-----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, REGavCULi8j7wvj7eS/ABPte2juFbQ1/ZntfGuHHq1Qeca6by0qY2IumD1MEge/U biHVhSk3FONa7G7gWY/UzA== /in/edgar/work/20000608/0000950123-00-005650/0000950123-00-005650.txt : 20000919 0000950123-00-005650.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950123-00-005650 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20000608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIEWIT MATERIALS CO CENTRAL INDEX KEY: 0001102755 STANDARD INDUSTRIAL CLASSIFICATION: [1400 ] IRS NUMBER: 470819021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-30768 FILM NUMBER: 651099 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 S-4/A 1 0001.txt KIEWIT MATERIALS COMPANY 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 2000 REGISTRATION NO. 333-30768 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ KIEWIT MATERIALS COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 1400 47-0819021 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------ 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 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JUNE 8, 2000 PROSPECTUS [PETER KIEWIT SONS', INC. LOGO] PETER KIEWIT SONS', INC. ------------------------ OFFER TO EXCHANGE ------------------------ SHARES OF COMMON STOCK OF KIEWIT MATERIALS COMPANY FOR SHARES OF COMMON STOCK OF PETER KIEWIT SONS', INC. ------------------------ The share exchange expires at 11:59 p.m., Omaha time, on , 2000, unless extended. Kiewit intends to spin-off Materials after the share exchange. Your right to withdraw tendered securities is limited, as described in this document. The new securities will not be listed on any securities exchange or market and will be subject to substantial transfer restrictions. SEE "RISK FACTORS," BEGINNING ON PAGE 11, FOR A DESCRIPTION OF FACTORS THAT YOU SHOULD CONSIDER IN EVALUATING THE SHARE EXCHANGE. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. , 2000 3 TABLE OF CONTENTS
PAGE ----- QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE.............. 1 SUMMARY..................................................... 7 The Companies............................................. 7 The Share Exchange........................................ 7 RISK FACTORS................................................ 11 Risk Factors Relating to the Share Exchange and the Spin-Off............................................... 11 Risk Factors Regarding Materials.......................... 12 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............. 17 THE SHARE EXCHANGE, THE DEBENTURE EXCHANGE OFFER AND THE SPIN-OFF.................................................. 18 Background and Purpose.................................... 18 The Debenture Exchange Offer.............................. 19 The Spin-off.............................................. 20 Effects................................................... 20 Dividend Policies......................................... 20 Ownership and Transfer Restrictions....................... 20 No Appraisal Rights....................................... 21 Regulatory Approvals...................................... 21 Capital Contributions to Materials........................ 22 Accounting Treatment...................................... 22 THE SHARE EXCHANGE.......................................... 22 Terms of the Share Exchange............................... 22 No Fractional Shares...................................... 24 Formula Price............................................. 24 Transfer Restrictions..................................... 24 Determining to Participate in the Share Exchange.......... 25 Exchange of Shares of Kiewit Common Stock................. 25 Procedures for Tendering Shares of Kiewit Common Stock.... 25 Lost or Destroyed Certificates............................ 26 Kiewit's Interpretations Are Binding...................... 26 Withdrawal Rights......................................... 26 Extension of Tender Period; Termination; Amendment........ 27 Conditions to the Share Exchange.......................... 28 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF KIEWIT.................................................... 29 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF MATERIALS................................................. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KIEWIT....................... 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MATERIALS.................... 40 BUSINESS OF MATERIALS....................................... 44 Industry Background/Market Overview....................... 44
i 4
PAGE ----- Business Strategy......................................... 47 Operations and Properties................................. 48 Reserves.................................................. 48 Products.................................................. 49 Customers................................................. 49 Competition............................................... 49 Employees................................................. 49 Governmental and Environmental Regulation................. 49 Legal Proceedings......................................... 50 BUSINESS OF KIEWIT.......................................... 51 The Construction Business................................. 51 Competition............................................... 51 Demand.................................................... 51 Backlog................................................... 52 Joint Ventures............................................ 52 Significant Customer...................................... 52 The Materials Business.................................... 52 Locations................................................. 52 Properties................................................ 52 Environmental Protection.................................. 53 Employees................................................. 53 MANAGEMENT OF MATERIALS..................................... 54 Senior Management and Directors of Materials.............. 54 Other Key Personnel....................................... 54 Committees................................................ 56 SECURITY OWNERSHIP OF MATERIALS COMMON STOCK BY CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF MATERIALS................................................. 57 EXECUTIVE COMPENSATION OF MATERIALS......................... 58 Summary Compensation Table................................ 58 Director Compensation..................................... 58 Other Compensation and Equity Programs.................... 58 MANAGEMENT OF KIEWIT........................................ 60 Senior Management and Directors of Kiewit................. 60 Committees................................................ 62 SECURITY OWNERSHIP OF KIEWIT COMMON STOCK BY CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF KIEWIT.................................................... 63 EXECUTIVE COMPENSATION OF KIEWIT............................ 64 Summary Compensation Table................................ 64 Director Compensation..................................... 64 CERTAIN TRANSACTIONS........................................ 64 Compensation Committee Interlocks and Insider Participation.......................................... 66
ii 5
PAGE ----- COMPARISON OF RIGHTS OF HOLDERS OF KIEWIT COMMON STOCK AND MATERIALS COMMON STOCK.................................... 66 General................................................... 66 Dividend Policy........................................... 67 Voting Rights............................................. 67 Repurchase Rights......................................... 67 Liquidation Rights........................................ 68 Formula Price............................................. 68 Ownership and Transfer Restrictions....................... 69 Listing................................................... 70 Limitation on Directors' Liability........................ 70 Preferred Stock........................................... 70 Action by Stockholder Consent; Stockholders' Meetings..... 70 RELATIONSHIP BETWEEN KIEWIT AND MATERIALS................... 71 Separation Agreement...................................... 71 Tax Sharing Agreement..................................... 72 Other..................................................... 72 MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 72 Non-U.S. Persons.......................................... 73 Reporting Requirements.................................... 73 NEBRASKA TAX LETTER......................................... 74 LEGAL MATTERS............................................... 74 EXPERTS..................................................... 74 WHERE YOU CAN FIND MORE INFORMATION......................... 75 INDEX TO KIEWIT FINANCIAL STATEMENTS........................ F-1 INDEX TO KIEWIT MATERIALS COMPANY FINANCIAL STATEMENTS...... F-33 INDEX TO PACIFIC ROCK PRODUCTS AND RIVER CITY MACHINERY FINANCIAL STATEMENTS...................................... F-60 INDEX TO PRO FORMA INFORMATION.............................. F-71
iii 6 QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE Q: WHAT IS THE SHARE EXCHANGE? A: In the share exchange, Peter Kiewit Sons', Inc. is offering Kiewit stockholders who are Kiewit Materials Company employees the opportunity to exchange their shares of Kiewit common stock for shares of Materials common stock with an equal aggregate formula price. Materials is a wholly owned subsidiary of Kiewit. The share exchange is being made in connection with a proposal by Kiewit to separate its construction and materials businesses into two separate, independent companies by distributing shares of Materials common stock to Kiewit stockholders in a spin-off that is intended to be tax-free for U.S. federal income tax purposes. Q: WHAT IS THE SPIN-OFF? A: After the completion of the share exchange and the debenture exchange offer described below, Kiewit will distribute the shares of Materials common stock it then holds as a dividend on a pro rata basis to holders of Kiewit common stock in the spin-off. Kiewit stockholders will receive in the spin-off one share of Materials common stock for each share of Kiewit common stock held. Q: WHY IS KIEWIT CONDUCTING THE SHARE EXCHANGE? A: Kiewit's restated certificate of incorporation generally restricts ownership of Kiewit common stock to directors and employees of Kiewit and employees of its subsidiaries. Following the completion of the spin-off, Materials employees will no longer be employed by Kiewit or a subsidiary of Kiewit and will no longer meet the requirements for owning Kiewit common stock. Therefore, they will be required to sell any shares of Kiewit common stock they then own back to Kiewit immediately following the spin-off. To provide Materials employees with a larger, more direct equity stake in the materials business and an alternative to having to sell their Kiewit common stock back to Kiewit for cash immediately following the spin-off, Kiewit is offering Kiewit stockholders who are Materials employees the opportunity to exchange their shares of Kiewit common stock for shares of Materials common stock with an equal aggregate formula price. Q: WHAT IS "FORMULA PRICE"? A: The formula price of Kiewit common stock is the per share price at which Kiewit buys and sells shares of its common stock and is based on the adjusted book value of Kiewit at the end of the previous year less the amount of declared dividends during the current year. The formula price of Kiewit common stock on April 30, 2000, was $20.35 per share. The Kiewit formula price will be reduced in the event Kiewit pays a cash dividend prior to the completion of the share exchange. The formula price of Materials common stock is the per share price at which Materials will buy shares of its common stock and is based on the adjusted book value of Materials at the end of the previous year, less the amount of declared dividends during the current year. In addition to any adjustments for declared dividends during the current year, the initial formula price for Materials common stock is also adjusted for the amount of any capital contributions made by Kiewit to Materials during fiscal year 2000 prior to the spin-off, other than amounts contributed in connection with the debenture exchange offer. Q: WHAT SHOULD I EXPECT TO RECEIVE IF I PARTICIPATE IN THE SHARE EXCHANGE? A: We have prepared the following table to illustrate what you would receive if you participated in the share exchange. The table sets forth Kiewit's estimate of the number of shares of Materials common stock that will be received for each share of Kiewit common stock tendered in the share exchange, assuming that (1) all of the Kiewit common stock held by Materials employees is exchanged in the share exchange; and 7 (2) fifty percent of the Kiewit common stock held by Materials employees is exchanged in the share exchange. The table assumes a formula price for Kiewit common stock immediately prior to the spin-off of $20.35 per share, the formula price as of April 30, 2000. The Kiewit formula price will be reduced in the event Kiewit pays a cash dividend prior to the completion of the share exchange. The table also assumes an initial formula price for Materials common stock of (1) $7.44 if all of the Kiewit common stock held by Materials employees is tendered in the share exchange; and (2) $7.66 if fifty percent of the Kiewit common stock held by Materials employees is tendered in the share exchange. The following are examples for illustrative purposes only and may not be indicative of what you will actually receive if you participate in the share exchange.
