%.
(1) Includes 766,773 shares of Kiewit common stock held in trusts, for which Mr.
Stinson is the trustee with sole voting and investment powers.
(2) Mr. Stinson's address is c/o Kiewit Plaza, Omaha, Nebraska 68131.
(3) Mr. Colf's address is c/o 215 V Street, Vancouver, Washington 98661.
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<PAGE> 71
EXECUTIVE COMPENSATION OF KIEWIT
SUMMARY COMPENSATION TABLE
The table below shows the annual compensation paid by Kiewit to its Chief
Executive Officer and each of Kiewit's four other most highly compensated
executive officers. In addition, annual compensation information is also
provided for George B. Toll, Jr., who resigned as Executive Vice President of
Kiewit in June 1999. Kiewit does not currently have plans under which options,
stock appreciation rights, restricted stock awards, long-term incentive
compensation, profit sharing, or pension benefits are held by its executive
officers.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($)(2)
--------------------------- ---- ---------- ------------ -------------------
<S> <C> <C> <C> <C>
Kenneth E. Stinson........................ 1999 656,207 1,500,000 109,780(3)
Chief Executive Officer 1998 570,835 1,500,000 111,422(4)
1997 476,670 900,000
George B. Toll, Jr. ...................... 1999 229,585 700,000
1998 290,921 650,000
1997 257,706 500,000
Allan K. Kirkwood......................... 1999 300,768 400,000
Executive Vice President 1998 254,885 360,000
1997 221,250 310,000
Roy L. Cline.............................. 1999 295,890 365,000
Executive Vice President 1998 271,046 407,260
1997 257,670 223,667
Richard W. Colf........................... 1999 302,229 250,000
Executive Vice President 1998 261,530 360,000
1997 234,750 310,000
Bruce E. Grewcock......................... 1999 286,145 270,000
Executive Vice President 1998 226,415 175,000
1997 199,831 175,000
</TABLE>
---------------
(1) Bonuses reflect payments made in the specified year with respect to
performance in the prior year.
(2) Other Annual Compensation means perquisites and other personal benefits
received, if, in the aggregate, in excess of the lesser of $50,000 or 10% of
their combined salary and bonus. No executive officer other than Mr. Stinson
received any Other Annual Compensation in excess of the reporting threshold.
(3) In 1999, taxable income in the amount of $51,535 was imputed to Mr. Stinson
with respect to the non-business use of corporate aircraft and taxable
income in the amount of $57,430 was imputed with respect to his
interest-free loan described below.
(4) In 1998, taxable income in the amount of $40,778 was imputed to Mr. Stinson
with respect to the non-business use of corporate aircraft and taxable
income in the amount of $70,644 was imputed with respect to his
interest-free loan described below.
DIRECTOR COMPENSATION
During 1999, each of the directors of Kiewit who were not employed by
Kiewit during 1999 received directors' fees consisting of an annual retainer of
$30,000 and fees of $1,500 for attending each board meeting and $1,200 for
attending each committee meeting. Non-employee directors also receive $1,500 for
attending Kiewit's annual operations meeting.
CERTAIN TRANSACTIONS
Transactions with Level 3. In March 1998, Level 3 Communications, Inc.,
then known as "Peter Kiewit Sons', Inc.," separated its construction and
materials business from its other businesses in a spin-off. As a result of that
transaction, Kiewit became an independent company holding Level 3's former
construction and materials businesses, with Level 3 retaining the other
businesses. James Q. Crowe, a director of Kiewit, is the
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<PAGE> 72
President and Chief Executive Officer and a director of Level 3. Walter Scott,
Jr., a director of Kiewit, is the Chairman of the Board of Level 3. Kenneth E.
Stinson, the President, Chief Executive Officer and Chairman of the Board of
Kiewit, is a director of Level 3.
A subsidiary of Level 3 and Kiewit Engineering Company, a subsidiary of
Kiewit, are parties to various aircraft operating agreements pursuant to which
Kiewit Engineering Company provides Level 3's subsidiary with aircraft
maintenance, operations and related services. During 1999, Level 3's subsidiary
reimbursed Kiewit Engineering Company approximately $2.1 million in expenses
incurred in connection with the operation of Level 3 aircraft. Level 3 also paid
Kiewit Engineering Company a management fee of approximately $80,000.
Level 3 and Kiewit Mining Group, Inc., a subsidiary of Kiewit, are parties
to an amended mine management agreement pursuant to which Kiewit Mining Group
provides mine management and related services for Level 3's coal mining
properties. During 1999, Level 3 paid Kiewit Mining Group approximately $33
million in connection with services provided pursuant to such agreement.
Level 3 and Kiewit Construction Company, a subsidiary of Kiewit, are
parties to a contract for the construction of Level 3's North American Intercity
Network. Construction, which is expected to be completed by the end of 2000,
will cost an estimated $3 billion. In 1999, Level 3 paid Kiewit Construction
Company approximately $699 million under this contract. In addition, Level 3 has
retained Kiewit Construction Company as the general contractor for the
construction of Level 3's campus headquarters facility being built in
Broomfield, Colorado. In 1999, Level 3 paid Kiewit Construction Company
approximately $100 million in connection with such activities.
In connection with the 1998 spin-off of Kiewit from Level 3, Kiewit and
Level 3 entered into various agreements intended to implement that spin-off,
including a separation agreement and a tax sharing agreement, pursuant to which
the parties allocated certain liabilities associated with their respective
businesses and the costs and other liabilities related to the spin-off.
Other Transactions. On January 25, 1999, Kiewit Engineering Company sold
its 60% interest in an aircraft to Elk Mountain Ventures, Inc., a corporation
controlled by Mr. Scott, a director of Kiewit, for $10,800,000, the fair market
value of the aircraft interest. Kiewit Engineering acquired the aircraft
interest in a capital contribution from Level 3. Elk Mountain Ventures, Inc. and
Kiewit Engineering Company are parties to various aircraft operating agreements
pursuant to which Kiewit Engineering Company provides Elk Mountain with aircraft
maintenance, operations and related services. During 1999, Elk Mountain
reimbursed Kiewit Engineering Company approximately $1.4 million in expenses
incurred in connection with the operation of Elk Mountain's aircraft. Elk
Mountain also paid the subsidiary of Kiewit a management fee of approximately
$44,000. Kiewit Construction Company provided various construction related
services to Walter Scott, Jr. during 1999. Mr. Scott paid Kiewit Construction
Company approximately $4 million in connection with those services.
Kiewit provided George B. Toll, Jr., a director and a former executive
officer of Kiewit, an interest-free loan of $800,000 during 1994 in connection
with the purchase of a residence and relocation expenses. The full principal
amount of his demand note payable to Kiewit is currently outstanding. The loan
is scheduled to be repaid in January 2002.
Kiewit provided its holders of convertible debentures with interest-free
loans in connection with the spin-off of Kiewit from Level 3 in 1998. The
following is a list of directors and executive officers who had outstanding
interest-free loans from Kiewit in excess of $60,000 during 1999, the largest
aggregate amount outstanding during 1999 and the amount, if any, currently
outstanding: (a) Kenneth E. Stinson -- $1,080,000 ($700,000 currently); (b) Roy
L. Cline -- $250,000 ($200,000 currently); (c) Bruce E. Grewcock -- $250,000
($200,000 currently); (d) Allan K. Kirkwood -- $240,000 ($200,000 currently);
(e) Richard W. Colf -- $150,000 ($100,000 currently); (f) Kenneth M.
Jantz -- $150,000 ($100,000 currently); (g) Richard Geary -- $100,000 ($0
currently); (h) Stephen A. Sharpe -- $100,000 ($100,000 currently); and (i) John
Brad Chapman -- $80,000 ($55,000 currently). The loans are scheduled to be
repaid over the next two years, with the final payments due on November 1, 2001.
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Valmont Industries, Inc. has retained Kiewit Construction Company as the
general contractor for the construction of Valmont's headquarters facility in
Omaha, Nebraska. Mogens C. Bay, a director of Kiewit, is the Chairman, President
and Chief Executive Officer of Valmont. In 1999, Valmont paid Kiewit
Construction Company approximately $7 million in connection with such
activities.
In 1999, Richard W. Colf, an executive vice president and director of
Kiewit, acquired a used piece of construction equipment from a subsidiary of
Kiewit for $80,000.
The law firm of Gallagher & Kennedy provided various legal services to
Kiewit and its subsidiaries during 1999. Peter Kiewit Jr., a director of Kiewit,
is Of Counsel to Gallagher & Kennedy. Fees paid to Gallagher & Kennedy by Kiewit
and its subsidiaries did not exceed 5% of Gallagher & Kennedy's revenues for
1999.
Bruce E. Grewcock, an executive vice president and director of Kiewit, is
the son of William L. Grewcock, a director of Kiewit.
In connection with the spin-off, Kiewit and Materials will enter into
agreements defining the ongoing relationships between them and their
subsidiaries and affiliates after the spin-off and providing for an orderly
separation of the two companies. See "Relationship Between Kiewit and
Materials."
Kiewit believes that the fees paid in each of the transactions described
above approximates the fair market value for the services rendered.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Kiewit board of directors consists of
Messrs. Bay, Crowe, William Grewcock, Kiewit and Scott. Messrs. Scott and
William Grewcock are employees of Kiewit. Messrs. Scott, William Grewcock and
Crowe were formerly officers of Kiewit or its subsidiaries.
A corporation controlled by Mr. Scott was a joint owner of an aircraft with
Kiewit Engineering Company and such corporation's successor acquired Kiewit
Engineering Company's interest in such aircraft on January 25, 1999. That
company also paid Kiewit Engineering Company for certain aircraft related
expenses in 1999. In 1999, Level 3 Communications, Inc. paid several
subsidiaries of Kiewit for the construction of Level 3's North American
Intercity Network and campus headquarters facilities and for certain mine
management and aircraft related services. See "Certain Transactions."
Mr. Stinson, the President, Chief Executive Officer and Chairman of the
Board of Kiewit, is a director of Valmont Industries, Inc. Mr. Bay, a director
of Kiewit, is the Chairman, President and Chief Executive Officer of Valmont.
COMPARISON OF RIGHTS OF HOLDERS OF KIEWIT COMMON STOCK
AND MATERIALS COMMON STOCK
GENERAL
The following is a summary of material differences between the rights of
holders of Kiewit common stock and the rights of holders of Materials common
stock. Because each of Kiewit and Materials are organized under the laws of
Delaware, these differences arise principally from provisions of the restated
certificate of incorporation and bylaws of each of Kiewit and Materials.
The authorized capital stock of Materials consists of 100,000,000 shares of
common stock, par value $0.01 per share and 10,000,000 shares of preferred
stock, par value $0.01 per share.
The authorized capital stock of Kiewit consists of 125,000,000 shares of
common stock, par value $0.01 per share and 250,000 shares of preferred stock,
par value $0.01 per share.
The following summary does not purport to be a complete statement of the
rights of stockholders of Kiewit under the restated certificate of incorporation
and bylaws of Kiewit as compared with the rights of Materials stockholders under
the restated certificate of incorporation and the bylaws of Materials or a
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complete description of the specific provisions referred to in this summary. The
identification of specific differences is not meant to indicate that other equal
or more significant differences do not exist. The summary is qualified in its
entirety by reference to the governing corporate instruments of Kiewit and
Materials, to which stockholders are referred. Copies of the governing corporate
instruments of Kiewit and Materials have been filed with the SEC. See "Where You
Can Find More Information" on page 78.
DIVIDEND POLICY
Materials currently does not intend to pay cash dividends on the Materials
common stock.
Kiewit intends to continue its current dividend policy of paying a regular
cash dividend on its common stock based upon a percentage of its prior year's
earnings from operations, with any special cash dividends based on earnings from
unusual or non-recurring events.
VOTING RIGHTS
The holders of Materials common stock are entitled to one vote per share on
all matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the board of
directors from legally available funds. Holders of Materials common stock are
not entitled to cumulative voting rights. The holders of Materials common stock
have no preemptive or other subscription rights and there are no conversion
rights or redemption or sinking fund provisions with respect to the Materials
common stock. All outstanding shares of Materials common stock, including the
shares being offered in the share exchange, the debenture exchange offer and the
spin-off, are, or will be upon completion of the share exchange, the debenture
exchange offer and the spin-off, fully paid and non-assessable.
The Materials restated certificate of incorporation provides that any
amendments to the provisions in the restated certificate of incorporation
regarding the classification of the board of directors require the approval of
at least 80% of the Materials common stock. Any amendment to the 80% threshold
requires the approval of at least 80% of the Materials common stock. Amendments
to the provisions in the restated certificate of incorporation regarding
stockholders' repurchase rights, the definition of the formula price, stock
ownership and transfer restrictions, the prohibition of stockholder action by
written consent in place of a meeting, the limitation on the right of
stockholders to call special meetings, the limitation on the right of
stockholders to present proposals or nominate directors for election at annual
meetings of stockholders and amendments to the restated certificate of
incorporation require the approval of at least 66 2/3% of the Materials common
stock.
Holders of Kiewit common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of Kiewit. Holders of Kiewit
common stock are entitled to elect the entire Kiewit board of directors by
cumulative voting. The Kiewit restated certificate of incorporation provides
that certain fundamental corporate changes, such as changes in the capital
structure of Kiewit, are effective only upon the approval of at least 80% of
Kiewit common stock, while certain other actions require the approval of 66 2/3%
of Kiewit common stock.
REPURCHASE RIGHTS
Holders of Materials common stock are generally permitted, at any time on
or prior to the 15th day of any calendar month, to offer to sell all or part of
their common stock to Materials at the current formula price. Materials is
generally required to accept the offer within 10 days of receipt of the offer,
provided, however, that after giving effect to the purchase, there remain at
least 1,000 shares of capital stock of Materials issued and outstanding and
having full voting power.
The Materials board of directors may suspend Materials' duties to
repurchase Materials common stock offered by a stockholder upon the Materials
board's determination that the Materials adjusted book value to be determined at
the end of the current fiscal year is likely to be less that the Materials
adjusted book value determined at the end of the prior fiscal year, less
dividends declared on Materials common stock since the prior fiscal year end.
This suspension may not exceed one year.
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The Materials board has the right to decide to conserve Materials' cash by
temporarily halting Materials' duty to repurchase Materials common stock for
cash. In such event, payment will be in the form of interest-bearing promissory
notes instead of cash. Such promissory notes will have such term to maturity, up
to 5 years, as the Materials board may determine. Holders may withdraw tenders
of shares of Materials common stock that would be paid for with notes. The
Materials board has the right to invoke this cash repurchase limitation only
after more than 5% of the outstanding shares of Materials common stock have been
tendered in any fiscal year.
Under Section 160 of the Delaware General Corporation Law, Materials may
not repurchase shares of its common stock if its capital is impaired or if the
repurchase would impair its capital.
Materials' repurchase obligations may be terminated by Materials' board of
directors at any time. However, the board shall not have that authority unless
it has also determined that the Materials common stock is publicly traded.
Holders of Kiewit common stock are generally permitted, at any time on or
prior to the 15th day of any calendar month, to offer to sell all or a part of
their common stock to Kiewit at the current formula price. Kiewit is generally
required to accept the offer within 10 days of receipt of the offer, provided,
however, that after giving effect to the purchase, there remain at least 1,000
shares of capital stock of Kiewit issued and outstanding having full voting
power.
The Kiewit board of directors may suspend Kiewit's duties to repurchase
Kiewit common stock offered by a stockholder upon the Kiewit board's
determination that the Kiewit adjusted book value to be determined at the end of
the current fiscal year is likely to be less than the Kiewit adjusted book value
determined at the end of the prior year, less, dividends declared on Kiewit
common stock since the prior fiscal year end. This suspension may not exceed one
year.
Under Section 160 of the Delaware General Corporation Law, Kiewit may not
repurchase shares of its common stock if its capital is impaired or if the
repurchase would impair its capital.
LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of Materials, after the
creditors of Materials and the holders of Materials preferred stock (if any),
receive the full preferential amounts to which they are entitled, holders of
Materials common stock will be entitled to receive any assets available for
distribution to stockholders of Materials.
The holders of Kiewit common stock have comparable rights on liquidation of
Kiewit.
FORMULA PRICE
The formula price of Materials common stock is the price at which Materials
purchases shares of its common stock and is based upon the adjusted book value
of Materials at the end of the previous year.
The per share Materials formula price is determined by decreasing the prior
year's book value by the stockholders' equity attributable to any preferred
stock, and increasing such result by the portion of the face amount of any
outstanding Materials debentures convertible into Materials common stock at the
end of such year, and then dividing this result by the sum of (1) the number of
outstanding shares of Materials common stock and (2) the number of shares
reserved for conversion of such debentures into Materials common stock, each at
the end of such year. This quotient is rounded down to the nearest $.01 and the
result represents the adjusted book value per share of the Materials common
stock. For purposes of determining the formula price during the fiscal year
2000, shares of Materials common stock issued to Kiewit prior to the spin-off
shall be deemed to be outstanding at the end of the fiscal year 1999. The per
share formula price is determined by reducing this amount by any dividends per
share declared on the Materials common stock since the prior year end. In
addition to any adjustments for declared dividends during the current year, the
initial formula price for Materials common stock is also adjusted for the amount
of any capital contributions made by Kiewit to
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Materials during fiscal year 2000 prior to the spin-off, other than any capital
contribution made in connection with the issuance of Materials debentures in
exchange for Kiewit debentures.
The formula price of Kiewit common stock is the price at which Kiewit
purchases and sells shares of its common stock and is based upon the adjusted
book value of Kiewit at the end of the previous year.
The per share Kiewit formula price is determined by decreasing the prior
year's book value by the sum of the book value of construction related property,
plant and equipment and the stockholders' equity attributable to any preferred
stock, and increasing such result by the portion of the face amount of any
outstanding Kiewit debentures convertible into Kiewit common stock at the end of
such year, and then dividing this result by the sum of (1) the number of
outstanding shares of Kiewit common stock and (2) the number of shares reserved
for conversion of such debentures into Kiewit common stock, each at the end of
such year. This quotient is rounded to the nearest $.05 and the result
represents the adjusted book value per share of the Kiewit common stock. The per
share formula price is determined by reducing this amount by any dividends per
share declared on the Kiewit common stock since the prior year end.
OWNERSHIP AND TRANSFER RESTRICTIONS
Holders of Materials common stock are prohibited from transferring the
common stock in any manner except in a sale to Materials and, with prior
approval by the Materials board of directors, to certain authorized transferees
of the holders. Those authorized transferees consist of fiduciaries for the
benefit of the holders and members of the immediate families of the holders,
corporations wholly owned by holders or holders and their spouses and/or
children, fiduciaries for the benefit of such corporations and charities and
fiduciaries for charities designated by any such persons. Upon the death of a
Materials stockholder, the shares of Materials common stock owned by the
deceased stockholder would be permitted to be transferred to his or her estate,
provided that the shares transferred to the transferee would be subject to the
same transfer restrictions. There is no restriction on the maximum amount of
materials common stock that may be owned by any individual or entity.
Holders of Materials common stock are permitted to pledge the Materials
common stock for loans in connection with the ownership of the Materials common
stock.
In the event that the board of directors decides to conduct an initial
public offering of the Materials common stock, officers and directors of
Materials and stockholders owning one percent or more of the Materials common
stock outstanding at the time of the offering will not be permitted to sell or
otherwise transfer any shares held by them for a period of up to one hundred
eighty days following the offering. In addition to any officers and directors
who may be subject to the 180 day transfer restriction following an initial
public offering, Materials estimates that there may be up to seven additional
stockholders, all of whom are Kiewit employees, who may own 1% or more of
Materials common stock and thus be subject to this transfer restriction.
All transfer restrictions on Materials common stock may be terminated by
the Materials board at any time.
Kiewit common stock may generally be owned only by directors of Kiewit,
employees of Kiewit and its subsidiaries and, with prior Kiewit board of
directors approval, by certain authorized transferees of such employees (i.e.,
fiduciaries for the benefit of members of the immediate families of employees,
corporations wholly owned by employees or employees and their spouses and/or
children, fiduciaries for the benefit of such corporations, charities, and
fiduciaries for charities designated by any such persons). No more than 10% of
the total Kiewit common stock may be owned by any one employee and certain
transferees at any time.
Each holder of Kiewit common stock is required to execute a repurchase
agreement which provides that a stockholder may offer to sell all or part of the
Kiewit common stock owned by such stockholder to Kiewit at any time at the
current formula price and that Kiewit must accept any such offer. Upon the
tender of a part of such holder's shares of Kiewit common stock, Kiewit is
entitled, at its option, to require the holder to sell any or all remaining
Kiewit common stock held by such holder back to Kiewit. Under the repurchase
agreement, the employee will not be entitled to transfer the shares of Kiewit
common stock held by such employee except
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in a sale to Kiewit or a transfer to an authorized transferee (i.e., a charity,
etc.). Upon the death, termination of employment or retirement of such employee,
all Kiewit common stock held by the employee and by such employee's authorized
transferees is required to be sold back to Kiewit.
Holders of Kiewit common stock are permitted to pledge the Kiewit common
stock for loans in connection with the ownership of the Kiewit common stock.
LISTING
Neither Materials common stock nor Kiewit common stock is listed on any
national securities exchange or quoted on the Nasdaq National Market.
LIMITATION ON DIRECTORS' LIABILITY
The Materials restated certificate of incorporation provides that a
director of Materials will not be personally liable to Materials or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for:
- any breach of the director's duty of loyalty to Materials or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derived an improper personal
benefit.
The restated certificate of incorporation of Kiewit contains a comparable
limitation on directors' liability.
PREFERRED STOCK
The Materials board of directors is empowered, without approval of the
stockholders, to issue shares of Materials preferred stock in one or more
series, with the numbers of shares of each series and the powers, preferences,
rights and limitations of each series to be determined by the board. Among the
specific matters that may be determined by the board of directors are:
- the rate of dividends;
- the rights and terms of conversion or exchange;
- voting rights;
- the terms of redemption;
- the amount payable in the event of any voluntary liquidation, dissolution
or winding up of the affairs of Materials; and
- the terms of a sinking or purchase fund.
The board of directors of Kiewit has similar power to issue shares of one
or more series of preferred stock without stockholder approval and to determine
the powers, preferences, rights and limitations of each series. However, no
series of preferred stock may have any voting rights or be convertible into
shares of stock having any voting rights.
ACTION BY STOCKHOLDER CONSENT; STOCKHOLDERS' MEETINGS
Under the Delaware General Corporation Law, unless otherwise provided in a
corporation's certificate of incorporation, any action which is required or
permitted to be taken at an annual or special meeting of stockholders may
instead be taken without a meeting, without prior notice and without a vote, if
the requirements for an action by written consent are met. The Materials
restated certificate of incorporation provides that stockholders of Materials
may only take action at an annual or special meeting and may not act by written
consent.
