<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
KIEWIT MATERIALS COMPANY
(BEING RENAMED "UNITED METRO MATERIALS INC.")
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 1400 47-0819021
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
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KIEWIT PLAZA, OMAHA, NEBRASKA 68131, (402) 536-3661
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK E. BELMONT, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
KIEWIT PLAZA
OMAHA, NEBRASKA 68131
(402) 536-3661
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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WITH A COPY TO:
JOHN S. D'ALIMONTE, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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NAME OF EACH EXCHANGE ON WHICH EACH CLASS
TITLE OF EACH CLASS TO BE SO REGISTERED IS TO BE REGISTERED
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)
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EXPLANATORY NOTE
Prior to the effectiveness of this Registration Statement, Kiewit Materials
Company, the registrant, will change its name to United Metro Materials Inc.
Accordingly, Kiewit Materials Company is referred to as United Metro Materials
Inc. in the information statement contained in this Registration Statement.
<PAGE> 3
UNITED METRO MATERIALS INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT AND
INCORPORATED IN REGISTRATION STATEMENT ON FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
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ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
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1. Business........................................ "Summary;" "Management's Discussion and
Analysis of Financial Condition and Results
of Operations;" and "Business."
2. Financial Information........................... "Selected Historical and Pro Forma
Financial Data;" "Management's Discussion
and Analysis of Financial Condition and
Results of Operations;" "Index to United
Metro Financial Statements;" "Index to
Pacific Rock Products and River City
Machinery Financial Statements;" and "Index
to Pro Forma Information."
3. Properties...................................... "Business."
4. Security Ownership of Certain Beneficial Owners
and Management.................................. "Security Ownership of United Metro Common
Stock By Certain Beneficial Owners,
Directors and Executive Officers of United
Metro."
5. Directors and Executive Officers................ "Management."
6. Executive Compensation.......................... "Executive Compensation."
7. Certain Relationships and Related
Transactions.................................... "Summary;" "Relationship Between United
Metro and Kiewit;" and "Certain
Relationships and Related Transactions."
8. Legal Proceedings............................... "Business."
9. Market Price of and Dividends on the
Registrant's Securities to be Registered........ "Selected Historical and Pro Forma
Financial Data" and "Description of Capital
Stock."
10. Recent Sales of Unregistered Securities......... Not Applicable
11. Description of Registrant's Securities to be
Registered...................................... "Description of Capital Stock."
12. Indemnification of Directors and Officers....... "Description of Capital Stock."
13. Financial Statements and Supplementary Data..... Selected Historical and Pro Forma Financial
Data Financial Data"; "Management's
Discussion and Analysis of Financial
Condition and Results of Operations";
"Index to United Metro Financial
Statements"; "Index to Pacific Rock
Products and River City Machinery Financial
Statements" and "Index to Pro Forma
Information."
14. Changes in and Disagreements with Accountant on
Accounting and Financial Disclosure............. Not Applicable
15. Financial Statements and Exhibits............... "United Metro Financial Statements";
"Pacific Rock Products and River City
Machinery Financial Statements"; "Pro Forma
Financial Information" and "Exhibit List."
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[PETER KIEWIT SONS', INC. LOGO]
PETER KIEWIT SONS', INC.
KIEWIT PLAZA
OMAHA, NEBRASKA 68131
(402) 342-2052
, 2000
Dear Kiewit Stockholder:
After careful consideration, the board of directors of Peter Kiewit Sons',
Inc. has decided to separate its construction business and its materials
business into two separate, independent companies in a spin-off that is intended
to be tax-free for U. S. federal income tax purposes. To effect the spin-off,
Kiewit is distributing shares of common stock of its formerly wholly owned
subsidiary, United Metro Materials Inc., to Kiewit stockholders. United Metro is
the new name for Kiewit Materials Company.
Prior to the spin-off, Kiewit gave United Metro employees holding Kiewit
common stock the opportunity to exchange their shares of Kiewit common stock for
shares of United Metro common stock at an exchange ratio of United Metro
shares for each share of Kiewit common stock tendered in the share exchange.
Kiewit also offered the holders of its outstanding convertible debentures the
opportunity to exchange their Kiewit debentures for: (1) United Metro debentures
convertible into shares of United Metro common stock; or (2) both shares of
United Metro common stock and new reduced principal amount Kiewit debentures
convertible into shares of Kiewit common stock. The remaining shares of United
Metro common stock held by Kiewit after the share exchange and the debenture
exchange offer are being distributed as a dividend on a pro rata basis to
holders of Kiewit common stock in the spin-off.
Holders of Kiewit common stock as of , 2000 will receive one
share of United Metro common stock for each share of Kiewit common stock held on
that date. The IRS has ruled that the spin-off generally will be tax-free to
stockholders for U.S. federal income tax purposes. However, you should refer to
pages 14-17 for a detailed review of the tax consequences of the spin-off.
Following the completion of the spin-off, United Metro will own and operate
Kiewit's materials business. Christopher J. Murphy will be the Chief Executive
Officer and President of United Metro.
The enclosed information statement explains the proposed spin-off in
greater detail and provides financial and other important information regarding
United Metro. We urge you to read it carefully. Kiewit stockholders are not
required to take any action to participate in the spin-off.
We are enthusiastic about the spin-off and look forward to the future
success of Kiewit and United Metro as highly focused, independent companies.
Sincerely,
Kenneth E. Stinson
Chairman of the Board and President
<PAGE> 5
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 2000
INFORMATION STATEMENT
UNITED METRO MATERIALS INC.
This information statement relates to the pro rata distribution by Peter
Kiewit Sons', Inc. of shares of common stock of its subsidiary, United
Metro Materials Inc. These shares are all of the shares of United Metro held by
Kiewit on the date of this information statement and represent % of the issued
and outstanding shares of United Metro common stock. United Metro is the new
name for Kiewit Materials Company. The distribution will effect the spin-off of
United Metro. Kiewit will make the distribution to record holders of Kiewit
common stock as of , 2000, the record date. In the spin-off, Kiewit
stockholders will receive one share of United Metro common stock for each share
of Kiewit common stock held on the record date. If you are a record holder of
Kiewit common stock on the record date, your shares of United Metro common stock
will be distributed automatically. You do not need to take any further action.
Currently, we expect the spin-off to occur on or about , 2000.
------------------------
The United Metro common stock to be issued in the spin-off will not be
listed on any national securities exchange or quoted on the Nasdaq National
Market and will be subject to substantial transfer restrictions.
We strongly urge you to read and consider carefully this information
statement in its entirety, including the matters referred to under "Risk
Factors" beginning at page 7.
Stockholder approval is not required for the spin-off or any of the other
transactions described in this information statement. We are not asking you for
a proxy and we request that you do not send us one.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED OF THE UNITED METRO COMMON STOCK TO BE
DISTRIBUTED IN THE SPIN-OFF OR DETERMINED IF THIS INFORMATION STATEMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This information statement is dated , 2000 and is first
being mailed to stockholders on or about , 2000.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS....................................... 1
SUMMARY..................................................... 4
United Metro Materials Inc................................ 4
The Spin-off.............................................. 4
RISK FACTORS................................................ 7
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............. 11
THE SPIN-OFF................................................ 12
Background and Reasons for the Spin-off and Related
Transactions........................................... 12
Description of the Spin-off............................... 13
No Appraisal Rights....................................... 13
The Share Exchange........................................ 13
The Debenture Exchange Offer.............................. 14
Material U.S. Federal Income Tax Consequences............. 14
Non-U.S. Persons.......................................... 15
Reporting Requirements.................................... 15
Material Canadian Federal Income Tax Consequences of the
Spin-off............................................... 16
Nebraska Tax Letter Request............................... 16
Accounting Treatment...................................... 17
Trading Market and Transfer Restrictions.................. 17
RELATIONSHIP BETWEEN UNITED METRO AND KIEWIT................ 17
Separation Agreement...................................... 17
Tax Sharing Agreement..................................... 18
Arrangements for Canadian Holders of Kiewit Common
Stock.................................................. 18
Other..................................................... 18
Dividend Policy........................................... 19
Effect of the Spin-off on the Formula Price of Kiewit
Common Stock........................................... 19
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 21
BUSINESS.................................................... 24
United Metro Materials Inc................................ 24
Industry Background/Market Overview....................... 24
Business Strategy......................................... 27
Operations................................................ 27
Reserves.................................................. 28
Products.................................................. 28
Customers................................................. 28
Competition............................................... 29
MANAGEMENT.................................................. 31
Senior Management and Directors........................... 31
Other Key Personnel....................................... 31
Committees................................................ 33
EXECUTIVE COMPENSATION...................................... 33
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 34
SECURITY OWNERSHIP OF UNITED METRO COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF
UNITED METRO.............................................. 35
DESCRIPTION OF CAPITAL STOCK................................ 36
Authorized and Outstanding Capital Stock.................. 36
Voting Rights............................................. 36
Repurchase Rights......................................... 36
Liquidation Rights........................................ 37
Formula Price............................................. 37
Ownership and Transfer Restrictions....................... 37
Listing................................................... 37
Limitation on Directors' Liability........................ 38
Preferred Stock........................................... 38
Stockholder Consent....................................... 38
Stockholders' Meetings.................................... 38
EXPERTS..................................................... 39
WHERE YOU CAN FIND MORE INFORMATION......................... 39
INDEX TO KIEWIT MATERIALS COMPANY FINANCIAL STATEMENTS...... F-1
INDEX TO PACIFIC ROCK PRODUCTS AND RIVER CITY MACHINERY
FINANCIAL STATEMENTS...................................... F-28
INDEX TO PRO FORMA INFORMATION.............................. F-50
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<PAGE> 8
QUESTIONS AND ANSWERS
Q: WHAT IS THE SPIN-OFF?
A: The board of directors of Peter Kiewit Sons', Inc. has decided to separate
its construction business and its materials business into two separate,
independent companies in a spin-off that is intended to be tax free for U.S.
federal income tax purposes. To effect the spin-off, Kiewit is distributing
shares of common stock of its formerly wholly owned subsidiary, United Metro
Materials Inc., to Kiewit stockholders. United Metro is the new name for
Kiewit Materials Company.
Kiewit currently owns shares of United Metro common stock,
representing % of the issued and outstanding shares of United Metro
common stock on the date of this information statement. In the spin-off,
Kiewit will distribute all of its United Metro common stock to Kiewit
stockholders of record as of , 2000, the record date. On
, 2000, Kiewit will distribute the United Metro common stock as
a dividend to Kiewit's stockholders on a pro-rata basis. United Metro will
then begin to operate as a separate, independent company. Upon completion of
the spin-off, you will own shares in two separate, independent companies,
Kiewit and United Metro.
Q: WHAT IS THE SHARE EXCHANGE?
A: In the share exchange, Kiewit gave Kiewit stockholders who are United Metro
employees the opportunity, prior to the spin-off, to exchange their shares
of Kiewit common stock for shares of United Metro common stock with an equal
aggregate formula price.
In the share exchange, United Metro employees collectively exchanged
shares of their Kiewit common stock, representing % of the shares of
Kiewit common stock collectively owned by them and % of the total
issued and outstanding Kiewit common stock. For each Kiewit share tendered,
United Metro employees received shares of United Metro common stock.
United Metro employees who participated in the share exchange collectively
received shares of United Metro common stock, representing % of the
issued and outstanding United Metro common stock on , 2000.
Q: WHAT IS THE DEBENTURE EXCHANGE OFFER?
A: In the debenture exchange offer, Kiewit gave the holders of its outstanding
convertible debentures the opportunity, prior to the spin-off, to exchange
their Kiewit debentures for:
- United Metro debentures convertible into shares of United Metro common
stock; or
- both shares of United Metro common stock and new reduced principal amount
Kiewit debentures convertible into shares of Kiewit common stock.
In the debenture exchange offer, Kiewit debentureholders collectively
exchanged $ principal amount outstanding Kiewit debentures for:
- $ principal amount United Metro convertible debentures; and
- both shares of United Metro common stock and $ principal amount
new Kiewit debentures.
Q: WHAT WILL UNITED METRO AND KIEWIT LOOK LIKE AFTER THE SPIN-OFF?
A: United Metro will own 100% of the shares of the subsidiaries which comprise
its materials business. Kiewit will hold 100% of the shares of Kiewit
Construction Group Inc., which holds all of the stock of Kiewit's
subsidiaries which comprise the construction business.
Q: WHAT WILL I RECEIVE IN THE SPIN-OFF?
A: You will receive one share of United Metro common stock for each share of
Kiewit common stock that you own on the record date. United Metro will have
only one class of stock which is entitled to one vote per share. After the
spin-off, you will also continue to own your shares of Kiewit common stock.
<PAGE> 9
Q: WHY HAS KIEWIT DECIDED TO SEPARATE UNITED METRO 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 debenture exchange offer
and the share exchange:
- the senior management of United Metro will acquire a larger, direct
interest in the materials business that reflects solely the performance of
United Metro;
- United Metro employees will acquire a larger, direct interest in the
materials business, which the Kiewit board of directors believes is
essential to United Metro's ability to better retain, attract, and
motivate its employees; and
- United Metro should improve its ability to make sales to, and secure
contracts from, unrelated construction businesses that have concerns about
doing business with United Metro while it is owned and controlled by a
direct competitor.
Q: WHAT IS "FORMULA PRICE"?
A: The formula price of United Metro common stock is the per share price at
which United Metro will buy shares of its common stock and is based on the
adjusted book value of United Metro 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 United Metro common stock is also adjusted for the amount
of any capital contributions made by Kiewit to United Metro during fiscal
year 2000 prior to the spin-off.
Q: WHAT DO I HAVE TO DO TO PARTICIPATE IN THE SPIN-OFF?
A: Nothing. No proxy or vote is necessary for the spin-off or the other
transactions described in this information statement to occur. You do not
need to, and should not, mail in any certificates of Kiewit common stock to
receive shares of United Metro common stock in the spin-off.
Q: HOW WILL KIEWIT DISTRIBUTE UNITED METRO COMMON STOCK?
A: On or about , 2000, Kiewit will mail stock certificates
representing one share of United Metro common stock for each share of Kiewit
common stock you own as of the record date.
Q: WILL UNITED METRO COMMON STOCK BE LISTED ON AN EXCHANGE?
A: The United Metro common stock to be distributed in the spin-off will not be
listed on any national securities exchange or quoted on the Nasdaq National
Market.
Q: TO WHOM WILL I BE ABLE TO TRANSFER MY SHARES OF UNITED METRO COMMON STOCK?
A: The United Metro common stock will be subject to substantial transfer
restrictions. Specifically, holders of United Metro common stock will be
prohibited from transferring the United Metro common stock in any manner
except in a sale to United Metro or in a transfer for estate planning
purposes that meets specified requirements. Upon the death of a United Metro
stockholder, the shares of United Metro 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, United
Metro stockholders will not be required to sell their United Metro common
stock back to United Metro upon their retirement or other termination of
their employment with United Metro or Kiewit, as the case may be. All
transfer restrictions may be terminated by the United Metro board at any
time.
Holders of United Metro common stock are permitted to pledge their common
stock for loans in connection with the ownership of their common stock.
2
<PAGE> 10
Q: HOW CAN I SELL SHARES OF UNITED METRO COMMON STOCK TO UNITED METRO?
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 United Metro common stock to United Metro at the
formula price in effect at that time. United Metro will generally be
required to accept the offer within 10 days of receipt of the offer.
United Metro's repurchase obligations may be terminated by United Metro's
board of directors at any time. However, the board shall not have that
authority unless it has also determined that the United Metro common stock
is publicly traded.
