-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HWcI82Ha8jBqmZSia/+FTPdrfQMqDlmRR8Mms66KmC0fkO6xR2Ft5p/8xpCFoWIH xyjZ4LQClZZu4mWJOkHVTA== 0000950123-00-001451.txt : 20000221 0000950123-00-001451.hdr.sgml : 20000221 ACCESSION NUMBER: 0000950123-00-001451 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20000218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIEWIT MATERIALS CO CENTRAL INDEX KEY: 0001102755 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 470819021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-29619 FILM NUMBER: 549717 BUSINESS ADDRESS: STREET 1: KIEWIT PLAZA CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023422052 MAIL ADDRESS: STREET 1: KIEWIT PLAZA CITY: OMAHA STATE: NE ZIP: 68131 10-12G 1 KIEWIT MATERIALS COMPANY 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000 REGISTRATION NO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ 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) DELAWARE 1400 47-0819021 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) ORGANIZATION)
------------------------ 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) ------------------------ WITH A COPY TO: JOHN S. D'ALIMONTE, ESQ. WILLKIE FARR & GALLAGHER 787 SEVENTH AVENUE NEW YORK, NEW YORK 10019 (212) 728-8000 ------------------------ SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
NAME OF EACH EXCHANGE ON WHICH EACH CLASS TITLE OF EACH CLASS TO BE SO REGISTERED IS TO BE REGISTERED --------------------------------------- -----------------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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. 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
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT - -------- ------------ --------------------------------- 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."
4 [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 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. 6 TABLE OF CONTENTS
PAGE ---- 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
7
PAGE ---- 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
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. 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 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 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 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 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 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 7 15 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. 8 16 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. 9 17 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. 10 18 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. 11 19 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. 12 20 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. 13 21 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. 14 22 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. 15 23 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 16 24 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. 17 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. 18 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. 19 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.
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) 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
- --------------- (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. 20 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. 21 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 22 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. 23 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 24 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 25 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:
SEGMENT PERCENTAGE - ------- ---------- Commercial and industrial construction...................... 18% Residential construction.................................... 22% Street and highway construction and paving.................. 32% Other public works and infrastructure construction.......... 28% --- Total....................................................... 100%
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 26 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 27 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. 28 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. 29 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. 30 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.
NAME AGE POSITION ---- --- -------- 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
OTHER KEY PERSONNEL The following table provides material information concerning other key personnel of United Metro.
NAME AGE POSITION ---- --- -------- 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.
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. 31 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. 32 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.
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) --------------------------- ---- --------- -------- 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
DIRECTOR COMPENSATION Directors of United Metro will not receive directors' fees. 33 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." 34 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.
NUMBER OF SHARES PERCENT NAME BENEFICIALLY OWNED OF SHARES - ---- ------------------ --------- 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%
- --------------- * 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. 35 43 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. 36 44 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. 37 45 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 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 47 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGES ----- 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
F-1 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 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 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 51 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE YEARS ENDED DECEMBER 26, 1998
1998 1997 1996 ------------- ------------- ------------- 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 ============= ============= =============
See accompanying notes to consolidated financial statements. F-5 52 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 26, 1998 AND DECEMBER 27, 1997
1998 1997 ------------ ------------ 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 ============ ============
See accompanying notes to consolidated financial statements. F-6 53 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 26, 1998
1998 1997 1996 ------------ ------------ ------------ 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
See accompanying notes to consolidated financial statements. F-7 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
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S STOCK CAPITAL INCOME EARNINGS EQUITY ------ ----------- ------------- ------------ ------------- 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 === =========== ========= ============ ============
See accompanying notes to consolidated financial statements. F-8 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 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:
YEARS ----- Buildings and improvements.................................. 39 Equipment and other......................................... 5-10
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 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.