Under the Delaware General Corporation Law, special meetings of
stockholders of a corporation may be called by the corporation's board of
directors or by persons authorized by the corporation's certificate of
incorporation or by-laws. The Materials restated certificate of incorporation
provides that special meetings of
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the stockholders may be called only by the Materials board of directors, the
Chairman of the Board or the Chief Executive Officer and may not be called by
any other person or persons. Accordingly, stockholders of Materials may not call
a special meeting of stockholders.
Kiewit has no comparable consent and meeting provisions in its restated
certificate of incorporation.
RELATIONSHIP BETWEEN KIEWIT AND MATERIALS
This section describes the primary agreements between Materials and Kiewit
that will define the ongoing relationship between them and their subsidiaries
and affiliates after the spin-off and will provide for an orderly separation of
the two companies. The following description of agreements summarizes the
material terms of the agreements. All stockholders should read the agreements
which are filed as exhibits to the registration statement of which this
information statement is a part.
SEPARATION AGREEMENT
The separation agreement provides for the principal corporate transactions
necessary to effect the spin-off, the relationship between Kiewit and Materials
after the spin-off, the allocation of certain risks and responsibilities between
Kiewit and Materials after the spin-off and the ongoing relationship between
Kiewit and Materials after the spin-off.
The separation agreement provides for the distribution of Materials common
stock to holders of Kiewit common stock, the share exchange and the debenture
exchange offer and capital contributions necessary to effect the spin-off, the
share exchange and the debenture exchange offer. The separation agreement also
provides that Kiewit and Materials will each use their respective best efforts
to effect the spin-off, the debenture exchange offer and the share exchange. The
separation agreement provides that each of Materials and Kiewit will indemnify
the other with respect to breaches of the separation agreement and with respect
to the activities of its subsidiary business groups, except as specifically
provided under the tax sharing agreement described below. The cross-indemnities
are intended to allocate financial responsibility for liabilities arising out of
the historical and future business of the construction business to Kiewit, and
financial responsibility for liabilities arising out of the historical and
future business of the materials business to Materials.
The separation agreement provides that each of Materials and Kiewit will be
granted access to certain records and information in the possession of the other
company, and requires that each of Materials and Kiewit retain all such
information in its possession for a period of ten years following the spin-off.
Under the separation agreement, each company is required to give the other
company prior notice of any intention to dispose of any such information.
The separation agreement also provides that Kiewit and Materials will
cooperate to ensure that any assets and liabilities of the construction business
are retained by or transferred to Kiewit and any assets and liabilities of the
materials business are retained by or transferred to Materials.
The separation agreement provides that effective as of the date of the
spin-off, all intercompany receivables and loans will be settled. In addition,
any guarantees by Kiewit in favor of Materials or any of Materials' subsidiaries
will also be terminated as of the effective date of the spin-off.
The separation agreement provides Materials with a non-exclusive right to
use the name "Kiewit" solely as part of the name "Kiewit Materials Company" at
the sole discretion of the board of directors of Kiewit.
The separation agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the spin-off will be paid by Kiewit.
The separation agreement also contains, among other things, short-term
arrangements relating to:
- the lease of office space by Kiewit to Materials; and
- the provision of administrative services by Kiewit to Materials.
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TAX SHARING AGREEMENT
The tax sharing agreement defines each company's rights and obligations
with respect to deficiencies and refunds of federal, state and other taxes
relating to the business' operations for tax years ending on or before (or tax
years including) the spin-off and with respect to certain tax attributes of
Materials and Kiewit both before and after the spin-off. The tax sharing
agreement also specifies the parties' respective obligations in connection with
any audit or investigation concerning any federal, state or other taxes or in
the event that the spin-off is subsequently determined not to qualify, in whole
or in part, as a tax-free transaction for U.S. federal income tax purposes.
Under the tax sharing agreement, in general, with respect to tax years ending on
or before the date of the spin-off, Kiewit will be responsible for preparing
both consolidated federal tax returns for Kiewit and Materials, and combined
state tax returns for Kiewit and Materials. In general, under the tax sharing
agreement, Materials and Kiewit will be responsible for paying the taxes
relating to such returns (including any subsequent adjustments resulting from
the redetermination of such tax liabilities by the applicable taxing
authorities) that are allocable to the materials business and the construction
business, respectively. Materials and Kiewit will cooperate with each other and
share information in preparing such tax returns and in dealing with other tax
matters.
OTHER
After the distribution, Kiewit will not own any of Materials' common stock.
Six of Materials' eight initial directors will also be Kiewit directors. Of
these six directors three are executive officers of Kiewit.
Conflicts of interest may arise between Kiewit and Materials in a number of
areas relating to their past and ongoing relationships including the nature,
quality and pricing of services rendered by the parties to each other. A
majority of Materials' current board of directors are designees of Kiewit and
several current members of Materials' board hold positions with Kiewit. The
directors holding positions in both companies may face conflicts of interest
with respect to such matters as acquisitions, finances and other corporate
opportunities that might be suitable for both Kiewit and Materials.
In addition, Kiewit may, in the ordinary course of business, purchase
construction materials from Materials, although it is under no contractual
obligation to do so. Sales to Kiewit represented approximately 3% of Materials'
total sales in 1999.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of the share exchange. The discussion which follows is based on
the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated
thereunder and judicial and administrative interpretations of the Code and
Treasury regulations, all as they exist on the date of this document, and is
subject to any changes in these or other laws occurring after that date,
possibly with retroactive effect. The discussion below is for general
information only and does not address the effects of any state, local or foreign
tax laws on the share exchange. The tax treatment of a holder of Kiewit common
stock may vary depending on his or her particular situation, and some
stockholders may be subject to special rules not discussed below. The discussion
assumes that a holder of Kiewit common stock holds that stock as a capital asset
and that the stock was not received, and will not be treated, as compensation.
Except as set forth below, the following discussion does not address the tax
consequences to a holder of Kiewit common stock that is a non-U.S. person. A
non-U.S. person is (1) an alien individual who is not a resident of the United
States, (2) a corporation or partnership that is not created or organized under
the laws of the United States or of any state, (3) an estate that is not subject
to United States federal income tax on a net income basis or (4) a trust the
administration of which is not subject to primary supervision of a United States
court or with respect to which no United States person has authority to control
all substantial decisions.
EACH HOLDER OF KIEWIT COMMON STOCK IS URGED TO CONSULT THE HOLDER'S OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE SHARE EXCHANGE TO THE
HOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS AND OF CHANGES IN APPLICABLE TAX LAWS.
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Kiewit has received a private letter ruling from the Internal Revenue
Service to the effect that the exchange of Materials common stock for Kiewit
common stock will qualify as a transaction described in Sections 355(a) and
368(a)(1)(D) of the Code. The IRS ruling is based on current law and on
representations as to factual matters made by, among others, Kiewit and
Materials. Such representations, if incorrect in material respects, could
jeopardize the conclusions reached in the IRS ruling. Neither Kiewit nor
Materials is aware of any facts or circumstances that would cause any of those
representations to be untrue or incorrect in any material respect.
Based on the IRS ruling, the material United States federal income tax
consequences expected to result from the exchange of Materials common stock for
Kiewit common stock are as follows. No gain or loss will be recognized by Kiewit
or Materials upon the exchange. A holder of Kiewit common stock who receives
shares of Materials common stock in exchange for shares of Kiewit common stock
(1) will not recognize gain or loss as a result of the exchange, (2) will have,
immediately after the exchange, a tax basis for the shares of Materials common
stock received that equals the holder's tax basis in his or her Kiewit common
stock exchanged, and (3) will include in his or her holding period for the
Materials common stock the period during which the holder held the Kiewit common
stock exchanged. A holder of Kiewit common stock who acquired shares on
different dates at different prices and who exchanges some, but not all, of his
or her shares for Materials common stock may identify the specific shares
exchanged for purposes of determining his or her tax basis and holding period
for the shares of Materials common stock received and for the shares of Kiewit
common stock retained; absent such specific identification, the Materials common
stock will be assumed to have been received in exchange for the shares of Kiewit
common stock acquired earliest.
If the spin-off does not qualify as a tax-free transaction under Section
355 of the Code, then, among other consequences, (1) Kiewit would recognize gain
equal to the amount by which the fair market value of the Materials common stock
distributed exceeded Kiewit's adjusted tax basis therein, and (2) each holder
who received Materials common stock in exchange for Kiewit common stock
generally would recognize capital gain or loss equal to the difference between
the fair market value of the Materials common stock on the date of the exchange
and the holder's tax basis in the Kiewit common stock exchanged for such
Materials common stock. That capital gain or loss would be long-term capital
gain or loss if the Kiewit common stock exchanged were held for more than one
year at the time of the exchange. The incurrence of significant tax liabilities
by Kiewit, in the event that the spin-off does not qualify as a tax-free
transaction under Section 355, could have a material adverse effect on Kiewit's
business and financial condition.
NON-U.S. PERSONS
If the spin-off qualifies as a transaction described in Section 355 of the
Code, the receipt of Materials common stock by a non-U.S. person who exchanges
Kiewit common stock will not be subject to withholding of United States federal
income tax. Even if the spin-off does not qualify under Section 355, a non-U.S.
person generally would not be subject to withholding of United States federal
income tax, provided that (1) any gain recognized on the exchange of Materials
common stock for Kiewit common stock is not effectively connected with the
conduct by the non-U.S. person of a trade or business in the United States, (2)
the non-U.S. person (if an individual) is not present in the United States for
183 days or more during his or her taxable year and (3) applicable certification
requirements are met.
REPORTING REQUIREMENTS
Applicable Treasury regulations require that each holder of Kiewit common
stock attach to his or her federal income tax return for the taxable year in
which the holder receives the Materials common stock in exchange for Kiewit
common stock a statement indicating that Section 355 of the Code applies to the
exchange. Kiewit will provide each holder with the information necessary to
comply with this requirement.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER OF KIEWIT
COMMON STOCK IS URGED TO CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO THE HOLDER OF THE SHARE EXCHANGE, INCLUDING THE EFFECT OF UNITED
STATES FEDERAL, STATE AND LOCAL, AND FOREIGN AND OTHER TAX LAWS, AND THE EFFECT
OF POSSIBLE CHANGES IN SUCH LAWS.
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NEBRASKA TAX LETTER
Kiewit has received a letter from the State of Nebraska Department of
Revenue to the effect that, even though Kiewit and Materials will become
independent companies if the spin-off is consummated, Kiewit and Materials
generally would continue to be considered the same corporation for purposes of
the Nebraska capital gain exclusion provisions. The letter provides that,
provided certain requirements are met and an appropriate election is made, the
Nebraska capital gain exclusion generally would be available for the sale of
Materials common stock by residents of Nebraska.
The above discussion is not intended to be, nor should it be construed as
being, legal or tax advice to any particular stockholder. Each stockholder is
urged to consult his or her own tax advisor as to any applicable state and local
or other tax laws.
LEGAL MATTERS
The validity of the Materials common stock being issued in the share
exchange will be passed upon by Willkie Farr & Gallagher, 787 Seventh Avenue,
New York, New York 10019.
EXPERTS
The audited financial statements of Peter Kiewit Sons', Inc. as of December
25, 1999 and December 26, 1998 and for each of the three years in the period
ended December 25, 1999 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The audited financial statements of Kiewit Materials Company as of December
25, 1999 and December 26, 1998 and for the three years in the period ended
December 25, 1999 included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, and, insofar as they relate
to Granite Canyon Joint Venture as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 by Arthur Andersen LLP,
independent public accountants, and Pacific Rock Products L.L.C. and Pacific
Rock Products Trucking L.L.C. (formerly River City Machinery, L.L.C.) as of
December 31, 1998 and 1997 and for each of the two years in the period ended
December 31, 1998, and by Perkins & Company, P.C., independent accountants,
respectively, both of whose reports thereon appear herein. Such financial
statements have been so included in reliance on the reports of such independent
accountants given on the authority of such firms as experts in auditing and
accounting.
The audited financial statements of Granite Canyon Joint Venture as of
December 31, 1999 and 1998 and for the three years in the period ended December
31, 1999, not separately presented in this prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, whose report thereon
appears herein. Such financial statements, to the extent they have been included
in the financial statements of Kiewit Materials Company, have been so included
in reliance upon the reports of said firm as experts in auditing and accounting.
The audited financial statements of Pacific Rock Products L.L.C. and
Pacific Rock Products Trucking L.L.C. (formerly River City Machinery, L.L.C.) as
of December 31, 1998 and 1997 and for each of the two years in the period ended
December 31, 1998 included in this prospectus have been so included in reliance
on the report of Perkins & Company, P.C., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
77
<PAGE> 82
WHERE YOU CAN FIND MORE INFORMATION
Kiewit files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information filed by Kiewit at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Kiewit's SEC filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at "http://www.sec.gov."
Following the spin-off, Materials will be required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC.
Materials filed a registration statement on Form S-4 to register with the
SEC the Materials common stock to be issued to Kiewit stockholders who tender
their shares in the share exchange and whose shares of Kiewit common stock are
accepted for exchange. Kiewit has also filed a tender offer statement on
Schedule TO with respect to the share exchange. This prospectus is a part of
that registration statement. As allowed by SEC rules, this prospectus does not
contain all the information you can find in the registration statement, or the
exhibits to the registration statement.
You should rely only on the information contained in this prospectus or in
the letter of transmittal in connection with the share exchange. Neither Kiewit
nor Materials has authorized anyone to provide you with information that is
different from what is contained in this prospectus. This prospectus is dated
August 15, 2000. You should not assume that the information contained in this
prospectus is accurate as of any date other than such date, and neither the
mailing of this prospectus to stockholders nor the issuance of Materials common
stock shall create any implication to the contrary.
This prospectus does not constitute an offer to sell or a solicitation of
any offer to buy any of the Materials common stock in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Kiewit is not aware of any jurisdiction where the making of the
exchange offer or the acceptance thereof would not be in compliance with
applicable law. If Kiewit becomes aware of any jurisdiction where the making of
the exchange offer or acceptance thereof would not be in compliance with any
valid applicable law, Kiewit will make a good faith effort to comply with such
law. If, after such good faith effort, Kiewit cannot comply with such law, the
exchange offer will not be made to, nor will tenders be accepted from or on
behalf of, holders of shares of Kiewit common stock in any such jurisdiction.
78
<PAGE> 83
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Financial Statements as of December 25, 1999
and December 26, 1998 and for the three years in the
period ended December 25, 1999:
Consolidated Statements of Earnings....................... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Cash Flows..................... F-6
Consolidated Statements of Changes in Redeemable Common
Stock and Comprehensive Income......................... F-8
Notes to Consolidated Financial Statements................ F-10
Report of Independent Accountants on Consolidated Financial
Schedule.................................................. F-24
Consolidated Financial Statement Schedule for the three
years in the period ended December 25, 1999............... F-25
Consolidated Condensed Financial Statements as of June 30,
2000 and for the three and six months ended June 30, 2000
and 1999:
Consolidated Condensed Statements of Earnings............. F-26
Consolidated Condensed Balance Sheet...................... F-27
Consolidated Condensed Statements of Cash Flows........... F-28
Notes to Consolidated Condensed Financial Statements...... F-29
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of changes in redeemable common
stock and comprehensive income, and of cash flows present fairly, in all
material respects, the consolidated financial position of Peter Kiewit Sons',
Inc. and Subsidiaries at December 25, 1999, and December 26, 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 25, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 17, 2000
F-2
<PAGE> 85
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenue..................................................... $ 4,013 $ 3,379 $ 2,742
Cost of revenue............................................. (3,655) (3,095) (2,408)
------- ------- -------
358 284 334
General and administrative expenses......................... (144) (142) (148)
------- ------- -------
Operating earnings.......................................... 214 142 186
Other income (expense):
Investment income and equity earnings..................... -- 17 20
Interest expense.......................................... (4) (5) (3)
Other, net................................................ 56 61 61
------- ------- -------
52 73 78
------- ------- -------
Earnings before income taxes and minority interest.......... 266 215 264
Minority interest in net earnings of subsidiaries........... (1) (1) (2)
Provision for income taxes.................................. (100) (78) (107)
------- ------- -------
Net earnings................................................ $ 165 $ 136 $ 155
======= ======= =======
Net earnings per share:
Basic..................................................... $ 4.81 $ 4.07 $ 4.00
======= ======= =======
Diluted................................................... $ 4.71 $ 4.02 $ 3.84
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 86
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1999 AND DECEMBER 26, 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 338 $ 227
Marketable securities..................................... 12 9
Receivables, less allowance of $7 and $5.................. 507 457
Unbilled contract revenue................................. 73 88
Contract costs in excess of related revenue............... 31 26
Investment in construction joint ventures................. 197 190
Deferred income taxes..................................... 60 64
Other..................................................... 21 15
------ ------
Total current assets........................................ 1,239 1,076
Property, plant and equipment, at cost:
Land...................................................... 40 19
Buildings................................................. 51 42
Equipment................................................. 660 640
------ ------
751 701
Less accumulated depreciation and amortization............ (508) (489)
------ ------
Net property, plant and equipment........................... 243 212
Other assets................................................ 117 91
------ ------
$1,599 $1,379
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 87
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1999 AND DECEMBER 26, 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LIABILITIES AND REDEEMABLE COMMON STOCK
Current liabilities:
Accounts payable, including retainage of $50 and $47...... $ 270 $ 183
Current portion of long-term debt......................... 4 8
Accrued costs on construction contracts................... 120 125
Billings in excess of related costs and earnings.......... 122 132
Accrued insurance costs................................... 84 81
Other..................................................... 62 63
------ ------
Total current liabilities................................... 662 592
Long-term debt, less current portion........................ 18 13
Deferred income taxes....................................... 2 1
Other liabilities........................................... 67 70
Minority interest........................................... 13 12
Preferred stock, no par value, 250,000 shares authorized, no
shares outstanding........................................ -- --
Redeemable common stock ($720 million aggregate redemption
value):
Common stock, $0.01 par value, 125 million shares
authorized, 34,876,718 and 35,692,820 outstanding...... -- --
Additional paid-in capital................................ 175 161
Accumulated other comprehensive income.................... (10) (22)
Retained earnings......................................... 672 552
------ ------
Total redeemable common stock............................... 837 691
------ ------
$1,599 $1,379
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 88
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operations:
Net earnings.............................................. $165 $136 $ 155
Adjustments to reconcile net earnings to net cash provided
by operations:
Depreciation and amortization.......................... 73 71 67
Gain on sale of property, plant and equipment and other
investments, net...................................... (2) (20) (24)
Equity (earnings) loss, net of distributions........... (13) -- 11
Change in other noncurrent liabilities................. -- (7) 18
Deferred income taxes.................................. (1) 6 --
Change in working capital items:
Receivables.......................................... (41) (6) (114)
Unbilled contract revenue and contract costs in
excess of related revenue........................... 10 5 (39)
Investment in construction joint ventures............ (8) (13) (82)
Other current assets................................. 9 -- 7
Accounts payable..................................... 42 (6) 10
Accrued construction costs and billings in excess of
revenue on uncompleted contracts.................... (16) 28 102
Other liabilities.................................... (8) 5 23
Other................................................ (18) (3) 8
---- ---- -----
Net cash provided by operations............................. 192 196 142
Cash flows from investing activities:
Proceeds from sales and maturities of marketable
securities............................................. 3 24 73
Purchases of marketable securities........................ (7) (7) (39)
Proceeds from sale of property, plant and equipment....... 32 25 36
Capital expenditures...................................... (75) (87) (107)
Investments and acquisitions, net of cash acquired........ (36) (13) (21)
Additions to notes receivable............................. (2) (20) --
Payments received on notes receivable..................... 5 5 --
---- ---- -----
Net cash used in investing activities....................... (80) (73) (58)
---- ---- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 89
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash flows from financing activities:
Long-term debt borrowings................................. $ 5 $ 4 $ 12
Short-term debt borrowings, net........................... -- (5) --
Payments on long-term debt................................ (22) -- --
Issuances of common stock................................. 25 67 34
Repurchases of common stock............................... (39) (35) (2)
Dividends paid............................................ (16) (13) (12)
Exchange of Class C Stock for Level 3's Class D Stock,
net.................................................... -- (122) (72)
Change in outstanding checks in excess of funds on
deposit................................................ 43 (21) 17
----- ---- ----
Net cash used in financing activities....................... (4) (125) (23)
Effect of exchange rates on cash............................ 3 (3) (2)
----- ---- ----
Net change in cash and cash equivalents..................... 111 (5) 59
Cash and cash equivalents at beginning of year.............. 227 232 173
----- ---- ----
Cash and cash equivalents at end of year.................... $ 338 $227 $232
===== ==== ====
Supplemental disclosures of cash flow information:
Taxes paid................................................ $ 95 $ 91 $ 94
Interest paid............................................. 4 5 2
Non-cash financing activities:
Conversion of convertible debentures to common stock...... $ -- $(10) $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 90
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND
COMPREHENSIVE INCOME
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
REDEEMABLE ADDITIONAL OTHER REDEEMABLE
COMMON PAID-IN COMPREHENSIVE RETAINED COMMON
STOCK CAPITAL INCOME EARNINGS STOCK
---------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996.......... $1 $100 $ (6) $467 $562
-- ---- ---- ---- ----
Dividends(a).......................... (13) (13)
Issuance of stock..................... -- 34 -- -- 34
Repurchase of stock................... -- -- -- (2) (2)
Exchange of Class C stock for Class D
Stock, net.......................... -- (17) -- (55) (72)
Comprehensive income:
Net earnings........................ -- -- -- 155 155
Other comprehensive income:
Foreign currency adjustment......... -- -- (2) -- (2)
Change in unrealized holding loss,
net of tax....................... -- -- (10) -- (10)
----
Total other comprehensive income.... (12)
----
Total comprehensive income............ -- -- -- -- 143
-- ---- ---- ---- ----
BALANCE AT DECEMBER 27, 1997.......... 1 117 (18) 552 652
-- ---- ---- ---- ----
Dividends(a).......................... -- -- -- (13) (13)
Issuance of stock..................... -- 77 -- -- 77
Repurchase of stock................... -- (7) -- (28) (35)
Exchange of Class C stock for Class D
stock, net.......................... -- (27) -- (95) (122)
Change in par value of common stock... (1) 1 -- -- --
Comprehensive income:
Net earnings........................ -- -- -- 136 136
Other comprehensive income:
Foreign currency adjustment......... -- -- (1) -- (1)
Change in unrealized holding loss,
net of tax....................... -- -- (3) -- (3)
Total other comprehensive income.... (4)
----
Total comprehensive income............ 132
-- ---- ---- ---- ----
BALANCE AT DECEMBER 26, 1998.......... -- 161 (22) 552 691
-- ---- ---- ---- ----
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 91
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND
COMPREHENSIVE INCOME -- (CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
REDEEMABLE ADDITIONAL OTHER REDEEMABLE
COMMON PAID-IN COMPREHENSIVE RETAINED COMMON
STOCK CAPITAL INCOME EARNINGS STOCK
---------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Dividends(a)...................... -- -- -- (17) (17)
Issuance of stock................. -- 25 -- -- 25
Repurchase of stock............... -- (11) -- (28) (39)
Comprehensive income:
Net earnings.................... -- -- -- 165 165
Other comprehensive income:
Foreign currency adjustment..... -- -- 1 -- 1
Change in unrealized holding
loss, net of tax............. -- -- 11 -- 11
-----
Total other comprehensive
income....................... 12
-----
Total comprehensive income........ -- -- -- -- 177
--- ---- ---- ---- -----
BALANCE AT DECEMBER 25, 1999...... $-- $175 $(10) $672 $ 837
=== ==== ==== ==== =====
</TABLE>
---------------
(a) Dividends include $.27, $.225 and $.20 for dividends declared in 1999, 1998
and 1997 but paid in January of the following year.