Q: WILL UNITED METRO PAY DIVIDENDS ON SHARES OF UNITED METRO COMMON STOCK?
A: United Metro does not currently intend to pay dividends on the United Metro
common stock.
Q: HOW WILL UNITED METRO FINANCE ITS ACTIVITIES AFTER THE SPIN-OFF?
A: United Metro intends to finance its current activities through existing
resources and internally generated funds. To the extent that such amounts
are not sufficient, United Metro anticipates that it would seek external
financing to fund any shortfalls.
Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE SPIN-OFF?
A: Prior to the spin-off, stockholders of Kiewit with inquiries relating to the
spin-off should contact:
Douglas A. Obermier
Stock Registrar
Peter Kiewit Sons', Inc.
Kiewit Plaza
Omaha, Nebraska 68131
(402) 342-2052
After the spin-off, stockholders of United Metro with inquiries relating to
their investment in United Metro common stock should contact:
Mark E. Belmont
Vice President, General Counsel
and Secretary
United Metro Materials Inc.
Kiewit Plaza
Omaha, Nebraska 68131
(402) 536-3661
3
<PAGE> 11
SUMMARY
This summary highlights selected information from this information
statement and may not contain all of the information that is important to you.
To understand the spin-off fully, you should read carefully this entire
information statement and the documents to which we have referred you. See
"Where You Can Find More Information" on page 39.
UNITED METRO MATERIALS INC.
United Metro Materials Inc., a formerly wholly owned subsidiary of Kiewit,
together with its subsidiaries, operates ready mix, asphalt and aggregates
operations in Arizona, Washington, Oregon, California, Wyoming, Utah and New
Mexico. United Metro is the new name for Kiewit Materials Company. United Metro
was incorporated under the laws of Delaware on February 2, 1999. Our principal
executive offices are located at Kiewit Plaza, Omaha, Nebraska 68131, and our
telephone number is (402) 536-3661.
Our objective is to continue growing our businesses utilizing a four-part
business strategy. First, we plan to continue to build value in markets
currently served. Second, we plan to expand our presence in existing markets
through cash or debt-financed acquisitions. Third, we intend to enter, via cash
or debt-financed acquisitions, new high-growth potential markets. Finally, we
will seek to acquire and develop additional strategic aggregate reserves in
selected markets.
THE SPIN-OFF
The board of directors of Kiewit has decided to separate its construction
business and its materials business into two separate, independent companies in
a spin-off that is intended to be tax free for U.S. federal income tax purposes.
To effect the spin-off, Kiewit is distributing shares of common stock of its
formerly wholly owned subsidiary, United Metro, to Kiewit stockholders.
Kiewit currently owns shares of United Metro common stock,
representing % of the issued and outstanding shares of United Metro common
stock on the date of this information statement. In the spin-off, Kiewit will
distribute all of its United Metro common stock to Kiewit's stockholders of
record as of , 2000, the record date. On , 2000, Kiewit will
distribute the United Metro common stock as a dividend to Kiewit's stockholders
on a pro rata basis. United Metro will then begin to operate as a separate,
independent company. Upon completion of the spin-off, you will own shares in two
separate, independent companies, Kiewit and United Metro.
The Share Exchange
In the share exchange, Kiewit offered Kiewit stockholders who are United
Metro employees the opportunity, prior to the spin-off, to exchange their shares
of Kiewit common stock for shares of United Metro common stock with an equal
aggregate formula price.
In the share exchange, United Metro employees collectively exchanged
shares of their Kiewit common stock, representing % of the shares of Kiewit
common stock collectively owned by them and % of the total issued and
outstanding Kiewit common stock. For each Kiewit share tendered, United Metro
employees received shares of United Metro common stock. United Metro
employees who participated in the share exchange collectively received
shares of United Metro common stock, representing % of the issued and
outstanding United Metro common stock on , 2000.
The Debenture Exchange Offer
In the debenture exchange offer, Kiewit offered holders of its outstanding
convertible debentures the opportunity, prior to the spin-off, to exchange their
Kiewit debentures for:
- United Metro debentures convertible into shares of United Metro common
stock; or
- both shares of United Metro common stock and new reduced principal amount
Kiewit debentures convertible into shares of Kiewit common stock.
4
<PAGE> 12
In the debenture exchange offer, Kiewit debentureholders collectively
exchanged $ principal amount outstanding Kiewit debentures for:
- $ principal amount United Metro convertible debentures; and
- both shares of United Metro common stock and $ principal
amount new Kiewit debentures.
Primary Purposes
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 United Metro will acquire a larger, direct
interest in the materials business that reflects solely the performance
of United Metro;
- United Metro employees will acquire a larger, direct interest in the
materials business, which the Kiewit board of directors believes is
essential to United Metro's ability to better retain, attract, and
motivate its employees; and
- United Metro should improve its ability to make sales to, and secure
contracts from, unrelated construction businesses that have concerns
about doing business with United Metro while it is owned and controlled
by a direct competitor.
Securities to be Distributed
The outstanding shares of common stock, par value $.01 per share,
of United Metro that are held by Kiewit will be distributed to Kiewit
stockholders of record as of , 2000. After the spin-off, United
Metro will have approximately stockholders of record.
Distribution Ratio
You will receive one share of United Metro common stock for each share of
Kiewit common stock that you own as of the close of business on , 2000.
Distribution Date
The distribution date is expected to be , 2000.
U.S. Federal Income Tax Consequences
Kiewit has received a ruling from the Internal Revenue Service to the
effect that, for United States federal income tax purposes, the distribution of
United Metro common stock in the spin-off will be tax-free to Kiewit and its
stockholders. See "Material U.S. Federal Income Tax Consequences" on page 14.
Canadian Federal Income Tax Consequences
A holder of Kiewit common stock who is a resident of Canada for Canadian
federal income tax purposes will be subject to tax on receipt of shares of
United Metro common stock in the spin-off.
Risk Factors
For a discussion of factors which may affect United Metro's financial
condition and results of operations and/or the value of its common stock, you
should carefully consider the matters discussed under the section of this
information statement entitled "Risk Factors."
5
<PAGE> 13
Relationship with Kiewit After the Spin-off
After the spin-off, Kiewit and United Metro will be separate, independent
companies and Kiewit will not own any of United Metro's common stock. Six of
United Metro's seven initial directors will also be Kiewit directors.
United Metro has entered into a separation agreement and a tax sharing
agreement with Kiewit. The separation agreement contains, among other things,
short-term arrangements relating to:
- the lease of office space by Kiewit to United Metro; and
- the provision of administrative services by Kiewit to United Metro.
The tax sharing agreement generally defines Kiewit's and United Metro's
rights and obligations with respect to tax matters for periods ending prior to
the spin-off.
In addition, Kiewit may, in the ordinary course of business, purchase
construction materials from United Metro, although it is under no contractual
obligation to do so.
6
<PAGE> 14
RISK FACTORS
You should read and carefully consider each of the following factors, as
well as the other information contained in or attached to this information
statement, which may affect United Metro's financial condition or results of
operations and/or the value of its common stock. In addition, for a discussion
of additional uncertainties associated with forward-looking statements in this
information statement, please see "Forward-Looking Statements May Prove
Inaccurate" on page 11.
A DECREASE IN GOVERNMENT FUNDING OF HIGHWAY CONSTRUCTION AND MAINTENANCE AND
OTHER INFRASTRUCTURE PROJECTS MAY REDUCE OUR SALES AND PROFITS
A decrease or delay in government funding of highway construction and
maintenance and other infrastructure projects could reduce our sales and
profits. This is because many of the customers we serve and intend to serve in
the future depend substantially on government funding of highway construction
and maintenance and other infrastructure projects. Unlike some of our
competitors, we operate in a limited number of states. As a result, we may be
more vulnerable than our more geographically diverse competitors to decreases in
state government highway spending in the states in which we operate.
BAD WEATHER IN OUR 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 our 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 we are not as geographically diverse as some of our competitors, we may
be more vulnerable than these competitors to poor weather conditions in the
regions in which we operate.
GENERAL AND LOCAL ECONOMIC DOWNTURNS MAY RESULT IN DECREASED SALES AND PROFITS
General economic downturns or localized downturns in regions where we have
operations, including any downturns in the construction industry, could result
in a decrease in sales and profits. A majority of our 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. Our business is
principally located in the Pacific Northwest and the Southwest and is dependent
upon the economies of those regions. Because our business is more geographically
concentrated than some of our competitors, we 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 OUR CUSTOMERS
A material rise in the price or a material decrease in the availability of
oil could adversely affect our 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 we would likely attempt to pass along to our customers.
As a result of any price increase, our customers may use less asphalt, which
would decrease our 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 our operating costs. An increase in our operating
costs could adversely affect our operating results if we cannot pass these
increased costs through to our customers.
OUR SUCCESS DEPENDS SIGNIFICANTLY ON A LIMITED NUMBER OF KEY PERSONNEL
We will be managed by a small number of executive officers, including
Christopher J. Murphy, our Chief Executive Officer and President. The loss of
any of our key personnel could have a material adverse effect on
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us. We believe that our future success will depend in large part on our ability
to retain and attract highly skilled, knowledgeable, sophisticated and qualified
personnel.
WE MAY INCUR SIGNIFICANT DEBT IN THE FUTURE WHICH COULD LIMIT OUR GROWTH AND OUR
ABILITY TO RESPOND TO CHANGING CONDITIONS
We may incur debt to fund acquisitions we may make as part of our growth
strategy. The extent to which we incur debt, and the resulting restrictive and
financial covenants that we may be subject to, will have important consequences
to our stockholders. These include the following:
- Our ability to use operating cash flows in other areas of our business
might be limited because we would have to dedicate a substantial portion
of these funds to pay interest;
- We might be unable to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service
requirements or other purposes;
- Our ability to adjust to changing market conditions and our ability to
withstand competition might be hampered by the amount of debt we owe; and
- We might be more vulnerable in a market downturn or a recession than our
competitors with less debt.
Future credit agreements that we may enter into may impose limitations on our
ability to repurchase our shares of common stock.
ACQUISITIONS, WHICH ARE A PART OF OUR GROWTH STRATEGY, INVOLVE RISKS THAT COULD
CAUSE OUR ACTUAL GROWTH OR OPERATING RESULTS TO DIFFER FROM OUR EXPECTATIONS
We currently intend to grow in part through the acquisition of additional
materials businesses in exchange for cash or debt securities. If we are not
successful in integrating acquired businesses, we may have difficulty operating
our business. We may have greater difficulty integrating acquired businesses and
assets than our competitors because of our size and our rapid growth. We have
completed nine business and asset acquisitions since 1992. Our 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:
- We may not be able to compete successfully for available acquisition
candidates, complete future acquisitions, or accurately estimate the
financial effect on our company of any businesses we acquire;
- Future acquisitions may require us to spend significant amounts of cash;
- We may have trouble integrating acquired businesses and retaining
personnel;
- We may ultimately fail to consummate an acquisition, even if we announce
that we plan to acquire a company;
- We may choose to acquire a company that is less profitable than we are or
has lower profit margins than we do;
- We may not be able to obtain the necessary financing, on favorable terms
or at all, to finance one or more of our potential acquisitions;
- Acquisitions may disrupt our business and distract our management from
other responsibilities;
- To the extent that any of the companies which we acquire fail, the growth
of our business could be harmed; and
- Future acquired companies may have unknown liabilities that could require
us to spend significant amounts of additional capital.
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WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE MATERIALS
INDUSTRY
The following factors specific to the construction materials industry may
affect our business:
- Transporting materials over even relatively short distances is costly in
relation to the value of the delivered materials. Therefore, if we cannot
maintain production sites close to our customers, our 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 we do not continue to be successful in these matters, we may lose
growth opportunities and our operating results may be adversely affected;
- We have significant investment in fixed locations in specific geographic
areas. In the event one or more of our materials production sites loses
business in its market, it could have a material adverse effect on our
business, financial condition and results of operations;
- It is possible that we will 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 existing or future competitors seek to gain or retain
market share by reducing prices, we may be required to lower our prices
and rates, which would adversely affect our operating results.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATIONS
Our operations are subject to and affected by federal, state and local laws
and regulations including such matters as land usage, street and highway usage,
noise levels and health, safety and environmental matters. In many instances, we
must have various permits. We cannot assure you that we will not incur material
costs or liabilities in connection with regulatory requirements. Our operations
may from time to time involve the use of substances that are classified as toxic
or hazardous substances within the meaning of these laws and regulations.
Despite our compliance efforts, risk of environmental liability is inherent in
the operation of our business. As a result, environmental liabilities could have
a material adverse effect on us in the future. In addition, future events, such
as changes in existing laws or regulations or enforcement policies, or further
investigation or evaluation of the potential health hazards of our products or
business activities, may give rise to additional compliance and other costs that
could have a material adverse effect on our business, financial condition and
results of operations. See "Business -- Governmental and Environmental
Regulation" for a further discussion of the effects of regulation on our
business.
OUR OPERATIONS ARE SUBJECT TO RISKS THAT MAY RESULT IN CLAIMS OF PERSONAL
INJURY, PROPERTY DAMAGE OR OTHER LIABILITIES
The drivers of our heavy delivery trucks are subject to traffic and other
hazards associated with providing services on construction sites. Our plant
personnel are subject to the hazards associated with moving and storing large
quantities of heavy raw materials. Our operating hazards can cause personal
injury and death, damage to or destruction of property and environmental damage.
Our insurance coverage may not be adequate to cover all losses or liabilities we
may incur in our operations, and we may not be able to maintain insurance of the
types or at levels we deem necessary or adequate or at rates we consider
reasonable. Our failure to maintain adequate insurance could have a material
adverse effect on our business, financial position, results of operations and
cash flows.
WE HAVE NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
We do not have an operating history as an independent company and have
historically relied on Kiewit for various financial, administrative and
managerial expertise relevant to operating as an independent company. After the
spin-off, we will be responsible for obtaining or providing our own
administrative functions. While we have been profitable as part of Kiewit, we
cannot be certain that, as a stand-alone company, our future profits will be
comparable to reported historical consolidated results before the spin-off. In
addition, our credit rating may be lower than that of Kiewit.
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THERE ARE LIMITATIONS ON CHANGES IN CONTROL OF UNITED METRO
Our restated certificate of incorporation and by-laws contain provisions
that could make it more difficult or even prevent a third party from acquiring
us without the approval of our incumbent board of directors. These provisions,
among other things:
- divide our 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 our common stock;
- limit the right of stockholders to present proposals or nominate
directors for election at annual meetings of stockholders; and
- authorize our 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
our common stock to change management.
WE HAVE NO CURRENT INTENTION TO PAY DIVIDENDS
Our dividend policy following the spin-off will be determined by our board
of directors. Under Delaware law and our restated certificate of incorporation,
our board of directors will not be required to declare dividends on any class of
our 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.
We do not anticipate paying cash dividends on our common stock.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
United Metro and Kiewit have made forward-looking statements in this
information statement that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of United Metro 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 information statement,
could affect the future financial results of United Metro and/or Kiewit and
could cause those results to differ materially from those expressed in our
forward-looking statements contained in this information statement.
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THE SPIN-OFF
BACKGROUND AND REASONS FOR THE SPIN-OFF AND RELATED TRANSACTIONS
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 United Metro Employees
Kiewit's restated certificate of incorporation generally restricts
ownership of Kiewit common stock to directors and employees of Kiewit and 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 United Metro's 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 United Metro, 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 United Metro's key employees with a larger,
more direct ownership stake in the materials business alone, undistorted by the
economic returns of the construction services 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 United Metro, which will
operate only the materials business, these employees' economic rewards will be
tied much more closely and directly to their performance. Each of United Metro's
key employees exchanged all of his Kiewit common stock for United Metro common
stock in the share exchange. Accordingly, these employees' equity ownership
changed from an approximately 2% aggregate interest in Kiewit as of February 17,
2000, to an approximately % aggregate interest in United Metro.