ESTIMATED TOTAL ESTIMATED NUMBER OF FORMULA PRICE OF ASSUMED PERCENTAGE SHARES OF MATERIALS SHARES OF MATERIALS OF SHARES OF KIEWIT COMMON STOCK YOU COMMON STOCK YOU COMMON STOCK HELD ASSUMED TOTAL ESTIMATED PER SHARE WILL RECEIVE PER ESTIMATED PER SHARE WILL RECEIVE PER BY MATERIALS NUMBER OF SHARES OF PRICE OF SHARES OF SHARE OF KIEWIT FORMULA PRICE OF SHARE OF KIEWIT EMPLOYEES THAT IS KIEWIT COMMON KIEWIT COMMON COMMON STOCK MATERIALS COMMON COMMON STOCK TENDERED FOR STOCK TENDERED FOR STOCK TENDERED FOR TENDERED FOR STOCK YOU WILL TENDERED FOR EXCHANGE EXCHANGE EXCHANGE EXCHANGE RECEIVE EXCHANGE 100% 1,072,246 $20.35 2.74 $7.44 $20.35 50% 536,123 $20.35 2.66 $7.66 $20.35
Q: WHAT IS THE DEBENTURE EXCHANGE OFFER? A: Kiewit is also offering the holders of its outstanding convertible debentures the opportunity to exchange their Kiewit debentures for: - Materials debentures convertible into shares of Materials common stock; or - both shares of Materials common stock and new reduced principal amount Kiewit debentures convertible into shares of Kiewit common stock. Q: WHY HAS KIEWIT DECIDED TO SEPARATE MATERIALS FROM KIEWIT? A: The board of directors and management of Kiewit have concluded that separation of its materials business and its construction business by means of a spin-off is in the best interests of Kiewit and Kiewit's stockholders. In reaching this conclusion, Kiewit's board of directors and management considered that, as a result of the spin-off, the share exchange and the debenture exchange offer: - the senior management of Materials will acquire a larger, direct interest in the materials business that reflects solely the performance of Materials; - Materials employees will acquire a larger, direct interest in the materials business, which the Kiewit board of directors believes is essential to Materials' ability to better retain, attract and motivate its employees; and - Materials should improve its ability to make sales to, and secure contracts from, unrelated construction businesses that have concerns about doing business with Materials while it is owned and controlled by a direct competitor. Q: WHAT IS THE "EXCHANGE RATIO" FOR THE SHARE EXCHANGE? A: The exchange ratio represents the number of shares of Materials common stock which Kiewit stockholders who are Materials employees will receive for each share of Kiewit common stock tendered in the share exchange. 2 8 Q: HOW WILL THE FINAL EXCHANGE RATIO BE DETERMINED? A: The exchange ratio will be set so that Kiewit stockholders who are Materials employees who tender their Kiewit common stock in the share exchange will receive Materials common stock with an equal aggregate formula price. The exact exchange ratio will not be known until the completion of the share exchange and the debenture exchange offer. Immediately prior to the completion of the share exchange and the debenture exchange offer, Materials will effect a stock split so that after the completion of the share exchange and the debenture exchange offer, there are a sufficient number of remaining shares to permit Kiewit stockholders to receive in the spin-off one share of Materials common stock for each share of Kiewit common stock held. Q: HOW DO I DECIDE WHETHER TO PARTICIPATE IN THE SHARE EXCHANGE? A: Whether you should participate in the share exchange depends on whether you would prefer to sell your shares of Kiewit common stock back to Kiewit for cash following the spin-off or exchange them for shares of Materials common stock. If you participate in the share exchange, you will receive shares of Materials common stock in a transaction that is intended to be tax-free to stockholders for U.S. federal income tax purposes, but you will not receive the Materials common stock being distributed to Kiewit stockholders as a dividend in the spin-off. If you do not participate in the share exchange, you will be required to sell your Kiewit common stock back to Kiewit in a taxable transaction, but you will receive the dividend of Materials common stock in the spin-off. The distribution of shares of Materials common stock will generally be tax-free for U.S. federal income tax purposes. You should consider all of the factors described under "Risk Factors" starting at page 11. Neither Kiewit, Materials nor any of their respective directors make any recommendation as to whether you should tender your shares of Kiewit common stock. You must make your own decision as to whether to tender your shares of Kiewit common stock after reading this document and consulting with your advisors based on your own financial position and requirements. Q: WHO IS ELIGIBLE TO PARTICIPATE IN THE SHARE EXCHANGE? A: Only Kiewit stockholders who are Materials employees are eligible to participate in the share exchange. Q: CAN I PARTICIPATE WITH ONLY A PORTION OF MY SHARES OF KIEWIT COMMON STOCK IN THE SHARE EXCHANGE? A: Yes. You can tender some or all of your shares of Kiewit common stock. However, following the spin-off, you will be required to sell any shares of Kiewit common stock you then hold back to Kiewit. Q: DO I HAVE TO DO ANYTHING IF I WANT TO RETAIN MY SHARES OF KIEWIT COMMON STOCK? A: No, you do not have to do anything if you want to retain your shares of Kiewit common stock. However, following the spin-off, you will be required to sell your shares of Kiewit common stock back to Kiewit. Q: HOW DO I PARTICIPATE IN THE SHARE EXCHANGE? A: Complete and sign the letter of transmittal designating the number of shares of Kiewit common stock you wish to tender. Send it, together with your share certificates and any other documents required by the letter of transmittal, by registered mail, return receipt requested, so that it is received by Kiewit at the address on the back cover of this prospectus before the expiration of the share exchange. If your Kiewit common stock has been pledged to a lender, you must make arrangements with the lender for the valid tender of the certificates representing the pledged Kiewit common stock. If, however, the lender is Enterprise Bank, N.A., Kiewit will arrange directly with the bank for delivery of the pledged certificates to Kiewit. 3 9 Q: CAN I CHANGE MY MIND AFTER I TENDER MY SHARES OF KIEWIT COMMON STOCK? A: Yes. You may withdraw tenders of your shares any time before the expiration of the share exchange. If you change your mind again, you can retender your shares of Kiewit common stock by following the tender procedures again prior to the expiration of the share exchange. However, following the spin-off, you will be required to sell any shares of Kiewit common stock you then hold back to Kiewit. Q: ARE THERE ANY CONDITIONS TO KIEWIT'S OBLIGATION TO COMPLETE THE SHARE EXCHANGE? A: Yes. Kiewit has received a ruling from the IRS confirming that the share exchange, the debenture exchange offer and the spin-off generally will be tax-free transactions for U.S. federal income tax purposes. The share exchange will not be completed unless that ruling remains in effect. Kiewit reserves the right to abandon the spin-off at any time prior to the completion of the share exchange and the debenture exchange offer. If Kiewit abandons the spin-off, it will not complete the share exchange or the debenture exchange offer. Kiewit also reserves the right to abandon the share exchange or the debenture exchange offer at any time prior to its completion. If Kiewit abandons either the share exchange or the debenture exchange offer, it will not complete the spin-off or the other exchange. There is no requirement that any minimum number of shares are tendered for the share exchange to be completed. Q: WHEN DOES THE SHARE EXCHANGE EXPIRE? A: The share exchange and withdrawal rights will expire at 11:59 p.m., Omaha time, on , 2000, unless extended. You must tender your shares of Kiewit common stock prior to the expiration date if you wish to participate in the share exchange. Q: WILL KIEWIT DISTRIBUTE FRACTIONAL SHARES OF MATERIALS COMMON STOCK IN THE SHARE EXCHANGE? A: No. As an administrative and cost-saving convenience, no fractional shares of Materials common stock will be issued in the share exchange. To the extent fractional shares of Materials common stock would otherwise be issued to holders of Kiewit common stock in the share exchange, Kiewit will round those fractional shares to whole shares in a manner that does not affect the total number of shares of Materials common stock. Q: WILL MATERIALS COMMON STOCK BE LISTED ON AN EXCHANGE? A: The Materials common stock will not be listed on any national securities exchange or quoted on the Nasdaq National Market. Q: ARE SHARES OF MATERIALS COMMON STOCK TRANSFERABLE? A: The Materials common stock will be subject to substantial transfer restrictions. Specifically, holders of Materials common stock will be prohibited from transferring the Materials common stock in any manner except in a sale to Materials or in a transfer for estate planning purposes that meets specified requirements. Upon the death of a Materials stockholder, the shares of Materials common stock owned by the deceased stockholder will be permitted to be transferred to his or her estate, provided that the shares transferred to the transferee will be subject to the same transfer restrictions. However, unlike Kiewit common stock, Materials stockholders will not be required to sell their Materials common