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 92
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Peter Kiewit Sons', Inc. (the "Company") was formed by its former parent,
Level 3 Communications, Inc. (formerly Peter Kiewit Sons', Inc.) ("Level 3"), in
connection with a transaction (the "Transaction") intended to separate the
Construction and Materials Businesses and the diversified business of Level 3
into two independent companies. On March 31, 1998, pursuant to the terms of a
Separation Agreement between the Company, Level 3 and certain other parties (the
"Separation Agreement"), Level 3 consummated the Transaction by: (i)
transferring 100 shares of the $100 par value common stock ("KCG Stock") of
Kiewit Construction Group Inc. ("KCG"), representing all of the issued and
outstanding shares of KCG Stock, as well as certain other assets and liabilities
related to the construction and materials businesses which together comprised
the Construction and Mining Group (the "Construction & Mining Group"), to the
Company in exchange for 30,711,680 shares of the $.01 par value common stock of
the Company ("Common Stock") (125 million shares authorized) and (ii)
distributing 100% of its shares of the Common Stock to the holders of Level 3's
$0.0625 par value Class C Construction & Mining Group Restricted Redeemable
Convertible Exchangeable Common Stock ("Class C Stock") as of March 31, 1998, in
exchange for such shares of Class C Stock. Prior to the Transaction, the Company
was a wholly-owned subsidiary of Level 3. As a result of the Transaction, the
Company became owned by the former holders of Level 3's Class C Stock. Prior to
consummation of the Transaction, Level 3's Class C Common stock was convertible
to Level 3's Class D Common Stock ("Class D Stock"). As the Construction &
Mining Group comprised all of the net assets and operations of the Company at
the time of the Transaction, the Construction & Mining Group is the Company's
predecessor. Thus, the term "the Company", as used herein, refers to Peter
Kiewit Sons', Inc., its predecessor, and its consolidated subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and subsidiaries in which it has control, which are engaged in enterprises
primarily related to construction and materials. Investments in construction
joint ventures and partnerships in which the Company exercises significant
influence over operating and financial policies are accounted for by the equity
method in the consolidated balance sheet. The Company accounts for its share of
the operations of the construction joint ventures and partnerships on a pro rata
basis in the consolidated statements of earnings. Investments in materials
limited liability companies in which the Company exercises significant influence
over operations and financial policies are accounted for by the equity method.
The Company accounts for its share of a materials joint venture on a pro rata
basis. All significant intercompany accounts and transactions have been
eliminated.
Construction Contracts:
The Company operates as a general contractor throughout North America and
engages in various types of construction projects for both public and private
owners. Credit risk is minimal with public (government) owners since the Company
ascertains that funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public contracts are subject
to termination at the election of the government. However, in the event of
termination, the Company is entitled to receive the contract price on completed
work and reimbursement of termination-related costs. Credit risk with private
owners is minimized because of statutory mechanics liens, which give the Company
high priority in the event of lien foreclosures following financial difficulties
of private owners.
The construction industry is highly competitive and lacks firms with
dominant market power. A substantial portion of the Company's business involves
construction contracts obtained through competitive bidding. The volume and
profitability of the Company's construction work depends to a significant extent
upon the general state of the economies of North America and the volume of work
available to contractors. The
F-10
<PAGE> 93
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Company's construction operations could be adversely affected by labor stoppages
or shortages, adverse weather conditions, shortages of supplies or other
governmental action.
The Company uses the percentage of completion method of accounting on
long-term construction contracts and joint ventures. Under the percentage of
completion method, an estimated percentage for each contract, as determined by
the Company's engineering estimate based on the amount of work performed, is
applied to total estimated revenue. Provision is made for the entire amount of
future estimated losses on contracts and joint ventures in progress; claims for
additional contract compensation, however, are not reflected in the accounts
until the year in which such claims are allowed. Revisions in cost and profit
estimates during the course of the work are reflected in the accounting period
in which the facts which require the revision become known. It is at least
reasonably possible that cost and profit estimates will be revised in the
near-term.
In accordance with industry practice, amounts realizable and payable under
contracts which may extend beyond one year are included in current assets and
liabilities.
Depreciation:
Property, plant and equipment are recorded at cost. Depreciation for the
majority of the Company's property, plant and equipment is calculated using
accelerated methods.
Intangible Assets:
Intangible assets primarily consist of amounts allocated upon purchase of
existing operations. Those assets are amortized on a straight-line basis over
the expected period of benefit, which does not exceed 20 years.
Long-Lived Assets:
The Company reviews the carrying amount of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Measurement of any impairment would include a comparison
of the present value of the estimated future operating cash flows anticipated to
be generated during the remaining life of the assets to the net carrying value
of the assets.
Foreign Currencies:
The local currencies of foreign subsidiaries are the functional currencies
for financial reporting purposes. Assets and liabilities are translated into
U.S. dollars at year end exchange rates. Revenue and expenses are translated
using average exchange rates prevailing during the year. Gains or losses
resulting from currency translation are recorded as adjustments to accumulated
other comprehensive income.
Earnings Per Share:
Basic earnings per share have been computed using the weighted average
number of shares outstanding during each period. Diluted earnings per share give
effect to convertible debentures considered to be dilutive common stock
equivalents. The potentially dilutive convertible debentures are calculated in
accordance with the "if converted" method. This method assumes that the
after-tax interest expense associated with the debentures is an addition to
income and the debentures are converted into equity with the resulting common
shares being aggregated with the weighted average shares outstanding.
F-11
<PAGE> 94
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net earnings available to common stockholders (in
millions).............................................. $ 165 $ 136 $ 155
Add: Interest expense, net of tax effect, associated with
convertible debentures................................. * * 1
------ ------ ------
Net earnings for diluted shares.......................... $ 165 $ 136 $ 156
====== ====== ======
Total number of weighted average shares outstanding used
to compute basic earnings per share (in thousands)..... 34,299 33,396 38,912
Additional dilutive shares assuming conversion of
convertible debentures................................. 753 432 1,764
------ ------ ------
Total number of shares used to compute diluted earnings
per share.............................................. 35,052 33,828 40,676
====== ====== ======
Net earnings
Basic earnings per share............................... $ 4.81 $ 4.07 $ 4.00
====== ====== ======
Diluted earnings per share............................. $ 4.71 $ 4.02 $ 3.84
====== ====== ======
</TABLE>
---------------
* Interest expense attributable to convertible debentures was less than $.5
million.
Income Taxes:
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Pronouncements:
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. This statement is effective for all fiscal years
beginning after June 15, 2000. Management does not expect adoption of this
statement to materially affect the Company's financial statements as the Company
has no significant derivative instruments or hedging activities.
Stock Split:
On January 11, 1999, the Company declared a four-for-one stock split in the
form of a stock dividend of three shares of Common Stock for each share issued
and outstanding, payable on January 15, 1999. All share and per share amounts
for all periods presented have been retroactively restated to reflect the stock
split.
F-12
<PAGE> 95
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Fiscal Year:
The Company has a 52-53 week fiscal year which ends on the last Saturday in
December. 1999, 1998 and 1997 were all 52 week years.
Reclassifications:
When appropriate, items within the consolidated financial statements have
been reclassified in the previous periods to conform to current year
presentation. Additionally, the 1998 and 1997 financial statements differ from
those originally issued because of certain reclassifications related to the
presentation of operating results of materials limited liability companies. Such
reclassifications had no impact on redeemable common stock or net earnings.
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to determine classification
and fair values of financial instruments:
Cash and Cash Equivalents:
Cash equivalents generally consist of funds invested in Wilmington
Trust-Money Market Portfolio and highly liquid instruments purchased with
original maturities of three months or less. The securities are stated at cost,
which approximates fair value.
Outstanding checks in excess of funds on deposit in the amount of $100
million and $57 million at December 25, 1999 and December 26, 1998,
respectively, have been reclassified to accounts payable.
Marketable Securities and Non-current Investments:
The Company has classified all marketable securities and marketable
non-current investments not accounted for under the equity method as
available-for-sale. The amortized cost of the securities used in computing
unrealized and realized gains and losses is determined by specific
identification. Fair values are estimated based on quoted market prices for the
securities on hand or for similar investments. Net unrealized holding gains and
losses are reported as a separate component of accumulated other comprehensive
income, net of tax.
F-13
<PAGE> 96
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
The following summarizes the amortized cost, unrealized holding gains and
losses, and estimated fair values of marketable securities and marketable
non-current investments at December 25, 1999 and December 26, 1998:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1999
Marketable securities:
U.S. debt securities.............................. $12 $ -- $ -- $12
--- ---- ---- ---
Non-current investments:
Equity securities................................. $12 $ -- $ (4) $ 8
=== ==== ==== ===
1998
Marketable securities:
U.S. debt securities.............................. $ 9 $ -- $ -- $ 9
--- ---- ---- ---
Non-current investments:
Equity securities................................. $30 $ -- $(21) $ 9
=== ==== ==== ===
</TABLE>
For debt securities, amortized costs do not vary significantly from
principal amounts. Realized gains and losses on sales of marketable securities
were each less than $1 million in 1999, 1998 and 1997.
The contractual maturities of the debt securities are from one to five
years.
During 1999, the Company determined that the decline in market value of an
investment was other-than-temporary. This investment was written down to market
value and a loss of $18 million was recognized in the Statement of Earnings.
This investment had previously been carried at market value and the write-down
had been recorded as an unrealized loss as a separate component of other
comprehensive income. As a result, this write-down had no effect on total
comprehensive income or total redeemable common stock. Subsequent changes in the
market value of the security will be included as a separate component of
comprehensive income.
Retainage on Construction Contracts:
Receivables at December 25, 1999 and December 26, 1998 include
approximately $90 million and $86 million of retainage on uncompleted projects,
the majority of which is expected to be collected within one year. Included in
the retainage amounts are $29 million and $26 million, respectively, of
securities which are being held by the owners of various construction projects
in lieu of retainage. Also included in accounts receivable are $15 million and
$15 million, respectively, of securities held by the owners which are now due as
the contracts are completed. These securities are carried at fair value which is
determined based on quoted market prices for the securities on hand or for
similar investments. Net unrealized holding gains and losses, if any, are
reported as a separate component of accumulated other comprehensive income, net
of tax.
Long-term Debt:
The fair value of debt was estimated using the incremental borrowing rates
of the Company for debt of the same remaining maturities and approximates the
carrying amount.
F-14
<PAGE> 97
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT IN CONSTRUCTION JOINT VENTURES AND PARTNERSHIP:
The Company has entered into a number of construction joint venture
arrangements and owns a 49% interest in a partnership, Aker-Gulf Marine. The
partnership engages in the engineering, construction, fabrication and
installation of steel and concrete structures. Under these arrangements, if one
venturer is financially unable to bear its share of the costs, the other
venturers will be required to pay those costs.
Summary joint venture and partnership financial information follows:
<TABLE>
<CAPTION>
FINANCIAL POSITION 1999 1998
------------------ --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
TOTAL JOINT VENTURES AND PARTNERSHIP
Current assets.............................................. $ 866 $ 917
Other assets (principally construction equipment)........... 105 145
------ -----
971 1,062
Current liabilities......................................... (600) (703)
------ -----
Net assets................................................ $ 371 $ 359
====== =====
COMPANY'S SHARE
Equity in net assets........................................ $ 192 $ 199
Receivable from joint ventures and partnership.............. 52 15
------ -----
244 214
Less: Construction partnership (Note 5)..................... (47) (24)
------ -----
Investment in construction joint ventures................. $ 197 $ 190
====== =====
</TABLE>
<TABLE>
<CAPTION>
OPERATIONS 1999 1998 1997
---------- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
TOTAL JOINT VENTURES AND PARTNERSHIP
Revenue.................................................. $1,841 $2,237 $1,635
Costs.................................................... 1,692 2,082 1,461
------ ------ ------
Operating income....................................... $ 149 $ 155 $ 174
====== ====== ======
COMPANY'S SHARE
Revenue.................................................. $ 908 $1,116 $ 857
Costs.................................................... 833 1,024 753
------ ------ ------
Operating income....................................... $ 75 $ 92 $ 104
====== ====== ======
</TABLE>
Depreciation is computed by the joint ventures and partnership using
straight-line and declining balance methods over the estimated useful lives of
the assets which range from 2 to 20 years.
F-15
<PAGE> 98
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS:
Other assets consist of the following at December 25, 1999 and December 26,
1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Marketable securities (note 3)............................ $ 8 $ 9
Equity method investments................................. 5 14
Construction partnership (note 4)......................... 47 24
Goodwill, net of accumulated amortization of $15 and
$12..................................................... 40 26
Land option............................................... 2 --
Notes receivable.......................................... 15 18
---- ---
$117 $91
==== ===
</TABLE>
The marketable securities are an investment in a publicly traded company.
The notes receivable are primarily non-interest bearing employee notes.
The equity method investments consist of a 33% interest in a concrete
products business that is not publicly traded and does not have a readily
determinable market value and a 40% interest in Pacific Rock Products, L.L.C.
and a 40% interest in Pacific Rock Products Trucking, L.L.C. (formerly River
City Machinery, L.L.C.) (collectively "Pacific Rock") in 1998 and 1997. In 1999,
Pacific Rock became a wholly owned subsidiary. Pacific Rock is engaged in the
mining of rock products.
Financial data relating to the equity method investments are summarized
below:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current assets......................................... $ 11 $ 28
Property, plant and equipment, net..................... 6 38
Other noncurrent assets................................ -- 1
---- ----
17 67
---- ----
Current liabilities.................................... (4) (11)
Noncurrent liabilities................................. -- (13)
---- ----
Net assets........................................... $ 13 $ 43
==== ====
Equity in net assets................................... $ 5 $ 14
==== ====
Revenue................................................ $ 37 $ 80 $ 81
==== ==== ====
Gross margin........................................... $ 7 $ 21 $ 19
==== ==== ====
Net earnings........................................... $ 3 $ 16 $ 13
==== ==== ====
Equity in net earnings................................. $ 1 $ 6 $ 5
==== ==== ====
</TABLE>
F-16
<PAGE> 99
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
At December 25, 1999 and December 26, 1998 long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
7.35% - 8.03% Convertible debentures, 2007 - 2009........... $14 $ 8
BICC Cables Corp. note...................................... -- 6
Stockholder notes and other................................. 8 7
--- ---
22 21
Less current portion........................................ 4 8
--- ---
$18 $13
=== ===
</TABLE>
The convertible debentures are convertible during October of the fifth year
preceding their maturity date. Each annual series may be redeemed in its
entirety prior to the due date except during the conversion period. At December
25, 1999, 1,032,069 shares of stock were reserved for future conversions.
In 1997, the Company borrowed $6 million from BICC Cables Corp. ("BICC").
BICC is affiliated with a joint venture partner of the Company. The note was
paid in full in 1999 and required quarterly interest payments at a rate equal to
one month LIBOR. The proceeds from the note were used for working capital
requirements.
In 1998, $9 million of convertible debentures were converted to common
stock.
Scheduled maturities of long-term debt are as follows (in millions):
2000 -- $4; 2001 -- $1; 2002 -- $1; 2003 -- $0; 2004 -- $0; and 2005 and
thereafter -- $16.
7. INCOME TAXES:
An analysis of the (provision) benefit for income taxes relating to
earnings before minority interest and income taxes for the three years ended
December 25, 1999 follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current:
U.S. federal............................................. $ (85) $ (55) $ (88)
Foreign.................................................. (4) (5) (9)
State.................................................... (12) (12) (10)
----- ----- -----
(101) (72) (107)
Deferred:
U.S. federal............................................. 5 (8) 1
Foreign.................................................. (2) 2 (1)
State.................................................... (2) -- --
----- ----- -----
1 (6) --
----- ----- -----
$(100) $ (78) $(107)
===== ===== =====
</TABLE>
F-17
<PAGE> 100
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES, CONTINUED:
The United States and foreign components of earnings, for tax reporting
purposes, before minority interest and income taxes follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States............................................... $267 $213 $228
Foreign..................................................... (1) 2 36
---- ---- ----
$266 $215 $264
==== ==== ====
</TABLE>
A reconciliation of the actual (provision) benefit for income taxes and the
tax computed by applying the U.S. federal rate (35%) to the earnings before
minority interest and income taxes for the three years ended December 25, 1999
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Computed tax at statutory rate.............................. $ (93) $(75) $ (92)
State income taxes.......................................... (9) (7) (8)
Prior year tax adjustments.................................. 2 -- (5)
Other....................................................... -- 4 (2)
----- ---- -----
$(100) $(78) $(107)
===== ==== =====
</TABLE>
Possible taxes, beyond those provided, on remittances of undistributed
earnings of foreign subsidiaries, are not expected to be material.
The components of the net deferred tax assets for the years ended December
25, 1999 and December 26, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Construction accounting................................... $26 $27
Investments in construction joint ventures................ 24 27
Insurance claims.......................................... 34 33
Compensation -- retirement benefits....................... 2 8
Other..................................................... 9 2
--- ---
Total deferred tax assets................................... 95 97
Deferred tax liabilities:
Asset bases/accumulated depreciation...................... 15 14
Other..................................................... 22 20
--- ---
Total deferred tax liabilities.............................. 37 34
--- ---
Net deferred tax assets..................................... $58 $63
=== ===
</TABLE>
F-18
<PAGE> 101
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS:
The Company makes contributions, based on collective bargaining agreements
related to its construction operations, to several multi-employer union pension
plans. These contributions are included in the cost of revenue. Under federal
law, the Company may be liable for a portion of future plan deficiencies;
however, there are no known deficiencies.
Approximately 16% of the employees of the Company are covered under the
Company's profit sharing plan. The expense related to the profit sharing plan
was $4 million in 1999, $3 million in 1998 and $5 million in 1997.
9. REDEEMABLE COMMON STOCK:
Ownership of Redeemable Common Stock is restricted to certain employees
conditioned upon the execution of repurchase agreements which restrict the
employees from transferring the Redeemable Common Stock. The Company is
generally committed to purchase all Redeemable Common Stock at the amount
computed pursuant to its Restated Certificate of Incorporation. Issuances and
repurchases of Redeemable Common Stock, including conversions, for the three
years ended December 25, 1999, were as follows:
<TABLE>
<S> <C>
Balance at December 28, 1996................................ 44,026,564
Shares issued in 1997....................................... 3,575,696
Shares repurchased in 1997.................................. (7,072,888)
-----------
Balance at December 27, 1997................................ 40,529,372
Shares issued in 1998....................................... 6,852,196
Shares repurchased in 1998.................................. (11,688,748)
-----------
Balance at December 26, 1998................................ 35,692,820
Shares issued in 1999....................................... 1,622,550
Shares repurchased in 1999.................................. (2,438,652)
-----------
Balance at December 25, 1999................................ 34,876,718
===========
</TABLE>
10. SEGMENT AND GEOGRAPHIC DATA:
The Company is managed and operated in two segments, Construction and
Materials. The Construction segment performs services for a broad range of
public and private customers primarily in North America. Construction services
are performed in the following construction markets: transportation (including
highways, bridges, airports, railroads and mass transit), commercial buildings,
water supply, sewage and waste disposal, dams, mining, power, heat and cooling,
and oil and gas. The Materials segment primarily operates in Southwest and
Northwest portions of the United States. This segment produces construction
materials including ready-mix concrete, asphalt and sand and gravel, landscaping
materials and railroad ballast.
Intersegment sales are recorded at cost. Operating earnings are comprised
of net sales less all identifiable operating expenses, allocated general and
administrative expenses, depreciation and amortization. Interest income,
interest expense and income taxes have been excluded from segment operations.
The management fee earned by the Company as described in Note 11 is excluded
from the segment information that follows as it is
F-19
<PAGE> 102
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SEGMENT AND GEOGRAPHIC DATA, CONTINUED:
included in other income on the Statement of Earnings and not included in
operating earnings. Segment asset information has not been presented as it is
not reported to or reviewed by the chief operating decision maker.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
SEGMENT DATA CONSTRUCTION MATERIALS CONSTRUCTION MATERIALS CONSTRUCTION MATERIALS
------------ ------------ --------- ------------ --------- ------------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue
External customers............. $3,594 $422 $3,057 $346 $2,474 $290
Intersegment................... -- 10 -- 6 -- 8
------ ---- ------ ---- ------ ----
Total revenues.............. 3,594 432 3,057 352 2,474 298
Equity earnings
adjustment(1)............... -- (3) -- (24) -- (22)
Elimination of intersegment
revenues.................... -- (10) -- (6) -- (8)
------ ---- ------ ---- ------ ----
Total consolidated
revenues.................. $3,594 $419 $3,057 $322 $2,474 $268
====== ==== ====== ==== ====== ====
Depreciation and amortization.... $ 56 $ 17 $ 65 $ 6 $ 61 $ 6
====== ==== ====== ==== ====== ====
Operating earnings............... $ 178 $ 36 $ 124 $ 18 $ 178 $ 8
====== ==== ====== ==== ====== ====
</TABLE>
---------------
(1) Adjust revenue of limited liability companies accounted for by the equity
method.
<TABLE>
<CAPTION>
GEOGRAPHIC DATA 1999 1998 1997
--------------- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Revenue, by location of services provided:
United States............................................. $3,907 $3,282 $2,572
Canada.................................................... 87 77 90
Other..................................................... 19 20 80
------ ------ ------
$4,013 $3,379 $2,742
====== ====== ======
Long-lived assets:
United States............................................. $ 239 $ 208
Canada.................................................... 4 4
------ ------
$ 243 $ 212
====== ======
</TABLE>
During 1999, the Company earned 21.7% of revenues from contracts with Level
3.