Increased Ownership for All United Metro Employees
The share exchange provided all United Metro employees who owned 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 United
Metro's ability to better retain, attract and motivate its employees broadly as
a group. Of the United Metro employees who owned Kiewit common stock, %
exchanged their Kiewit common stock for United Metro common stock in the share
exchange. Accordingly, these employees' equity ownership in United Metro
(including the key employees) changed from an approximately 3.4% aggregate
interest in Kiewit as of February 17, 2000 to an approximately % aggregate
interest in United Metro. This more closely aligns the economic interests of
these United Metro employees with United Metro's interests and is expected to
motivate these employees to work and compete more efficiently.
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Competition
The management of United Metro believes that there are potential customers
who are reluctant to do business with United Metro 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 United Metro's ability to obtain business from these
potential customers. The managers of United Metro 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.
DESCRIPTION OF THE SPIN-OFF
Kiewit will effect the spin-off on or about , 2000 by
distributing all of the issued and outstanding shares of United Metro common
stock held by Kiewit to the record holders of Kiewit common stock on the record
date for the spin-off, which is , 2000. In the spin-off, Kiewit will
distribute one share of United Metro common stock to each record holder for each
share of Kiewit common stock owned as of the record date by that holder. Shares
of United Metro common stock will be fully paid and nonassessable, and the
holders of those shares will not be entitled to preemptive rights. For a further
description of United Metro common stock and the rights of its holders, see
"Description of Capital Stock."
Holders of Kiewit common stock are not required to pay cash or any other
consideration, or take any other action to receive shares of United Metro common
stock in the spin-off.
NO APPRAISAL RIGHTS
There are no appraisal rights in connection with the spin-off.
THE SHARE EXCHANGE
In the share exchange, Kiewit gave Kiewit stockholders who are United Metro
employees the opportunity, prior to the spin-off, to exchange their shares of
Kiewit common stock for shares of United Metro common stock with an equal
aggregate formula price.
Kiewit's restated certificate of incorporation generally restricts
ownership of Kiewit common stock to directors and employees of Kiewit and its
subsidiaries. Following the completion of the spin-off, United Metro 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 United Metro 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
offered Kiewit stockholders who are United Metro employees the opportunity to
exchange their shares of Kiewit common stock for shares of United Metro common
stock with an equal aggregate formula price.
In the share exchange, United Metro employees collectively exchanged
shares of their Kiewit common stock, representing % of the shares of Kiewit
common stock collectively owned by them and % of the total issued and
outstanding Kiewit common stock. For each Kiewit share tendered, United Metro
employees received shares of United Metro common stock. United Metro employees
who participated in the share exchange collectively received shares of United
Metro common stock, representing % of the issued and outstanding United Metro
common stock on , 2000.
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THE DEBENTURE EXCHANGE OFFER
Kiewit also offered the holders of its outstanding convertible debentures
the opportunity to exchange their Kiewit debentures for:
- United Metro debentures convertible into shares of United Metro common
stock; or
- both shares of United Metro common stock and new reduced principal amount
Kiewit debentures convertible into shares of Kiewit common stock.
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, United Metro 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 will be required to sell any Kiewit
debentures they then own back to Kiewit. The debenture exchange offer allowed
debentureholders who are United Metro employees the opportunity to acquire
securities of their company and avoid having to sell any Kiewit debentures they
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 United Metro 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 United Metro
distributed as a dividend in the spin-off. The debenture exchange offer allowed
debentureholders who are Kiewit employees the opportunity to participate in the
spin-off by receiving United Metro common stock and new reduced principal amount
Kiewit debentures.
In the debenture exchange offer, Kiewit debentureholders collectively
exchanged $ principal amount outstanding Kiewit debentures for:
- $ principal amount United Metro convertible debentures; and
- both shares of United Metro common stock and $ principal amount
new Kiewit debentures.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of the spin-off. 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 in effect on the date of this information
statement, and is subject to any changes in these or other laws occurring after
such 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 spin-off. The tax treatment of a holder of Kiewit common stock
may vary depending on his or her particular situation, and some holders may be
subject to special rules not discussed below. 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 SPIN-OFF 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 spin-off of United Metro 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 United Metro. Those
representations, if incorrect in material respects, could jeopardize the
conclusions reached in the IRS ruling. Neither Kiewit nor United Metro 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 distribution are as follows. No gain or
loss will be recognized by Kiewit or United Metro upon the distribution of
United Metro common stock. A holder of Kiewit common stock who receives shares
of United Metro common stock in the spin-off (1) will not recognize gain or loss
as a result of the spin-off, (2) will have, immediately after the spin-off, a
tax basis for the shares of United Metro common stock received that equals a
portion of that holder's tax basis in his or her Kiewit common stock immediately
before the spin-off, allocated in proportion to the relative fair market values
of the Kiewit common stock and the United Metro common stock, and (3) will
include in his or her holding period for the United Metro common stock the
period during which the holder held the Kiewit common stock with respect to
which such United Metro common stock was distributed, provided that the Kiewit
common stock was held as a capital asset at the time of the spin-off.
If the spin-off does not qualify as a tax-free transaction under Section
355 of the Code, then, among other consequences, (i) Kiewit would recognize gain
equal to the amount by which the fair market value of the United Metro common
stock distributed exceeded Kiewit's adjusted tax basis therein, and (ii) each
holder who received United Metro common stock in the spin-off would be treated
as having received a dividend which, for United States federal income tax
purposes, would be taxable as ordinary income to the extent of Kiewit's
available current and accumulated earnings and profits.
NON-U.S. PERSONS
Provided that the spin-off qualifies as a transaction described in Section
355 of the Code, the receipt in the spin-off of United Metro common stock by a
non-U.S. person will not be subject to withholding of United States federal
income tax. If the spin-off does not qualify under Section 355, a non-U.S.
person would be treated as having received a dividend which, except as described
below, generally would be subject to withholding of United States federal income
tax at a rate of 30% or (provided that certain certification requirements are
met) a lower rate specified by an applicable income tax treaty. The United
States federal income tax withholding rate on dividends paid to a non-U.S.
person is limited to 15% under Article X of the Convention between the United
States of America and Canada with respect to Taxes on Income and Capital,
provided that the non-U.S. person is a resident of Canada within the meaning of
the Canadian treaty and does not have a permanent establishment in the United
States or perform independent personal services from a fixed base in the United
States, in the meaning of the Canadian treaty, with respect to which permanent
establishment or fixed base dividends on the Kiewit common stock are effectively
connected. Under current Treasury regulations, Kiewit may presume that a holder
with an address in a foreign country is a resident of that country in
determining whether a particular tax treaty applies. If dividends on the Kiewit
common stock are effectively connected with a trade or business of a non-U.S.
person in the United States, the distribution of United Metro common stock would
be subject to United States federal income tax on a net income basis and not
subject to the withholding described above. In addition, a 30% branch profits
tax could apply to a holder that is a foreign corporation.
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 United Metro common stock a statement indicating
that Section 355 of the Code applies to the spin-off. Kiewit will provide each
holder with the information necessary to comply with this requirement.
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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 SPIN-OFF, 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.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following is a summary of the material Canadian federal income tax
consequences generally applicable under the Income Tax Act (Canada) to a holder
of shares of Kiewit common stock who receives shares of United Metro common
stock in the spin-off. More particularly, it is applicable to a holder who, for
purposes of the Act: (1) is a resident of Canada, (2) holds shares of Kiewit
common stock and will hold the shares of United Metro common stock as capital
property, and (3) deals at arm's length with Kiewit.
This summary does not apply to a financial institution within the meaning
of section 142.2 of the Act or to a Canadian stockholder in respect of which
Kiewit is a foreign affiliate within the meaning of the Act.
This summary is based on the current provisions of the Act and the
regulations under the Act, specific proposals to amend the Act or the
regulations publicly announced by the Minister of Finance prior to the date of
this information statement and an understanding of the current published
administrative and assessing practices of the Canada Customs and Revenue Agency,
commonly referred to as the Revenue Canada. Except for these tax proposals, this
summary does not take into account or anticipate any proposed changes to the law
or to Revenue Canada's administrative and assessing practices, whether by
legislative, governmental or judicial actions.
THE FOLLOWING DISCUSSION IS INTENDED TO BE A GENERAL DESCRIPTION OF THE
CANADIAN FEDERAL INCOME TAX CONSEQUENCES GENERALLY APPLICABLE TO A CANADIAN
STOCKHOLDER BY REASON OF THE SPIN-OFF. IT IS NOT INTENDED TO BE, NOR SHOULD IT
BE CONSTRUED AS BEING, LEGAL OR TAX ADVICE TO ANY PARTICULAR STOCKHOLDER. EACH
CANADIAN STOCKHOLDER IS URGED TO CONSULT THE STOCKHOLDER'S OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THAT HOLDER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY PROVINCIAL, LOCAL OR FOREIGN LAWS AND OF CHANGES
IN APPLICABLE LAWS.
In computing his or her income, a Canadian stockholder will be required to
include an amount equal to the fair market value in Canadian dollars of the
shares of United Metro common stock received as a dividend in the spin-off. The
dividend will not be eligible for the gross-up and dividend tax credit generally
applicable to dividends received in respect of shares of taxable Canadian
corporations. In addition, a Canadian stockholder that is a corporation will not
be entitled to a deduction in computing taxable income in respect of that
dividend. A Canadian stockholder will generally be entitled to a foreign tax
credit equal to any U.S. tax required to be deducted or withheld in respect of
that dividend. The cost to a Canadian stockholder of the shares of United Metro
common stock received in the spin-off will be the fair market value of those in
Canadian dollars at the distribution date. The adjusted cost base of a Canadian
stockholder's Kiewit common stock is not affected by the spin-off.
NEBRASKA TAX LETTER REQUEST
Kiewit has applied to the State of Nebraska Department of Revenue for a
letter to the effect that even though Kiewit and United Metro will become
independent companies if the spin-off is consummated, Kiewit and Untied Metro
generally would continue to be considered the same corporation for purposes of
the Nebraska capital gain exclusion provisions. Assuming that the letter is
obtained, provided certain requirements are met and an appropriate election is
made, the Nebraska capital gain exclusion generally would be available for the
sale of United Metro common stock by residents of Nebraska. The failure to
receive such a letter could result in substantial additional tax cost of the
spin-off to a substantial number of Kiewit stockholders upon their ultimate
disposition of United Metro common stock. Accordingly, if Kiewit does not
receive the requested letter from the Nebraska Department of Revenue, or an
opinion of tax counsel generally to the same effect as the requested letter, the
Kiewit board of directors may review the benefits of the spin-off in light of
the failure to receive the letter or opinion, and could determine to abandon,
defer or modify the
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terms of the spin-off if it is determined that such action would be in the best
interests of all Kiewit stockholders.
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.
ACCOUNTING TREATMENT
Shares of United Metro 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 United Metro 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 United Metro, and present the business
of United Metro as discontinued operations. After the spin-off, United Metro
will be operated independently from Kiewit and will be reflected in the separate
financial statements of United Metro on an historical cost basis.
TRADING MARKET AND TRANSFER RESTRICTIONS
The United Metro common stock will not be listed on any national securities
exchange or quoted on the Nasdaq National Market and will be subject to
substantial transfer restrictions. Specifically, holders of United Metro common
stock are prohibited from transferring the United Metro common stock in any
manner except in a sale to United Metro and, with prior approval by the United
Metro 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 United Metro
stockholder, the shares of United Metro 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, United Metro
stockholders who receive United Metro common stock in the spin-off will not be
required to sell their United Metro common stock upon their retirement or other
termination of their employment with United Metro or Kiewit, as the case may be.
All transfer restrictions may be terminated by the United Metro board at any
time.
Holders of United Metro common stock are permitted to pledge their common
stock for loans in connection with the ownership of their common stock.
In the event that the board of directors decides to conduct an initial
public offering of the United Metro common stock, officers and directors of
United Metro and stockholders owning one percent or more of the United Metro
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.
RELATIONSHIP BETWEEN UNITED METRO AND KIEWIT
This section describes the primary agreements between United Metro 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 we filed as exhibits to the registration statement of which
this information statement is a part.
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<PAGE> 25
SEPARATION AGREEMENT
The separation agreement provides for the principal corporate transactions
necessary to effect the spin-off, the relationship between Kiewit and United
Metro after the spin-off, the allocation of certain risks and responsibilities
between Kiewit and United Metro after the spin-off and certain other matters.
The separation agreement provides for the distribution of United Metro
common stock to holders of Kiewit common stock, the exchange offers and capital
contributions necessary to effect the spin-off and the exchange offers. The
separation agreement provides that each of United Metro 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 allocation 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
United Metro.
The separation agreement provides that each of United Metro and Kiewit will
be granted access to certain records and information in the possession of the
other company, and requires that each of United Metro 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 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 United Metro; and
- the provision of administrative services by Kiewit to United Metro.
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 (or portions thereof) ending
prior to the spin-off and with respect to certain tax attributes of United Metro
and Kiewit 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
was subsequently determined not to qualify as a tax-free transaction for U.S.
federal income tax purposes. Under the tax allocation agreement, in general,
with respect to periods (or portions thereof) ending on or before the completion
of the spin-off, Kiewit will be responsible for preparing both consolidated
federal tax returns for Kiewit and United Metro, and state tax returns for
Kiewit and United Metro. In general, under the tax allocation agreement, United
Metro 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. United
Metro and Kiewit will cooperate with each other and share information in
preparing such tax returns and in dealing with other tax matters.
ARRANGEMENTS FOR CANADIAN HOLDERS OF KIEWIT COMMON STOCK
A holder of Kiewit common stock who is a resident of Canada for Canadian
federal income tax purposes will be subject to tax on receipt of shares of
United Metro common stock in the spin-off. Consequently, Kiewit anticipates that
it will implement a special bonus program for Canadian resident stockholders to
partially off-set the effect of such tax consequences. The costs of this special
bonus program, which are not expected to exceed $1,200,000, will be paid by
Kiewit.
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<PAGE> 26
OTHER
After the spin-off, Kiewit will not own any of United Metro's common stock.
Six of United Metro's seven initial directors will also be Kiewit directors.
In addition, Kiewit may, in the ordinary course of business, purchase
construction materials from United Metro, although it is under no contractual
obligation to do so. Sales to Kiewit represented approximately 3% of United
Metro's total sales in 1999.
DIVIDEND POLICY
United Metro does not currently intend to pay dividends on the United Metro
common stock.
Kiewit intends to continue its current dividend policy of paying a regular
cash dividend on its common stock based upon its prior year's ordinary earnings,
with any special cash dividends to be based on extraordinary earnings.
EFFECT OF THE SPIN-OFF ON THE FORMULA PRICE OF KIEWIT COMMON STOCK
After the completion of the exchange offers and the spin-off, Kiewit will
no longer own any of the outstanding common stock of United Metro. 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 United Metro common
stock. Consequently, the formula price for Kiewit common stock immediately after
the spin-off will be reduced by the book value of United Metro distributed in
the spin-off, on a per share basis.