1998 1997 1996 ----------- ----------- ----------- 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 =========== =========== ===========
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 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:
UNREALIZED AMORTIZED HOLDING FAIR COST GAIN VALUE ---------- ---------- ---------- 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 ========== ======= ==========
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:
1998 1997 ---------- ---------- Raw materials....................................... $6,573,036 $5,538,887 Other............................................... 1,193,952 1,609,616 ---------- ---------- $7,766,988 $7,148,503 ========== ==========
4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consists of the following:
1998 1997 ----------- ----------- 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 =========== ===========
F-12 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:
1998 1997 ----------- ----------- 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 =========== ===========
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 60 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. EMPLOYEE BENEFIT PLANS, CONTINUED:
1998 1997 ----------- ---------- 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 =========== ==========
1998 1997 1996 ---------- --------- -------- 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 ========== ========= ========
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 61 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT: Long-term debt consists of the following:
1998 1997 ---------- ---------- 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 ========== ==========
Long-term debt repayments are due as follows: 1999............................................. $ 739,965 2000............................................. 249,180 2001............................................. 209,563 2002............................................. 136,374 2003............................................. 117,440 2004 and thereafter.............................. 48,277 ---------- $1,500,799 ==========
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 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:
FEDERAL STATE TOTAL ---------- ---------- ----------- 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 ========== ========== ===========
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:
1998 1997 1996 ---------- ----------- ---------- 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 ========== =========== ==========
F-16 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:
1998 1997 ----------- ----------- 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 =========== ===========
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:
1998 1997 1996 ------------ ------------ ------------ 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 ============ ============ ============
F-17 64 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. OTHER COMPREHENSIVE INCOME: Other comprehensive income consisted of the following:
TAX (EXPENSE) BEFORE TAX OR BENEFIT AFTER TAX ---------- ---------- --------- 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) ========= ======== =========
Accumulated other comprehensive income consisted of the following:
CURRENT BEGINNING YEAR ENDING BALANCE CHANGE BALANCE --------- --------- --------- 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) ========= ========= =========
F-18 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: 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 ===========
12. RELATED PARTY TRANSACTIONS: During 1998, 1997 and 1996 the Company was involved in transactions with affiliated companies as follows:
1998 1997 1996 ---------- ---------- ---------- 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
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 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 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 68 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS BALANCE CHARGED TO AMOUNTS BALANCE BEGINNING COSTS AND CHARGED TO END OF OF PERIOD EXPENSES RESERVES OTHER PERIOD --------- ------------------ ---------- ----- ------- (DOLLARS IN THOUSANDS) 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
F-22 69 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ----------- ------------ ------------ 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 ============ =========== ============ ============
See accompanying notes to consolidated condensed financial statements. F-23 70 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999 ------------- 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 ============
See accompanying notes to consolidated condensed financial statements. F-24 71 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1999 1998 ------------ ----------- 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 ============ ===========
See accompanying notes to consolidated condensed financial statements. F-25 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.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ -------------------------- 1999 1998 1999 1998 ---------- ---------- ----------- ----------- 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 ========== ========== =========== ===========
3. INVENTORIES: Inventories consist of the following:
SEPTEMBER 30, 1999 ------------- Raw materials........................................... $ 7,644,357 Other................................................... 2,447,673 ----------- $10,092,030 ===========
4. COMPREHENSIVE INCOME: Comprehensive income includes net earnings and unrealized gains (losses) on securities and minimum pension liability adjustments. F-26 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:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ -------------------------- 1999 1998 1999 1998 ---------- ---------- ----------- ----------- 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 ========== ========== =========== ===========
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.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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
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 74 PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGES ----- 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
F-28 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 76 PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C. COMBINED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- 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 =========== ===========
See accompanying notes to combined financial statements. F-30 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
1997 1996 ----------- ----------- 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 =========== ===========
See accompanying notes to combined financial statements. F-31 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
1997 1996 ----------- ------------ 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 --
See accompanying notes to combined financial statements. F-32 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: 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 ===========