11. MANAGEMENT FEES:
The Company manages certain coal mines for Level 3. Fees for these services
were $33 million in 1999, $34 million in 1998 and $32 million in 1997. The
Company's fee is a percentage of adjusted operating earnings of the coal mines,
as defined. The mines managed by the Company for Level 3 earn the majority of
their revenues under long-term contracts. The remainder of the mines' sales are
made on the spot market where prices are substantially lower than those of the
long-term contracts. After a significant long-term contract expires next year,
adjusted operating earnings at the mines will decrease substantially, thereby
similarly decreasing the management fee earned by the Company.
Additionally, the Minerals Management Service and Montana Department of
Revenue have issued assessments to the Level 3 mines for the underpayment of
royalties and production taxes. Level 3 is vigorously contesting the
assessments. If Level 3 pays these assessments, the payments could materially
decrease future mine management fees, but will not affect fees previously
received.
F-20
<PAGE> 103
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. OTHER COMPREHENSIVE INCOME:
Other comprehensive income consisted of the following:
<TABLE>
<CAPTION>
TAX
(EXPENSE)
BEFORE TAX BENEFIT AFTER TAX
---------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 27, 1997
Foreign currency translation adjustments............ $ (3) $ 1 $ (2)
---- ---- ----
Unrealized holding loss:
Unrealized holding losses arising during the
period......................................... (14) 5 (9)
Plus reclassification adjustment for gains
realized in net earnings....................... (1) -- (1)
---- ---- ----
(15) 5 (10)
---- ---- ----
Other comprehensive income December 27, 1997........ $(18) $ 6 $(12)
==== ==== ====
FOR THE YEAR ENDED DECEMBER 26, 1998
Foreign currency translation adjustments............ $ (2) $ 1 $ (1)
---- ---- ----
Unrealized holding loss:
Unrealized holding losses arising during the
period......................................... (4) 1 (3)
Plus reclassification adjustment for gains
realized in net earnings....................... -- -- --
---- ---- ----
(4) 1 (3)
---- ---- ----
Other comprehensive income December 26, 1998........ $ (6) $ 2 $ (4)
==== ==== ====
FOR THE YEAR ENDED DECEMBER 25, 1999
Foreign currency translation adjustments............ $ 1 $ -- $ 1
---- ---- ----
Unrealized holding loss:
Unrealized holding losses arising during the
period......................................... (1) -- (1)
Less reclassification adjustment for losses
realized in net earnings....................... 18 (6) 12
---- ---- ----
17 (6) 11
---- ---- ----
Other comprehensive income December 25, 1999........ $ 18 $ (6) $ 12
==== ==== ====
</TABLE>
F-21
<PAGE> 104
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. OTHER COMPREHENSIVE INCOME, CONTINUED:
Accumulated other comprehensive income consisted of the following:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY HOLDING OTHER
TRANSLATION GAIN/(LOSS) COMPREHENSIVE
ADJUSTMENTS ON SECURITIES INCOME
----------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996.................. $(5) $ (1) $ (6)
Change during the year........................ (2) (10) (12)
--- ---- ----
BALANCE AT DECEMBER 27, 1997.................. (7) (11) (18)
Change during the year........................ (1) (3) (4)
--- ---- ----
BALANCE AT DECEMBER 26, 1998.................. (8) (14) (22)
--- ---- ----
Change during the year........................ 1 11 12
--- ---- ----
BALANCE AT DECEMBER 25, 1999.................. $(7) $ (3) $(10)
=== ==== ====
</TABLE>
13. OTHER MATTERS:
In connection with the Transaction, the Company and Level 3 entered into
various agreements including a Separation Agreement, a Tax-Sharing Agreement and
an amended Mine Management Agreement.
The Separation Agreement provides for the allocation of certain risks and
responsibilities between Level 3 and the Company and for cross-indemnifications
that are intended to allocate financial responsibility to the Company for
liabilities arising out of the construction business and to allocate to Level 3
financial responsibility for liabilities arising out of the non-construction
businesses. The Separation Agreement also provides for the payment, by the
Company, of a majority of the third party costs and expenses associated with the
Transaction.
Under the Tax Sharing Agreement, with respect to periods, or portions
thereof, ending on or before the closing date of the Transaction, Level 3 and
the Company generally will be responsible for paying the taxes relating to such
periods, including any subsequent adjustments resulting from the redetermination
of such tax liabilities by the applicable taxing authorities, that are allocable
to the non-construction businesses and construction businesses, respectively.
The Tax Sharing Agreement also provides that Level 3 and the Company will
indemnify the other from certain taxes and expenses that would be assessed if
the Transaction was determined to be taxable, but solely to the extent that such
determination arose out of the breach by Level 3 or the Company, respectively,
of certain representations made to the Internal Revenue Service in connection
with the ruling issued with respect to the Transaction or made in the
Tax-Sharing Agreement. If the Transaction were determined to be taxable for any
other reason, those taxes ("Transaction Taxes") would be allocated 50% to Level
3 and 50% to the Company. Finally, under certain circumstances, Level 3 would
make certain liquidated damage payments to the Company if the Transaction was
determined to be taxable in order to take into account the fact that the
Transaction is taxable to the holders of the Company's Common Stock.
Additionally, the Mine Management Agreement, pursuant to which the Company
provides mine management and related services to Level 3's coal mining
operations, was amended to provide the Company with a right of offer in the
event that Level 3 would determine to sell any or all of its coal mining
properties. Under the right of offer, Level 3 would be required to offer to sell
those properties to the Company at the price that Level 3 would seek to sell the
properties to a third party. If the Company declined to purchase the properties
at that price, Level 3 would be free to sell them to a third party for an amount
greater than or equal
F-22
<PAGE> 105
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER MATTERS, CONTINUED:
to that price. If Level 3 sold the properties to a third party, thus terminating
the Mine Management Agreement, it would be required to pay the Company an amount
equal to the discounted present value of the Mine Management Agreement,
determined, if necessary, by an appraisal process.
In 1997, the Company and a partner each invested $15 million to acquire a
96% interest in Oak Mountain Energy LLC ("Oak Mountain"). Oak Mountain then
acquired the existing assets of an underground coal mine located in Alabama for
approximately $18 million and assumed approximately $14 million of related
liabilities. Oak Mountain used cash and $18 million of nonrecourse bank
borrowings to retire the existing debt and develop and modernize the mine.
Oak Mountain's results are consolidated with those of the Company on a
pro-rata basis since the date of acquisition. Due to higher than anticipated
costs in modernizing and operating the mine, Oak Mountain incurred operating
losses since acquisition. Production at the mine was significantly below
anticipated levels, and as a result of this and other factors, Oak Mountain fell
out of compliance with certain covenants of the bank borrowings. Those events
caused the Company to assess whether its investment was impaired. In 1997, the
Company determined its investment in Oak Mountain was impaired and reduced the
Company's investment to zero. In June 1998, the Company disposed of its
investment in Oak Mountain. In 1998, the Company realized operating losses of
$3 million.
On February 28, 1999, the Company purchased the remaining 60% of a
materials operation in Portland, Oregon/Vancouver, Washington area. Goodwill
recognized on the purchase is being amortized over 20 years. Had the results of
operations of this acquisition been consolidated for the periods prior to
acquisition, there would have been no material impact to the Company's results.
The Company and certain other defendants are party to certain litigation
involving repairs to runways at Denver International Airport. In December 1998,
a jury determined that the defendants were liable for compensatory and punitive
damages. The Company intends to appeal the verdict. Management believes that any
resulting liability, beyond that provided, should not materially affect the
Company's financial position, future results of operations or future cash flows.
The Company is involved in various other lawsuits and claims incidental to
its business. Management believes that any resulting liability, beyond that
provided, should not materially affect the Company's financial position, future
results of operations or future cash flows.
The Company leases various buildings and equipment under both operating and
capital leases. Minimum rental payments on buildings and equipment subject to
noncancellable operating leases during the next 20 years aggregate $32 million.
It is customary in the Company's industry to use various financial
instruments in the normal course of business. These instruments include items
such as letters of credit. Letters of credit are conditional commitments issued
on behalf of the Company in accordance with specified terms and conditions. The
Company has informal arrangements with a number of banks to provide such
commitments. As of December 25, 1999, the Company had outstanding letters of
credit of approximately $201 million.
14. SUBSEQUENT EVENTS:
The Company has filed various documents with the Securities and Exchange
Commission pursuant to which the Company is proposing to spin-off the Materials
Business to its shareholders in a transaction that is intended to be tax-free
for U.S. Federal income tax purposes.
F-23
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 17, 2000 appearing on page F-2 also included an audit of the
financial statement schedule appearing on page F-25. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 17, 2000
F-24
<PAGE> 107
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS AMOUNTS
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO END OF
OF PERIOD EXPENSES RESERVES OTHER PERIOD
--------- ---------- -------- ----- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 25, 1999
Allowance for doubtful trade accounts....... $ 5 $ 3 $ (1) $-- $ 7
Reserves:
Insurance claims.......................... 81 23 (20) -- 84
YEAR ENDED DECEMBER 26, 1998
Allowance for doubtful trade accounts....... $ 9 $-- $ (4) $-- $ 5
Reserves:
Insurance claims.......................... 76 15 (10) -- 81
YEAR ENDED DECEMBER 27, 1997
Allowance for doubtful trade accounts....... $17 $ 3 $(11) $-- $ 9
Reserves:
Insurance claims.......................... 81 7 (12) -- 76
</TABLE>
F-25
<PAGE> 108
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- -------- -------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue............................................... $1,313 $ 996 $2,396 $ 1,769
Cost of revenue....................................... (1,207) (923) (2,239) (1,653)
------ ----- ------ -------
106 73 157 116
General and administrative expenses................... (44) (32) (89) (75)
------ ----- ------ -------
Operating earnings.................................... 62 41 68 41
Other income (expense):
Investment income and equity earnings............... 4 3 10 7
Interest expense.................................... (1) -- (1) (1)
Other, net.......................................... 18 14 30 31
------ ----- ------ -------
21 17 39 37
------ ----- ------ -------
Earnings before income taxes.......................... 83 58 107 78
Provision for income taxes............................ (33) (23) (43) (31)
------ ----- ------ -------
Net earnings.......................................... $ 50 $ 35 $ 64 $ 47
====== ===== ====== =======
Net earnings per share:
Basic............................................... $ 1.57 $1.04 $ 2.01 $ 1.39
====== ===== ====== =======
Diluted............................................. $ 1.52 $1.02 $ 1.95 $ 1.36
====== ===== ====== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-26
<PAGE> 109
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
2000
-----------
(DOLLARS IN
MILLIONS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 288
Marketable securities..................................... 5
Receivables, less allowance of $7......................... 494
Unbilled contract revenue................................. 152
Contract costs in excess of related revenue............... 47
Investment in construction joint ventures................. 163
Deferred income taxes..................................... 61
Other..................................................... 28
------
Total current assets........................................ 1,238
Property, plant and equipment, less accumulated depreciation
and amortization of $518.................................. 278
Other assets................................................ 129
------
$1,645
======
LIABILITIES AND REDEEMABLE COMMON STOCK
Current liabilities:
Accounts payable, including retainage of $47.............. $ 239
Current portion of long-term debt......................... 2
Accrued costs on construction contracts................... 161
Billings in excess of related costs and earnings.......... 175
Accrued insurance costs................................... 93
Other..................................................... 45
------
Total current liabilities................................... 715
Long-term debt, less current portion........................ 18
Deferred income taxes....................................... 4
Other liabilities........................................... 66
Minority interest........................................... 13
------
Total liabilities......................................... 816
Preferred stock, no par value, 250,000 shares authorized, no
shares outstanding........................................ --
Redeemable common stock ($648 million aggregate redemption
value):
Common stock, $0.01 par value; 125 million shares
authorized 31,846,072 shares outstanding............... --
Additional paid-in capital................................ 159
Accumulated other comprehensive income.................... (11)
Retained earnings......................................... 681
------
Total redeemable common stock............................... 829
------
$1,645
======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-27
<PAGE> 110
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
2000 1999
----- -----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Cash flows from operations:
Net cash provided by operations............................. $114 $113
Cash flows from investing activities:
Proceeds from sales and maturities of marketable
securities............................................. 9 1
Purchases of marketable securities........................ (2) (4)
Proceeds from sales of property, plant and equipment...... 14 20
Acquisitions, net of cash acquired........................ (37) (33)
Distributions from investees.............................. -- 2
Capital expenditures...................................... (53) (33)
Additions to notes receivable............................. (4) --
Payments received on notes receivable..................... 1 1
---- ----
Net cash used in investing activities....................... (72) (46)
Cash flows from financing activities:
Payments on long-term debt................................ (2) (16)
Issuance of common stock.................................. -- 25
Repurchases of common stock............................... (63) (37)
Dividends paid............................................ (18) (16)
Change in outstanding checks in excess of funds on
deposit................................................ (9) (3)
---- ----
Net cash used in financing activities....................... (92) (47)
---- ----
Net (decrease) increase in cash and cash equivalents........ (50) 20
Cash and cash equivalents at beginning of period............ 338 227
---- ----
Cash and cash equivalents at end of period.................. $288 $247
==== ====
Noncash investing activities:
Issuance of debt for materials acquisitions............... $ 2 $ --
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-28
<PAGE> 111
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated condensed financial statements of Peter Kiewit Sons', Inc.
(the "Company") 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 for the periods presented. The Company's accounting policies and
certain other disclosures are set forth in the notes to the consolidated
financial statements contained in the Company's Annual Report on Form 10-K.
Receivables at June 30, 2000 include approximately $102 million of
retainage on uncompleted projects, the majority of which is expected to be
collected within one year. Included in the retainage amount is $33 million of
securities which are being held by the owners of various construction projects
in lieu of retainage. Also included in accounts receivable are $10 million of
securities held by the owners which are now due as the contracts are completed.
These securities are carried at fair value which is determined based on quoted
market prices for the securities on hand or for similar investments. Net
unrealized holding gains and losses, if any, are reported as a separate
component of accumulated other comprehensive income, net of tax.
The results of operations for the six months ended June 30, 2000 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. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net earnings available to common stockholders (in
millions)....................................... $ 50 $ 35 $ 64 $ 47
Add: Interest expense, net of tax effect,
associated with convertible debentures.......... * * * *
------ ------ ------ ------
Net earnings for diluted shares................... $ 50 $ 35 $ 64 $ 47
====== ====== ====== ======
Total number of weighted average shares
outstanding used to compute basic earnings per
share (in thousands)............................ 31,878 33,555 32,119 33,717
Additional dilutive shares assuming conversion of
convertible debentures.......................... 1,025 706 1,027 707
------ ------ ------ ------
Total number of shares used to compute diluted
earnings per share.............................. 32,903 34,261 33,146 34,424
====== ====== ====== ======
Net earnings
Basic earnings per share........................ $ 1.57 $ 1.04 $ 2.01 $ 1.39
====== ====== ====== ======
Diluted earnings per share...................... $ 1.52 $ 1.02 $ 1.95 $ 1.36
====== ====== ====== ======
</TABLE>
---------------
* Interest expense attributable to convertible debentures was less than $.5
million.
F-29
<PAGE> 112
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. 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 months and six months ended June 30, 2000 and
1999 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
----- ----- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net earnings......................................... $50 $35 $64 $47
Other comprehensive income, before tax:
Foreign currency translation adjustments........... 2 2 2 4
Unrealized gains (losses) arising during period.... (4) (2) (4) (2)
Income tax (expense) benefit related to items of
other comprehensive income...................... 1 -- 1 (1)
--- --- --- ---
Comprehensive income................................. $49 $35 $63 $48
=== === === ===
</TABLE>
4. SEGMENT DATA:
The Company is managed and operated in two segments, Construction and
Materials. The Construction segment performs services for a broad range of
public and private customers primarily in North America. Construction services
are performed in the following construction markets: transportation (including
highways, bridges, airports, railroads and mass transit), commercial buildings,
water supply, sewage and waste disposal, dams, mining, power, telecommunication
infrastructure, heating and cooling, and oil and gas. The Materials segment
primarily operates in the Southwest and Northwest portions of the United States.
This segment produces construction materials primarily for sale to the private
sector including ready-mix concrete, asphalt, sand and gravel, landscaping
materials and railroad ballast.
Intersegment sales are recorded at cost. Operating earnings is comprised of
net sales less all identifiable operating expenses, allocated general and
administrative expenses, depreciation and amortization. Investment income,
interest expense, and income taxes have been excluded from segment operations.
The management fee earned by the Company as described in Note 5 is excluded from
the segment information that follows as it is included in other income on the
Statement of Earnings and not included in operating earnings. Segment asset
information has not been presented as it is not reported to or reviewed by the
chief operating decision maker.
F-30
<PAGE> 113
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. SEGMENT DATA, CONTINUED:
<TABLE>
<CAPTION>
ELIMINATION EQUITY
OF EARNINGS TOTAL DEPRECIATION
EXTERNAL INTERSEGMENT TOTAL INTERSEGMENT ADJUSTMENT CONSOLIDATED AND
REVENUES REVENUES REVENUES REVENUES (1) REVENUES AMORTIZATION
-------- ------------ -------- ------------ ----------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED 6/30/00
Construction..................... $2,180 $-- $2,180 $-- $-- $2,180 $25
Materials........................ $ 216 $ 6 $ 222 $(6) $-- $ 216 $ 9
THREE MONTHS ENDED 6/30/00
Construction..................... $1,189 $-- $1,189 $-- $-- $1,189 $13
Materials........................ $ 124 $ 2 $ 126 $(2) $-- $ 124 $ 4
SIX MONTHS ENDED 6/30/99
Construction..................... $1,569 $-- $1,569 $-- $-- $1,569 $26
Materials........................ $ 202 $ 4 $ 206 $(4) $(2) $ 200 $ 5
THREE MONTHS ENDED 6/30/99
Construction..................... $ 887 $-- $ 887 $-- $-- $ 887 $14
Materials........................ $ 109 $ 2 $ 111 $(2) $-- $ 109 $ 3
<CAPTION>
OPERATING
EARNINGS
---------
(DOLLARS IN MILLIONS)
<S> <C>
SIX MONTHS ENDED 6/30/00
Construction..................... $54
Materials........................ $14
THREE MONTHS ENDED 6/30/00
Construction..................... $52
Materials........................ $10
SIX MONTHS ENDED 6/30/99
Construction..................... $28
Materials........................ $13
THREE MONTHS ENDED 6/30/99
Construction..................... $34
Materials........................ $ 7
</TABLE>
---------------
(1) Adjust revenue of limited liability companies accounted for by the equity
method.
During the second quarter of 2000 and 1999, the Company earned 40.2% and
32.4%, respectively, of revenues from contracts with Level 3 Communications,
Inc. ("Level 3"). For the first six months of 2000, the Company earned 40.2% of
revenues from contracts with Level 3, as compared to 23.6% for the same period
in 1999.
5. OTHER MATTERS:
In connection with the spin-off of the Company from Level 3 in 1998,
various agreements were entered into including a Separation Agreement, a
Tax-Sharing Agreement and an amended Mine Management Agreement.
The Separation Agreement provides for the allocation of certain risks and
responsibilities between Level 3 and the Company and for cross-indemnifications
that are intended to allocate financial responsibility to the Company for
liabilities arising out of the construction business and to allocate to Level 3
financial responsibility for liabilities arising out of the non-construction
businesses.
The Tax Sharing Agreement provides, with respect to periods, or portions
thereof, ending on or before the closing date of the spin-off that Level 3 and
the Company generally will be responsible for paying the taxes relating to such
periods, including any subsequent adjustments resulting from the redetermination
of such tax liabilities by the applicable taxing authorities, that are allocable
to the non-construction businesses and construction businesses, respectively.
The Tax Sharing Agreement also provides that Level 3 and the Company will
indemnify the other from certain taxes and expenses that would be assessed if
the spin-off was determined to be taxable, but solely to the extent that such
determination arose out of the breach by Level 3 or the Company, respectively,
of certain representations made to the Internal Revenue Service in connection
with the ruling issued with respect to the spin-off or made in the Tax-Sharing
Agreement. If the spin-off was determined to be taxable for any other reason,
those taxes would be allocated 50% to Level 3 and 50% to the Company. Finally,
under certain circumstances, Level 3 would make certain liquidated damage
payments to the Company if the spin-off was determined to be taxable in order to
take into account the fact that the spin-off is taxable to the holders of Common
Stock.
F-31
<PAGE> 114
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER MATTERS, CONTINUED:
The amended Mine Management Agreement, pursuant to which the Company
provides mine management and related services to Level 3's coal mining
operations, provides the Company with a right of offer in the event that Level 3
would determine to sell any or all of its coal mining properties. Under the
right of offer, Level 3 would be required to offer to sell those properties to
the Company at the price that Level 3 would seek to sell the properties to a
third party. If the Company declined to purchase the properties at that price,
Level 3 would be free to sell them to a third party for an amount greater than
or equal to that price. If Level 3 sold the properties to a third party, thus
terminating the Mine Management Agreement, it would be required to pay the
Company an amount equal to the discounted present value of the Mine Management
Agreement, determined, if necessary, by an appraisal process.
The Company and certain other defendants are party to certain litigation
involving repairs to runways at Denver International Airport. In December 1998,
a jury determined that the defendants were liable for compensatory and punitive
damages. The Company intends to appeal the verdict. Management believes that any
resulting liability, beyond that provided, should not materially affect the
Company's financial position, future results of operations or future cash flows.
The Company is involved in various other lawsuits and claims incidental to
its business. Management believes that any resulting liability, beyond that
provided, should not materially affect the Company's financial position, future
results of operations or future cash flows.
6. SUBSEQUENT EVENTS:
The Company has filed various documents with the Securities and Exchange
Commission pursuant to which the Company is proposing to spin-off its materials
business to its shareholders in a transaction that is intended to be tax-free
for U.S. Federal income tax purposes.
On July 11, 2000, the Company notified Aker Maritime, Inc. ("Aker"), the
Company's partner in Aker Gulf Marine (the "Partnership"), that the Company was
exercising its right to either sell its 49% interest in the Partnership to Aker,
or purchase Aker's 51% interest in the Partnership. Pursuant to the terms of the
Company's notice, Aker has until September 9, 2000, to determine whether either
Aker or the Company will be the acquiror. The transaction is anticipated to
close on September 11, 2000. The purchase price payable by the acquiring partner
will be determined based upon the value of the Partnership of $175 million.