The book value of United Metro distributed in the spin-off will include any
earnings of United Metro earned from the end of fiscal year 1999 through the
date of the spin-off. Since these earnings will not be included in the formula
price of Kiewit's common stock until the end of fiscal year 2000, the combined
formula value of the shares of Untied Metro common stock and Kiewit common stock
immediately after the spin-off will be less than the formula value of shares of
Kiewit common stock immediately prior to the spin-off by the amount of those
United Metro earnings. This technical difference will be eliminated when both
the Kiewit and United Metro formula prices are calculated at the end of fiscal
year 2000.
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<PAGE> 27
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents selected historical and pro forma financial
data of United Metro. The historical information as of and for each of the
fiscal years ended 1994 through 1998 is derived from our historical consolidated
financial statements and the notes to those financial statements included
elsewhere in this information statement. The historical information for the nine
months ended September 30, 1998 and September 30, 1999 is derived from the
unaudited consolidated condensed financial statements included elsewhere in this
information statement 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 nine months ended September 30, 1999 and 1998 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year.
For all historical periods presented, we operated as a part of Kiewit.
Because we 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 we had operated as a separate, independent company. In
addition, the data may not necessarily be indicative of our future results of
operations or financial position.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)(2)
---------------------------------------------------------------------------------- -------------------
FISCAL
YEAR 9 MONTHS
FISCAL YEAR ENDED 9 MONTHS ENDED ENDED ENDED
-------------------------------------------------------- ----------------------- -------- --------
1994 1995 1996 1997 1998 9/30/98 9/30/99 12/26/98 9/30/99
-------- -------- -------- ---------- ---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue............. $198,139 $233,068 $246,083 $ 277,309 $ 333,060 $ 245,103 $ 328,454 $333,060 $328,454
Net Earnings........ 8,283 13,161 14,204 16,542 15,378 11,729 15,339 15,357 15,324
Per Common Share:
Net Earnings
Basic............. 82,825 131,609 142,043 165,423 153,783 117,293 153,394 0.39 0.41
Diluted........... 82,825 131,609 142,043 165,423 153,783 117,293 153,394 0.39 0.41
Dividends(3)........ 109,049 80,975 143,553 39,700 -- -- -- -- --
Book Value.......... 825,458 915,115 986,516 1,216,306 1,392,870 1,987,600 6.15
Financial Position:
Total assets........ 119,369 133,882 152,771 181,699 207,054 263,437 293,977
Current Portion of
Long-term Debt.... -- -- -- 387 740 439 439
Long-term Debt, Net
of Current
Portion........... -- -- -- 1,492 761 2,544 2,934
Stockholders'
equity............ 82,546 91,512 98,652 121,631 139,287 198,760 228,910
</TABLE>
- ---------------
(1) Completion of the spin-off, the share exchange and the debenture exchange
offer has been assumed to be as of September 30, 1999 in the pro forma
financial position data and as of December 28, 1997 in the pro forma results
of operations data for the year ended December 26, 1998 and nine months
ended September 30, 1999.
(2) The pro forma results of operations, per common share and financial position
data assume the share exchange, debenture exchange offer and the spin-off
have been completed, and that Kiewit has made a $30 million capital
contribution to us.
(3) The 1996 dividends include $100,000 for dividends declared in 1996, but paid
in January of the subsequent year. The 1994, 1995 and 1996 dividends per
share include $109,049, $40,975 and $3,553 of non-cash dividends,
respectively.
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<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction
with our Consolidated Financial Statements, including the notes thereto,
included elsewhere in this information statement.
RESULTS OF OPERATIONS -- THIRD QUARTER 1999 VS. THIRD QUARTER 1998
Revenue. Revenue increased $27,769,633 to $116,882,523 during the third
quarter of 1999 when compared to the same period in 1998. A continued strong
market for materials products in the Southwest resulting in additional unit
sales, coupled with the consolidation of Pacific Rock Products, L.L.C. due to
the increase in ownership from 40% to 100%, which contributed $19,477,933,
account for most of the increase. Additional ballast sales at a quarry located
in Wyoming also contributed to the increase.
Gross Profit. Gross profit increased $6,154,502 from $11,421,226 in the
third quarter of 1998 to $17,575,728 in the same period of 1999. The inclusion
of the acquired materials business and greater sales volume account for the
increase in gross profits. Gross profits, as a percentage of revenue increased
from 13% to 15% between the two time periods primarily due to the consolidation
of Pacific Rock.
General and Administrative Expenses. General and administrative expenses
increased $858,895 to $6,152,012 in the third quarter of 1999 when compared to
the same time period in 1998. Increases in unit volumes and the inclusion of
Pacific Rock account for the additional expense. General and administrative
expenses as a percentage of revenue declined slightly between the quarters in
1999 and 1998.
Other Income and Expense. Other income declined $1,530,717 for the two
quarters in 1999 and 1998. The consolidation of Pacific Rock, due to the
increase in ownership from 40% to 100%, accounts for the reduction in equity
earnings.
Income Tax Expense. Income taxes differ from the federal statutory rate
primarily because of state income taxes and percentage depletion.
RESULTS OF OPERATIONS -- NINE MONTHS 1999 VS. NINE MONTHS 1998
Revenues. Revenue increased $83,351,589 from $245,102,685 in 1998 to
$328,454,274 in 1999. Strong markets in the Southwest, the consolidation of
Pacific Rock, due to the increase in ownership from 40% to 100%, which
contributed $38,306,126, and additional ballast sales at quarries in Wyoming and
Utah account for most of the increase.
Gross Profit. Gross profit increased from $28,073,193 to $41,798,432 for
the nine months ended September 1999 when compared to the same time period in
1998. The inclusion of the acquired business and greater sales volume are the
primary reasons for the increase gross profits. Improved operating performance
at a newly developed quarry also contributed to the gross profit increase. Gross
profit as a percentage of revenue increased slightly between the two periods.
The consolidation of Pacific Rock is responsible for most of the percentage
increase.
General and Administrative Expenses. General and administrative expenses
increased $3,449,109 in 1999 when compared to the same nine month period in
1998. Increases in unit volume and the inclusion of Pacific Rock account for
most of the additional expense. As a percentage of revenue, general and
administrative expenses declined from 6.2% to 5.7%.
Other Income and Expense. Other income declined $2,764,391 for the nine
months ended 1999 as compared to the same time period in 1998. The consolidation
of Pacific Rock accounts for the reduction in equity earnings.
Income Tax Expense. Income taxes differ from the federal statutory rate
primarily because of state income taxes and percentage depletion.
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<PAGE> 29
RESULTS OF OPERATIONS 1998 VS. 1997
Revenue. Revenue increased 20% from $277,308,896 to $333,060,002 for the
twelve months ended December 26, 1998 as compared to the same period in 1997.
This increase in sales resulted from higher selling prices and increases in
sales volumes of aggregates, ready mix concrete and asphalt products.
Gross Profit. Gross profits decreased $119,420 for the twelve months ended
December 26, 1998 when compared to the same time period in 1997. Gross profit as
a percentage of revenue declined from 13% in 1997 to 10% in 1998. Increases in
cement and other costs, coupled with start up expenses incurred at a greenfield
quarry site offset higher selling prices and unit volume increases.
Selling, General and Administrative Expenses. General and administrative
expenses increased in 1998 when compared to the same time in 1997 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 increased $836,819 during the
twelve months ended 1998 when compared to the same period in 1997. Increases in
investment income, primarily from better operating results of Pacific Rock, were
responsible for the change. Higher interest expense and smaller gain from the
sale of equipment mitigated the investment income increase.
Income Tax Expense. Income tax expense differs from the federal statutory
rate primarily because of state income taxes and percentage depletion.
RESULTS OF OPERATIONS 1997 VS. 1996
Revenue. Revenue increased 13% to $277,308,896 in 1997, from $246,083,386
in 1996. The acquisition of additional plant sites coupled with a strong demand
for products in the Southwest is responsible for the increase. Sales price
increases also contributed to the overall rise in revenue.
Gross Profit. Gross profits increased from $31,724,548 to $35,019,575 for
the twelve months ended December 1997 when compared to the same time period in
1996. The gross profit increase is derived from additional plant sites and
increased sales the Southwest. Gross profit as a percentage of revenue remained
constant for the two years, as higher selling prices were offset by increases in
cement prices and other direct costs.
General and Administrative Expenses. General and administrative expenses
increased $1,307,198 in 1997 when compared to 1996. As a percentage of revenue,
the overall rate declined from 6.1% to 5.9% between the two years. The increase
in expense was a result of plant expansion and growth in sales volumes.
Other Income and Expense. Other income increased $2,098,697 from 1996 to
1997. A slightly lower gain from the sale of equipment in 1997 was offset by an
increase in equity earnings from Pacific Rock and lower interest expense.
Income Tax Expense. Income tax expense differs from the federal statutory
rate primarily because of state tax expense.
FINANCIAL CONDITION -- SEPTEMBER 30, 1999
Working capital increased $15,432,709 or 24% during the nine months ended
September 30, 1999. Sources of cash flow included cash provided by operations of
$10,143,108, proceeds from the sale of equipment of $1,216,238 and contributions
from Kiewit equaling $45,286,690. Uses of cash included $16,814,147 of capital
expenditures, $15,973,285 for payment of long term debt and $34,896,029 used in
acquisitions.
United Metro 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.
Capital requirements for acquisitions that are in excess of internally generated
funds are expected to
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<PAGE> 30
come from the issuance of debt securities or borrowings under credit facilities.
United Metro cannot accurately predict the timing, size or success of the growth
strategy and associated capital commitments.
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 United Metro's financial statements as United
Metro has no material derivative instruments or hedging activities.
YEAR 2000 UPDATE
United Metro's Year 2000 effort, which was comprised of internal updating
and replacement of computer systems and external coordination with its customer
was completed on schedule. United Metro has not experienced any material Year
2000 related difficulties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
United Metro 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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<PAGE> 31
BUSINESS
UNITED METRO MATERIALS INC.
We operate aggregate ready mix, and asphalt and aggregate operations in
Arizona, Washington, Oregon, California, Wyoming, Utah and New Mexico, with
primary operations in Arizona, centered in the Phoenix and Tucson metropolitan
areas and in the Pacific Northwest, centered in the Vancouver, Washington and
Portland, Oregon metropolitan areas. Aggregate products are used as highway
construction materials, railroad ballast, decorative landscape rock, roofing
aggregate and building stone. We also provide construction services in and
around Yuma, Arizona, focusing mainly on paving and related projects. In 1999,
we produced in excess of 28 million tons of construction materials and generated
approximately $433 million of revenue.
Our 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. We believe that we should continue to experience strong demand for our
products, due in large part to federally funded highway construction projects
under the Transportation Equity Act for the 21st Century (TEA 21). 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.
We have a favorable market position with the combination of our strong
market presence, extensive, high quality aggregate reserves, efficient
operations and experienced management team. We have set high standards for being
a low cost producer, facilitating employee involvement, promoting favorable
community relations and being a safety conscious employer. We intend to leverage
these attributes with a growth strategy to expand our presence in existing
markets and to enter new markets with high-growth potential. We believe that
there exists a significant opportunity for growth through acquisitions given the
large number of independent materials companies that operate in the United
States. These acquisition opportunities coupled with our current expertise and
the expected strong demand for our products provide for a positive environment
in which to pursue our growth oriented business plan.
INDUSTRY BACKGROUND/MARKET OVERVIEW
We are 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,
we also produce 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 2.8 billion tons in 1998 with a value of $13.5
billion. This represents an increase of 6.2% in volume and 9.6% in dollar value
above 1997 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, the national per ton average price
for aggregates has not experienced an annual decline between 1985 and 1998.
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.
The aggregates industry is currently undergoing significant consolidation,
although generally the industry remains fragmented nationally as well as in many
regional areas. The estimated market share of the top five producers was 25% in
1998. From 1980 to 1998, the number of independent producers of crushed stone in
the
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<PAGE> 32
United States declined by 22% from approximately 1,865 to approximately 1,450,
although crushed stone consumption increased by 68%. From 1980 to 1998, the
number of independent sand and gravel producers declined by 19% from 4,512 to
3,642, although sand and gravel consumption increased by 47%.
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 20-30 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 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
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<PAGE> 33
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>
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 operating 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
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<PAGE> 34
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. We believe 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
We intend to continue to grow our business utilizing a four-part business
strategy. First, we plan to continue to build value in markets currently served.
In accomplishing this objective, we will strive for significant amounts of
negotiated work that command higher margins by continuing our focus on customer
satisfaction and loyalty and continuing our efforts to retain and improve upon
our market share leadership. We 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, we plan to expand our presence in existing markets through cash or
debt-financed acquisitions. We 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
operations will allow us 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, we intend to enter, via cash or debt-financed acquisitions, 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. We have begun to implement
this strategy with our 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, we will seek to acquire and develop additional strategic aggregate
reserves in selected markets. The successful implementation of this strategy
element will not only replace reserves consumed by operations, but will enhance
our competitive cost position by the ownership of reserves in attractive
locations.
Since 1992, we have acquired nine companies and developed one greenfield
site in the implementation of our four-part strategy. Revenues have increased
from $40 million in 1992, to approximately $433 million for 1999 and production
tonnage has grown from 5.5 million tons in 1992, to in excess of 28 million tons
in 1999. We intend to continue our disciplined investment approach to achieve
profitable growth through acquisitions.
OPERATIONS
We are organized into four operating divisions: Arizona Operations, Pacific
Northwest Operations, Northern California Operations and Quarries Operations. We
believe 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
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<PAGE> 35
vehicles, quality control, scheduling of production and the development and
maintenance of certain computer systems.
We are a vertically integrated provider of aggregates, ready mix concrete
and asphalt products. Our operations employ approximately 2,300 people. We
operate 60 ready mix batch plants or asphalt plants at 21 locations in Arizona,
California, Oregon and Washington. Our aggregates operations are located in
Arizona, California, New Mexico, Utah, Washington and Wyoming. We manage 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, our combined operations produced and sold in excess of 27 million tons of
aggregates consisting of construction materials, ballast, highway aggregates,
roofing aggregates, concrete block aggregates and landscape rock products. Our
Arizona operation also manages a construction service business in the Yuma,
Arizona area.
Our executive management provides our four operating divisions with
strategic planning, corporate development and acquisitions and operations
oversight. United Metro also has a centralized administrative staff that
provides labor relations, various accounting functions, legal, tax planning and
compliance, equipment purchasing and equipment maintenance support.
RESERVES
We estimate that our total recoverable aggregates reserves are in excess of
550 million tons. The yield from the mining of these reserves is based on an
estimate of volume that can be economically extracted to meet current market and
product applications. Our 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 our recoverable reserve estimate.
We own about 170 million tons of aggregates reserves and lease another 380
million tons of aggregates reserves. Our leases usually require royalty payments
based on either revenue derived from the location or an amount for each ton of
materials removed and sold from a site and have terms ranging from one year to
27 years. Most of our long-term leases also provide an option for the lease to
be renewed.
PRODUCTS
AGGREGATES. We sell primarily to third parties and utilize internally
various types of aggregate products. The production of these products typically
involves extracting the material, crushing and sizing the material and shipping
it to the customer using either trucks or rail. Approximately 37% of the
aggregates produced in 1999 were used internally in the production of
value-added concrete and asphalt products.
READY-MIX CONCRETE. We produce ready mix concrete by combining aggregates,
cement, water and additives. The additives allow us 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. We also produce and sell 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
We market to a wide variety of customers including street and highway
contractors, industrial and residential contractors, public works contractors,
wholesalers and retailers of decorative rock products, interstate railroads and
manufacturers of concrete block products. A substantial amount of produced
material is used in publicly funded projects, but no single customer accounts
for more than 3% of sales.