stock back to Materials upon their retirement or other termination of their employment with Materials or Kiewit, as the case may be. All transfer restrictions may be terminated by the Materials board at any time. 4 10 Holders of Materials common stock are permitted to pledge their Materials common stock for loans in connection with their ownership of Materials common stock. For a more detailed description of the transfer restrictions on Materials common stock, see page 69. Q: HOW CAN I SELL SHARES OF MATERIALS COMMON STOCK TO MATERIALS? A: At any time on or prior to the 15th day of any calendar month, you may offer to sell all or part of your Materials common stock to Materials at the current formula price. Materials will generally be required to accept the offer within 10 days of receipt of the offer. Materials' repurchase obligations may be terminated by Materials' board of directors at any time. However, the board shall not have that authority unless it has also determined that the Materials common stock is publicly traded. Q: WILL I BE TAXED ON THE SHARES OF MATERIALS COMMON STOCK THAT I RECEIVE IN THE SHARE EXCHANGE? A: You generally will not recognize taxable gain or loss for U.S. federal income tax purposes on your receipt of shares of Materials common stock in exchange for shares of Kiewit common stock. Q: WHAT WILL BE THE TAX BASIS AND HOLDING PERIOD OF SHARES OF MATERIALS COMMON STOCK I RECEIVE IN EXCHANGE FOR MY SHARES OF KIEWIT COMMON STOCK FOR U.S. FEDERAL INCOME TAX PURPOSES? A: For U.S. federal income tax purposes, the tax basis of the shares of Materials common stock that you receive generally will be the same as the tax basis of the shares of Kiewit common stock exchanged, and your holding period for the shares of Materials common stock that you receive will include the period during which you held the shares of Kiewit common stock exchanged, provided that you held the Kiewit common stock as a capital asset. Q: WHAT WILL BE THE TAX BASIS IN THE SHARES OF KIEWIT COMMON STOCK THAT ARE NOT EXCHANGED IN THE SHARE EXCHANGE FOR U.S. FEDERAL INCOME TAX PURPOSES? A: For U.S. federal income tax purposes, the tax basis of any shares of Kiewit common stock that are not exchanged will remain the same. Q: WILL MATERIALS PAY DIVIDENDS ON SHARES OF MATERIALS COMMON STOCK? A: Materials does not currently intend to pay cash dividends on the Materials common stock. For a more detailed discussion of Materials' dividend policy, see "Materials has no current intentions to pay dividends" on page 20. Q: WILL KIEWIT CONTINUE TO PAY DIVIDENDS ON SHARES OF KIEWIT COMMON STOCK? A: Kiewit intends to continue its current dividend policy of paying a regular cash dividend on its common stock based upon a percentage of the prior year's ordinary earnings, with any special cash dividends to be based on extraordinary earnings. Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE SHARE EXCHANGE? A: Prior to the spin-off, stockholders with inquiries relating to the share exchange should contact: Douglas A. Obermier Stock Registrar Peter Kiewit Sons', Inc. Kiewit Plaza Omaha, Nebraska 68131 (402) 342-2052 5 11 After the spin-off, stockholders of Materials with inquiries relating to their investment in Materials common stock should contact: Mark E. Belmont Vice President, General Counsel and Secretary Kiewit Materials Company Kiewit Plaza Omaha, Nebraska 68131 (402) 536-3661 6 12 SUMMARY This summary highlights selected information from this prospectus and may not contain all of the information that is important to you. To understand the share exchange fully, you should read carefully this entire prospectus and the documents to which we have referred you. See "Where You Can Find More Information" on page 75. THE COMPANIES Peter Kiewit Sons', Inc. Kiewit Plaza Omaha, Nebraska 68131 (402) 342-2052 Peter Kiewit Sons', Inc., together with its subsidiaries, is one of the largest construction contractors in North America. Kiewit primarily performs its services as a general contractor, responsible for the overall direction and management of construction projects. Kiewit was incorporated in Delaware in 1997 to continue a construction business founded in Omaha, Nebraska in 1884. For more detail on the business of Kiewit, see page 51. Kiewit Materials Company Kiewit Plaza Omaha, Nebraska 68131 (402) 536-3661 Kiewit Materials Company, a wholly owned subsidiary of Kiewit, together with its subsidiaries, operates ready mix, asphalt and aggregates operations in Arizona, Washington, Oregon, California, Wyoming, Utah and New Mexico. For more detail on the business of Materials, see page 44. THE SHARE EXCHANGE TERMS OF THE SHARE EXCHANGE... Kiewit is offering Kiewit stockholders who are Materials employees the opportunity to exchange their shares of Kiewit common stock for shares of Materials common stock with an equal aggregate formula price. The share exchange is being made in connection with a proposal by Kiewit to separate its construction and materials businesses into two separate, independent companies by distributing shares of Materials common stock to Kiewit stockholders in a spin-off that is intended to be tax-free for U.S. federal income tax purposes. Stockholders who choose to participate in the share exchange will receive shares of Materials common stock with an initial aggregate formula price equal to the aggregate formula price of the shares of Kiewit common stock tendered in the share exchange. All shares of Kiewit common stock properly tendered and not withdrawn will be exchanged on the terms and conditions of the share exchange. Kiewit will promptly return to holders of Kiewit common stock any shares of Kiewit common stock not accepted for exchange following the expiration of the share exchange. 7 13 TRANSFER RESTRICTIONS......... The Materials common stock will be subject to substantial transfer restrictions. Specifically, holders of Materials common stock will be prohibited from transferring the Materials common stock in any manner except in a sale to Materials or in a transfer for estate planning purposes that meets specified requirements. Upon the death of a Materials stockholder, the shares of Materials common stock owned by the deceased stockholder will be permitted to be transferred to his or her estate, provided that the shares transferred to the transferee will be subject to the same transfer restrictions. However, unlike Kiewit common stock, Materials stockholders will not be required to sell their Materials common stock back to Materials upon their retirement or other termination of their employment with Materials or Kiewit, as the case may be. All transfer restrictions may be terminated by the Materials board at any time. Holders of Materials common stock are permitted to pledge the Materials common stock for loans in connection with the ownership of the Materials common stock. EXPIRATION DATE; EXTENSION; TERMINATION................. The share exchange will expire at 11:59 p.m., Omaha time, on , 2000, unless extended by Kiewit. You must tender your shares of Kiewit common stock prior to this date if you wish to participate. Kiewit may also terminate the share exchange in the circumstances described on page 27. WITHDRAWAL RIGHTS............. You may withdraw tenders of your shares of Kiewit common stock any time before the expiration of the share exchange. If you change your mind again, you can retender your shares of Kiewit common stock following the tender procedures again prior to the expiration of the share exchange. NO FRACTIONAL SHARES.......... As an administrative and cost-saving convenience, no fractional shares of Materials common stock will be issued in the share exchange. To the extent fractional shares of Materials common stock would otherwise be issued to holders of Kiewit common stock in the share exchange, Kiewit will round the fractional shares to whole shares without affecting the total number of shares of Materials common stock. CONDITIONS TO THE SHARE EXCHANGE...................... The share exchange is subject to various conditions. Kiewit has received a ruling from the IRS confirming that the share exchange, the debenture exchange offer and the spin-off generally will be tax-free transactions for U.S. federal income tax purposes. If the Kiewit board of directors determines at any time that Kiewit may be unable to rely on the ruling or that the ruling is not otherwise in effect, Kiewit would not complete the share exchange. For a more detailed description of the tax consequences of the share exchange, see page 72. Kiewit reserves the right to abandon the spin-off at any time prior to the completion of the share exchange and the debenture exchange offer. If Kiewit abandons the spin-off, it will not complete the share exchange or the debenture exchange offer. Kiewit also 8 14 reserves the right to abandon the share exchange or the debenture exchange offer at any time prior to its completion. If Kiewit abandons either the share exchange or the debenture exchange offer, it will not complete the spin-off or the other exchange. PROCEDURES FOR TENDERING...... You must complete and sign the letter of transmittal designating the number of shares of Kiewit common stock you wish to tender. Send the letter of transmittal, together with your share certificates and any other documents required by the letter of transmittal, by registered mail, return receipt requested, so that it is received by Kiewit at the address on the back cover of this prospectus before the expiration of the share exchange. If your Kiewit common stock has been pledged to a lender, you must make arrangements with the lender for the valid tender of the share certificates representing the pledged Kiewit common stock. If, however, the lender is Enterprise Bank, N.A., Kiewit will arrange directly with the bank for delivery of the pledged Kiewit common stock to Kiewit. DELIVERY OF SHARES OF MATERIALS COMMON STOCK........ Kiewit will deliver certificates representing shares of Materials common stock as soon as practicable after acceptance of Kiewit common stock for exchange. MATERIAL FEDERAL INCOME TAX CONSEQUENCES................ You generally will not recognize taxable gain or loss for U.S. federal income tax purposes as a result of the share exchange. See "Material Federal Income Tax Consequences" on page 72. USE OF PROCEEDS............... Neither Kiewit nor Materials will receive any proceeds from the issuance of Materials common stock in the share exchange. RISK FACTORS.................. You should consider carefully the matters described under the caption "Risk Factors," as well as the other information set forth in this prospectus. DETERMINING WHETHER TO PARTICIPATE IN THE SHARE EXCHANGE.................... You should consider all of the factors described under "Risk Factors" starting at page 11. Neither Kiewit, Materials nor any of their respective directors make any recommendation as to whether you should tender your Kiewit common stock. You must make your own decision as to whether to tender your Kiewit common stock after reading this document and consulting with your advisors based on your own financial position and requirements. EFFECTS OF THE SHARE EXCHANGE...................... The share exchange is being made to Kiewit stockholders who are Materials employees who will cease to be employees of Kiewit or a subsidiary of Kiewit after the spin-off. Materials employees holding Kiewit common stock will be affected by the spin-off regardless of whether they tender their shares of Kiewit common stock in the share exchange because, after the spin-off, they will be required to sell their Kiewit common stock back to Kiewit. Stockholders who participate in the share exchange will receive shares of Materials common stock in a transaction that is intended to be tax-free to 9 15 stockholders for U.S. federal income tax purposes, but will not receive the dividend of Materials common stock in the spin-off. Stockholders who do not participate in the share exchange will be required to sell their shares of Kiewit common stock back to Kiewit for cash in a taxable transaction immediately following the spin-off at its then current formula price, but will receive the dividend of Materials common stock in the spin-off. 10 16 RISK FACTORS In considering whether to participate in the share exchange, you should consider carefully all of the information set forth or incorporated in this prospectus and, in particular, the following risk factors. In addition, for a discussion of additional uncertainties associated with forward-looking statements in this prospectus, please see "Forward-Looking Statements May Prove Inaccurate" on page 17. RISK FACTORS RELATING TO THE SHARE EXCHANGE AND THE SPIN-OFF IF YOU DO NOT PARTICIPATE IN THE SHARE EXCHANGE, YOU WILL HAVE TO SELL YOUR SHARES OF KIEWIT COMMON STOCK BACK TO KIEWIT AFTER THE SPIN-OFF If the spin-off occurs, Kiewit stockholders who are employees of Materials will no longer be employed by Kiewit or a subsidiary of Kiewit. Kiewit's restated certificate of incorporation generally restricts ownership of Kiewit common stock to directors and employees of Kiewit and its subsidiaries. Therefore, immediately following the spin-off, any employees of Materials who hold Kiewit common stock will be required to sell their Kiewit common stock back to Kiewit for cash in a taxable transaction, at its then current formula value, but will receive the dividend of Materials common stock in the spin-off. YOU MAY BE EXTENDED LESS CREDIT BY LENDERS AGAINST MATERIALS COMMON STOCK COMPARED TO KIEWIT COMMON STOCK A lender that has extended credit secured by Kiewit common stock, in making decisions as to how much credit to extend against the collateral held by the lender, may assign a different loan-to-value ratio to the Materials common stock as compared to the Kiewit common stock. A lender may also assign a different loan-to-value ratio to the Kiewit common stock after the spin-off as compared to the loan-to-value ratio assigned to the Kiewit common stock before the spin-off. Further, the Materials formula price may be less readily predictable than the Kiewit formula price has historically been. A future decline in the formula price of Materials common stock pledged to a lender could result in the lender requiring that the borrower pledge additional collateral. If Kiewit common stock being exchanged pursuant to the share exchange is pledged to a lender, the Materials common stock received in exchange will also be subject to the pledge under the terms of the loan documentation between the stockholder and the lender. As a result, the stockholder may be required to deliver the Materials common stock to his or her lender. In light of the foregoing, persons who have pledged Kiewit common stock to a lender and who are considering participation in the share exchange should consult with the lender as to the effect of the share exchange and the spin-off on their loan arrangements. THE SHARE EXCHANGE, THE DEBENTURE EXCHANGE OFFER AND THE SPIN-OFF WILL RESULT IN A LOWER FORMULA PRICE FOR KIEWIT COMMON STOCK After the completion of the share exchange, the debenture exchange offer and the spin-off, Kiewit will no longer own any of the outstanding common stock of Materials. The formula price for Kiewit common stock is determined by reducing the prior year's adjusted book value by the amount of dividends declared during the current year. The spin-off will be effected by a dividend of shares of Materials common stock. Consequently, the formula price for Kiewit common stock immediately after the spin-off will be reduced by the book value of Materials distributed as a dividend in the spin-off, in respect of each Kiewit share. KIEWIT CAN REFUSE A REQUEST TO WITHDRAW TENDERED SHARES OF KIEWIT COMMON STOCK UNDER SPECIFIED CIRCUMSTANCES For a withdrawal of tendered shares of Kiewit common stock to be effective, you must comply with specified procedures described in this offering circular-prospectus. 11 17 If Kiewit: - delays its acceptance of shares of Kiewit common stock tendered for exchange; - extends the share exchange; or - is unable to accept shares of Kiewit common stock tendered for exchange under the share exchange for any reason, then, without prejudice to Kiewit's rights under the share exchange, Kiewit may retain shares of Kiewit common stock tendered. Those retained shares may not be withdrawn except as otherwise provided in this document, subject to provisions under the Securities Exchange Act that provide that an issuer making an exchange offer shall either pay the consideration offered or return tendered securities promptly after the termination or withdrawal of the exchange offer. RISK FACTORS REGARDING MATERIALS MATERIALS HAS NO CURRENT INTENTION TO PAY DIVIDENDS Materials' dividend policy following the spin-off will be determined by its board of directors. Under Delaware law and Materials' restated certificate of incorporation, Materials' board of directors will not be required to declare dividends on any class of Materials capital stock and will be free to adopt the dividend policy it deems appropriate and to change its dividend policy and practices from time to time. Materials does not currently intend to pay cash dividends on the Materials common stock. Kiewit intends to continue its current dividend policy of paying a regular cash dividend on its common stock based on a percentage of the prior year's ordinary earnings, with any special cash dividends to be based on extraordinary earnings. A DECREASE IN GOVERNMENT FUNDING OF HIGHWAY CONSTRUCTION AND MAINTENANCE AND OTHER INFRASTRUCTURE PROJECTS MAY REDUCE MATERIALS' SALES AND PROFITS A decrease or delay in government funding of highway construction and maintenance and other infrastructure projects could reduce Materials' sales and profits. This is because many of the customers Materials serves and intends to serve in the future depend substantially on government funding of highway construction and maintenance and other infrastructure projects. Unlike some of its competitors, Materials operates in a limited number of states. As a result, Materials may be more vulnerable than its more geographically diverse competitors to decreases in state government highway spending in the states in which it operates. BAD WEATHER IN MATERIALS' PEAK SEASON MAY RESULT IN LOWER SALES Poor weather during the months of April through November could result in lower sales of materials, which could reduce Materials' net sales and profits. This is because sales of materials are highest during this period and poor weather conditions may reduce or delay highway construction and maintenance and other infrastructure projects. In