On August 4, 2000, the Company acquired 100% of the outstanding common
stock and related assets of Fort Calhoun Stone Company, a limestone quarry
business located in Washington County, Nebraska, for approximately $41 million.
The acquisition will be accounted for as a purchase. The purchase price
allocation will be determined when additional information becomes available.
F-32
<PAGE> 115
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Reports of Independent Accountants.......................... F-34
Consolidated Financial Statements as of December 25, 1999
and December 26, 1998 and for the three years in the
period ended December 25, 1999:
Consolidated Statements of Earnings....................... F-37
Consolidated Balance Sheets............................... F-38
Consolidated Statements of Cash Flows..................... F-39
Consolidated Statements of Changes in Stockholder's Equity
and Comprehensive Income............................... F-40
Notes to Consolidated Financial Statements................ F-41
Report of Independent Accountants on Consolidated Financial
Schedule.................................................. F-53
Consolidated Financial Statement Schedule for the three
years in the period ended December 25, 1999............... F-54
Consolidated Condensed Financial Statements as of June 30,
2000 and for the three and six months ended June 30, 2000
and 1999:
Consolidated Condensed Statements of Earnings............. F-55
Consolidated Condensed Balance Sheet...................... F-56
Consolidated Condensed Statements of Cash Flows........... F-57
Notes to Consolidated Condensed Financial Statements...... F-58
</TABLE>
F-33
<PAGE> 116
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholder
Kiewit Materials Company
In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of earnings, changes in stockholder's equity and comprehensive income, and cash
flows present fairly, in all material respects, the financial position of Kiewit
Materials Company and its subsidiaries (the "Company") at December 25, 1999 and
December 26, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 25, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Granite Canyon Quarry
for 1999, 1998 and 1997 and, Pacific Rock Products, L.L.C. and Pacific Rock
Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.) for 1998 and
1997 the investments in which comprise $5,121,686 and $15,615,740 of the
Company's total assets as of December 25, 1999 and December 26, 1998,
respectively, and $4,290,969, $8,190,779 and $6,243,716 of the Company's
earnings before income taxes for each of the three years in the period ended
December 25, 1999. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Granite Canyon Quarry, Pacific Rock
Products, L.L.C. and Pacific Rock Products Trucking, L.L.C. (formerly River City
Machinery, L.L.C.), is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 17, 2000
F-34
<PAGE> 117
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee of
Granite Canyon Quarry:
We have audited the balance sheets of GRANITE CANYON QUARRY (the "Venture") as
of December 31, 1999 and 1998, and the related statements of income, changes in
venturers' capital and cash flows for the years then ended (not presented
herein). These financial statements are the responsibility of the Venture's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Granite Canyon Quarry as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Denver, Colorado,
March 3, 2000
F-35
<PAGE> 118
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee of
Granite Canyon Quarry:
We have audited the balance sheets of GRANITE CANYON QUARRY (the "Venture") as
of December 31, 1998 and 1997, and the related statements of income, changes in
venturers' capital and cash flows for the years then ended (not presented
herein). These financial statements are the responsibility of the Venture's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Granite Canyon Quarry as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Denver, Colorado,
March 29, 1999
F-36
<PAGE> 119
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenue....................................... $ 437,057,648 $ 333,060,002 $ 277,308,896
Cost of revenue............................... (358,112,282) (286,046,917) (231,304,212)
Depreciation, depletion and amortization...... (16,819,147) (12,112,930) (10,985,109)
------------- ------------- -------------
62,126,219 34,900,155 35,019,575
General and administrative expenses........... (24,683,403) (19,062,488) (16,227,521)
------------- ------------- -------------
Operating earnings............................ 37,442,816 15,837,667 18,792,054
Other income (expense):
Investment income........................... 4,585,287 3,551,074 3,526,354
Equity earnings............................. 265,664 5,599,268 4,272,210
Interest expense............................ (1,853,497) (934,888) (547,704)
Gain on sale of property, plant and
equipment, net........................... 899,122 853,436 1,005,530
Other....................................... 242,135 323,322 299,003
------------- ------------- -------------
4,138,711 9,392,212 8,555,393
------------- ------------- -------------
Earnings before income taxes and minority
interests................................... 41,581,527 25,229,879 27,347,447
Minority interests in (earnings) losses of
subsidiaries................................ (60,727) (58,101) 52,277
Income tax expense............................ (15,692,822) (9,793,440) (10,857,416)
------------- ------------- -------------
Net earnings.................................. $ 25,827,978 $ 15,378,338 $ 16,542,308
============= ============= =============
Net earnings per share:
Basic and diluted........................... $ 258,280 $ 153,783 $ 165,423
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 120
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1999 AND DECEMBER 26, 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 72,330,127 $ 65,601,870
Marketable securities..................................... 2,533,975 2,584,050
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$993,998 and $780,445................................ 51,042,146 40,529,060
Affiliates............................................. 325,014 292,108
------------ ------------
Total accounts receivable................................. 51,367,160 40,821,168
Inventories............................................... 11,140,897 7,766,988
Deferred income taxes..................................... 4,662,000 2,855,000
Other..................................................... 1,884,960 2,200,369
------------ ------------
Total current assets................................... 143,919,119 121,829,445
Property, plant and equipment at cost....................... 196,278,215 145,892,746
Less accumulated depreciation............................. 96,277,685 86,454,443
------------ ------------
Net property, plant and equipment........................... 100,000,530 59,438,303
Investments and other assets................................ 32,970,988 25,785,949
------------ ------------
$276,890,637 $207,053,697
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable:
Trade.................................................. $ 18,202,993 $ 22,913,995
Affiliates............................................. 5,600,639 14,675,013
------------ ------------
Total accounts payable.................................... 23,803,632 37,589,008
Current portion of long-term debt......................... 561,538 739,965
Accrued payroll and payroll taxes......................... 6,772,340 5,787,804
Accrued insurance costs................................... 6,776,798 5,626,346
Income taxes payable -- parent company.................... 11,815,841 5,559,111
Other..................................................... 1,719,859 2,040,055
------------ ------------
Total current liabilities.............................. 51,450,008 57,342,289
Long-term debt, less current portion........................ 3,753,298 760,834
Deferred income taxes....................................... 8,976,000 6,606,000
Other liabilities........................................... 2,622,906 2,762,503
Minority interest........................................... 355,770 295,044
Stockholder's equity:
Common stock of $.01 par value. 100 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 126,627,470 82,466,491
Accumulated other comprehensive income.................... 1,434 (456,172)
Retained earnings......................................... 83,103,750 57,276,707
------------ ------------
Total stockholder's equity.................................. 209,732,655 139,287,027
------------ ------------
$276,890,637 $207,053,697
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 121
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................... $ 25,827,978 $ 15,378,338 $ 16,542,308
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization.... 16,819,147 12,112,930 10,985,109
Gain on sale of property, plant and
equipment, net............................ (899,122) (853,436) (1,005,530)
Gain on sale of securities.................. -- (25,714) --
Deferred income taxes....................... 748,000 707,000 1,038,000
Undistributed equity earnings............... 129,273 (1,078,437) (4,246,212)
Minority interest in earnings (losses)...... 60,727 58,101 (52,277)
Change in operating assets and liabilities:
Accounts receivable....................... (1,669,564) (3,548,729) (6,263,241)
Inventories............................... (2,002,757) (163,240) (278,122)
Other assets.............................. 933,929 (749,466) (469,808)
Accounts payable.......................... (15,016,433) 5,437,919 13,316,821
Accrued payroll and other................. 984,536 2,135,446 (111,141)
Accrued insurance cost.................... 1,150,453 792,517 327,575
Income taxes payable...................... 6,256,730 (367,437) (87,334)
Other liabilities......................... (1,621,305) (206,800) (1,220,587)
------------ ------------ ------------
Net cash provided by operating activities........ 31,701,592 29,628,992 28,475,561
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment................................... 2,676,119 1,448,503 1,304,334
Capital expenditures........................... (19,447,225) (13,351,000) (20,213,136)
Purchases of marketable securities............. -- (16,874) (43,947)
Sales of marketable securities................. -- 760,621 --
Additions to notes receivable.................. (1,994,973) (1,837,933) (760,642)
Payments received on notes receivable.......... 1,542,182 1,316,489 363,750
Investments and acquisitions................... (36,151,653) (2,136,356) (8,132,363)
------------ ------------ ------------
Net cash used in investing activities............ (53,375,550) (13,816,550) (27,482,004)
Cash flows from financing activities:
Payments of long-term debt..................... (15,758,764) (378,419) (86,221)
Contributions by minority owner................ -- -- 209,445
Contributions from parent...................... 44,160,979 2,145,923 10,713,084
Dividends...................................... -- -- (13,970,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities..................................... 28,402,215 1,767,504 (3,133,692)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... 6,728,257 17,579,946 (2,140,135)
Cash and cash equivalents at beginning of year... 65,601,870 48,021,924 50,162,059
------------ ------------ ------------
Cash and cash equivalents at end of year......... $ 72,330,127 $ 65,601,870 $ 48,021,924
============ ============ ============
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 1,848,988 $ 944,672 $ 528,031
Income taxes paid.............................. 7,465,923 7,701,132 7,441,421
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE> 122
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
AND COMPREHENSIVE INCOME
FOR THE THREE YEARS ENDED DECEMBER 25, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996..... $ 1 $ 69,408,464 $ (82,951) $29,326,061 $ 98,651,575
Dividends ($39,700 per share).... -- -- -- (3,970,000) (3,970,000)
Contribution from parent......... -- 10,713,084 -- -- 10,713,084
Comprehensive income:
Net earnings................... -- -- -- 16,542,308 16,542,308
Other comprehensive income:
Change in unrealized holding
gain, net of tax.......... -- -- 8,537 -- 8,537
Minimum pension liability
adjustment................ -- -- (314,926) -- (314,926)
------------
Total other comprehensive
income.................... (306,389)
------------
Total comprehensive income....... 16,235,919
--- ------------ --------- ----------- ------------
BALANCE AT DECEMBER 27, 1997..... 1 80,121,548 (389,340) 41,898,369 121,630,578
Contribution from parent......... -- 2,344,943 -- -- 2,344,943
Comprehensive income:
Net earnings................... -- -- -- 15,378,338 15,378,338
Other comprehensive income:
Change in unrealized holding
loss, net of tax.......... -- -- (7,857) -- (7,857)
Minimum pension liability
adjustment................ -- -- (58,975) -- (58,975)
------------
Total other comprehensive
income.................... (66,832)
------------
Total comprehensive income....... 15,311,506
--- ------------ --------- ----------- ------------
BALANCE AT DECEMBER 26, 1998..... 1 82,466,491 (456,172) 57,276,707 139,287,027
--- ------------ --------- ----------- ------------
Dividends($9 per share).......... (935) (935)
Contribution from parent......... -- 44,160,979 -- -- 44,160,979
Comprehensive income:
Net earnings................... -- -- -- 25,827,978 25,827,978
Other comprehensive income:
Change in unrealized holding
loss, net of tax.......... -- -- (24,578) -- (24,578)
Minimum pension liability
adjustment................ -- -- 482,184 -- 482,184
------------
Total other comprehensive
income.................... 457,606
------------
Total comprehensive income....... 26,285,584
--- ------------ --------- ----------- ------------
BALANCE AT DECEMBER 25, 1999..... $ 1 $126,627,470 $ 1,434 $83,103,750 $209,732,655
=== ============ ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE> 123
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
The consolidated financial statements include the accounts of Kiewit
Materials Company ("KMC") and its subsidiaries (collectively, the "Company") and
the Company's pro rata portion of the accounts of Granite Canyon Joint Venture.
The Company was formed on February 2, 1999. Several affiliated operating
corporations under common ownership (the "Predecessors"), each one of which is
engaged in an aspect of the materials business, were combined (the
"Combination") on March 1, 1999 through a series of nonmonetary contributions
from KMC's parent, Peter Kiewit Sons', Inc. ("Kiewit").
The Combination has been accounted for at historical cost in a manner
similar to a pooling of interests. All material intercompany transactions have
been eliminated in consolidation.
The Company has a 52-53 week fiscal year which ends on the last Saturday in
December. 1999, 1998 and 1997 were all 52 week years.
The Company principally operates in the Southwest and Northwest portions of
the United States. The Company produces and distributes construction materials
including ready-mix concrete, asphalt, sand, gravel, crushed stone and railroad
ballast ("materials products").
Demand for the Company's products is subject to factors affecting the level
of general construction activity including the level of interest rates,
availability of funds for construction, appropriations by federal and state
governments for construction, past overbuilding, labor relations in the
construction industry, energy shortages, material shortages, weather, climate
and other factors affecting the construction industry in general. Labor disputes
in the construction industry may result in work stoppages which may interrupt
sales in the affected area. Precipitation or freezing temperatures may cause a
reduction in construction activity and related demand for the Company's
products. During the winter months, sales and income of the Company's quarries
and Northwest operations are adversely affected by the impact of inclement
weather. A decrease in the level of general construction activity in any of the
Company's market areas caused by any of the above factors may have a material
adverse effect on the Company's sales and income derived therefrom.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
Materials revenue, net of discounts, is recognized at the time the products
are shipped and all significant contractual obligations have been satisfied.
Construction revenue is recognized using the percentage of completion
method of accounting. Under the percentage of completion method, an estimated
percentage for each contract, as determined by the Company's engineering
estimate based on the amount of work performed, is applied to total estimated
profit. Provision is made for the entire amount of future estimated losses on
contracts in progress; claims for additional contract compensation, however, are
not reflected in the accounts until the year in which such claims are allowed.
Revisions in cost and profit estimates during the course of the work are
reflected in the accounting period in which the facts which require the revision
become known. It is at least reasonably possible that cost and profit estimates
will be revised in the near-term.
F-41
<PAGE> 124
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Limited Liability Companies and Joint Ventures:
Investments in limited liability companies in which the Company exercises
significant influence over operations and financial policies are accounted for
by the equity method. The Company accounts for its 49% share of Granite Canyon
Joint Venture on a pro rata basis.
Inventories:
Inventories consist primarily of raw materials, repair parts, fuel and
building materials that the Company holds for use or sale in the ordinary course
of business. Inventories are stated at the lower of average cost or market.
Depreciation:
Property, plant and equipment are recorded at cost. Depreciation is
provided on a straight line method based on the following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 39
Equipment and other......................................... 5-10
</TABLE>
Depletion:
Depletion of mineral properties is provided on a unit-of-extraction basis
determined in relation to estimated recoverable reserves at each mineral site.
Intangible Assets:
Intangible assets consist principally of goodwill. These assets are
amortized on a straight-line basis over the expected period of benefit, which
does not exceed 20 years.
Long Lived Assets:
The Company reviews the carrying amount of long lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Measurement of any impairment would include a comparison
of the present value of the estimated future operating cash flows anticipated to
be generated during the remaining life of the assets to the net carrying value
of the assets.
Income Taxes:
The Company is included in a consolidated income tax return. The provision
for Federal income tax is computed on the separate results of operations of the
Company as if a separate return was filed.
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Accrued Insurance Costs:
The Company is self-insured for certain general, auto, and worker's
compensation claims and accrues for the estimated ultimate liability for
incurred losses. It is at least reasonably possible that the estimate of
ultimate liability will be revised in the near-term.
F-42
<PAGE> 125
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
General and Administrative Costs:
General and administrative costs historically recorded by Kiewit or other
affiliates of the Company, but that were incurred for the benefit of the
Company, have been recorded in the accompanying financial statements. These
costs have been allocated to the Company based upon historical assessments of
the level of effort incurred for the benefit of the Company that were used for
internal reporting purposes, and have been, in management's opinion, reasonably
allocated to the Company.
Earnings Per Share:
The basic and diluted earnings per share were calculated using the 100
shares the Company issued to its parent in March 1999 in connection with the
Combination.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings available to common
stockholders.............................. $25,827,978 $15,378,338 $16,542,308
=========== =========== ===========
Total number of weighted average shares
outstanding............................... 100 100 100
=========== =========== ===========
Basic and diluted earnings per share........ $ 258,280 $ 153,783 $ 165,423
=========== =========== ===========
</TABLE>
Recent Pronouncements:
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. This statement is effective for all fiscal years
beginning after June 15, 2000. Management does not expect adoption of this
statement to materially affect the Company's financial statements as the Company
has no derivative instruments or hedging activities.
2. FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to determine classification
and fair values of financial instruments:
Cash and Cash Equivalents:
Cash and cash equivalents are stated at cost, which approximates fair
value. Cash equivalents generally consist of highly liquid instruments purchased
with a maturity of three months or less and cash deposited with Kiewit
Construction Company ("KCC"), an indirect subsidiary of Kiewit. The Company's
deposits with KCC are commingled with the funds of other affiliated companies
for investment purposes and are available for withdrawal upon demand. These
deposits earn interest at a rate based on LIBOR. The Company's net deposits
totaled $57,791,265 and $54,520,320 in 1999 and 1998.
Marketable Securities:
The Company has classified all marketable securities as available-for-sale.
The amortized cost of the securities used in computing unrealized and realized
gains and losses are determined by specific identification. Fair values are
estimated based on quoted market prices for the securities on hand or similar
investments. Net unrealized holding gains and losses, if any, are reported as a
separate component of accumulated other comprehensive income, net of tax.
F-43
<PAGE> 126
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. FINANCIAL INSTRUMENTS, CONTINUED:
At December 25, 1999 and December 26, 1998, the cost, estimated fair values
and unrealized holding gains of the Company's marketable securities are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAIN VALUE
---------- ---------- ----------
<S> <C> <C> <C>
1999:
U.S. debt securities............................ $2,531,652 $ 2,323 $2,533,975
========== ======= ==========
1998:
U.S. debt securities............................ $2,541,925 $42,125 $2,584,050
========== ======= ==========
</TABLE>
Realized gain on sale of marketable securities was $-- in 1999 and $25,714
in 1998.
All debt securities mature within one to five years.
Long-term debt:
The fair value of debt was estimated using the incremental borrowing rates
of the Company for debt of the same remaining maturities and approximates the
carrying amount.
3. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Raw materials...................................... $ 9,523,973 $6,573,036
Other.............................................. 1,616,924 1,193,952
----------- ----------
$11,140,897 $7,766,988
=========== ==========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land and mineral properties..................... $ 25,039,783 $ 8,844,421
Buildings and improvements...................... 7,176,851 6,073,090
Equipment and other............................. 164,061,581 130,975,235
------------ ------------
$196,278,215 $145,892,746
============ ============
</TABLE>
F-44
<PAGE> 127
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENT AND OTHER ASSETS:
Investments and other assets consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Investment in limited liability companies......... $ -- $10,724,511
Intangible assets, principally goodwill, net of
accumulated amortization of $6,050,026 and
$4,169,800...................................... 29,738,772 14,063,793
Land option....................................... 2,000,000 --
Notes receivable.................................. 949,252 521,218
Other............................................. 282,964 476,427
----------- -----------
$32,970,988 $25,785,949
=========== ===========
</TABLE>
The Company's investment in limited liability companies is comprised of a
40% interest in Pacific Rock Products, L.L.C. and a 40% interest in Pacific Rock
Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.). Pacific Rock
Products, L.L.C. is engaged in the production and distribution of materials
products. Pacific Rock Products Trucking, L.L.C. rents equipment to affiliated
companies. During 1999, the Company acquired the remaining 60% interest of both
limited liability companies.
6. EMPLOYEE BENEFIT PLANS:
The Company makes contributions based on collective bargaining agreements
to several multi-employer union pension plans. These contributions are included
in cost of revenue. Under federal law, the Company may be liable for a portion
of future plan deficiencies; however, there are no known deficiencies.
Approximately 10% of the employees of the Company are covered under the
Kiewit profit sharing plan. The expense related to the profit sharing plan was
$302,774, $447,795 and $617,784 in 1999, 1998 and 1997, respectively.
The Company sponsors a defined benefit pension plan covering certain union
employees. Benefits are based on negotiated rates multiplied by years of
service. It is the Company's policy to make contributions to these plans
sufficient to meet minimum funding requirements of the applicable laws and
regulations, plus such additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate. Plan assets consist principally of fixed
income instruments, equity securities and cash equivalents.
F-45
<PAGE> 128
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE BENEFIT PLANS, CONTINUED:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................. $ 4,799,238 $ 3,174,787
Service cost............................................ 1,137,407 974,369
Interest cost........................................... 310,258 226,788
Actuarial (gain) loss................................... (1,190,656) 577,594
Benefits paid........................................... (201,781) (154,300)
----------- -----------
Benefit obligation at end of year......................... 4,854,466 4,799,238
Change in plan assets:
Fair value of plan assets at beginning of year.......... 3,340,878 2,821,262
Actual return on plan assets............................ 603,336 673,916
Employer contribution................................... 1,023,964 --
Benefits paid........................................... (201,781) (154,300)
----------- -----------
Fair value of plan assets at end of year.................. 4,766,397 3,340,878
----------- -----------
Funded status............................................. (88,069) (1,458,360)
Unrecognized net actuarial (gain) loss.................... (762,296) 741,822
Unrecognized prior service cost........................... 160,943 183,216
----------- -----------
(Accrued) prepaid benefit cost............................ $ (689,422) $ (533,322)
=========== ===========
Amounts recognized in the statement of financial position
consist of:
Prepaid benefit cost.................................... $ -- $ --
Accrued benefit liability............................... (689,422) (1,458,360)
Intangible asset........................................ -- 183,216
Accumulated other comprehensive income.................. -- 741,822
----------- -----------
Net amount recognized..................................... $ (689,422) $ (533,322)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Weighted-average assumptions as of year end:
Discount rate................................ 8.0% 6.5% 7.0%
Expected return on plan assets............... 8.0% 8.0% 8.0%
Components of net periodic benefit cost:
Service cost................................. $1,137,407 $ 974,369 $762,450
Interest cost................................ 310,258 226,788 156,768
Expected return on plan assets............... (313,813) (224,321) (145,444)
Amortization of prior service cost........... 22,273 22,273 22,273
Recognized net actuarial loss................ 23,939 37,268 968
---------- ---------- --------
Net periodic benefit cost...................... $1,180,064 $1,036,377 $797,015
========== ========== ========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $4,854,466, $4,854,466 and $4,766,397,
respectively, as of December 25, 1999 and $4,799,238, $4,799,238 and $3,340,878,
respectively, as of December 26, 1998.