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<PAGE> 36
COMPETITION
Due to the high cost of transportation, the construction materials business
is highly dependent on the availability of high quality aggregates proximate to
customers and production facilities. While price is an important factor in the
customer's purchase decision, qualitative factors such as response time,
reliability and product quality influence the purchase decision as well. With
much of the industry consisting of small to medium sized independent firms,
economies of scale, good site locations and technical knowledge will often
provide a competitive advantage. While we believe we possess these attributes in
the markets we serve, in certain segments of those markets we compete 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 us may have an advantage on price sensitive projects.
EMPLOYEES
We employ 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 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 us to comply with various workplace rules. We consider relations with
our employees to be good.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Our 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.
We continually evaluate whether we must take additional steps at our
locations to ensure compliance with certain environmental laws. We believe that
our operations are in substantial compliance with applicable laws and
regulations and that any noncompliance is not likely to have a material adverse
effect on our 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 our business.
We, as well as other companies in the aggregates industry, produce 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. We believe
we currently meet 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.
We believe that our compliance with environmental laws has not had a
material adverse effect on our business, financial position, results of
operations or cash flows.
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<PAGE> 37
LEGAL PROCEEDINGS
From time to time, we have been involved in various legal proceedings
relating to our operations and properties, all of which we believe are routine
in nature and incidental to the conduct of our business. Although the ultimate
legal and financial liability associated with such proceedings cannot be
estimated with certainty, we believe, based on our examination of such matters,
that none of these proceedings, if determined adversely, would have a material
adverse effect on our business, financial position, results of operations or
cash flows.
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<PAGE> 38
MANAGEMENT
SENIOR MANAGEMENT AND DIRECTORS
The following table provides material information concerning our board of
directors and our 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
Mark E. Belmont...................... 46 Vice President, General Counsel and Secretary
Sanford M. Goodman................... 45 Vice President, Corporate Development
Daniel W. Speck...................... 44 Vice President
John J. Shaffer...................... 49 Vice President
Richard W. Colf...................... 56 Director
Bruce E. Grewcock.................... 45 Director
William L. Grewcock.................. 74 Director
Richard Geary........................ 64 Director
Walter Scott, Jr..................... 67 Director
Kenneth E. Stinson................... 56 Chairman of the Board of Directors
</TABLE>
OTHER KEY PERSONNEL
The following table provides material information concerning other key
personnel of United Metro.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John L. Fowler....................... 57 Vice President, United Metro Materials of Arizona Inc.,
Vice President, Solano Concrete Co., Inc.
R. David Jennings.................... 53 Vice President, Twin Mountain Rock Company
William G. Heeter.................... 62 Vice President -- Sales and Marketing, United Metro
Materials of Arizona Inc.
Rick W. Thomas....................... 42 Director of Business Development, United Metro Materials
Inc.
</TABLE>
Christopher J. Murphy. Mr. Murphy has been a director and the Chief
Executive Officer of United Metro since January 1, 2000. Mr. Murphy has been the
President of United Metro since February 2, 1999. Mr. Murphy has been the
President of Kiewit Mining Group Inc. since July 1996. Mr. Murphy is the
Chairman of the Executive Committee of United Metro.
Mark E. Belmont. Mr. Belmont has been General Counsel and Secretary of
United Metro since January 1, 2000 and a Vice President of United Metro since
February 2, 1999. Mr. Belmont has been Senior Corporate Counsel of Kiewit since
July 1991.
Sanford M. Goodman. Mr. Goodman has been Vice President, Corporate
Development of United Metro since January 1, 2000. Mr. Goodman was Director,
Financial Services for Kiewit from September, 1999 to December 31, 1999. He was
a Vice President of infoUSA, Inc., from June 1998 to February 1999. Prior to
that, Mr. Goodman held senior corporate development and financial management
positions for Kiewit and its subsidiaries continuously since 1991.
Daniel W. Speck. Mr. Speck has been a Vice President of United Metro since
January 1, 2000. Mr. Speck has been Vice President of United Metro Materials of
Arizona Inc. since April 1997. Mr. Speck was the manager of Walnut Creek Mining
Company from March 1993 to March 1997.
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<PAGE> 39
John J. Shaffer. Mr. Shaffer has been a Vice President of United Metro
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 United Metro 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., 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 United Metro.
Richard Geary. Mr. Geary has been a director of United Metro 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. 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,
Today's Bank, and is a trustee of the Oregon Health Sciences University
Foundation. Mr. Geary is the Chairman of the Audit Committee of United Metro.
Bruce E. Grewcock. Mr. Grewcock has been a director of United Metro 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.
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 United Metro.
William L. Grewcock. Mr. Grewcock has been a director of United Metro
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 also a
director of Kiewit and Level 3. Mr. Grewcock is a member of the Audit Committee
of United Metro.
Walter Scott, Jr. Mr. Scott has been a director of United Metro 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 also
currently 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 United Metro.
Kenneth E. Stinson. Mr. Stinson has been a director and Chairman of United
Metro 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 also currently a director of 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 United Metro.
John L. Fowler. Mr. Fowler has been Vice President of United Metro
Materials of Arizona Inc. 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 since 1986.
William G. Heeter. Mr. Heeter has been Vice President -- Sales and
Marketing of United Metro Materials of Arizona Inc. and its predecessors since
1971.
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<PAGE> 40
Rick W. Thomas. Mr. Thomas has been Director of Business Development of
United Metro Materials Inc. 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 United Metro 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 United
Metro board. The initial Class I directors are: Messrs. Bruce Grewcock, William
Grewcock and Scott. The initial Class II directors are: Messrs. Colf and Geary.
The initial Class III directors are: 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 United Metro'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 initial Audit Committee members are Messrs. Geary (Chairman), Colf and
William Grewcock.
The Compensation Committee determines the compensation of the Chief
Executive Officer and reviews the compensation, securities ownership, and
benefits of United Metro's executive officers. The initial Compensation
Committee members are Messrs. Stinson (Chairman) 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.
EXECUTIVE COMPENSATION
The following table presents information regarding the compensation paid by
Kiewit to United Metro's Chief Executive Officer and each of United Metro's four
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 United Metro's named
executive officers.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
--------------------------- ---- --------- --------
<S> <C> <C> <C>
Christopher J. Murphy,
President and Chief Executive Officer..................... 1999 185,700 150,000
John J. Shaffer,
Vice President............................................ 1999 138,312 111,754
Mark E. Belmont,
Vice President, General Counsel and Secretary............. 1999 134,875 13,000
Daniel W. Speck,
Vice President............................................ 1999 117,650 30,000
</TABLE>
DIRECTOR COMPENSATION
Directors of United Metro will not receive directors' fees.
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<PAGE> 41
OTHER COMPENSATION AND EQUITY PROGRAMS
United Metro intends to implement a discretionary bonus program for its
stockholder employees. Untied Metro anticipates that any bonuses under this
bonus program will be paid in January of each year during which the plan is in
effect. The amount of any bonuses and the determination of the individuals to
whom bonuses may be paid will be determined by the United Metro board of
directors and management in their sole discretion.
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 this sole discretion, select the employees
to whom Kiewit's securities will be offered and determine the amount of
securities to be offered. United Metro intends to follow Kiewit's prior practice
by regularly selling United Metro common stock and convertible debentures to
United Metro employees in annual offerings. However, although United Metro
intends to follow Kiewit's prior practice, United Metro is not required to offer
its securities in any particular year, nor is United Metro obligated to offer
securities to any particular employee, whether or not that employee is already a
security holder of United Metro, in any particular year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
After the spin-off, Kiewit and United Metro will have continuing
obligations to one another under the separation agreement and certain other
agreements described in "Relationship Between United Metro and Kiewit."
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<PAGE> 42
SECURITY OWNERSHIP OF UNITED METRO COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF UNITED METRO
The table below shows information about the expected ownership of United
Metro common stock as of the date of the spin-off, by each of United Metro's
directors, and its four most highly compensated executive officers in 1999 and
each person who is expected to beneficially own more than 5 percent of United
Metro common stock. The table also shows the expected ownership of United Metro
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 United Metro common stock after the share
exchange and the debenture exchange offer;
- reflects the beneficial ownership of Kiewit common stock at January 3,
2000 and the distribution ratio of one share of United Metro common stock
for each share of Kiewit common stock in the spin-off and the United
Metro common stock split necessary to achieve that ratio; and
- assumes no change in beneficial ownership of Kiewit's common stock
between January 3, 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 PERCENT
NAME BENEFICIALLY OWNED OF SHARES
- ---- ------------------ ---------
<S> <C> <C>
Kenneth E. Stinson(1)(2).................................... 2,880,492 8.1%
Richard W. Colf............................................. 1,725,960 4.9%
Bruce E. Grewcock........................................... 958,804 2.7%
Christopher J. Murphy....................................... 918,037 2.6%
Richard Geary............................................... 717,780 2.0%
Walter Scott, Jr............................................ 400,000 1.1%
Daniel W. Speck............................................. 229,170 *
Mark E. Belmont............................................. 44,160 *
John J. Shaffer............................................. 10,787 *
William L. Grewcock......................................... 8,192 *
Directors and Executive Officers as a Group (11
Individuals).............................................. 7,893,382 22.2%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 766,773 shares of United Metro 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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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon completion of the spin-off, the authorized capital stock of United
Metro will consist 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 of
which shares will be issued and outstanding.
VOTING RIGHTS
The holders of United Metro 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 common stock are not entitled
to cumulative voting rights. The holders of the 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 common stock. All outstanding shares
of common stock, including the shares being offered in the spin-off, are, or
will be upon completion of the spin-off, fully paid and non-assessable.
The United Metro restated certificate of incorporation provides that any
amendment to the provisions in the restated certificate of incorporation
regarding the classification of the board of directors requires the approval of
at least 80% of the United Metro common stock. Any amendment to the 80%
threshold requires the approval of at least 80% of the United Metro 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 of stockholders, 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 United Metro
common stock.
REPURCHASE RIGHTS
Holders of United Metro 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 United Metro at the current formula price. United Metro
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 United Metro issued and outstanding
and having full voting power.
The United Metro board of directors may suspend United Metro's duties to
repurchase United Metro common stock offered by a stockholder upon the United
Metro board's determination that the United Metro adjusted book value to be
determined at the end of the current fiscal year is likely to be less that the
United Metro adjusted book value determined at the end of the prior fiscal year,
less dividends declared on United Metro common stock since the prior fiscal year
end. This suspension may not exceed one year.
The United Metro board has the right to decide to conserve United Metro's
cash by temporarily halting United Metro's duty to repurchase United Metro
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 United Metro board may
determine. Holders may withdraw tenders of shares of United Metro common stock
that would be paid for with notes. The United Metro board has the right to
invoke this cash repurchase limitation only after more than 5% of the
outstanding shares of United Metro common stock have been tendered in any fiscal
year.
Under Section 160 of the Delaware General Corporation Law, United Metro may
not repurchase shares of its common stock if its capital is impaired or if the
repurchase would impair its capital.
United Metro's repurchase obligations may be terminated by United Metro's
board of directors at any time. However, the board shall not have that authority
unless it has also determined that the United Metro common stock is publicly
traded.
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LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of United Metro, after the
creditors of United Metro and the holders of United Metro preferred stock (if
any), receive the full preferential amounts to which they are entitled, holders
of United Metro common stock will be entitled to receive any assets available
for distribution to stockholders of United Metro.
FORMULA PRICE
The formula price of United Metro common stock is the price at which United
Metro purchases shares of its common stock and is based upon the adjusted book
value of United Metro at the end of the previous year.
The per share 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
United Metro debentures convertible into United Metro common stock at the end of
such year, and then dividing this result by the sum of (1) the number of
outstanding shares of United Metro common stock and (2) the number of shares
reserved for conversion of such debentures into United Metro 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 United Metro
common stock. The per share formula price is determined by reducing this amount
by any dividends per share declared on the United Metro common stock since the
prior year end. In addition to any adjustments for declared dividends during the
current year, the initial formula price for United Metro common stock is also
adjusted for the amount of any capital contributions made by Kiewit to United
Metro during fiscal year 2000 prior to the spin-off.
OWNERSHIP AND TRANSFER RESTRICTIONS
Holders of United Metro common stock are prohibited from transferring the
common stock in any manner except in a sale to United Metro and, with prior
approval by the United Metro 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 United Metro stockholder, the shares of United Metro 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.
Holders of United Metro common stock are permitted to pledge the United
Metro common stock for loans in connection with the ownership of the United
Metro common stock.
All transfer restrictions may be terminated by the United Metro board at
any time. In the event that the board of directors decides to conduct an initial
public offering of the United Metro common stock, officers and directors of
United Metro and stockholders owning one percent or more of the United Metro
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.
LISTING
United Metro common stock is not listed on any national securities exchange
or quoted on the Nasdaq National Market.
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LIMITATION ON DIRECTORS' LIABILITY
The United Metro restated certificate of incorporation provides that a
director of United Metro will not be personally liable to United Metro 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 United Metro 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
- for any transaction from which the director derived an improper personal
benefit.
PREFERRED STOCK
The United Metro board of directors is empowered, without approval of the
stockholders, to issue shares of United Metro 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 United Metro; and
- the terms of a sinking or purchase fund.
STOCKHOLDER CONSENT
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 United Metro
restated certificate of incorporation provides that stockholders of United Metro
may only take action at an annual or special meeting and may not act by written
consent.
STOCKHOLDERS' MEETINGS
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 United Metro restated certificate of incorporation
provides that special meetings of the stockholders may be called only by the
United Metro 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 United Metro may not call a special meeting of
stockholders.
38
<PAGE> 46
EXPERTS
The audited financial statements and the financial statement schedules
included in this information statement have been audited by various independent
accountants. The companies and periods covered by these audits are indicated in
the individual accountants' reports. Such financial statements have been so
included in reliance on the reports of the various independent accountants given
on the authority of such firms as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
United Metro has filed a registration statement on Form 10 to register with
the Securities and Exchange Commission the United Metro common stock. As allowed
by SEC rules, this information statement does not contain all of the information
that stockholders can find in the registration statement or the exhibits and
schedules to the registration statement. You may inspect and copy the
registration statement and the exhibits to the registration statement that we
have filed with the SEC 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. In addition, the
registration statement will also be available to the public from commercial
document retrieval services and at the SEC's World Wide Web site at
"http://www.sec.gov."
Following the spin-off, United Metro will be required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC.
United Metro has not authorized anyone to provide you with information that
is different from what is contained in this information statement. This
information statement is dated , 2000. You should not assume that the
information contained in the information statement is accurate as of any date
other than that date, and neither the mailing of this information statement to
stockholders nor the distribution of United Metro common stock to Kiewit
stockholders shall create any implication to the contrary.
39
<PAGE> 47
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Reports of Independent Accountants.......................... F-2
Consolidated Financial Statements as of December 26, 1998
and December 27, 1997 and for the three years in the
period ended December 26, 1998:
Consolidated Statements of Earnings......................... F-5
Consolidated Balance Sheets................................. F-6
Consolidated Statements of Cash Flows....................... F-7
Consolidated Statements of Stockholder's Equity and
Comprehensive Income...................................... F-8
Notes to Consolidated Financial Statements.................. F-9
Report of Independent Accountants on Consolidated Financial
Schedule.................................................. F-21
Consolidated Financial Statement Schedule for the three
years in the period ended December 26, 1998............... F-22
Consolidated Condensed Financial Statements as of September
30, 1999 and for the three and nine months ended September
30, 1999 and 1998:
Consolidated Condensed Statements of Earnings............... F-23
Consolidated Condensed Balance Sheet........................ F-24
Consolidated Condensed Statements of Cash Flows............. F-25
Notes to Consolidated Condensed Financial Statements........ F-26
</TABLE>
F-1
<PAGE> 48
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 26, 1998 and
December 27, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 26, 1998 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 Joint
Venture, Pacific Rock Products, L.L.C. and Pacific Rock Products Trucking,
L.L.C. (formerly River City Machinery, L.L.C.) the investments in which comprise
$15,615,740 and $15,181,461 of the Company's total assets as of December 26,
1998 and December 27, 1997, respectively and $8,190,779, $6,243,716 and
$4,906,330 of the Company's earnings before income taxes for each of the three
years in the period ended December 26, 1998. 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 Joint Venture, 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
February 11, 2000
F-2
<PAGE> 49
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-3
<PAGE> 50
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, 1997 and 1996, 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, 1997 and 1996, 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 4, 1998.