the past, significant changes in weather conditions during this period have caused variations in demand for materials. In addition, because Materials is not as geographically diverse as some of its competitors, it may be more vulnerable than these competitors to poor weather conditions in the regions in which it operates. GENERAL AND LOCAL ECONOMIC DOWNTURNS MAY RESULT IN DECREASED SALES AND PROFITS General economic downturns or localized downturns in regions where Materials has operations, including any downturns in the construction industry, could result in a decrease in sales and profits. A majority of Materials' sales are to customers in industries and businesses that are cyclical in nature and subject to changes in general economic conditions, such as the construction industry. Materials' business is principally located in the Pacific Northwest and the Southwest and is dependent upon the economies of those regions. Because its 12 18 business is more geographically concentrated than some of its competitors, it may be more vulnerable to local economic conditions. AN INCREASE IN THE PRICE OR DECREASE IN THE AVAILABILITY OF OIL MAY INCREASE THE PRICE OF ASPHALT, RESULTING IN LESS ASPHALT USE BY MATERIALS' CUSTOMERS A material rise in the price or a material decrease in the availability of oil could adversely affect Materials' operating results. Federal, state and municipal government spending on roads is subject to appropriations by the particular government entity. Asphalt prices are positively correlated to the price of oil. Therefore, if there is a material rise in the price or a material decrease in the availability of oil, there will be a resulting increase in the cost of producing asphalt, which Materials would likely attempt to pass along to its customers. As a result of any price increase, Materials' customers may use less asphalt, which would decrease its asphalt sales volumes. A material increase in the price or decrease in the availability of oil could also lead to higher gasoline costs which would also increase Materials' operating costs. An increase in Materials' operating costs could adversely affect its operating results if it cannot pass these increased costs through to its customers. MATERIALS' SUCCESS DEPENDS SIGNIFICANTLY ON A LIMITED NUMBER OF KEY PERSONNEL Materials will be managed by a small number of executive officers, including Christopher J. Murphy, its Chief Executive Officer and President. The loss of any of its key personnel could have a material adverse effect on Materials. Materials believes that its future success will depend in large part on its ability to retain and attract highly skilled, knowledgeable, sophisticated and qualified personnel. MATERIALS MAY INCUR SIGNIFICANT DEBT IN THE FUTURE WHICH COULD LIMIT ITS GROWTH AND ITS ABILITY TO RESPOND TO CHANGING CONDITIONS Materials may incur debt to fund acquisitions it may make as part of its growth strategy. The extent to which Materials incurs debt, and the resulting restrictive and financial covenants that Materials may be subject to, will have important consequences to the Materials stockholders. These include the following: - Materials' ability to use operating cash flows in other areas of its business might be limited because it would have to dedicate a substantial portion of these funds to pay interest; - Materials might be unable to obtain additional financing to fund its growth strategy, working capital, capital expenditures, debt service requirements or other purposes; - Materials' ability to adjust to changing market conditions and its ability to withstand competition might be hampered by the amount of debt it owes; and - Materials might be more vulnerable in a market downturn or a recession than its competitors with less debt. Future credit agreements that Materials may enter into may impose limitations on its ability to repurchase its shares of common stock. ACQUISITIONS, WHICH ARE A PART OF MATERIALS' GROWTH STRATEGY, INVOLVE RISKS THAT COULD CAUSE ITS ACTUAL GROWTH OR OPERATING RESULTS TO DIFFER FROM ITS EXPECTATIONS Materials currently intends to grow in part through the acquisition of additional materials businesses in exchange for cash or debt securities. If it is not successful in integrating acquired businesses, Materials may have difficulty operating its business. Materials may have greater difficulty integrating acquired businesses and assets than its competitors because of its size and its rapid growth. Materials has completed ten business and asset acquisitions since 1992. Its future success may be limited because of unforeseen expenses, difficulties, complications, delays and other risks inherent in the integration of acquired businesses, including the following: - Materials may not be able to compete successfully for available acquisition candidates, complete future acquisitions, or accurately estimate the financial effect of any businesses it acquires; 13 19 - Future acquisitions may require Materials to spend significant amounts of cash; - Materials may have trouble integrating acquired businesses and retaining personnel; - Materials may ultimately fail to consummate an acquisition, even if it announces that it plans to acquire a company; - Materials may choose to acquire a company that is less profitable than it is or has lower profit margins than it does; - Materials may not be able to obtain the necessary financing, on favorable terms or at all, to finance one or more of its potential acquisitions; - Acquisitions may disrupt Materials' business and distract its management from other responsibilities; - To the extent that any of the companies which Materials acquires fails, the growth of its business could be harmed; and - Future acquired companies may have unknown liabilities that could require Materials to spend significant amounts of additional capital. MATERIALS MAY BE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE MATERIALS INDUSTRY The following factors specific to the materials industry may affect Materials' business: - Transporting materials over even relatively short distances is costly in relation to the value of the delivered materials. Therefore, if Materials cannot maintain production sites close to its customers, its operating results may be adversely affected; - The cost and time involved in locating suitable mineral sources, obtaining proper permits and establishing operations can be significant and if Materials does not continue to be successful in these matters, it may lose growth opportunities and its operating results may be adversely affected; - Materials has significant investments in fixed locations in specific geographic areas. In the event one or more of its materials production sites loses business in its market, it could have a material adverse effect on its business, financial condition and results of operations; - It is possible that Materials could encounter increased competition from existing competitors or new market entrants that may be significantly larger and have greater financial and marketing resources; and - To the extent Materials' existing or future competitors seek to gain or retain market share by reducing prices, Materials may be required to lower its prices and rates, which would adversely affect its operating results. MATERIALS MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATIONS Materials' 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, Materials must have various permits. Although materials does not believe that the cost of compliance with these regulatory requirements will be material, it cannot assure you that it will not incur material costs or liabilities in connection with regulatory requirements. Its 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 its compliance efforts, risk of environmental liability is inherent in the operation of Materials' business. As a result, environmental liabilities could have a material adverse effect on Materials 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 Materials' products or business activities, may give rise to additional compliance and other costs that could have a material adverse effect on its business, financial condition and results of operations. See "Business of 14 20 Materials -- Governmental and Environmental Regulation" for a further discussion of the effects of regulation on Materials' business. MATERIALS' OPERATIONS ARE SUBJECT TO RISKS THAT MAY RESULT IN CLAIMS OF PERSONAL INJURY, PROPERTY DAMAGE OR OTHER LIABILITIES The drivers of Materials' heavy delivery trucks are subject to traffic and other hazards associated with providing services on construction sites. Materials' plant personnel are subject to the hazards associated with moving and storing large quantities of heavy raw materials. These operating hazards can cause personal injury and death, damage to or destruction of property and environmental damage. Materials' insurance coverage may not be adequate to cover all losses or liabilities it may incur in its operations, and Materials may not be able to maintain insurance of the types or at levels it deems necessary or adequate or at rates it considers reasonable. Materials' failure to maintain adequate insurance could have a material adverse effect on its business, financial position, results of operations and cash flows. MATERIALS HAS NO OPERATING HISTORY AS AN