F-46
<PAGE> 129
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
8% note payable monthly to 2009............................. $1,442,074 $ --
7% note payable quarterly to 2003........................... 355,858 430,429
9.5% note payable monthly to 2002........................... 151,902 205,228
9.25% notes payable monthly to 2003......................... -- 304,830
9% note payable monthly to 2007............................. 649,104 81,044
7.629% note payable monthly to 2016......................... 776,272 --
Other....................................................... 939,626 479,268
---------- ----------
4,314,836 1,500,799
Less current portion........................................ 561,538 739,965
---------- ----------
$3,753,298 $ 760,834
========== ==========
</TABLE>
Long-term debt repayments are due as follows:
<TABLE>
<S> <C>
2000............................................. $ 561,538
2001............................................. 921,155
2002............................................. 304,985
2003............................................. 294,023
2004............................................. 205,646
2005 and thereafter.............................. 2,027,489
----------
$4,314,836
==========
</TABLE>
The 8% note payable was issued in 1999 to purchase land and is
collateralized by a deed of trust.
The 7% note payable is not collateralized and was issued as additional
consideration as part of a 1997 acquisition.
The 9.25% notes payable were collateralized by deeds of trust and were
retired in February 1999.
The 9% and 7.629% notes payable are collateralized by deeds of trust and
were assumed as part of the Company's 1999 acquisition of the remaining 60% of
Pacific Rock Products, L.L.C.
All remaining items of debt are collateralized by equipment.
F-47
<PAGE> 130
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
An analysis of the provision for income taxes relating to earnings before
minority interest and income taxes for the three years ended December 25, 1999
follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
1999:
Current...................................... $11,691,349 $3,253,473 $14,944,822
Deferred..................................... 559,000 189,000 748,000
----------- ---------- -----------
$12,250,349 $3,442,473 $15,692,822
=========== ========== ===========
1998:
Current...................................... $ 6,961,899 $2,124,541 $ 9,086,440
Deferred..................................... 593,000 114,000 707,000
----------- ---------- -----------
$ 7,554,899 $2,238,541 $ 9,793,440
=========== ========== ===========
1997:
Current...................................... $ 7,643,867 $2,175,549 $ 9,819,416
Deferred..................................... 833,000 205,000 1,038,000
----------- ---------- -----------
$ 8,476,867 $2,380,549 $10,857,416
=========== ========== ===========
</TABLE>
The actual income tax expense differs from the "expected" tax expense
computed by applying the U.S. Federal corporate tax rate of 35% to earnings
before minority interest and income taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax expense at statutory
rate...................................... $14,553,534 $ 8,830,458 $ 9,571,606
State income tax, net of Federal tax
benefit................................... 2,307,998 1,394,993 1,584,486
Percentage depletion........................ (1,161,782) (1,310,610) (942,905)
Prior year adjustment....................... (367,132) 521,371 496,187
Other....................................... 360,204 357,228 148,042
----------- ----------- -----------
$15,692,822 $ 9,793,440 $10,857,416
=========== =========== ===========
</TABLE>
F-48
<PAGE> 131
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES, CONTINUED:
The components of the net deferred tax liabilities for the years ended
December 25, 1999 and December 26, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Construction accounting................................. $(2,905,384) $ (806,000)
Insurance claims........................................ (2,762,474) (2,229,000)
Compensation and retirement benefits.................... (1,340,608) (1,291,000)
Other................................................... (1,513,534) (1,033,000)
----------- -----------
Total deferred tax assets................................. (8,522,000) (5,359,000)
Deferred tax liabilities:
Asset bases/accumulated depreciation.................... 9,162,071 7,332,000
Investments in limited liability companies/joint
ventures............................................. 3,673,265 1,678,000
Other................................................... 664 100,000
----------- -----------
Total deferred tax liabilities............................ 12,836,000 9,110,000
----------- -----------
Net deferred tax liabilities.............................. $ 4,314,000 $ 3,751,000
=========== ===========
</TABLE>
9. SEGMENT REPORTING:
The Company currently operates under one segment and all operations and
long-lived assets are in the United States.
The Company's external revenues by product for the three years ended
December 25, 1999 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Aggregates (sand, gravel, crushed stone
and railroad ballast).................. $ 98,976,438 $ 54,722,819 $ 44,388,081
Asphalt.................................. 78,442,724 57,862,340 75,732,891
Ready mix concrete....................... 250,874,384 209,842,986 144,908,912
Construction............................. 8,764,102 10,631,857 12,279,012
------------ ------------ ------------
$437,057,648 $333,060,002 $277,308,896
============ ============ ============
</TABLE>
F-49
<PAGE> 132
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER COMPREHENSIVE INCOME:
Other comprehensive income consisted of the following:
<TABLE>
<CAPTION>
TAX
(EXPENSE)
BEFORE TAX OR BENEFIT AFTER TAX
---------- ---------- ---------
<S> <C> <C> <C>
1999:
Unrealized holding losses:
Unrealized holding losses arising during the
period..................................... $ (39,802) $ 15,224 $ (24,578)
Minimum pension liability adjustment............ 741,822 (259,638) 482,184
--------- --------- ---------
Other comprehensive income...................... $ 702,020 $(244,414) $ 457,606
========= ========= =========
1998:
Unrealized holding losses:
Unrealized holding gains arising during the
period..................................... $ 11,924 $ (4,561) $ 7,363
Plus reclassification adjustment for gains
realized in net earnings................... (24,648) 9,428 (15,220)
--------- --------- ---------
Net unrealized losses........................... (12,724) 4,867 (7,857)
Minimum pension liability adjustment............ (90,731) 31,756 (58,975)
--------- --------- ---------
Other comprehensive income...................... $(103,455) $ 36,623 $ (66,832)
========= ========= =========
1997:
Unrealized holding gains:
Unrealized holding gains arising during the
period..................................... $ 13,825 $ (5,288) $ 8,537
Minimum pension liability adjustment............ (484,502) 169,576 (314,926)
--------- --------- ---------
Other comprehensive income...................... $(470,677) $ 164,288 $(306,389)
========= ========= =========
</TABLE>
Accumulated other comprehensive income consisted of the following:
<TABLE>
<CAPTION>
CURRENT
BEGINNING YEAR ENDING
BALANCE CHANGE BALANCE
--------- --------- ---------
<S> <C> <C> <C>
1999:
Unrealized holding gain on securities........... $ 26,012 $ (24,578) $ 1,434
Minimum pension liability adjustment............ (482,184) 482,184 --
--------- --------- ---------
Accumulated other comprehensive income.......... $(456,172) $ 457,606 $ 1,434
========= ========= =========
1998:
Unrealized holding gain on securities........... $ 33,869 $ (7,857) $ 26,012
Minimum pension liability adjustment............ (423,209) (58,975) (482,184)
--------- --------- ---------
Accumulated other comprehensive income.......... $(389,340) $ (66,832) $(456,172)
========= ========= =========
1997:
Unrealized holding gain on securities........... $ 25,332 $ 8,537 $ 33,869
Minimum pension liability adjustment............ (108,283) (314,926) (423,209)
--------- --------- ---------
Accumulated other comprehensive income.......... $ (82,951) $(306,389) $(389,340)
========= ========= =========
</TABLE>
F-50
<PAGE> 133
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATING LEASES:
The Company leases mineral properties, buildings and certain equipment
under noncancelable operating lease agreements. Total rent expense was
$12,291,760, $11,625,294 and $10,176,629 in 1999, 1998 and 1997, respectively.
Future minimum lease commitments are as follows:
<TABLE>
<S> <C>
2000............................................ $ 9,093,959
2001............................................ 8,096,764
2002............................................ 7,504,509
2003............................................ 6,682,634
2004............................................ 5,622,128
Thereafter...................................... 26,797,577
-----------
$63,797,571
===========
</TABLE>
12. RELATED PARTY TRANSACTIONS:
During 1999, 1998 and 1997 the Company was involved in transactions with
affiliated companies as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Equipment rental income....................... $ 39,076 $ 203,334 $ 186,911
Equipment rental expense...................... 562,022 19,288 --
Insurance premium expense..................... 43,738 32,839 49,387
Interest income............................... 3,180,932 2,847,501 2,753,194
Interest expense.............................. 1,236,391 583,673 478,885
Administrative service fee income............. 106,282 199,031 182,001
Administrative service fee expense............ 3,973,892 1,402,834 1,181,156
Asset acquisitions............................ 2,031,475 135,500 107,558
Asset disposals, proceeds..................... 444,900 223,500 270,907
Gain on asset disposals....................... 183,129 11,134 101,607
Engineering & estimating expense.............. -- 79,249 52,505
Sales......................................... 10,411,786 7,326,151 8,838,367
</TABLE>
During 1997, the Company declared and paid a cash dividend of $3,970,000.
During 1998, the Company received a noncash contribution from its parent
for the assumption of certain operating liabilities of $199,020.
During 1999, the Company dividended net operating assets of $935 to a
subsidiary of Kiewit.
F-51
<PAGE> 134
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. ACQUISITIONS:
During 1999, 1998 and 1997, the Company acquired the assets of various
materials operations, all of which were accounted for by the purchase method
and, accordingly, results of operations for the acquired businesses have been
included in the consolidated statement of income from their respective dates of
acquisition. Pro forma financial information is not presented for the
acquisitions because the impact is not material to the results of operations.
The aggregate purchase prices were $4,270,000, $2,136,356 and $9,477,347 during
1999, 1998 and 1997, respectively. A $1,450,000 long-term note payable was
issued in connection with the 1999 purchase. Included in the 1997 purchase price
was the assumption of long-term debt totaling $1,339,381 and the issuance of a
$500,000 long-term note payable. Goodwill related to these acquisitions was
$357,111 and $2,120,022 during 1998 and 1997, respectively, and is amortized
over periods of 15 to 20 years.
On February 28, 1999, the Company purchased the remaining 60% of Pacific
Rock Products, L.L.C., and Pacific Rock Products Trucking L.L.C. (formerly River
City Machinery L.L.C.), a materials operation operating in the Portland, Oregon
area, for $40,000,000. The acquisition was accounted for by the purchase method
of accounting. The fair value of the identifiable assets acquired and
liabilities assumed was $35,791,460 and $13,096,664, respectively. The excess of
aggregate purchase price over fair value of identifiable assets and liabilities
acquired of approximately $17,305,204 was recognized as goodwill and is being
amortized over 20 years. The operating results of the remaining 60% are included
in the consolidated results of operations from the date of acquisition. The
following pro forma financial information assumes the acquisition occurred at
the beginning of 1998. 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 1998, or the results which may occur
in the future.
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
<S> <C> <C>
Revenue................................................. $444,119,978 $395,820,004
Net earnings............................................ 26,038,104 20,837,624
Net earnings per share:
Basic and diluted..................................... $ 260,381 $ 208,376
</TABLE>
14. OTHER MATTERS:
The Company is involved in various lawsuits and claims incidental to its
business. Management believes that any resulting liability should not materially
affect the Company's financial position, future results of operations or cash
flows.
15. SUBSEQUENT EVENTS:
On January 3, 2000, the Company acquired 100% of the outstanding common
stock and related assets of a materials operation operating in the Northern
California area, for approximately $30,000,000. Identifiable intangible assets
related to this purchase will be amortized over their useful life of 27.5 years.
There was no goodwill related to this transaction.
The Company has filed various documents with the Securities and Exchange
Commission pursuant to which Kiewit is proposing to spin-off the Company to its
shareholders in a transaction that is intended to be tax-free for U.S. Federal
income tax purposes.
F-52
<PAGE> 135
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholder
Kiewit Materials Company
Our audit of the consolidated financial statements referred to in our report
dated March 17, 2000 appearing on page F-34 also included an audit of the
financial statement schedule appearing on page F-54. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Omaha, Nebraska
March 17, 2000
F-53
<PAGE> 136
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND CHARGED TO END OF
OF PERIOD EXPENSES RESERVES OTHER PERIOD
--------- ------------------ ---------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 25, 1999
Allowance for doubtful trade
accounts.......................... $ 780 $ 447 $ (233) $-- $ 994
Reserves:
Insurance claims.................. 5,626 2,370 (1,219) -- 6,777
YEAR ENDED DECEMBER 26, 1998
Allowance for doubtful trade
accounts.......................... $ 785 $ 42 $ (47) $-- $ 780
Reserves:
Insurance claims.................. 4,834 2,030 (1,238) -- 5,626
YEAR ENDED DECEMBER 27, 1997
Allowance for doubtful trade
accounts.......................... $ 863 $ 153 $ (231) $-- $ 785
Reserves:
Insurance claims.................. 4,506 1,427 (1,099) -- 4,834
</TABLE>
F-54
<PAGE> 137
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue........................ $ 127,930,873 $109,258,819 $ 227,470,710 $ 208,746,819
Cost of revenue................ (106,572,791) (93,209,800) (190,729,935) (177,015,210)
Depreciation, depletion and
amortization................. (4,962,514) (4,440,660) (9,637,042) (7,607,247)
------------- ------------ ------------- -------------
16,395,568 11,608,359 27,103,733 24,124,362
General and administrative
expenses..................... (5,391,202) (5,890,179) (11,842,104) (12,495,527)
------------- ------------ ------------- -------------
Operating earnings............. 11,004,366 5,718,180 15,261,629 11,628,835
Other income (expense):
Investment income............ 1,257,863 948,699 2,705,546 1,959,653
Equity earnings.............. -- (1,940) -- 269,554
Interest expense............. (551,007) (622,286) (1,282,330) (864,520)
Gain on sale of property,
plant and equipment,
net....................... 340,336 310,954 436,372 456,268
Other, net................... 54,877 230,346 111,790 285,120
------------- ------------ ------------- -------------
1,102,069 865,773 1,971,378 2,106,075
------------- ------------ ------------- -------------
Earnings before income taxes
and minority interest........ 12,106,435 6,583,953 17,233,007 13,734,910
Minority interest.............. 74,375 391,598 17,234 (44,830)
Income tax expense............. (4,830,798) (2,655,004) (6,867,976) (5,493,964)
------------- ------------ ------------- -------------
Net earnings................... $ 7,350,012 $ 4,320,547 $ 10,382,265 $ 8,196,116
============= ============ ============= =============
Net earnings per share:
Basic and diluted............ $ 73,500 $ 43,205 $ 103,823 $ 81,961
============= ============ ============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-55
<PAGE> 138
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
2000
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 47,355,863
Receivables, less allowance of $1,036,724................. 59,939,866
Inventories............................................... 14,807,025
Deferred income taxes..................................... 5,227,000
Other..................................................... 2,452,738
------------
Total current assets........................................ 129,782,492
Property, plant and equipment, less accumulated depreciation
of $104,250,171........................................... 130,394,513
Other assets................................................ 46,569,770
------------
$306,746,775
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.......................................... $ 35,229,121
Current portion of long-term debt......................... 570,514
Accrued payroll and payroll taxes......................... 5,545,099
Accrued insurance costs................................... 8,720,669
Income taxes payable -- parent company.................... 16,747,691
Other..................................................... 1,643,733
------------
Total current liabilities................................... 68,456,827
Long-term debt, less current portion........................ 5,231,061
Deferred income taxes....................................... 10,092,000
Other liabilities........................................... 2,641,206
Minority interest........................................... 338,537
------------
Total liabilities...................................... 86,759,631
Stockholder's equity:
Common stock, par $.01; and 100 shares authorized, issued
and outstanding........................................ 1
Additional paid-in capital................................ 126,501,127
Retained earnings......................................... 93,486,016
------------
Total stockholder's equity.................................. 219,987,144
------------
$306,746,775
============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-56
<PAGE> 139
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net cash provided by operations............................. $ 25,605,182 $ (6,848,717)
Cash flows from investing activities:
Sales of marketable securities............................ 2,500,000 --
Proceeds from sales of property, plant and equipment...... 693,222 1,156,967
Investments and acquisitions.............................. (33,515,432) (32,426,029)
Capital expenditures...................................... (20,856,218) (13,206,957)
Additions to notes receivable............................. (85,552) (394,972)
Payments on notes receivable.............................. 758,087 525,575
------------ ------------
Net cash used in investing activities....................... (50,505,893) (44,345,416)
Cash flows from financing activities:
Payments on long-term debt................................ (275,162) (15,516,935)
Contributions from parent................................. 201,609 45,372,722
------------ ------------
Net cash (used in) provided by financing activities......... (73,553) 29,855,787
------------ ------------
Net decrease in cash and cash equivalents................... (24,974,264) (21,338,346)
Cash and cash equivalents at beginning of period............ 72,330,127 65,601,870
------------ ------------
Cash and cash equivalents at end of period.................. $ 47,355,863 $ 44,263,524
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-57
<PAGE> 140
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated condensed financial statements include the accounts of
Kiewit Materials Company ("KMC") and its subsidiaries (collectively, the
"Company"). The Company was formed on February 2, 1999. Several affiliated
operating corporations under common ownership (the "Predecessors"), each one of
which is engaged in an aspect of the materials business, were combined on March
1, 1999 through a series of non monetary contributions from KMC's parent, Peter
Kiewit Sons', Inc. ("Kiewit").
All 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 for the periods presented. The Company's accounting policies and
certain other disclosures are set forth in the notes to the consolidated
financial statements.
The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. EARNINGS PER SHARE:
Basic earnings per share have been computed using the weighted average
number of shares outstanding during each period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net earnings available to common
stockholders..................... $7,350,012 $4,320,546 $10,382,265 $8,196,116
========== ========== =========== ==========
Total number of weighted average
shares outstanding used to
compute basic earnings per
share............................ 100 100 100 100
========== ========== =========== ==========
Net earnings
Basic earnings per share......... $ 73,500 $ 43,205 $ 103,823 $ 81,961
========== ========== =========== ==========
</TABLE>
3. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
2000
-----------
<S> <C>
Raw Materials............................................... $11,534,558
Other....................................................... 3,272,467
-----------
$14,807,025
===========
</TABLE>
4. COMPREHENSIVE INCOME:
Comprehensive income includes net earnings and unrealized gains (losses) on
securities and minimum pension liability adjustments.
F-58
<PAGE> 141
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMPREHENSIVE INCOME, CONTINUED:
Comprehensive income for the three months and six months ended June 30,
2000 and 1999 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net earnings..................... $7,350,012 $4,320,547 $10,382,265 $8,196,116
Other comprehensive income,
before tax:
Unrealized losses arising
during period............... (995) (14,233) (2,323) (23,945)
Minimum pension liability
adjustment.................. -- 5,986 -- 11,971
Income tax benefit related to
items of other comprehensive
income...................... 381 3,349 889 4,969
---------- ---------- ----------- ----------
Comprehensive income............. $7,349,398 $4,315,649 $10,380,831 $8,189,111
========== ========== =========== ==========
</TABLE>
5. ACQUISITION:
On February 28, 1999, the Company purchased the remaining 60% of Pacific
Rock Products, L.L.C., and Pacific Rock Products Trucking, L.L.C. (formerly
River City Machinery L.L.C.) a materials operation operating in the Portland,
Oregon area, for $40,000,000. The acquisition was accounted for by the purchase
method of accounting. The excess of aggregate purchase price over fair value of
identifiable assets and liabilities acquired of approximately $17,305,204 was
recognized as goodwill and is being amortized over 20 years. The operating
results of the remaining 60% are included in the consolidated results of
operations from the date of acquisition.
On January 3, 2000, the Company acquired 100% of the outstanding common
stock and related assets of Solano Concrete Co., Inc., a materials operation
operating in the Northern California area, for $30,880,432. Identifiable
intangible assets related to this purchase of $15,447,711 will be amortized over
their useful life of 27.5 years. There was no goodwill related to this
transaction. Pro forma financial information is not presented for this
acquisition because the impact is not material to the results of operations.
The following pro forma financial information assumes the acquisitions
occurred at the beginning of 1999. 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 1999, or the results
which may occur in the future:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue................... $127,930,873 $112,332,160 $227,470,710 $223,610,162
Net earnings.............. 7,350,012 4,383,781 10,382,265 9,282,231
Net earnings per share:
Basic and diluted....... $ 73,500 $ 43,838 $ 103,823 $ 92,822
</TABLE>
During the first six months of 2000, the Company acquired the assets of
various materials operations, all of which were accounted for by the purchase
method and, accordingly, results of operations for the acquired
F-59
<PAGE> 142
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACQUISITION, CONTINUED:
businesses have been included in the consolidated statement of income from their
respective dates of acquisition. Pro forma financial information is not
presented for the acquisitions because the impact is not material to the results
of operations. The aggregate purchase price was $4,396,901 during 2000. Notes
payable of $1,761,900 were issued in connection with the purchase. Goodwill
related to one of the acquisitions was $961,901 and is being amortized over a
period of 27.25 years.
6. OTHER MATTERS:
The Company is involved in various lawsuits and claims incidental to its
business. Management believes that any resulting liability, beyond that
provided, should not materially affect the Company's financial position, future
results of operations or future cash flows.
7. SUBSEQUENT EVENT:
On August 4, 2000, the Company acquired 100% of the outstanding common
stock and related assets of Fort Calhoun Stone Company, a limestone quarry
business located in Washington County, Nebraska, for approximately $41,000,000.
The acquisition will be accounted for as a purchase. The purchase price
allocation will be determined when additional information becomes available.
F-60
<PAGE> 143
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Combined Financial Statements as of December 31, 1998 and
December 31, 1997 and for the years ended December 31,
1998 and 1997:
Independent Auditors' Report................................ F-62
Combined Balance Sheets..................................... F-63
Combined Statements of Income and Members' Equity........... F-64
Combined Statements of Cash Flows........................... F-65
Notes to Combined Financial Statements...................... F-66
Financial Statement Schedule for the two years in the period
ended December 31, 1998................................... F-71
</TABLE>
F-61
<PAGE> 144
INDEPENDENT AUDITORS' REPORT
To the Members
Pacific Rock Products, L.L.C. and
River City Machinery, L.L.C.
We have audited the accompanying combined balance sheets of Pacific Rock
Products, L.L.C. and River City Machinery, L.L.C. as of December 31, 1998 and
1997, and the related combined statements of income and members' equity, and
cash flows for the years then ended. We have also audited the related Schedule
II Combined Valuation and Qualifying Accounts. These combined financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the combined financial statements referred to above present
fairly, in all material respects, the financial position of Pacific Rock
Products, L.L.C. and River City Machinery, L.L.C. as of December 31, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule referred to above presents fairly, in
all material respects, the information set forth therein.
Perkins & Company, P.C.