F-4
<PAGE> 51
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 26, 1998
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenue....................................... $ 333,060,002 $ 277,308,896 $ 246,083,386
Cost of revenue............................... (286,046,917) (231,304,212) (204,510,622)
Depreciation, depletion and amortization...... (12,112,930) (10,985,109) (9,848,216)
------------- ------------- -------------
34,900,155 35,019,575 31,724,548
General and administrative expenses........... (19,062,488) (16,227,521) (14,920,323)
------------- ------------- -------------
Operating earnings............................ 15,837,667 18,792,054 16,804,225
Other income (expense):
Investment income........................... 3,551,074 3,526,354 3,422,960
Equity earnings............................. 5,599,268 4,272,210 2,391,724
Interest expense............................ (934,888) (547,704) (930,018)
Gain on sale of property, plant and
equipment, net........................... 853,436 1,005,530 1,364,381
Other....................................... 323,322 299,003 207,649
------------- ------------- -------------
9,392,212 8,555,393 6,456,696
------------- ------------- -------------
Earnings before income taxes and minority
interests................................... 25,229,879 27,347,447 23,260,921
Minority interests in (earnings) losses of
subsidiaries................................ (58,101) 52,277 --
Income tax expense............................ (9,793,440) (10,857,416) (9,056,640)
------------- ------------- -------------
Net earnings.................................. $ 15,378,338 $ 16,542,308 $ 14,204,281
============= ============= =============
Net earnings per share:
Basic and diluted........................... $ 153,783 $ 165,423 $ 142,043
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 52
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 26, 1998 AND DECEMBER 27, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 65,601,870 $ 48,021,924
Marketable securities..................................... 2,584,050 3,324,482
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$780,445 and $784,904................................ 40,529,060 36,435,225
Affiliates............................................. 292,108 752,904
------------ ------------
Total accounts receivable................................. 40,821,168 37,188,129
Inventories............................................... 7,766,988 7,148,503
Deferred income taxes..................................... 2,855,000 3,191,000
Other..................................................... 2,200,369 1,441,228
------------ ------------
Total current assets................................... 121,829,445 100,315,266
Property, plant and equipment at cost....................... 145,892,746 132,078,621
Less accumulated depreciation............................. 86,454,443 75,702,488
------------ ------------
Net property, plant and equipment........................... 59,438,303 56,376,133
Investments and other assets................................ 25,785,949 25,007,790
------------ ------------
$207,053,697 $181,699,189
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable:
Trade.................................................. $ 22,913,995 $ 18,913,479
Affiliates............................................. 14,675,013 13,237,610
------------ ------------
Total accounts payable.................................... 37,589,008 32,151,089
Current portion of long-term debt......................... 739,965 386,873
Accrued payroll and payroll taxes......................... 5,787,804 3,652,358
Accrued insurance costs................................... 5,626,346 4,833,829
Income taxes payable -- parent company.................... 5,559,111 5,926,548
Other..................................................... 2,040,055 2,230,553
------------ ------------
Total current liabilities.............................. 57,342,289 49,181,250
Long-term debt, less current portion........................ 760,834 1,492,345
Deferred income taxes....................................... 6,606,000 6,149,000
Other liabilities........................................... 2,762,503 3,009,073
Minority interest........................................... 295,044 236,943
Stockholder's equity:
Common stock of $.01 par value. 100 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 82,466,491 80,121,548
Accumulated other comprehensive income.................... (456,172) (389,340)
Retained earnings......................................... 57,276,707 41,898,369
------------ ------------
Total stockholder's equity.................................. 139,287,027 121,630,578
------------ ------------
$207,053,697 $181,699,189
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 53
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 26, 1998
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................... $ 15,378,338 $ 16,542,308 $ 14,204,281
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization.... 12,112,930 10,985,109 9,848,216
Gain on sale of property, plant and
equipment, net............................ (853,436) (1,005,530) (1,364,381)
Gain on sale of securities.................. (25,714) -- --
Deferred income taxes....................... 707,000 1,038,000 243,000
Undistributed equity earnings............... (1,078,437) (4,246,212) (1,360,199)
Minority interest in earnings (losses)...... 58,101 (52,277) --
Change in operating assets and liabilities:
Accounts receivable....................... (3,548,729) (6,263,241) (2,262,418)
Inventories............................... (163,240) (278,122) (679,440)
Other assets.............................. (749,466) (469,808) 1,139,721
Accounts payable.......................... 5,437,919 13,316,821 4,016,072
Accrued payroll and other................. 2,135,446 (111,141) (456,281)
Accrued insurance cost.................... 792,517 327,575 251,989
Income taxes payable...................... (367,437) (87,334) (733,981)
Other liabilities......................... (206,800) (1,220,587) (867,319)
------------ ------------ ------------
Net cash provided by operating activities........ 29,628,992 28,475,561 21,979,260
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment................................... 1,448,503 1,304,334 2,140,466
Capital expenditures........................... (13,351,000) (20,213,136) (12,711,802)
Purchases of marketable securities............. (16,874) (43,947) (40,598)
Sales of marketable securities................. 760,621 -- --
Additions to notes receivable.................. (1,837,933) (760,642) (129,125)
Payments received on notes receivable.......... 1,316,489 363,750 219,472
Investments and acquisitions................... (2,136,356) (8,132,363) (6,419,887)
------------ ------------ ------------
Net cash used in investing activities............ (13,816,550) (27,482,004) (16,941,474)
Cash flows from financing activities:
Payments of long-term debt..................... (378,419) (86,221) --
Contributions by minority owner................ -- 209,445 --
Contributions from parent...................... 2,145,923 10,713,084 7,325,251
Dividends...................................... -- (13,970,000) (4,000,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities..................................... 1,767,504 (3,133,692) 3,325,251
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... 17,579,946 (2,140,135) 8,363,037
Cash and cash equivalents at beginning of year... 48,021,924 50,162,059 41,799,022
------------ ------------ ------------
Cash and cash equivalents at end of year......... $ 65,601,870 $ 48,021,924 $ 50,162,059
============ ============ ============
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 944,672 $ 528,031 $ 930,018
Income taxes paid.............................. 7,701,132 7,441,421 8,063,559
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 54
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
AND COMPREHENSIVE INCOME
FOR THE THREE YEARS ENDED DECEMBER 26, 1998
<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 30, 1995..... $ 1 $62,083,213 $ (48,757) $ 29,477,079 $ 91,511,536
Dividends ($143,553 per share)... -- -- -- (14,355,299) (14,355,299)
Contribution from parent......... -- 7,325,251 -- -- 7,325,251
Comprehensive income:
Net earnings................... -- -- -- 14,204,281 14,204,281
Other comprehensive income:
Change in unrealized holding
gain, net of tax.......... -- -- (47,666) -- (47,666)
Minimum pension liability
adjustment................ -- -- 13,472 -- 13,472
------------
Total other comprehensive
income.................... (34,194)
------------
Total comprehensive income....... 14,170,087
--- ----------- --------- ------------ ------------
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
gain, 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
=== =========== ========= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 55
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. 1998, 1997 and 1996 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-9
<PAGE> 56
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-10
<PAGE> 57
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>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings available to common
stockholders.............................. $15,378,338 $16,542,308 $14,204,281
=========== =========== ===========
Total number of weighted average shares
outstanding............................... 100 100 100
=========== =========== ===========
Basic and diluted earnings per share........ $ 153,783 $ 165,423 $ 142,043
=========== =========== ===========
</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 $54,520,320 and $42,145,567 in 1998 and 1997.
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-11
<PAGE> 58
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. FINANCIAL INSTRUMENTS, CONTINUED:
At December 26, 1998 and December 27, 1997, 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>
1998:
U.S. debt securities............................ $2,541,925 $42,125 $2,584,050
========== ======= ==========
1997:
U.S. debt securities............................ $2,551,599 $30,201 $2,581,800
Intermediate-term bond mutual funds............. 718,033 24,649 742,682
---------- ------- ----------
$3,269,632 $54,850 $3,324,482
========== ======= ==========
</TABLE>
Realized gain on sale of marketable securities was $25,714 in 1998 and $0
in 1997 and 1996.
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>
1998 1997
---------- ----------
<S> <C> <C>
Raw materials....................................... $6,573,036 $5,538,887
Other............................................... 1,193,952 1,609,616
---------- ----------
$7,766,988 $7,148,503
========== ==========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land and mineral properties....................... $ 6,178,777 $ 6,656,421
Buildings and improvements........................ 944,342 676,208
Equipment and other............................... 52,315,184 49,043,504
----------- -----------
$59,438,303 $56,376,133
=========== ===========
</TABLE>
F-12
<PAGE> 59
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>
1998 1997
----------- -----------
<S> <C> <C>
Investment in limited liability companies......... $10,724,511 $ 9,525,242
Intangible assets, principally goodwill, net of
accumulated amortization of $4,169,800 and
$3,018,561...................................... 13,974,896 14,857,921
Notes receivable.................................. 521,218 61,394
Other............................................. 565,324 563,233
----------- -----------
$25,785,949 $25,007,790
=========== ===========
</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.
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
$447,795, $617,784 and $456,075 in 1998, 1997 and 1996, 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-13
<PAGE> 60
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE BENEFIT PLANS, CONTINUED:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................. $ 3,174,787 $2,038,747
Service cost............................................. 974,369 762,450
Interest cost............................................ 226,788 156,768
Actuarial loss........................................... 577,594 324,339
Benefits paid............................................ (154,300) (107,517)
----------- ----------
Benefit obligation at end of year.......................... 4,799,238 3,174,787
Change in plan assets:
Fair value of plan assets at beginning of year........... 2,821,262 1,267,198
Actual return on plan assets............................. 673,916 (24,212)
Employer contribution.................................... -- 1,685,793
Benefits paid............................................ (154,300) (107,517)
----------- ----------
Fair value of plan assets at end of year................... 3,340,878 2,821,262
----------- ----------
Funded status.............................................. (1,458,360) (353,525)
Unrecognized net actuarial loss............................ 741,822 651,091
Unrecognized prior service cost............................ 183,216 205,489
----------- ----------
(Accrued) prepaid benefit cost............................. $ (533,322) $ 503,055
=========== ==========
Amounts recognized in the statement of financial position
consist of:
Prepaid benefit cost..................................... $ -- $ 503,055
Accrued benefit liability................................ (1,458,360) (856,580)
Intangible asset......................................... 183,216 205,489
Accumulated other comprehensive income................... 741,822 651,091
----------- ----------
Net amount recognized...................................... $ (533,322) $ 503,055
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Weighted-average assumptions as of year end:
Discount rate................................. 6.5% 7.0% 7.5%
Expected return on plan assets................ 8.0% 8.0% 8.0%
Components of net periodic benefit cost:
Service cost.................................. $ 974,369 $ 762,450 $747,297
Interest cost................................. 226,788 156,768 110,866
Expected return on plan assets................ (224,321) (145,444) (68,194)
Amortization of prior service cost............ 22,273 22,273 21,494
Recognized net actuarial loss................. 37,268 968 15,320
---------- --------- --------
Net periodic benefit cost....................... $1,036,377 $ 797,015 $826,783
========== ========= ========
</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 $4,799,238, $4,799,238 and $3,340,878,
respectively, as of December 26, 1998 and $3,174,787, $3,174,787 and $2,821,262,
respectively, as of December 27, 1997.
F-14
<PAGE> 61
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
7% note payable quarterly to 2003........................... $ 430,429 $ 500,000
9.25% notes payable quarterly to 2003....................... 304,830 343,335
9.5% note payable monthly to 2002........................... 205,228 257,577
Other....................................................... 560,312 778,306
---------- ----------
1,500,799 1,879,218
Less current portion........................................ 739,965 386,873
---------- ----------
$ 760,834 $1,492,345
========== ==========
</TABLE>
Long-term debt repayments are due as follows:
<TABLE>
<S> <C>
1999............................................. $ 739,965
2000............................................. 249,180
2001............................................. 209,563
2002............................................. 136,374
2003............................................. 117,440
2004 and thereafter.............................. 48,277
----------
$1,500,799
==========
</TABLE>
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.
All remaining items of debt are collateralized by equipment and were
assumed as part of the Company's 1997 acquisition of various materials
operations.
F-15
<PAGE> 62
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 26, 1998
follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
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
========== ========== ===========
1996:
Current....................................... $6,133,095 $2,680,545 $ 8,813,640
Deferred...................................... 113,000 130,000 243,000
---------- ---------- -----------
$6,246,095 $2,810,545 $ 9,056,640
========== ========== ===========
</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>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Federal income tax expense at statutory
rate........................................ $8,830,458 $ 9,571,606 $8,175,505
State income tax, net of Federal tax
benefit..................................... 1,394,993 1,584,486 1,623,264
Percentage depletion.......................... (1,310,610) (942,905) (952,135)
Prior year adjustment......................... 521,371 496,187 (66,505)
Other......................................... 357,228 148,042 276,511
---------- ----------- ----------
$9,793,440 $10,857,416 $9,056,640
========== =========== ==========
</TABLE>
F-16
<PAGE> 63
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 26, 1998 and December 27, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Construction accounting................................. $ (806,000) $ (929,000)
Insurance claims........................................ (2,229,000) (1,897,000)
Compensation and retirement benefits.................... (1,291,000) (823,000)
Other................................................... (1,033,000) (967,000)
----------- -----------
Total deferred tax assets................................. (5,359,000) (4,616,000)
Deferred tax liabilities:
Asset bases/accumulated depreciation.................... 7,332,000 5,993,000
Investments in limited liability companies/joint
ventures............................................. 1,678,000 1,477,000
Other................................................... 100,000 104,000
----------- -----------
Total deferred tax liabilities............................ 9,110,000 7,574,000
----------- -----------
Net deferred tax liabilities.............................. $ 3,751,000 $ 2,958,000
=========== ===========
</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 26, 1998 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Aggregates (sand, gravel, crushed stone
and railroad ballast).................. $ 54,722,819 $ 44,388,081 $ 42,366,028
Asphalt.................................. 57,862,340 75,732,891 51,472,747
Ready mix concrete....................... 209,842,986 144,908,912 139,576,346
Construction............................. 10,631,857 12,279,012 12,668,265
------------ ------------ ------------
$333,060,002 $277,308,896 $246,083,386
============ ============ ============
</TABLE>
F-17
<PAGE> 64
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>
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 income...................... (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 gain:
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)
========= ======== =========
1996:
Unrealized holding losses:
Unrealized holding losses arising during the
period...................................... $ (71,280) $ 23,614 $ (47,666)
Minimum pension liability adjustment............. 20,727 (7,255) 13,472
--------- -------- ---------
Other comprehensive income....................... $ (50,553) $ 16,359 $ (34,194)
========= ======== =========
</TABLE>
Accumulated other comprehensive income consisted of the following:
<TABLE>
<CAPTION>
CURRENT
BEGINNING YEAR ENDING
BALANCE CHANGE BALANCE
--------- --------- ---------
<S> <C> <C> <C>
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)
========= ========= =========
1996:
Unrealized holding gain on securities........... $ 72,998 $ (47,666) $ 25,332
Minimum pension liability adjustment............ (121,755) 13,472 (108,283)
--------- --------- ---------
Accumulated other comprehensive income.......... $ (48,757) $ (34,194) $ (82,951)
========= ========= =========
</TABLE>
F-18
<PAGE> 65
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATING LEASES:
The Company leases mineral properties, buildings and certain equipment
under noncanceleable operating lease agreements. Total rent expense was
$11,625,294, $10,176,629 and 8,909,486 in 1998, 1997 and 1996, respectively.