INDEPENDENT COMPANY Materials does not have an operating history as an independent company and has historically relied on Kiewit for various financial, administrative and managerial expertise relevant to operating as an independent company. After the spin-off, Materials will be responsible for obtaining or providing its own administrative functions. While Materials has been profitable as part of Kiewit, it cannot be certain that, as a stand-alone company, its future profits will be comparable to reported historical consolidated results before the spin-off. In addition, Materials' credit rating may be lower than that of Kiewit. ANTI-TAKEOVER PROVISIONS COULD DELAY A CHANGE IN MANAGEMENT OF MATERIALS Materials' restated certificate of incorporation and by-laws contain provisions that could make it more difficult or even prevent a third party from acquiring Materials without the approval of its incumbent board of directors. These provisions, among other things: - divide the board of directors into three classes, with members of each class to be elected in staggered three-year terms; - prohibit stockholder action by written consent in place of a meeting; - limit the right of stockholders to call special meetings of stockholders; - impose significant transfer restrictions on Materials common stock; - limit the right of stockholders to present proposals or nominate directors for election at annual meetings of stockholders; and - authorize the board of directors to issue preferred stock in one or more series without any action on the part of stockholders. These provisions could significantly impede the ability of the holders of Materials common stock to change management. THE MATERIALS BOARD OF DIRECTORS MAY SUSPEND OR TERMINATE MATERIALS' OBLIGATION TO REPURCHASE SHARES OF MATERIALS COMMON STOCK IN SPECIFIED CIRCUMSTANCES Holders of Materials common stock are generally permitted, at any time on or prior to the 15th day of any calendar month, to offer to sell all or part of their Materials common stock to Materials at the current formula price. Materials is generally required to accept the offer within 10 days of receipt of the offer. The Materials board of directors may suspend Materials' duties to repurchase Materials common stock offered by a stockholder for up to one year upon the Materials board's determination that the Materials adjusted book value to be determined at the end of the current fiscal year is likely to be less than the Materials 15 21 adjusted book value determined at the end of the prior fiscal year, less dividends declared on Materials common stock since the prior fiscal year end. If more than 5% of the outstanding shares of Materials common stock has been tendered for repurchase in any fiscal year, the Materials board has the right to decide to conserve Materials' cash by temporarily halting Materials' duty to repurchase Materials common stock for cash. In that event, payment will be in the form of interest-bearing promissory notes instead of cash. In addition, under Delaware law, Materials may not repurchase shares of its common stock if its capital is impaired or if the repurchase would impair its capital. Materials' repurchase obligations may be terminated by Materials' board of directors at any time. However, the board shall not have such authority unless it has also determined that the Materials common stock is publicly traded. MATERIALS COMMON STOCK IS SUBJECT TO SUBSTANTIAL TRANSFER RESTRICTIONS Holders of Materials common stock are prohibited from transferring the common stock in any manner except in a sale to Materials and, with prior approval by the Materials board of directors, to certain authorized transferees of the holders. In the event that the Materials board of directors decides to conduct an initial public offering of the Materials common stock, officers and directors of Materials and stockholders owning one percent or more of the Materials common stock outstanding at the time of the offering will not be permitted to sell or otherwise transfer any shares held by them for a period of up to one hundred eighty days following the offering. 16 22 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE Materials and Kiewit have made forward-looking statements in this prospectus that are subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of Materials and/or Kiewit. Also, when we use words such as "believes," "expects," "anticipates" or similar expressions, we are making forward-looking statements. You should note that many factors, some of which are discussed elsewhere in this prospectus, could affect the future financial results of Materials and/or Kiewit and could cause those results to differ materially from those expressed in the forward-looking statements contained in this prospectus. 17 23 THE SHARE EXCHANGE, THE DEBENTURE EXCHANGE OFFER AND THE SPIN-OFF BACKGROUND AND PURPOSE The share exchange is being made in connection with a proposal by Kiewit to separate its materials business and construction business in a spin-off that is intended to be tax-free to stockholders for U.S. federal income tax purposes. The board of directors and management of Kiewit have determined that separation of the materials business and the construction business is in the best interests of Kiewit and Kiewit's stockholders. In reaching this conclusion, Kiewit's board of directors and management considered the factors discussed below. Key Materials Employees Kiewit's restated certificate of incorporation generally restricts ownership of Kiewit common stock to directors and employees of Kiewit and employees of its subsidiaries. Kiewit's policy of employee ownership originated many years ago as a way of attracting and motivating top-quality employees. Historically, Kiewit has maintained a relatively low salary structure and few retirement benefits for its key employees in relation to its competitors, instead choosing to motivate and reward its employees by linking their personal economic well-being to the performance and growth of Kiewit common stock. In recent years, as a result of Materials' acquisition strategy, the materials business has become an increasingly larger portion of Kiewit's overall business. However, since the price of Kiewit common stock reflects the performance of all of Kiewit's operations, it does not directly and distinctly reflect the results of operations of the materials business. Kiewit believes that materials employees would be better motivated if there were a clearer connection between the results of their work and their economic rewards. This lack of connection between effort and reward is particularly pronounced for key employees of Materials, whose annual compensation, in keeping with Kiewit's core philosophy, is particularly low in relation to the value of their Kiewit common stock. Kiewit would like to provide Materials' key employees with a larger, direct ownership interest in the materials business alone, undistorted by the economic returns of the construction business. Kiewit believes that the future of the materials business depends to a large degree on the continued efforts of these individuals and that they will be much more and better motivated to promote its financial success if they hold an increased interest solely in the enterprise in which they are employed. By acquiring an increased equity interest in Materials, which will operate only the materials business, these employees' economic rewards will be tied much more closely and directly to their performance. Each of Materials' key employees is expected to exchange all of his Kiewit common stock for Materials common stock in the share exchange. If they do, these employees' equity ownership will change from an approximately 2.2% aggregate interest in Kiewit as of April 30, 2000 to an approximately 5.5% aggregate interest in Materials. Increased Ownership for All Materials Employees The share exchange provides all Materials employees who own Kiewit common stock, approximately 60 individuals (including key employees), with the opportunity to obtain a substantially larger, direct ownership interest in the materials business that is unaffected by the results of the construction business. Kiewit believes this increased correlation between these employees' work performance and their stock-based financial rewards is essential to Materials' ability to better retain, attract and motivate its employees broadly as a group. If all of the Materials employees who own Kiewit common stock exchange their Kiewit common stock for Materials common stock in the share exchange, these employees' equity ownership in Materials (including the key employees) will change from an approximately 3.4% aggregate interest in Kiewit as of April 30, 2000 to an approximately 8.4% aggregate interest in Materials. This more closely aligns the economic interests of these 18 24 Materials employees with Materials' interests and is expected to motivate these employees to work and compete more efficiently. Competition The management of Materials believes that there are potential customers who are reluctant to do business with Materials because of its existing relationship with Kiewit. These potential customers view the companies operating the construction business within Kiewit's affiliated group as their direct competitors. The perception that the materials