Portland, Oregon
February 24, 1999
F-62
<PAGE> 145
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)........................ $ 7,085,802 $ 7,865,893
Accounts receivable -- trade, less allowance for doubtful
accounts of $296,136 in 1998 and $271,700 in 1997 (Note
3)..................................................... 8,117,955 9,831,538
Accounts receivable -- related parties (Notes 3 and 6).... 70,783 562,323
Inventories (Notes 2 and 3)............................... 1,175,963 1,876,357
Other current assets...................................... 595,656 410,219
----------- -----------
Total current assets................................... 17,046,159 20,546,330
PROPERTY, PLANT AND EQUIPMENT (Notes 1, 3 and 5):
Buildings................................................. 1,414,399 978,994
Equipment................................................. 36,310,382 31,696,135
----------- -----------
37,724,781 32,675,129
Less accumulated depreciation............................. 12,447,063 9,138,028
----------- -----------
25,277,718 23,537,101
Land and gravel deposits, net............................. 10,093,814 10,546,235
----------- -----------
35,371,532 34,083,336
GOODWILL (Note 1)........................................... 1,032,287 1,154,935
DEPOSITS.................................................... 103,160 116,666
----------- -----------
$53,553,138 $55,901,267
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Long-term debt due in one year (Note 3)................... $ 4,411,641 $ 4,219,989
Accounts payable -- trade................................. 1,294,481 1,453,479
Accounts payable -- related parties (Note 6).............. 98,947 236,464
Accrued interest.......................................... 120,377 198,862
Accrued payroll and taxes................................. 749,770 1,084,572
Other accrued liabilities................................. 679,662 268,277
----------- -----------
Total current liabilities.............................. 7,354,878 7,461,643
LONG-TERM DEBT -- NET OF PORTION DUE IN ONE YEAR (Note 3)... 13,434,094 18,801,817
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
MEMBERS' EQUITY............................................. 32,764,166 29,637,807
----------- -----------
$53,553,138 $55,901,267
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-63
<PAGE> 146
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
COMBINED STATEMENTS OF INCOME AND MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Sales..................................................... $62,760,002 $55,373,472
Gain on sales of property and equipment................... 1,446,429 235,543
Other..................................................... 1,022,453 623,617
----------- -----------
65,228,884 56,232,632
COSTS AND EXPENSES:
Cost of sales............................................. 42,485,630 38,415,384
General and administrative................................ 3,274,376 2,398,693
Depreciation, depletion and amortization.................. 3,704,762 2,901,084
Interest.................................................. 1,637,757 1,709,447
----------- -----------
51,102,525 45,424,608
----------- -----------
NET INCOME.................................................. 14,126,359 10,808,024
MEMBERS' EQUITY, BEGINNING OF YEAR.......................... 29,637,807 18,829,783
LESS DISTRIBUTIONS.......................................... 11,000,000 --
----------- -----------
MEMBERS' EQUITY, END OF YEAR................................ $32,764,166 $29,637,807
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-64
<PAGE> 147
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 14,126,359 $10,808,024
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............... 3,704,762 2,901,084
Provision for bad debts................................ 383,519 65,118
Gain on sales of property and equipment................ (1,446,429) (235,543)
(Increase) decrease in assets:
Accounts receivable.................................. 1,821,604 (1,036,545)
Inventories.......................................... 700,394 (1,168,254)
Other current assets and deposits.................... (165,931) 33,812
(Decrease) increase in liabilities:
Accounts payable and accrued expenses................ (298,417) 289,691
------------ -----------
Net cash provided by operating activities......... 18,825,861 11,657,387
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment............. 1,046,585 326,044
Purchases of property, plant and equipment................ (5,458,085) (7,990,661)
Purchase of goodwill...................................... -- (931,176)
------------ -----------
Net cash used in investing activities............. (4,411,500) (8,595,793)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new long-term borrowings.................... -- 8,000,000
Principal payments on long-term debt...................... (4,194,452) (3,779,737)
Distributions paid........................................ (11,000,000) --
------------ -----------
Net cash provided (used) by financing
activities...................................... (15,194,452) 4,220,263
------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (780,091) 7,281,857
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 7,865,893 584,036
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 7,085,802 $ 7,865,893
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 1,716,243 $ 1,687,737
Noncash investing and financing activities:
Long-term debt incurred to purchase property and
equipment............................................ $ -- $ 716,413
Long-term debt incurred to purchase goodwill........... $ -- $ 295,304
Long-term debt repaid from proceeds from sale of
property............................................. $ 981,619 $ --
</TABLE>
See accompanying notes to combined financial statements.
F-65
<PAGE> 148
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Organization -- In February 1996, Aggregate Services, Inc. (ASI) and Rock
Products Leasing, Inc. (RPL), entered into an agreement with Gilbert Southern
Corp. (Gilbert), an affiliate of Peter Kiewit Sons' Inc., to form two new
entities, Pacific Rock Products, L.L.C. and River City Machinery, L.L.C., which
are hereinafter referred to as the "Company." As part of that agreement, Gilbert
has an option, in March, 2002, to offer to purchase the 60% membership interests
of ASI and RPL. If Gilbert does not exercise its option, ASI and RPL have an
option to offer to purchase Gilbert's 40% membership interest. Each member has
the right to purchase the other member's interest by increasing the offer price
by a predetermined formula. In the event Gilbert does not acquire the membership
interest of ASI and RPL, it has an option to purchase certain specified real
property of the Company at its then current market value.
The members of the Company expect to enter into an agreement in February
1999 whereby an affiliate of Peter Kiewit Sons' Inc. will purchase the entire
60% membership interests of ASI and RPL.
Nature of Operations -- Pacific Rock Products, L.L.C. produces sand and
gravel, crushed rock products, asphalt and concrete mix. It operates from seven
sources of supply which are owned and leased, none of which produced greater
than 27% of revenues in 1998. The products are used in commercial and
residential construction and in construction and maintenance of roads and
utilities.
River City Machinery, L.L.C.'s principal activity is leasing equipment to
Pacific Rock Products, L.L.C.
Basis of Accounting -- The financial statements of Pacific Rock Products,
L.L.C. and River City Machinery, L.L.C. have been combined due to common
business activities, intercompany transactions and common ownership. All
material intercompany transactions have been eliminated in the combination.
Cash and Cash Equivalents -- For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk -- The Company grants credit to material
suppliers and contractors located in southwestern Washington and northwestern
Oregon. Concentration of credit risk with respect to accounts receivable is
limited as the receivables are predominately secured by lien and bond rights.
The Company's practice is generally to perfect these rights after 60 days.
The Company places its cash and cash equivalents with two financial
institutions located in Washington and Oregon. Cash balances are insured by the
Federal Deposit Insurance Corporation up to $100,000. At December 31, 1998 and
1997, the Company's cash balances exceeded the insured amounts. Cash equivalents
are invested in short term prime quality repurchase agreements and are not
insured by the Federal Deposit Corporation. Cash equivalents were approximately
$7,303,000 and $7,436,000 at December 31, 1998 and 1997, respectively.
Inventories -- Inventories are stated at the lower of cost or market. Cost
is determined by the average cost method for gravel and rock and the first-in,
first-out method for fuel.
Property, Plant and Equipment -- Property, plant and equipment is recorded
at cost. Depletion of gravel deposits is provided based on the ratio of
quantities extracted during the year to total estimated quantities available.
Land and gravel deposits are reported net of accumulated depletion of $2,642,246
and $2,578,597 at December 31, 1998 and 1997, respectively. Depreciation for
plant and equipment is computed using the straight-line and declining balance
methods over estimated useful lives of 3 to 10 years for equipment and 10 to 20
years for buildings.
F-66
<PAGE> 149
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Maintenance and repair costs are charged to current earnings. Upon disposal
of assets the cost of assets and the related accumulated depreciation are
removed from the accounts. Gains or losses are reflected in current earnings.
Goodwill -- Goodwill represents the excess of the cost of acquiring an
unrelated concrete business in 1997, over the fair value of net assets at the
date of acquisition. Amortization for goodwill is computed using the
straight-line method over 10 years. Accumulated amortization amounted to
$194,193 and $71,545 at December 31, 1998 and 1997, respectively. Amortization
expense charged to operations in 1998 and 1997 was $122,648 and $71,545,
respectively.
Income Taxes -- Income and losses of the Company are included in the
federal and state income tax returns of its members. Accordingly, no provision
is made in these financial statements for income taxes.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Gravel and rock..................................... $1,123,967 $1,803,930
Fuel and oil........................................ 51,996 72,427
---------- ----------
$1,175,963 $1,876,357
========== ==========
</TABLE>
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Notes payable to U.S. Bank through December 2001, due in
monthly installments of $223,727 plus interest at LIBOR
plus 2.0% (7.85% at December 31, 1998), collateralized
by accounts receivable, inventories and equipment....... $ 7,643,267 $10,327,990
Note payable to U.S. Bank through March 2003, due in
monthly installments of $161,661, including interest at
7.77%, collateralized by accounts receivable,
inventories and equipment............................... 6,985,457 8,000,000
Notes payable to Lewis Rock and Redi-Mix through May 2007,
due in monthly installments of $12,275 including
interest at 8.0%, collateralized by equipment........... 900,094 972,222
Note payable to Hulit through November 2016, due in
monthly installments of $6,835 including interest at
7.629%, collateralized by a deed of trust on real
property................................................ 799,910 820,066
</TABLE>
F-67
<PAGE> 150
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LONG-TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable to Wilmes through November 2016, due in
monthly installments of $5,731 including interest at 9%,
collateralized by a second trust deed on real
property................................................ 610,884 624,030
Note and lease payable.................................... -- 1,217,702
Capital lease obligation (Note 5)......................... 906,123 1,059,796
----------- -----------
17,845,735 23,021,806
Less current portion...................................... 4,411,641 4,219,989
----------- -----------
$13,434,094 $18,801,817
=========== ===========
</TABLE>
As of December 31, 1998, future annual maturities of long-term debt are as
follows:
<TABLE>
<S> <C>
1999............................................. $4,411,641
2000............................................. 4,549,711
2001............................................. 4,659,597
2002............................................. 1,971,818
2003............................................. 617,302
Thereafter....................................... 1,635,666
</TABLE>
The Company has financing agreements with U.S. Bank which specify certain
minimum financial ratios and tangible net worth requirements for the Company.
The Company was in compliance with the financial covenants of the agreements at
December 31, 1998.
The Company has available through U.S. Bank an operating line of credit at
the lesser of $2,500,000 or the sum of 80% of eligible accounts receivable plus
50% of eligible inventory, with interest at the prime rate or LIBOR borrowing
rate plus 2.0%, due on demand. There were no amounts outstanding on the line of
credit at December 31, 1998 and 1997.
NOTE 4 -- PENSION AND PROFIT SHARING PLANS
Qualified defined contribution pension and profit sharing plans are
maintained by the Company for all employees meeting length of service
requirements except those employees that receive benefits of a retirement nature
under state and federal prevailing wage laws. The pension plan provides for
contributions of 5% of salaries. Contributions to the profit sharing plan are at
the discretion of the managers, not to exceed the amount deductible under the
Internal Revenue Code or 15% of salaries. The Company expenses pension and
profit sharing costs as incurred, which amounted to $926,763 and $634,084 for
1998 and 1997, respectively.
NOTE 5 -- LEASES AND COMMITMENTS
The Company extracts rock and sand from six leased properties. The
properties are leased for terms expiring through 2015 and generally require the
payment of royalties which are based on quantities extracted. The royalty
agreements generally specify a minimum annual royalty and provide for increases
in the royalty amount based on a variety of inflationary indexes. One lease
contains a provision providing for an incentive payment of approximately
$372,000 to the Company, if the property is completely mined by December 2003.
The Company also leases real property for two retail outlets under noncancelable
real property leases expiring through 2001. The Company is obligated under the
terms of various noncancelable equipment leases expiring through 2003. The
Company is also obligated under noncancelable real property leases with Freeway
Land Company and Production Land Company, Inc. which call for annual payments of
$103,500 plus an amount
F-68
<PAGE> 151
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LEASES AND COMMITMENTS, CONTINUED
based on quantities sold through January 2004 and annual payments of $322,800
through December 2002, respectively. Certain leases contain renewal options.
Other equipment and real property are leased on a month-to-month basis.
The Company leases an asphalt plant under a long-term lease agreement
classified as a capital lease. The cost of the plant as of December 31, 1998 and
1997 was $1,608,745. Accumulated amortization amounted to $686,863 and $538,102
at December 31, 1998 and 1997, respectively. The amortization of this lease,
amounting to $149,033 and $149,722 for 1998 and 1997, respectively, has been
included in the Company's depreciation, depletion and amortization expense.
Future minimum lease and royalty payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES ROYALTIES
---------- ---------- ----------
<S> <C> <C> <C>
Years ending December 31,
1999........................................... $ 228,620 $1,126,839 $1,862,501
2000........................................... 228,620 1,070,473 362,500
2001........................................... 592,659 984,955 307,500
2002........................................... -- 845,412 307,500
2003........................................... -- 251,689 307,500
Thereafter..................................... -- -- 1,025,950
---------- ---------- ----------
Total minimum lease payments required.......... 1,049,899 $4,279,368 $4,173,451
========== ==========
Less amount representing interest.............. 143,776
----------
Present value of minimum lease payments........ 906,123
Less current portion........................... 165,714
----------
Long-term portion of capital lease
obligation................................... $ 740,409
==========
</TABLE>
Total rent and royalty expense consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Equipment rent.............................................. $2,906,280 $2,672,033
Real property rent.......................................... 646,144 750,335
Rock and sand lease and royalties:
Minimum................................................... 2,083,688 2,030,734
Contingent................................................ 702,906 688,608
---------- ----------
$6,339,018 $6,141,710
========== ==========
</TABLE>
The Company subleases portions of its leased property under agreements
expiring through 2000. Lease rentals received totaled $192,000 annually for the
years ended December 31, 1998 and 1997. Future lease rentals are as follows:
<TABLE>
<S> <C>
1999.............................................. $168,000
2000.............................................. 40,000
--------
$208,000
========
</TABLE>
F-69
<PAGE> 152
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RELATED PARTY TRANSACTIONS
Accounts receivable and accounts payable -- related parties consist of
amounts due from or to members and their affiliates and owners.
Equipment and real property rents amounting to approximately $2,067,000 and
$2,357,000 for the years ended December 31, 1998 and 1997, respectively, were
paid to members and their affiliates and owners.
NOTE 7 -- CONTINGENCIES
The Company is involved with two claims filed with the National Labor
Relations Board and a claim filed with the Equal Employment Opportunity
Commission. The Company's management does not believe that the ultimate
resolution of these claims will have a material effect on its financial
position, results of operations or cash flows.
In addition, the Company, in its regular course of business, is involved in
various claims and legal proceedings incidental to its normal business
activities. The Company's management does not believe that the ultimate
resolution of these investigations, claims and legal proceedings will have a
material effect on its financial position, results of operations or cash flows.
NOTE 8 -- YEAR 2000 ISSUE (UNAUDITED)
Like other businesses, the Company could be adversely affected if the
computer systems used by its personnel, suppliers or customers do not properly
process and calculate date related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment, scales, etc. At this time, because of the
complexities involved in the issue, management cannot provide assurances that
the Year 2000 issue will not have an impact on the Company's operations.
F-70
<PAGE> 153
PACIFIC ROCK PRODUCTS, L.L.C. AND
RIVER CITY MACHINERY, L.L.C.
SCHEDULE II
COMBINED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO AMOUNTS
BEGINNING COSTS AND CHARGED TO BALANCE END
OF PERIOD EXPENSES RESERVES OTHER OF PERIOD
--------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts......... $271,700 $383,519 $(359,083) $ -- $296,136
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts......... $250,000 $ 65,118 $ (43,418) $ -- $271,700
</TABLE>
F-71
<PAGE> 154
INDEX TO PRO FORMA INFORMATION
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma
Consolidated Condensed Statements of Earnings............. F-74
Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma
Consolidated Condensed Balance Sheet...................... F-78
Notes to Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma
Consolidated Condensed Financial Statements............... F-82
Kiewit Materials Company and Subsidiaries Pro Forma
Consolidated Condensed Statements of Earnings............. F-84
Kiewit Materials Company and Subsidiaries Pro Forma
Consolidated Condensed Balance Sheet...................... F-88
Notes to Kiewit Materials Company and Subsidiaries Pro Forma
Consolidated Condensed Financial Statements............... F-90
</TABLE>
F-72
<PAGE> 155
PRO FORMA FINANCIAL INFORMATION
The pro forma financial information of Peter Kiewit Sons', Inc. ("Kiewit")
and Kiewit Materials Company ("KMC") has been prepared to give effect, as
further described below, to the share exchange, the debenture exchange offer and
the spin-off.
The pro forma consolidated condensed statements of earnings assume that
these transactions are consummated at the beginning of the indicated period. The
pro forma consolidated condensed balance sheets assume that these transactions
are consummated as of June 30, 2000.
The pro forma information assumes two separate scenarios concerning the
transaction. The scenarios are as follows: 100% (Scenario 1) and 50% (Scenario
2) of Kiewit common stock held by KMC employees will be exchanged for KMC's
common stock with an equal aggregate formula price. Each scenario also assumes
that Kiewit debenture holders that are KMC employees will exchange 100%
(Scenario 1) and 50% (Scenario 2) of their Kiewit debentures for KMC debentures.
In both scenarios, the remaining debentures held by Kiewit employees will be
exchanged for both shares of KMC common stock and reduced principal amount
convertible debentures of Kiewit.
The pro forma financial information is not intended to reflect results of
operations or the financial position of Kiewit and KMC which actually would have
resulted had these transactions been effected on the dates indicated. Moreover,
the pro forma information is not intended to be indicative of future results of
operations or financial position of Kiewit and KMC.
The pro forma financial information should be read in conjunction with
Kiewit's and KMC's historical financial statements, and the notes thereto which
are contained elsewhere herein.
F-73
<PAGE> 156
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIOS 1 AND 2)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------
SEPARATE OTHER
HISTORICAL KMC ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 2,396 $(227) $ 5(b) $ 2,174
Cost of Revenue.................................. (2,239) 200 (5)(b) (2,044)
------- ----- --------- -------
157 (27) -- 130
General and Administrative Expenses.............. (89) 12 -- (77)
------- ----- --------- -------
Operating Earnings............................... 68 (15) 53
Other Income (Expense)
Investment Income (Loss) and Equity Earnings... 10 (3) -- 7
Interest Expense............................... (1) 1 --(a) --
Other, net..................................... 30 -- -- 30
------- ----- --------- -------
39 (2) 37
------- ----- --------- -------
Earnings from Continuing Operations before Income
Taxes.......................................... 107 (17) -- 90
Provision for Income Taxes....................... (43) 7 --(c) (36)
------- ----- --------- -------
Earnings from Continuing Operations.............. $ 64 $ (10) $ -- $ 54
======= ===== ========= =======
Earnings from Continuing Operations per Share:
Basic.......................................... $ 2.01 $ 1.75
======= =======
Diluted........................................ $ 1.95 $ 1.70
======= =======
Weighted Average Shares Outstanding (in
thousands):
Basic.......................................... 32,119 (1,081)(d) 31,038
======= ========= =======
Diluted........................................ 33,146 (1,133)(d) 32,013
======= ========= =======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-74
<PAGE> 157
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIOS 1 AND 2)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 25, 1999
---------------------------------------------------
SEPARATE OTHER
HISTORICAL KMC ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue........................................ $ 4,013 $ (437) $ 10(b) $ 3,586
Cost of Revenue................................ (3,655) 375 (10)(b) (3,290)
------- -------- --------- -------
358 (62) -- 296
General and Administrative Expenses............ (144) 25 -- (119)
------- -------- --------- -------
Operating Earnings............................. 214 (37) -- 177
Other Income (Expense)
Investment Income (Loss) and Equity
Earnings.................................. -- (5) -- (5)
Interest Expense............................. (4) 2 1(a) (1)
Other, net................................... 56 (2) -- 54
------- -------- --------- -------
52 (5) 1 48
------- -------- --------- -------
Earnings from Continuing Operations before
Income Taxes................................. 266 (42) -- 225
Provision for Income Taxes..................... (101) 16 --(c) (85)
------- -------- --------- -------
Earnings from Continuing Operations............ $ 165 $ (26) $ 1 $ 140
======= ======== ========= =======
Earnings from Continuing Operations per Share:
Basic........................................ $ 4.81 $ 4.20
======= =======
Diluted...................................... $ 4.71 $ 4.11
======= =======
Weighted Average Shares Outstanding (in
thousands):
Basic........................................ 34,299 (1,100)(d) 33,199
======= ========= =======
Diluted...................................... 35,052 (1,151)(d) 33,901
======= ========= =======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-75
<PAGE> 158
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIOS 1 AND 2)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 26, 1998
---------------------------------------------------
SEPARATE OTHER
HISTORICAL KMC ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue....................................... $ 3,379 $ (333) $ 7(b) $ 3,053
Cost of Revenue............................... (3,095) 298 (7)(b) (2,804)
------- -------- ----------- -------
284 (35) -- 249
General and Administrative Expenses........... (142) 19 -- (123)
------- -------- ----------- -------
Operating Earnings............................ 142 (16) -- 126
Other Income (Expense)
Investment Income and Equity Earnings....... 17 (9) -- 8
Interest Expense............................ (5) 1 -- (4)
Other, net.................................. 61 (1) -- 60
------- -------- ----------- -------
73 (9) 64
------- -------- ----------- -------
Earnings from Continuing Operations before
Income Taxes................................ 215 (25) -- 190
Provision for Income Taxes.................... (79) 10 -- (69)
------- -------- ----------- -------
Earnings from Continuing Operations........... $ 136 $ (15) $ -- $ 121
======= ======== =========== =======
Earnings from Continuing Operations per Share:
Basic....................................... $ 4.07
=======
Diluted..................................... $ 4.02
=======
Weighted Average Shares Outstanding (in thousands):
Basic....................................... 33,396
=======
Diluted..................................... 33,828
=======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-76
<PAGE> 159
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIOS 1 AND 2)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 27, 1997
--------------------------------------------------
SEPARATE OTHER
HISTORICAL KMC ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue........................................ $ 2,742 $ (277) $ 9(b) $ 2,474
Cost of Revenue................................ (2,408) 242 (9)(b) (2,175)
------- -------- ------ -------
334 (35) -- 299
General and Administrative Expenses............ (148) 16 -- (132)
------- -------- ------ -------
Operating Earnings............................. 186 (19) -- 167
Other Income (Expense)
Investment Income and Equity Earnings........ 20 (8) -- 12
Interest Expense............................. (3) 1 -- (2)
Other, net................................... 61 (1) -- 60
------- -------- ------ -------
78 (8) 70
------- -------- ------ -------
Earnings from Continuing Operations before
Income Taxes................................. 264 (27) 237
Provision for Income Taxes..................... (109) 10 -- (99)
------- -------- ------ -------
Earnings from Continuing Operations............ $ 155 $ (17) $ 138
======= ======== ====== =======
Earnings from Continuing Operations per Share:
Basic........................................ $ 4.00
=======
Diluted...................................... $ 3.84
=======
Weighted Average Shares Outstanding (in
thousands):
Basic........................................ 38,912
=======
Diluted...................................... 40,676
=======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-77
<PAGE> 160
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 1)
<TABLE>
<CAPTION>
REPURCHASE/
EXCHANGE
CASH STOCK/ SEPARATE
HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA
---------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 288 $(50)(a) $(1)(b) $ (47) $ 190
Marketable securities.................. 5 -- -- -- 5
Receivables, net....................... 494 -- -- (60) 434
Unbilled contract revenue.............. 152 -- -- -- 152
Contract costs in excess of related
revenue............................. 47 -- -- -- 47
Investment in construction joint
ventures............................ 163 -- -- -- 163
Deferred income taxes.................. 61 -- -- (5) 56
Other.................................. 28 -- -- (18) 10
------ ---- --- ----- ------
Total Current Assets..................... 1,238 (50) (1) (130) 1,057
Property, Plant and Equipment, net....... 278 -- -- (130) 148
Other Assets............................. 129 -- -- (47) 82
------ ---- --- ----- ------
$1,645 $(50) $(1) $(307) $1,287
====== ==== === ===== ======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-78
<PAGE> 161
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 1)
<TABLE>
<CAPTION>
REPURCHASE/
EXCHANGE
CASH STOCK/ SEPARATE
HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA
---------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND REDEEMABLE
COMMON STOCK
Current Liabilities:
Accounts payable.............. $ 239 $ -- $ -- $ (35) $ 204
Current portion of long-term
debt....................... 2 -- -- (1) 1
Accrued costs on construction
contracts.................. 161 -- -- -- 161
Billings in excess of related
costs and earnings......... 175 -- -- -- 175
Accrued insurance costs....... 93 -- -- (9) 84
Other......................... 45 -- -- (24) 21
------ ---- ---- ----- ------
Total Current Liabilities....... 715 -- -- (69) 646
Long-term debt, less current
portion....................... 18 -- (8)(b)(d) (5) 5
Other liabilities............... 70 -- -- (13) 57
Minority interest............... 13 -- 29(c)(d) (29)(e) 13
------ ---- ---- ----- ------
Total Liabilities.......... 816 -- 21 (116) 721
Redeemable Common Stock.........