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 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 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:
1997 1996 ---------- -------- Gravel and rock...................................... $1,803,930 $650,699 Fuel................................................. 72,427 57,404 ---------- -------- $1,876,357 $708,103 ========== ========
NOTE 3 -- LONG-TERM DEBT Long-term debt consists of the following:
1997 1996 ----------- ----------- 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 =========== ===========
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: 1998............................................. $4,066,316 1999............................................. 4,271,396 2000............................................. 4,400,096 2001............................................. 4,128,347 2002............................................. 2,004,991 Thereafter....................................... 3,090,864
F-35 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 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:
CAPITAL OPERATING LEASE LEASES ROYALTIES ---------- ---------- ---------- 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 ==========
Total rent and royalty expense consists of the following:
1997 1996 ---------- ---------- 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 ========== ==========
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: 1998.............................................. $192,000 1999.............................................. 168,000 2000.............................................. 40,000 -------- $400,000 ========
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 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 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
ADDITIONS BALANCE CHARGED TO AMOUNTS BEGINNING COSTS AND CHARGED TO BALANCE END OF PERIOD EXPENSES RESERVES OTHER OF PERIOD --------- ---------- ---------- -------- ----------- 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
F-39 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 87 PACIFIC ROCK PRODUCTS, L.L.C. AND RIVER CITY MACHINERY, L.L.C. COMBINED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
1998 1997 ----------- ----------- 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 =========== ===========
See accompanying notes to combined financial statements. F-41 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
1998 1997 ----------- ----------- 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 =========== ===========
See accompanying notes to combined financial statements. F-42 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
1998 1997 ------------ ----------- 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 $ --
See accompanying notes to combined financial statements. F-43 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 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:
1998 1997 ---------- ---------- Gravel and rock..................................... $1,123,967 $1,803,930 Fuel and oil........................................ 51,996 72,427 ---------- ---------- $1,175,963 $1,876,357 ========== ==========
NOTE 3 -- LONG-TERM DEBT Long-term debt consists of the following:
1998 1997 ----------- ----------- 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
F-45 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
1998 1997 ----------- ----------- 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 =========== ===========
As of December 31, 1998, future annual maturities of long-term debt are as follows: 1999............................................. $4,411,641 2000............................................. 4,549,711 2001............................................. 4,659,597 2002............................................. 1,971,818 2003............................................. 617,302 Thereafter....................................... 1,635,666
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 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:
CAPITAL OPERATING LEASE LEASES ROYALTIES ---------- ---------- ---------- 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 ==========
Total rent and royalty expense consists of the following:
1998 1997 ---------- ---------- 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 ========== ==========
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: 1999.............................................. $168,000 2000.............................................. 40,000 -------- $208,000 ========
F-47 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 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
ADDITIONS BALANCE CHARGED TO AMOUNTS BEGINNING COSTS AND CHARGED TO BALANCE END OF PERIOD EXPENSES RESERVES OTHER OF PERIOD --------- ---------- ---------- -------- ----------- 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
F-49 96 INDEX TO PRO FORMA INFORMATION
PAGES ----- 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
F-50 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 98 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
YEAR ENDED DECEMBER 26, 1998 ---------------------------------------- EXCHANGE OF HISTORICAL DEBENTURES PRO FORMA ---------- ----------- ----------- 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 ========= =========== ===========
See accompanying notes to pro forma consolidated condensed financial statements. F-52 99 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 ----------------------------------------- EXCHANGE OF HISTORICAL DEBENTURES PRO FORMA ---------- ----------- ----------- 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 ========= =========== ===========
See accompanying notes to pro forma consolidated condensed financial statements. F-53 100 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET SEPTEMBER 30, 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
CASH ISSUE HISTORICAL CONTRIBUTION DEBENTURES PRO FORMA ---------- ------------ ---------- --------- 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 ======== ======= ==== ========
See accompanying notes to pro forma consolidated condensed financial statements. F-54 101 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-55 102 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 103 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 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.
- --------------- + To be filed by amendment. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1 9-MOS 12-MOS DEC-25-1999 DEC-26-1998 SEP-30-1999 DEC-26-1998 54,564,445 65,601,870 2,588,475 2,584,050 57,381,716 40,821,168 1,080,284 780,445 10,092,030 7,766,988 131,606,496 121,829,445 99,467,305 145,892,746 32,363,412 86,454,443 263,437,213 207,053,697 51,686,631 57,342,289 2,543,957 760,834 0 0 0 0 1 1 198,759,965 139,287,026 263,437,213 207,053,697 328,454,274 333,060,002 328,454,274 333,060,002 286,655,842 298,159,847 286,655,842 298,159,847 18,776,674 19,062,488 0 0 1,351,591 934,888 25,613,733 25,171,778 10,274,326 9,793,440 15,339,407 15,378,338 0 0 0 0 0 0 15,339,407 15,378,338 153,394.00 153,783.00 153,394.00 153,783.00
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