business is owned and controlled by Kiewit has limited Materials' ability to obtain business from these potential customers. The managers of Materials believe that their ability to make sales to and secure contracts from unrelated construction businesses would be meaningfully improved if the materials business were separated from the construction business, so that no entity owning or operating the construction business would have control over or benefit economically from the materials business. THE DEBENTURE EXCHANGE OFFER Kiewit is also offering the holders of its outstanding convertible debentures the opportunity to exchange their Kiewit debentures for: - Materials debentures convertible into shares of Materials common stock; or - both shares of Materials common stock and new reduced principal amount Kiewit debentures convertible into shares of Kiewit common stock. Holders of Kiewit convertible debentures who exchange their Kiewit debentures for Materials debentures will receive Materials debentures in the same principal amount, bearing interest at the same rate as the Kiewit convertible debentures for which they were exchanged and due on October 31, 2010. The Materials debentures will be convertible into shares of Materials common stock with an initial aggregate formula price equal to the aggregate formula price of the Kiewit common stock into which the holder's Kiewit debenture was convertible at the expiration of the debenture exchange offer. The Materials debentures will be convertible into shares of Materials common stock during the same period that the Kiewit debentures were convertible into shares of Kiewit common stock. The Materials debentures will also be convertible in other limited circumstances. Holders of Kiewit convertible debentures who exchange their debentures for Materials common stock and new reduced principal amount Kiewit convertible debentures will receive: - new reduced principal amount Kiewit debentures, bearing interest at the same rate as the Kiewit convertible debentures for which they were exchanged and due on October 31, 2010; and - shares of Materials common stock. The new Kiewit debenture will be convertible into the same number of shares of Kiewit common stock as the original Kiewit debentures during the same period that the original Kiewit debenture was convertible. The principal amount of the new Kiewit debenture will be the principal amount of the holder's original Kiewit debenture less the initial formula price of the Materials common stock received by the holder in the debenture exchange offer. The number of shares of Materials common stock the holder of a new reduced principal amount Kiewit debenture will receive will be equal to the number of shares that holder would have received had he or she converted his or her original Kiewit debenture prior to the spin-off and received the dividend of Materials common stock in the spin-off. Each holder of Kiewit convertible debentures is a party to a repurchase agreement that requires that the debentures be sold to Kiewit on termination of the holder's employment with Kiewit or a subsidiary of Kiewit. Following the completion of the spin-off, Materials employees will no longer be employed by Kiewit or a subsidiary of Kiewit and will no longer meet the requirements for owning Kiewit debentures. Therefore, they 19 25 will be required to sell any Kiewit debentures they then own back to Kiewit. The debenture exchange offer allows debentureholders who are Materials employees the opportunity to acquire securities of their company and avoid having to sell any Kiewit debentures they then own back to Kiewit immediately following the spin- off. Kiewit debentures do not contain provisions which would enable debentureholders who are Kiewit employees to participate in the distribution of shares of Materials common stock in the spin-off or which would adjust the conversion ratio of the outstanding Kiewit debentures to take into account the effect of the spin-off. Following the spin-off, the shares of Kiewit common stock issuable on conversion of the Kiewit debentures will have a lower aggregate formula price since the formula price for Kiewit common stock immediately after the spin-off will be reduced by the book value of Materials distributed as a dividend in the spin-off. The debenture exchange offer allows debentureholders who are Kiewit employees the opportunity to participate in the spin-off by receiving Materials common stock and new reduced principal amount Kiewit debentures. THE SPIN-OFF After the completion of the share exchange and the debenture exchange offer, Kiewit will distribute the shares of Materials common stock it then holds as a dividend on a pro rata basis to holders of Kiewit common stock in the spin-off. Kiewit stockholders will receive in the spin-off one share of Materials common stock for each share of Kiewit common stock held. EFFECTS As a result of the spin-off, the share exchange and the debenture exchange offer, Materials will become a fully independent, separate company. The share exchange is being made to Kiewit stockholders who are Materials employees who will cease to be employees of Kiewit or its subsidiary after the spin-off. Those Materials employees holding Kiewit common stock will be affected by the spin-off regardless of whether they tender their shares of Kiewit common stock in the share exchange because, after the spin-off, they will be required to sell their Kiewit common stock back to Kiewit. Stockholders who participate in the share exchange will receive shares of Materials common stock in a transaction that is intended to be tax-free to stockholders for U.S. federal income tax purposes, but will not receive the dividend of Materials common stock in the spin-off. Stockholders who do not participate in the share exchange will be required to sell their Kiewit common stock back to Kiewit for cash in a taxable transaction immediately following the spin-off at its then formula price, but will receive the dividend of Materials common stock in the spin-off. The formula price for Kiewit common stock is determined by reducing the prior year's adjusted book value by the amount of dividends declared during the current year. The spin-off will be effected by a dividend of shares of Materials common stock. Consequently, the formula price for Kiewit common stock immediately after the spin-off will be reduced by the book value of Materials distributed as a dividend in the spin-off, in respect of each Kiewit share. DIVIDEND POLICIES Materials does not currently intend to pay cash dividends on the Materials common stock. Kiewit intends to continue its current dividend policy of paying a regular cash dividend on its common stock based on a percentage of the prior year's ordinary earnings, with any special cash dividends to be based on extraordinary earnings. OWNERSHIP AND TRANSFER RESTRICTIONS Holders of Materials common stock are prohibited from transferring the Materials common stock in any manner except in a sale to Materials and, with prior approval by the Materials board of directors, to certain 20 26 authorized transferees of the holders. Those authorized transferees consist of fiduciaries for the benefit of the holders and members of the immediate families of the holders, corporations wholly owned by holders or holders and their spouses and/or children, fiduciaries for the benefit of such corporations and charities and fiduciaries for charities designated by any such persons. Upon the death of a Materials stockholder, the shares of Materials common stock owned by the deceased stockholder would be permitted to be transferred to his or her estate, provided that the shares transferred to the transferee would be subject to the same transfer restrictions. There is no restriction on the maximum amount of Materials common stock that may be owned by any individual or entity. Holders of Materials common stock are permitted to pledge the Materials common stock for loans in connection with the ownership of the Materials common stock. In the event that the board of directors decides to conduct an initial public offering of the Materials common stock, officers and directors of Materials and stockholders owning one percent or more of the Materials common stock outstanding at the time of the offering will not be permitted to sell or otherwise transfer any shares held by them for a period of up to one hundred eighty days following the offering. In addition to any officers and directors who may be subject to the 180 day transfer restriction following an initial public offering, Materials estimates that there may be up to seven additional stockholders, all of whom are Kiewit employees, who may own 1% or more of Materials common stock and thus be subject to this transfer restriction. All transfer restrictions on the Materials common stock may be terminated by the Materials board at any time. Kiewit common stock may generally be owned only by directors of Kiewit, employees of Kiewit and its subsidiaries and, with prior Kiewit board of directors approval, by certain authorized transferees of such employees (i.e., fiduciaries for the benefit of members of the immediate families of employees, corporations wholly owned by employees or employees and their spouses and/or children, fiduciaries for the benefit of such corporations, charities, and