Common Stock.................. -- -- -- -- --
Additional paid-in capital.... 159 -- (6)(c) -- 153
Accumulated other
comprehensive income....... (11) -- -- -- (11)
Retained earnings............. 681 (50)(a) (16)(c) (191)(e) 424
------ ---- ---- ----- ------
Total Redeemable Common Stock... 829 (50) (22) (191) 566
------ ---- ---- ----- ------
$1,645 $(50) $ (1) $(307) $1,287
====== ==== ==== ===== ======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-79
<PAGE> 162
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 2)
<TABLE>
<CAPTION>
REPURCHASE/
EXCHANGE
CASH STOCK/ SEPARATE
HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA
---------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 288 $(50)(a) $(12)(b)(c) $ (47) $ 179
Marketable securities........................ 5 -- -- -- 5
Receivables, net............................. 494 -- -- (60) 434
Unbilled contract revenue.................... 152 -- -- -- 152
Contract costs in excess of related
revenue.................................... 47 -- -- -- 47
Investment in construction joint ventures.... 163 -- -- -- 163
Deferred income taxes........................ 61 -- -- (5) 56
Other........................................ 28 -- -- (18) 10
------ ---- ---- ----- ------
Total Current Assets........................... 1,238 (50) (12) (130) 1,046
Property, Plant and Equipment, net............. 278 -- -- (130) 148
Other Assets................................... 129 -- -- (47) 82
------ ---- ---- ----- ------
$1,645 $(50) $(12) $(307) $1,276
====== ==== ==== ===== ======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-80
<PAGE> 163
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 2)
<TABLE>
<CAPTION>
REPURCHASE/
EXCHANGE
CASH STOCK/ SEPARATE
HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA
---------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND REDEEMABLE
COMMON STOCK
Current Liabilities:
Accounts payable.............. $ 239 $ -- $ $ (35) $ 204
Current portion of long-term
debt....................... 2 -- (1) 1
Accrued costs on construction
contracts.................. 161 -- -- 161
Billings in excess of related
costs and earnings......... 175 -- -- 175
Accrued insurance costs....... 93 -- (9) 84
Other......................... 45 -- (24) 21
------ ---- ---- ----- ------
Total Current Liabilities....... 715 -- (69) 646
Long-term debt, less current
portion....................... 18 -- (9)(b)(d) (5) 4
Other liabilities............... 70 -- -- (13) 57
Minority interest............... 13 -- 19(c)(d) (19)(e) 13
------ ---- ---- ----- ------
Total Liabilities.......... 816 -- 10 (106) 720
Redeemable Common Stock.........
Common Stock.................. -- -- -- --
Additional paid-in capital.... 159 -- (6)(c) -- 153
Accumulated other
comprehensive income....... (11) -- -- -- (11)
Retained earnings............. 681 (50)(a) (16)(c) (201)(e) 414
------ ---- ---- ----- ------
Total Redeemable Common Stock... 829 (50) (22) (201) 556
------ ---- ---- ----- ------
$1,645 $(50) $(12) $(307) $1,276
====== ==== ==== ===== ======
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-81
<PAGE> 164
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma consolidated condensed financial statements of
Peter Kiewit Sons', Inc. ("Kiewit") are presented based upon the historical
consolidated financial statements and the notes thereto of Kiewit, as adjusted
to remove the earnings statement and balance sheet accounts of Kiewit Materials
Company ("KMC") and to give effect to certain other elements of the share
exchange, the debenture exchange offer and the spin-off. The pro forma
information assumes, in two separate scenarios, that 100% (Scenario 1) and 50%
(Scenario 2) of the current Kiewit shares held by KMC employees will be
exchanged for shares of KMC common stock with an equal aggregate formula price.
It also assumes that 100% (Scenario 1) and 50% (Scenario 2) of Kiewit's
debenture holders that are employees of KMC will exchange their Kiewit
debentures for KMC debentures and that the remaining Kiewit debentures held by
Kiewit employees will be exchanged for both shares of KMC common stock and
reduced principal amount convertible debentures of Kiewit. The remaining shares
of KMC common stock will be distributed as a dividend on a pro rata basis to the
Kiewit stockholders on a one-to-one ratio.
Such pro forma financial statements should be read in conjunction with the
separate historical consolidated financial statements and the notes thereto of
Kiewit, included elsewhere herein. Such pro forma financial statements are not
necessarily indicative of the future results of operations or financial
position.
Completion of the foregoing transactions has been assumed to be as of
June 30, 2000 in the pro forma consolidated condensed balance sheet. In the pro
forma consolidated condensed statements of earnings, completion of these
transactions has been assumed to be at the beginning of the indicated period. If
less than $1 million, no adjustment has been made due to effects of rounding.
The significant accounting policies followed by Kiewit, described in the
notes to its historical consolidated financial statements included elsewhere
herein, have been used in preparing the accompanying pro forma consolidated
condensed financial statements.
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated condensed statements of
earnings for Kiewit have been adjusted to remove the earnings statement accounts
of KMC. Other adjustments made in preparation of Kiewit's Pro Forma Consolidated
Condensed Statements of Earnings are described below:
(a) Adjustment made to reflect a decrease in interest expense due to the
exchange of Kiewit's convertible debentures into either KMC debentures or both
shares of KMC common stock and new reduced principal amount convertible
debentures of Kiewit. The interest rates used to calculate the decrease in
interest expense were the actual rates applicable to each issue of debentures as
follows: 1999 issuance -- 8.25%, 1998 issuance -- 7.35% and 1997
issuance -- 8.028%.
(b) Adjustment made to reverse any elimination of intercompany materials
sales between Kiewit and KMC.
(c) Adjustments made to reflect the tax effect of the above adjustments.
(d) Adjustments made to reflect the change in the number of Kiewit's shares
and convertible debentures outstanding as a result of the transactions described
in Note 1.
F-82
<PAGE> 165
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS -- (CONTINUED)
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated condensed balance sheet
of Kiewit has been adjusted to remove the balance sheet accounts of KMC. Other
adjustments made in preparation of Kiewit's Pro Forma Consolidated Condensed
Balance Sheet are described below:
(a) Adjustments made to reflect the decrease in cash as a result of an
estimated $50 million capital contribution to KMC.
(b) Adjustments made to reflect the payment of cash of $1 million for
Kiewit's debentures held by KMC employees exchanged for KMC debentures (Scenario
1) or partially exchanged and partially repurchased (Scenario 2).
(c) (Scenario 1) Adjustments made to reflect the exchange of $22 million of
Kiewit's common stock held by KMC employees for shares of KMC common stock.
(Scenario 2) Adjustments made to reflect the exchange of 50% or $11
million of Kiewit's common stock held by KMC employees for shares of KMC common
stock and an $11 million cash payment to KMC employees for the shares of common
stock repurchased.
(d) Adjustments made to reflect the conversion of Kiewit's convertible
debentures into either KMC convertible debentures or both shares of KMC common
stock and new reduced principal amount convertible debentures of Kiewit. $8
million in both Scenarios 1 and 2.
(e) Included in these line items is the impact of the minority interest in
KMC held by KMC and Kiewit employees after the share exchange and the debenture
exchange offer.
4. EARNINGS PER SHARE
Basic and diluted earnings per share of Kiewit's common stock have been
computed using the weighted average number of shares outstanding during each
period after giving effect to common stock equivalents.
F-83
<PAGE> 166
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------
EXCHANGE OF
HISTORICAL DEBENTURES PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenue.............................................. $ 227,471 $ -- $ 227,471
Cost of Revenue...................................... (200,367) -- (200,367)
--------- ----------- -----------
27,104 -- 27,104
General and Administrative Expenses.................. (11,842) -- (11,842)
--------- ----------- -----------
Operating Earnings................................... 15,262 -- 15,262
Other Income (Expense)
Investment Income and Equity Earnings.............. 2,706 -- 2,706
Interest Expense................................... (1,282) (27)(a) (1,309)
Other, net......................................... 564 -- 564
--------- ----------- -----------
1,988 (27) 1,961
--------- ----------- -----------
Earnings before Income Taxes......................... 17,250 (27) 17,223
Provision for Income Taxes........................... (6,868) 9(b) (6,859)
--------- ----------- -----------
Net Earnings......................................... $ 10,382 $ (18) $ 10,364
========= =========== ===========
Earnings per Share:
Basic.............................................. $ 103,823 $ 0.30
========= ===========
Diluted............................................ $ 103,823 $ 0.30
========= ===========
Weighted Average Shares Outstanding:
Basic.............................................. $ 100 34,554,174(c) 34,554,274
========= =========== ===========
Diluted............................................ $ 100 34,687,863(c) 34,687,963
========= =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-84
<PAGE> 167
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 2)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------
EXCHANGE OF
HISTORICAL DEBENTURES PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenue.............................................. $ 227,471 $ -- $ 227,471
Cost of Revenue...................................... (200,367) -- (200,367)
--------- ----------- -----------
27,104 -- 27,104
General and Administrative Expenses.................. (11,842) -- (11,842)
--------- ----------- -----------
Operating Earnings................................... 15,262 -- 15,262
Other Income (Expense)
Investment Income and Equity Earnings.............. 2,706 -- 2,706
Interest Expense................................... (1,282) (13)(a) (1,295)
Other, net......................................... 564 -- 564
--------- ----------- -----------
1,988 (13) 1,975
--------- ----------- -----------
Earnings before Income Taxes......................... 17,250 (13) 17,237
Provision for Income Taxes........................... (6,868) 5(b) (6,863)
--------- ----------- -----------
Net Earnings......................................... $ 10,382 $ (8) $ 10,374
========= =========== ===========
Earnings per Share:
Basic.............................................. $ 103,823 $ 0.31
========= ===========
Diluted............................................ $ 103,823 $ 0.31
========= ===========
Weighted Average Shares Outstanding:
Basic.............................................. 100 33,086,340(c) 33,086,440
========= =========== ===========
Diluted............................................ 100 33,150,317(c) 33,150,417
========= =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-85
<PAGE> 168
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 25, 1999
----------------------------------------
EXCHANGE OF
HISTORICAL DEBENTURES PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenue.............................................. $ 437,058 $ -- $ 437,058
Cost of Revenue...................................... (374,952) -- (374,952)
--------- ----------- -----------
62,106 -- 62,106
General and Administrative Expenses.................. (24,684) -- (24,684)
--------- ----------- -----------
Operating Earnings................................... 37,422 -- 37,422
Other Income (Expense)
Investment Income and Equity Earnings.............. 4,496 -- 4,496
Interest Expense................................... (1,852) (54)(a) (1,906)
Other, net......................................... 1,516 -- 1,516
--------- ----------- -----------
4,160 (54) 4,106
--------- ----------- -----------
Earnings before Income Taxes......................... 41,582 (54) 41,528
Provision for Income Taxes........................... (15,754) 19(b) (15,735)
--------- ----------- -----------
Net Earnings......................................... $ 25,828 $ (35) $ 25,793
========= =========== ===========
Earnings per Share:
Basic.............................................. $ 258,280 $ 0.68
========= ===========
Diluted............................................ $ 258,280 $ 0.68
========= ===========
Weighted Average Shares Outstanding:
Basic.............................................. 100 38,084,235 38,084,335
========= =========== ===========
Diluted............................................ 100 38,191,779 38,191,879
========= =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-86
<PAGE> 169
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 2)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 25, 1999
----------------------------------------
EXCHANGE OF
HISTORICAL DEBENTURES PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenue.............................................. $ 437,058 $ -- $ 437,058
Cost of Revenue...................................... (374,952) -- (374,952)
--------- ----------- -----------
62,106 -- 62,106
General and Administrative Expenses.................. (24,684) -- (24,684)
--------- ----------- -----------
Operating Earnings................................... 37,422 -- 37,422
Other Income (Expense)
Investment Income and Equity Earnings.............. 4,496 -- 4,496
Interest Expense................................... (1,852) (27)(a) (1,879)
Other, net......................................... 1,516 -- 1,516
--------- ----------- -----------
4,160 (27) 4,133
--------- ----------- -----------
Earnings before Income Taxes......................... 41,582 (27) 41,555
Provision for Income Taxes........................... (15,754) 10(b) (15,744)
--------- ----------- -----------
Net Earnings......................................... $ 25,828 $ (17) $ 25,811
========= =========== ===========
Earnings per Share:
Basic.............................................. $ 258,280 $ 0.71
========= ===========
Diluted............................................ $ 258,280 $ 0.71
========= ===========
Weighted Average Shares Outstanding:
Basic.............................................. 100 36,344,995 36,345,095
========= =========== ===========
Diluted............................................ 100 36,419,015 36,419,115
========= =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-87
<PAGE> 170
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 1)
<TABLE>
<CAPTION>
CASH ISSUE
HISTORICAL CONTRIBUTION DEBENTURES PRO FORMA
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 47,356 $50,000(a) $1,044(b) $ 98,400
Marketable securities....................... -- -- -- --
Receivables, net............................ 59,940 -- -- 59,940
Deferred income taxes....................... 5,227 -- -- 5,227
Other....................................... 17,259 -- -- 17,259
-------- ------- ------ --------
Total Current Assets.......................... 129,782 50,000 1,044 180,826
Property, Plant and Equipment, net............ 130,395 -- -- 130,395
Other Assets.................................. 46,570 -- -- 46,570
-------- ------- ------ --------
$306,747 $50,000 $1,044 $357,791
======== ======= ====== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable............................ $ 35,229 $ -- $ -- $ 35,229
Current portion of long-term debt........... 571 -- -- 571
Accrued insurance costs..................... 8,720 -- -- 8,720
Other....................................... 23,937 -- -- 23,937
-------- ------- ------ --------
Total Current Liabilities..................... 68,457 -- -- 68,457
Long-term debt, less current portion.......... 5,231 -- 670(b) 5,901
Other liabilities............................. 12,733 -- -- 12,733
Minority interest............................. 339 -- -- 339
-------- ------- ------ --------
Total Liabilities........................ 86,760 -- 670 87,430
Stockholder's Equity:
Common stock................................ -- -- -- --
Additional paid-in capital.................. 126,501 50,000(a) 374(b) 176,875
Accumulated other comprehensive income...... -- -- -- --
Retained earnings........................... 93,486 -- -- 93,486
-------- ------- ------ --------
Total Stockholder's Equity.................... 219,987 50,000 374 270,361
-------- ------- ------ --------
$306,747 $50,000 $1,044 $357,791
======== ======= ====== ========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-88
<PAGE> 171
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SCENARIO 2)
<TABLE>
<CAPTION>
CASH ISSUE
HISTORICAL CONTRIBUTION DEBENTURES PRO FORMA
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 47,356 $50,000(a) $ 522(b) $ 97,878
Marketable securities....................... -- -- -- --
Receivables, net............................ 59,940 -- -- 59,940
Deferred income taxes....................... 5,227 -- -- 5,227
Other....................................... 17,259 -- -- 17,259
-------- ------- ------ --------
Total Current Assets.......................... 129,782 50,000 522 180,304
Property, Plant and Equipment, net............ 130,395 -- -- 130,395
Other Assets.................................. 46,570 -- -- 46,570
-------- ------- ------ --------
$306,747 $50,000 $ 522 $357,269
======== ======= ====== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable............................ $ 35,229 $ -- $ -- $ 35,229
Current portion of long-term debt........... 571 -- -- 571
Accrued insurance costs..................... 8,720 -- -- 8,720
Other....................................... 23,937 -- -- 23,937
-------- ------- ------ --------
Total Current Liabilities..................... 68,457 -- -- 68,457
Long-term debt, less current portion.......... 5,231 -- 335(b) 5,566
Other liabilities............................. 12,733 -- -- 12,733
Minority interest............................. 339 -- -- 339
-------- ------- ------ --------
Total Liabilities........................ 86,760 -- 335 87,095
Stockholder's Equity:
Common stock................................ -- -- -- --
Additional paid-in capital.................. 126,501 50,000(a) 187(b) 176,688
Accumulated other comprehensive income...... -- -- -- --
Retained earnings........................... 93,486 -- -- 93,486
-------- ------- ------ --------
Total Stockholder's Equity.................... 219,987 50,000 187 270,174
-------- ------- ------ --------
$306,747 $50,000 $ 522 $357,269
======== ======= ====== ========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-89
<PAGE> 172
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma consolidated condensed financial statements of
Kiewit Materials Company ("KMC") are presented based upon the historical
consolidated financial statements and the notes thereto of KMC adjusted to give
effect to certain elements of the share exchange, the debenture exchange offer
and the spin-off. The pro forma information assumes, in two separate scenarios,
that 100% (Scenario 1) and 50% (Scenario 2) of the current Kiewit shares held by
KMC employees will be exchanged for shares of KMC common stock with an equal
aggregate formula price. It also assumes that 100% (Scenario 1) and 50%
(Scenario 2) of Kiewit debenture holders that are KMC employees will exchange
their Kiewit debentures for debentures of KMC and that the remaining Kiewit
debentures held by Kiewit employees will be exchanged for both shares of KMC
common stock and reduced principal amount convertible debentures of Kiewit. The
remaining shares of KMC's common stock will be distributed as a dividend at a
pro rata basis to the Kiewit stockholders on a one-to-one ratio.
Such pro forma financial statements should be read in conjunction with the
separate historical consolidated financial statements and the notes thereto of
KMC, included elsewhere herein. Such pro forma financial statements are not
necessarily indicative of the future results of operations or financial
position.
Completion of the foregoing transactions has been assumed to be as of
June 30, 2000 in the pro forma consolidated condensed balance sheet. In the pro
forma consolidated condensed statements of earnings, completion of these
transactions has been assumed to be at the beginning of the indicated period.
The significant accounting policies followed by KMC, described in the notes
to its historical consolidated financial statements included elsewhere herein,
have been used in preparing the accompanying pro forma consolidated condensed
financial statements.
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated condensed statements of
earnings for KMC have been adjusted to give effect to certain elements of the
transactions. The adjustments made in preparation of KMC's Pro Forma
Consolidated Condensed Statements of Earnings are described below:
(a) Adjustments made to reflect an increase in interest expense due to the
exchange of the Kiewit convertible debentures held by KMC's employees
into KMC's convertible debentures. The interest rate used to calculate
the increase in interest were the actual rates applicable to each issue
of debentures as follows: 1999 issuance -- 8.25%, 1998
issuance -- 7.35% and 1997 issuance -- 8.028%.
(b) Adjustments made to reflect the tax effect of the above adjustments.
(c) Adjustments made to reflect the change in the number of the Company's
shares and convertible debentures outstanding as a result of the
transactions described in Note 1.
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated condensed balance sheet
of the Company has been adjusted to reflect certain elements of the
transactions. The adjustments made in preparation of the Company's Pro Forma
Consolidated Condensed Balance Sheet are described below:
(a) Adjustments made to reflect the increase in cash as a result of an
estimated $50 million capital contribution from Kiewit.
(b) Adjustments made to reflect the receipt of cash for the issuance of
KMC's convertible debentures exchanged for Kiewit debentures held by
KMC employees.
F-90
<PAGE> 173
KIEWIT MATERIALS COMPANY
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4. EARNINGS PER SHARE
Basic and diluted earnings per share of KMC common stock have been computed
using the weighted average number of shares outstanding during each period after
giving effect to common stock equivalents. Pro forma earnings per share reflect
the additional shares issued in the share exchange, the debenture exchange offer
and the spin-off.
F-91
<PAGE> 174
DELIVERY OF LETTERS OF TRANSMITTAL
Manually signed facsimile copies of the Letters of Transmittal will be
accepted. The Letters of Transmittal and shares of Kiewit common stock and any
other required documents should be sent or delivered by each tendering
stockholder in the envelope provided to Kiewit at the address set forth below:
BY REGISTERED OR CERTIFIED MAIL:
Peter Kiewit Sons', Inc.
Kiewit Plaza
Omaha, Nebraska 68131
Attention: Stock Registrar
BY FACSIMILE TRANSMISSION:
(402) 271-2829
TO CONFIRM BY TELEPHONE OR FOR INFORMATION CALL:
(402) 342-2052
Questions and requests for assistance or for additional copies of this
prospectus may be directed to:
Peter Kiewit Sons', Inc.
Kiewit Plaza
Omaha, Nebraska 68131
Telephone: (402) 342-2052
Attention: Stock Registrar
[PETER KIEWIT SONS', INC. LOGO]
Dealer Prospectus Delivery Obligation
Until September 14, 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is an addition to the dealer's obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