Future minimum lease commitments are as follows:
<TABLE>
<S> <C>
1999............................................ $12,291,760
2000............................................ 9,093,959
2001............................................ 8,096,764
2002............................................ 7,504,509
2003............................................ 6,682,634
Thereafter...................................... 32,419,705
-----------
$76,089,331
===========
</TABLE>
12. RELATED PARTY TRANSACTIONS:
During 1998, 1997 and 1996 the Company was involved in transactions with
affiliated companies as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment rental income........................ $ 203,334 $ 186,911 $ 197,249
Equipment rental expense....................... 19,288 -- 145,089
Insurance premium expense...................... 32,839 49,387 9,829
Interest income................................ 2,847,501 2,753,194 2,810,221
Interest expense............................... 583,673 478,885 918,541
Administrative service fee income.............. 199,031 182,001 78,522
Administrative service fee expense............. 1,402,834 1,181,156 1,167,308
Asset acquisitions............................. 135,500 107,558 376,600
Asset disposals, proceeds...................... 223,500 270,907 155,755
Gain on asset disposals........................ 11,134 101,607 138,733
Engineering & estimating expense............... 79,249 52,505 80,135
Sales.......................................... 7,326,151 8,838,367 8,902,154
</TABLE>
During 1996, the Company made noncash dividends to its parent for the
assumption of certain operating liabilities of $355,299, declared a $10,000,000
dividend paid in 1997 and paid cash dividends of $4,000,000.
During 1997, the Company declared and paid an additional 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.
F-19
<PAGE> 66
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. ACQUISITIONS:
During 1998, 1997 and 1996, 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 $2,136,356, $9,477,437 and $3,092,884 during
1998, 1997 and 1996, respectively. 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,
$2,120,022 and $1,202,950 during 1998, 1997 and 1996, respectively and is
amortized over periods of 15 to 20 years.
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 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. Any goodwill related to this purchase will be amortized
over a period of 20 years.
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.
F-20
<PAGE> 67
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 February 11, 2000 appearing on page F-2 also included an audit of the
financial statement schedule appearing on page F-22. 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
February 11, 2000
F-21
<PAGE> 68
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 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
YEAR ENDED DECEMBER 28, 1996
Allowance for doubtful trade
accounts.......................... $ 797 $ 140 $ (74) $-- $ 863
Reserves:
Insurance claims.................. 4,463 1,461 (1,418) -- 4,506
</TABLE>
F-22
<PAGE> 69
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue............................ $116,882,523 $89,112,890 $328,454,274 $245,102,685
Cost of revenue.................... (94,924,199) (74,871,996) (274,767,602) (208,829,003)
Depreciation, depletion and
amortization..................... (4,382,596) (2,819,668) (11,888,240) (8,200,489)
------------ ----------- ------------ ------------
17,575,728 11,421,226 41,798,432 28,073,193
General and administrative
expenses......................... (6,152,012) (5,293,117) (18,776,674) (15,327,565)
------------ ----------- ------------ ------------
Operating earnings................. 11,423,716 6,128,109 23,021,758 12,745,628
Other income (expense):
Investment income................ 1,329,022 789,078 3,056,436 2,585,868
Equity earnings.................. -- 1,377,805 215,514 2,636,222
Interest expense................. (487,071) (165,079) (1,351,591) (766,624)
Other, net....................... 18,309 389,173 743,698 972,982
------------ ----------- ------------ ------------
860,260 2,390,977 2,664,057 5,428,448
------------ ----------- ------------ ------------
Earnings before income taxes and
minority interest................ 12,283,976 8,519,086 25,685,815 18,174,076
Minority interest.................. (27,252) (56,280) (72,082) (109,120)
Income tax expense................. (4,913,591) (2,912,366) (10,274,326) (6,335,678)
------------ ----------- ------------ ------------
Net earnings....................... $ 7,343,133 $ 5,550,440 $ 15,339,407 $ 11,729,278
============ =========== ============ ============
Net earnings per share:
Basic and diluted................ $ 73,431 $ 55,504 $ 153,394 $ 117,293
============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-23
<PAGE> 70
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 54,564,445
Marketable securities..................................... 2,588,475
Receivables, less allowance of $1,080,284................. 57,381,716
Inventories............................................... 10,092,030
Deferred income taxes..................................... 3,792,000
Other..................................................... 3,187,830
------------
Total current assets........................................ 131,606,496
Property, plant and equipment, less accumulated depreciation
of $94,934,094............................................ 99,467,305
Other assets................................................ 32,363,412
------------
$263,437,213
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 23,080,701
Current portion of long-term debt......................... 438,665
Accrued payroll and payroll taxes......................... 4,992,921
Accrued insurance costs................................... 7,322,225
Income taxes payable -- parent company.................... 13,600,800
Other..................................................... 2,251,319
------------
Total current liabilities................................... 51,686,631
Long-term debt, less current portion........................ 2,543,957
Deferred income taxes....................................... 7,598,000
Other liabilities........................................... 2,481,534
Minority interest........................................... 367,125
------------
Total liabilities...................................... 64,677,247
Stockholder's equity:
Common stock, par $.01; and 100 shares authorized, issued
and outstanding........................................ 1
Additional paid-in capital................................ 126,609,627
Accumulated other comprehensive income.................... (464,843)
Retained earnings......................................... 72,615,181
------------
Total stockholder's equity.................................. 198,759,966
------------
$263,437,213
============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-24
<PAGE> 71
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operations:
Net cash provided by operations........................... $ 10,143,108 $ 2,843,773
Cash flows from investing activities:
Sales of marketable securities............................ -- 760,621
Purchases of marketable securities........................ -- (16,874)
Proceeds from sales of property, plant and equipment...... 1,216,238 878,316
Investments and acquisitions.............................. (34,896,029) --
Capital expenditures...................................... (16,814,147) (10,014,214)
------------ -----------
Net cash used in investing activities.................. (50,493,938) (8,392,151)
Cash flows from financing activities:
Payments on long-term debt................................ (15,973,285) (280,688)
Contributions from parent................................. 45,286,690 3,379,024
------------ -----------
Net cash provided by financing activities.............. 29,313,405 3,098,336
------------ -----------
Net decrease in cash and cash equivalents................... (11,037,425) (2,450,042)
Cash and cash equivalents at beginning of period............ 65,601,870 48,021,924
------------ -----------
Cash and cash equivalents at end of period.................. $ 54,564,445 $45,571,882
============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-25
<PAGE> 72
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 nine months ended September 30, 1999 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings available to common
stockholders.................. $7,343,133 $5,550,440 $15,339,407 $11,729,278
========== ========== =========== ===========
Total number of weighted average
shares outstanding used to
compute basic earnings per
share......................... 100 100 100 100
========== ========== =========== ===========
Net earnings
Basic earnings per share...... $ 73,431 $ 55,504 $ 153,394 $ 117,293
========== ========== =========== ===========
</TABLE>
3. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Raw materials........................................... $ 7,644,357
Other................................................... 2,447,673
-----------
$10,092,030
===========
</TABLE>
4. COMPREHENSIVE INCOME:
Comprehensive income includes net earnings and unrealized gains (losses) on
securities and minimum pension liability adjustments.
F-26
<PAGE> 73
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMPREHENSIVE INCOME, CONTINUED:
Comprehensive income for the three months and nine months ended September
30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings.................... $7,343,133 $5,550,440 $15,339,407 $11,729,278
Other comprehensive income,
before tax:
Unrealized gains (loss)
arising during period...... (8,996) 30,302 (32,941) 32,177
Reclassification adjustments
for losses included in net
earnings................... -- -- -- (24,648)
Minimum pension liability
adjustment................. 5,983 9,317 17,954 27,951
Income tax benefit (expense)
related to items of other
comprehensive income....... 1,347 (14,852) 6,316 (12,663)
---------- ---------- ----------- -----------
Comprehensive income............ $7,341,467 $5,575,207 $15,330,736 $11,752,095
========== ========== =========== ===========
</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. 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>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue................... $116,882,523 $111,194,180 $332,584,508 $292,034,577
Net earnings.............. 7,343,133 7,617,147 15,549,533 15,683,611
Net earnings per share:
Basic and diluted....... $ 73,431 $ 76,171 $ 155,495 $ 156,836
</TABLE>
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 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.
F-27
<PAGE> 74
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, 1997 and
December 31, 1996 and for the year ended December 31, 1997
and the period from inception (February 1, 1996) to
December 31, 1996:
Independent Auditors' Report................................ F-29
Combined Balance Sheets..................................... F-30
Combined Statements of Income and Members' Equity........... F-31
Combined Statements of Cash Flows........................... F-32
Notes to Combined Financial Statements...................... F-33
Combined Financial Statement Schedule for the two years in
the period ended
December 31, 1997......................................... F-39
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-40
Combined Balance Sheets..................................... F-41
Combined Statements of Income and Members' Equity........... F-42
Combined Statements of Cash Flows........................... F-43
Notes to Combined Financial Statements...................... F-44
Financial Statement Schedule for the two years in the period
ended December 31, 1998................................... F-49
</TABLE>
F-28
<PAGE> 75
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, 1997 and
1996, and the related combined statements of income and members' equity, and
cash flows for the year ended December 31, 1997 and the period from inception
(February 1, 1996) to December 31, 1996. 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, 1997 and
1996, 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 20, 1998
F-29
<PAGE> 76
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)........................ $ 7,865,893 $ 584,036
Accounts receivable -- trade, less allowance for doubtful
accounts of $271,700 and $250,000 in 1997 and 1996,
respectively (Note 3).................................. 9,831,538 7,954,217
Accounts receivable -- related parties (Notes 3 and 6).... 562,323 1,468,218
Inventories (Notes 2 and 3)............................... 1,876,357 708,103
Other current assets...................................... 410,219 366,704
----------- -----------
Total current assets................................... 20,546,330 11,081,278
PROPERTY, PLANT AND EQUIPMENT (Notes 1, 3 and 5):
Buildings................................................. 978,994 691,090
Equipment................................................. 31,696,135 23,635,189
----------- -----------
32,675,129 24,326,279
Less accumulated depreciation............................. 9,138,028 6,633,914
----------- -----------
23,537,101 17,692,365
Land and gravel deposits, net............................. 10,546,235 10,603,936
----------- -----------
34,083,336 28,296,301
GOODWILL (Note 1)........................................... 1,154,935 --
DEPOSITS.................................................... 116,666 193,993
----------- -----------
$55,901,267 $39,571,572
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Long-term debt due in one year (Note 3)................... $ 4,219,989 $ 3,823,326
Accounts payable -- trade................................. 1,453,479 1,583,241
Accounts payable -- related parties (Note 6).............. 236,464 475,186
Accrued interest.......................................... 198,862 177,152
Accrued payroll and taxes................................. 1,084,572 622,004
Other accrued liabilities................................. 268,277 94,380
----------- -----------
Total current liabilities.............................. 7,461,643 6,775,289
LONG-TERM DEBT -- NET OF PORTION DUE IN ONE YEAR (Note 3)... 18,801,817 13,966,500
MEMBERS' EQUITY............................................. 29,637,807 18,829,783
----------- -----------
$55,901,267 $39,571,572
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE> 77
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
COMBINED STATEMENTS OF INCOME AND MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM FEBRUARY 1, 1996
(DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Sales..................................................... $55,373,472 $41,712,729
Gain on sales of equipment................................ 235,543 94,120
Other..................................................... 623,617 439,325
----------- -----------
56,232,632 42,246,174
COSTS AND EXPENSES:
Cost of sales............................................. 38,415,384 31,704,115
General and administrative................................ 2,398,693 1,573,092
Depreciation, depletion and amortization.................. 2,901,084 1,869,842
Interest.................................................. 1,709,447 1,063,074
----------- -----------
45,424,608 36,210,123
----------- -----------
NET INCOME.................................................. 10,808,024 6,036,051
MEMBERS' EQUITY, BEGINNING OF YEAR.......................... 18,829,783 --
MEMBERS' CONTRIBUTIONS (Note 1)............................. -- 15,193,732
DISTRIBUTIONS............................................... -- (2,400,000)
----------- -----------
MEMBERS' EQUITY, END OF YEAR................................ $29,637,807 $18,829,783
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 78
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM FEBRUARY 1, 1996
(DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $10,808,024 $ 6,036,051
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............... 2,901,084 1,869,842
Provision for losses on accounts receivable............ 65,118 163,055
Gain on sales of equipment............................. (235,543) (94,120)
(Increase) decrease in assets:
Accounts receivable.................................. (1,036,545) (6,260,125)
Inventories.......................................... (1,168,254) (126,578)
Other current assets and deposits.................... 33,812 (266,839)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses................ 289,691 389,205
----------- ------------
Net cash provided by operating activities......... 11,657,387 1,710,491
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment.......................... 326,044 160,758
Purchase of property, plant and equipment................. (7,990,661) (11,261,140)
Purchase of goodwill...................................... (931,176) --
----------- ------------
Net cash used in investing activities............. (8,595,793) (11,100,382)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new long-term borrowings.................... 8,000,000 10,319,200
Principal payments on long-term debt...................... (3,779,737) (1,345,646)
Members' contributions.................................... -- 3,400,373
Distributions paid........................................ -- (2,400,000)
----------- ------------
Net cash provided by financing activities......... 4,220,263 9,973,927
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 7,281,857 584,036
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 584,036 --
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 7,865,893 $ 584,036
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 1,687,737 $ 946,194
Noncash investing and financing transactions:
Assets and liabilities (net) contributed by members
(Note 1)............................................. $ -- $ 15,193,732
Long-term debt incurred to purchase real property and
equipment............................................ $ 716,413 $ 1,477,242
Long-term debt incurred to purchase goodwill........... $ 295,304 --
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 79
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Organization -- Effective February 1, 1996, Pacific Rock Products, Inc.
(PRP) 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," in a business
combination accounted for as a purchase. PRP and RPL contributed essentially all
of their assets and liabilities, except certain intercompany receivables and
payables, with a fair value of $15,000,000, in exchange for a 60% interest in
the Company. Pacific Rock Products, Inc. simultaneously changed its name to
Aggregate Services, Inc. (ASI). Gilbert contributed real property, real property
leases, and cash with a fair value of $10,000,000 in exchange for a 40% interest
in the Company.
For accounting purposes, the assets and liabilities contributed by PRP and
RPL have been recorded at their predecessor's basis. The assets contributed by
Gilbert have been recorded at fair value. The amount recorded to equipment will
be depreciated over the estimated remaining useful lives of the assets. The
amount recorded as gravel deposits will be depleted based on the ratio of
quantities extracted to total estimated quantities available.
A summary of the assets and liabilities contributed by the members on
February 1, 1996 is as follows:
<TABLE>
<S> <C>
Assets:
Cash and cash equivalents................................. $ 3,400,373
Accounts receivable....................................... 3,325,365
Inventories............................................... 581,525
Other current assets...................................... 226,286
Property, plant and equipment............................. 17,494,399
Deposits.................................................. 67,572
-----------
25,095,520
Liabilities:
Long-term debt due in one year............................ 1,823,782
Accounts payable and accrued liabilities.................. 2,562,758
Long-term debt -- net of portion due in one year.......... 5,515,248
-----------
9,901,788
-----------
Members' contributions...................................... $15,193,732
===========
</TABLE>
In March 2002, Gilbert has an option to offer to purchase the 60%
membership interest 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.
Nature of Operations -- Pacific Rock Products, L.L.C. produces sand and
gravel, crushed rock products, asphalt and concrete mix. It operates from six
sources of supply which are owned and leased, none of which produced greater
than 32% of revenues in 1997. 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.
F-33
<PAGE> 80
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
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 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, 1997 and
1996, the Company's cash balances exceeded the insured amounts. Cash equivalents
are invested in short term prime quality commercial paper and U.S. Government
instruments and are not insured by the Federal Deposit Corporation. Cash
equivalents were approximately $7,436,000 and $237,000 at December 31, 1997 and
1996, 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 $2,578,597
and $2,520,896 at December 31, 1997 and 1996, 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.
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. Amortization expense charged to operations
in 1997 was $71,545.
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.
F-34
<PAGE> 81
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Gravel and rock...................................... $1,803,930 $650,699
Fuel................................................. 72,427 57,404
---------- --------
$1,876,357 $708,103
========== ========
</TABLE>
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<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% (7.875% at December 31, 1997), collateralized
by accounts receivable, inventories and equipment....... $10,327,990 $13,636,737
Note payable to U.S. Bank through March 2003, due in
monthly installments of $161,661, beginning April 1998,
plus interest at 7.77%, collateralized by accounts
receivable, inventories and equipment................... 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........... 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................................................ 820,066 838,747
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................................................ 624,030 636,049
Note payable to Frost in monthly installments of $10,164
including interest at 10% through July 2002 when the
unpaid balance is due. Collateralized by a deed of trust
on real property........................................ 984,060 1,027,971
Lease payable for rock mining in monthly installments of
$20,500 through December 1998 including interest at 9%,
collateralized by mineral rights........................ 233,642 448,020
Capital lease obligation (Note 5)......................... 1,059,796 1,202,302
----------- -----------
23,021,806 17,789,826
Less current portion...................................... 4,219,989 3,823,326
----------- -----------
$18,801,817 $13,966,500
=========== ===========
</TABLE>
As of December 31, 1997, annual maturities of long-term debt, exclusive of
the capital lease obligation, for the next five years are as follows:
<TABLE>
<S> <C>
1998............................................. $4,066,316
1999............................................. 4,271,396
2000............................................. 4,400,096
2001............................................. 4,128,347
2002............................................. 2,004,991
Thereafter....................................... 3,090,864
</TABLE>
F-35
<PAGE> 82
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
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 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 2.5%, due on demand. There were no amounts outstanding on the line of
credit at December 31, 1997 and 1996.
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 $636,158 and $430,850 for
1997 and 1996, respectively.
NOTE 5 -- LEASES AND COMMITMENTS
The Company extracts rock and sand from five 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. The Company is
obligated under the terms of various noncancelable equipment leases expiring
through 2001 and a noncancelable real property lease expiring in 2000. 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
$60,000 plus an amount 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, 1997 and
1996 was $1,608,745. Accumulated amortization amounted to $538,102 and $388,740
at December 31, 1997 and 1996, respectively. The amortization of this lease,
amounting to $149,722 and $136,915 for 1997 and 1996, respectively, has been
included in the Company's depreciation, depletion and amortization expense.
F-36
<PAGE> 83
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
Future minimum lease and royalty payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES ROYALTIES
---------- ---------- ----------
<S> <C> <C> <C>
Years ending December 31,
1998........................................... $ 228,620 $1,054,784 $1,905,000
1999........................................... 228,620 789,046 1,905,000
2000........................................... 228,620 755,316 405,000
2001........................................... 592,659 442,602 350,000
2002........................................... -- 387,800 244,929
Thereafter..................................... -- 65,000 925,833
---------- ---------- ----------
Total minimum lease payments required.......... 1,278,519 $3,494,548 $5,735,762
========== ==========
Less amount representing interest.............. 218,723
----------
Present value of minimum lease payments........ 1,059,796
Less current portion........................... 153,673
----------
Long-term portion of capital lease
obligation................................... $ 906,123
==========
</TABLE>
Total rent and royalty expense consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equipment rent.............................................. $2,672,033 $2,366,597
Real property rent.......................................... 750,335 570,402
Rock and sand lease and royalties:
Minimum................................................... 2,030,734 1,519,999
Contingent................................................ 688,608 571,407
---------- ----------
$6,141,710 $5,028,405
========== ==========
</TABLE>
The Company subleases portions of its leased property under agreements
expiring through 2000. Lease rentals received totaled $120,000 and $100,000 for
the years ended December 31, 1997 and 1996, respectively. Future lease rentals
are as follows:
<TABLE>
<S> <C>
1998.............................................. $192,000
1999.............................................. 168,000
2000.............................................. 40,000
--------
$400,000
========
</TABLE>
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 $2,357,000 and
$1,794,000 for the years ended December 31, 1997 and 1996, respectively, were
paid to members and their affiliates and owners.
F-37
<PAGE> 84
NOTE 7 -- ACQUISITION
On May 20, 1997, the Company acquired the assets of Lewis Rock and Redi-Mix
in a business combination accounted for as a purchase. Lewis Rock and Redi-Mix
was primarily engaged in the production of concrete mix. The results of
operations of Lewis Rock and Redi-Mix is included in the accompanying financial
statements since the date of acquisition. The total cost of the acquisition was
approximately $2,236,700, which exceeded the fair value of the net assets of
Lewis Rock and Redi-Mix by $1,226,480. The excess is being amortized over ten
years.
NOTE 8 -- SUBSEQUENT EVENTS
On January 29, 1998, the members authorized and distributed $4,000,000 in
cash to its members in proportion to their ownership interests.
F-38
<PAGE> 85
PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C.
SCHEDULE II
COMBINED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<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, 1997
Allowance for doubtful accounts..... $250,000 $ 65,118 $ (43,418) $ -- $271,700
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts..... $250,000 $163,055 $(163,055) $ -- $250,000
</TABLE>
F-39
<PAGE> 86
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-40
<PAGE> 87
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-41
<PAGE> 88
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-42
<PAGE> 89
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-43
<PAGE> 90
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-44
<PAGE> 91
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-45
<PAGE> 92
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-46
<PAGE> 93
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-47
<PAGE> 94
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-48
<PAGE> 95
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-49
<PAGE> 96
INDEX TO PRO FORMA INFORMATION
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Kiewit Materials Company and Subsidiaries Pro Forma
Consolidated Condensed Statements of Earnings............. F-52
Kiewit Materials Company and Subsidiaries Pro Forma
Consolidated Condensed Balance Sheet...................... F-54
Notes to Kiewit Materials Company and Subsidiaries Pro Forma
Consolidated Condensed Financial Statements............... F-55
</TABLE>
F-50
<PAGE> 97
PRO FORMA FINANCIAL INFORMATION
The pro forma financial information of Kiewit Materials Company 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 September 30, 1999.
The pro forma financial information is not intended to reflect results of
operations or the financial position of Kiewit Materials Company 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 Materials Company.
The pro forma financial information should be read in conjunction with
Kiewit Materials Company's historical financial statements, and the notes
thereto which are contained elsewhere herein.
F-51
<PAGE> 98
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 26, 1998
----------------------------------------
EXCHANGE OF
HISTORICAL DEBENTURES PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenue.............................................. $ 333,060 -- $ 333,060
Cost of Revenue...................................... (298,160) -- (298,160)
--------- ----------- -----------
34,900 -- 34,900
General and Administrative Expenses.................. (19,062) -- (19,062)
--------- ----------- -----------
Operating Earnings................................... 15,838 -- 15,838
Other Income (Expense)
Investment Income and Equity Earnings.............. 9,150 -- 9,150
Interest Expense................................... (935) 32(a) (967)
Other, net......................................... 1,176 -- 1,176
--------- ----------- -----------
9,391 (32) 9,359
--------- ----------- -----------
Earnings before Income Taxes......................... 25,229 (32) 25,197
Provision for Income Taxes........................... (9,851) 11(b) (9,840)
--------- ----------- -----------
Net Earnings......................................... $ 15,378 $ (21) $ 15,357
========= =========== ===========
Earnings per Share:
Basic.............................................. $ 153,783 $ 0.39
========= ===========
Diluted............................................ $ 153,783 $ 0.39
========= ===========
Weighted Average Shares Outstanding:
Basic.............................................. 100 39,758,734 39,758,834
========= =========== ===========
Diluted............................................ 100 39,854,263 39,854,363
========= =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-52
<PAGE> 99
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------
EXCHANGE OF
HISTORICAL DEBENTURES PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenue............................................. $ 328,454 $ -- $ 328,454
Cost of Revenue..................................... (286,656) -- (286,656)
--------- ----------- -----------
41,798 -- 41,798
General and Administrative
Expenses.......................................... (18,776) -- (18,776)
--------- ----------- -----------
Operating Earnings.................................. 23,022 -- 23,022
Other Income (Expense)
Investment Income and Equity Earnings............. 3,272 -- 3,272
Interest Expense.................................. (1,352) (23)(a) (1,375)
Other, net........................................ 743 -- 743
--------- ----------- -----------
2,663 (23) 2,640
--------- ----------- -----------
Earnings before Income Taxes........................ 25,685 (23) 25,662
Provision for Income Taxes.......................... (10,346) 8(b) (10,338)
--------- ----------- -----------
Net Earnings........................................ $ 15,339 $ (15) $ 15,324
========= =========== ===========
Earnings per Share:
Basic............................................. $ 153,394 $ 0.41
========= ===========
Diluted........................................... $ 153,394 $ 0.41
========= ===========
Weighted Average Shares Outstanding:
Basic............................................. 100 37,247,996 37,248,096
========= =========== ===========
Diluted........................................... 100 37,311,554 37,311,654
========= =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-53
<PAGE> 100
KIEWIT MATERIALS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CASH ISSUE
HISTORICAL CONTRIBUTION DEBENTURES PRO FORMA
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 54,564 $30,000(a) $540(b) $ 85,104
Marketable securities....................... 2,588 -- -- 2,588
Receivables, net............................ 57,382 -- -- 57,382
Deferred income taxes....................... 3,792 -- -- 3,792
Other....................................... 13,280 -- -- 13,280
-------- ------- ---- --------
Total Current Assets.......................... 131,606 30,000 540 162,146
Property, Plant and Equipment, net............ 99,467 -- -- 99,467
Other Assets.................................. 32,364 -- -- 32,364
-------- ------- ---- --------
$263,437 $30,000 $540 $293,977
======== ======= ==== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable............................ $ 23,081 $ -- $ -- $ 23,081
Current portion of long-term debt........... 439 -- -- 439
Accrued insurance costs..................... 7,322 -- -- 7,322
Other....................................... 20,845 -- -- 20,845
-------- ------- ---- --------
Total Current Liabilities..................... 51,687 -- -- 51,687
Long-term debt, less current portion.......... 2,544 -- 390(b) 2,934
Other liabilities............................. 10,079 -- -- 10,079
Minority interest............................. 367 -- -- 367
-------- ------- ---- --------
Total Liabilities........................ 64,677 -- 390 65,067
Stockholder's Equity:
Common stock................................ -- -- -- --
Additional paid-in capital.................. 127,319 30,000(a) 150(b) 157,469
Accumulated other comprehensive income...... (465) -- -- (465)
Retained earnings........................... 71,906 -- -- 71,906
-------- ------- ---- --------
Total Stockholder's Equity.................... 198,760 30,000 150 228,910
-------- ------- ---- --------
$263,437 $30,000 $540 $293,977
======== ======= ==== ========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-54
<PAGE> 101
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 (the "Company") are presented based upon the historical
consolidated financial statements and the notes thereto adjusted to give effect
to certain elements of the share exchange, the debenture exchange offer and the
spin-off. The pro forma information assumes that all of the current employees
will exchange approximately 1.1 million shares of Kiewit common stock for shares
of the Company's common stock with an equal aggregate formula value. It also
assumes that Kiewit debentureholders that are employees of the Company will
exchange their Kiewit debentures for debentures of the Company and that the
remaining Kiewit debentures will be exchanged for both shares of the Company's
common stock and reduced principal amount convertible debentures of Kiewit. The
remaining shares of the Company'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
the Company, 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
September 30, 1999 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 period.
The significant accounting policies followed by the Company, 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 the Company have been adjusted to give effect to certain elements
of the transactions. The adjustments made in preparation of the Company'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 debentures held by the Company's employees into
the Company's convertible debentures. The interest rate used to
calculate the increase in interest expense approximates the average
rate paid on debentures.
(b) Adjustments made to reflect the tax effect of the above adjustments.
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 $30 million capital contribution from Kiewit.
(b) Adjustments made to reflect the receipt of cash for the issuance of the
Company's convertible debentures exchanged for Kiewit debentures held
by the Company's employees.
4. EARNINGS PER SHARE
Basic and diluted earnings per share of 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-55
<PAGE> 102
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on February 18,
2000.
KIEWIT MATERIALS COMPANY
By: /s/ CHRISTOPHER J. MURPHY
------------------------------------
Christopher J. Murphy
President and Chief Executive Officer
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1+ Form of Separation Agreement by and between Peter Kiewit
Sons', Inc. and United Metro Materials Inc.
3.1+ Form of Restated Certificate of Incorporation of United
Metro Materials Inc.
3.2+ Form of Amended and Restated By-laws of United Metro
Materials Inc.
4.1+ Specimen certificate representing shares of common stock,
par value $0.01 per share, of United Metro Materials Inc.
10.1+ Form of Tax Sharing Agreement by and between Peter Kiewit
Sons, Inc. and United Metro Materials Inc.
21.1+ List of Subsidiaries of United Metro Materials Inc.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ To be filed by amendment.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-25-1999 DEC-26-1998
<PERIOD-END> SEP-30-1999 DEC-26-1998
<CASH> 54,564,445 65,601,870
<SECURITIES> 2,588,475 2,584,050
<RECEIVABLES> 57,381,716 40,821,168
<ALLOWANCES> 1,080,284 780,445
<INVENTORY> 10,092,030 7,766,988
<CURRENT-ASSETS> 131,606,496 121,829,445
<PP&E> 99,467,305 145,892,746
<DEPRECIATION> 32,363,412 86,454,443
<TOTAL-ASSETS> 263,437,213 207,053,697
<CURRENT-LIABILITIES> 51,686,631 57,342,289
<BONDS> 2,543,957 760,834
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 198,759,965 139,287,026
<TOTAL-LIABILITY-AND-EQUITY> 263,437,213 207,053,697
<SALES> 328,454,274 333,060,002
<TOTAL-REVENUES> 328,454,274 333,060,002
<CGS> 286,655,842 298,159,847
<TOTAL-COSTS> 286,655,842 298,159,847
<OTHER-EXPENSES> 18,776,674 19,062,488
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,351,591 934,888
<INCOME-PRETAX> 25,613,733 25,171,778
<INCOME-TAX> 10,274,326 9,793,440
<INCOME-CONTINUING> 15,339,407 15,378,338
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,339,407 15,378,338
<EPS-BASIC> 153,394.00 153,783.00
<EPS-DILUTED> 153,394.00 153,783.00
</TABLE>