fiduciaries for charities designated by any such persons). No more than 10% of the total Kiewit common stock may be owned by any one employee and certain transferees at any time. Each holder of Kiewit common stock is required to execute a repurchase agreement which provides that a stockholder may offer to sell all or part of the Kiewit common stock owned by such stockholder to Kiewit at any time at the current formula price and that Kiewit must accept any such offer. Upon the tender of a part of such holder's shares of Kiewit common stock, Kiewit is entitled, at its option, to require the holder to sell any or all remaining Kiewit common stock held by such holder back to Kiewit. Under the repurchase agreement, the employee will not be entitled to transfer the shares of Kiewit common stock held by such employee except in a sale to Kiewit or a transfer to an authorized transferee (i.e., a charity, etc.). Upon the death, termination of employment or retirement of such employee, all Kiewit common stock held by the employee and by such employee's authorized transferees is required to be sold back to Kiewit. Holders of Kiewit common stock are permitted to pledge the Kiewit common stock for loans in connection with the ownership of the Kiewit common stock. NO APPRAISAL RIGHTS Because none of the share exchange, the debenture exchange offer or the spin-off is a merger or consolidation giving rise to appraisal rights under Section 262 of the Delaware General Corporation Law, no appraisal rights are available to Kiewit stockholders in connection with these transactions. REGULATORY APPROVALS Kiewit and Materials do not believe that any material federal or state regulatory approvals will be necessary to consummate the share exchange, the debenture exchange offer or the spin-off. 21 27 CAPITAL CONTRIBUTIONS TO MATERIALS Prior to the completion of the debenture exchange offer and the share exchange, Kiewit intends to make capital contributions to Materials. A portion of the aggregate capital contributions will represent a payment to Materials for the obligations assumed as a result of the issuance of the Materials debentures in the debenture exchange offer. Kiewit currently anticipates that the aggregate amount of the contributions will be approximately $40 million to $60 million. The actual amount of the contributions may, however, vary from the amount currently anticipated. ACCOUNTING TREATMENT Share Exchange The exchange of Materials common stock for Kiewit common stock in the share exchange will be computed on the basis of their respective formula prices on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by Kiewit as a result of the consummation of the share exchange. Debenture Exchange Offer The Materials convertible debentures will be recorded at the same carrying value as the Kiewit convertible debentures as reflected on Kiewit's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by Kiewit as a result of the consummation of the debenture exchange offer. The combined Materials common stock and new reduced principal amount Kiewit convertible debentures will be recorded at the same carrying value as the Kiewit convertible debentures as reflected on Kiewit's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by Kiewit as a result of the consummation of the debenture exchange offer. Spin-off Shares of Materials common stock that are distributed in the spin-off will be accounted for as a dividend through a direct charge to retained earnings. The amount of the dividend will be equal to Kiewit's carrying value of the shares of Materials common stock distributed. After the spin-off, the historical consolidated financial statements of Kiewit will be retroactively restated, where appropriate, to disaggregate the historical basis financial information of Materials to present the business of Materials as discontinued operations. After the spin-off, the business of Materials will be operated independently from Kiewit and will be reflected in the separate financial statements of Materials on a historical cost basis. THE SHARE EXCHANGE TERMS OF THE SHARE EXCHANGE Kiewit is offering Kiewit stockholders who are Materials employees the opportunity to exchange their shares of Kiewit common stock for shares of Materials common stock with an equal aggregate formula price. The share exchange is being made in connection with a proposal by Kiewit to separate its construction and its materials businesses into two separate, independent companies by distributing shares of Materials common stock to Kiewit stockholders in a spin-off that is intended to be tax-free for U.S. federal income tax purposes. 22 28 Stockholders who choose to participate in the share exchange will receive shares of Materials common stock with an initial aggregate formula price equal to the aggregate formula price of the shares of Kiewit common stock tendered in the share exchange. The remaining shares of Materials common stock held by Kiewit after the completion of the share exchange and the debenture exchange offer will be distributed on a pro rata basis to holders of Kiewit common stock. Although participants in the share exchange will receive shares of Materials common stock with an aggregate formula price equal to the aggregate formula price of the shares of Kiewit common stock exchanged, the actual number of shares of Materials common stock received for each share of Kiewit common stock tendered in the share exchange will depend on the actual number of shares of Kiewit common stock tendered in the share exchange and the result of the debenture exchange offer. Immediately prior to the completion of the share exchange and the debenture exchange offer, Materials will effect a stock split so that after the completion of the share exchange and the debenture exchange offer, there are a sufficient number of remaining shares to permit Kiewit stockholders to receive in the spin-off one share of Materials common stock for each share of Kiewit common stock held. The share exchange and withdrawal rights will expire on , 2000, unless extended. This prospectus and the letter of transmittal are being sent to persons who were employees of Materials and holders of record of Kiewit common stock at the close of business on , 2000. As of that date, Kiewit stockholders who were employees of Materials held shares of the shares of Kiewit common stock outstanding. We have prepared the following table to illustrate what you would receive if you participated in the share exchange. The table sets forth Kiewit's estimate of the number of shares of Materials common stock that will be received for each share of Kiewit common stock tendered in the share exchange, assuming that (1) all of the Kiewit common stock held by Materials employees is exchanged in the share exchange; and (2) fifty percent of the Kiewit common stock held by Materials employees is exchanged in the share exchange. The following are examples for illustrative purposes only and may not be indicative of what you will actually receive if you participate in the share exchange.
ASSUMED ESTIMATED NUMBER ESTIMATED TOTAL PERCENTAGE OF OF SHARES OF FORMULA PRICE OF SHARES OF KIEWIT MATERIALS ESTIMATED PER SHARES OF MATERIALS COMMON STOCK ASSUMED TOTAL ESTIMATED PER COMMON STOCK SHARE FORMULA COMMON STOCK YOU HELD BY NUMBER OF SHARES SHARE PRICE OF YOU WILL RECEIVE PRICE OF WILL RECEIVE PER MATERIALS OF KIEWIT SHARES OF KIEWIT PER SHARE MATERIALS SHARE OF EMPLOYEES THAT IS COMMON STOCK COMMON STOCK OF KIEWIT COMMON COMMON KIEWIT COMMON TENDERED FOR TENDERED FOR TENDERED FOR STOCK TENDERED STOCK YOU STOCK TENDERED FOR EXCHANGE EXCHANGE EXCHANGE FOR EXCHANGE WILL RECEIVE EXCHANGE - ------------------ ------------------- ---------------- ---------------- --------------- ------------------- 100% 1,072,246 $20.35 2.74 $7.44 $20.35 50% 536,123 $20.35 2.66 $7.66 $20.35
The results in the above table were prepared on the basis of the following: - - Based on 31,895,472 shares of Kiewit common stock outstanding on April 30, 2000, of which 1,072,246 shares were held by Materials employees, and $13,150,000 in principal of Kiewit convertible debentures outstanding on April 30, 2000, of which $670,000 were held by Materials employees; - - Assumes that Kiewit will contribute $50 million to Materials prior to the share exchange and the debenture exchange offer and, as a result, the estimated adjusted book value that will be used in calculating the Materials formula price would be $258,688,537; - - Assumes that, in the debenture exchange offer, holders of Kiewit convertible debentures who are employees of Materials exchanged $670,000 principal amount Kiewit debentures for Materials convertible debentures and other holders of Kiewit debentures exchanged $12,480,000 principal amount Kiewit debentures for new reduced principal amount Kiewit convertible debentures and shares of Materials common stock; 23 29 - - Assumes a formula price for Kiewit common stock immediately prior to the spin-off of $20.35 per share, the formula price as of April 30, 2000; and - - Assumes a formula price for Materials common stock of (1) $7.44 per share if all of the Kiewit common stock held by Materials employees is tendered in the share exchange; and (2) $7.66 if fifty percent of the Kiewit common stock held by Materials employees is tendered in the share exchange. NO FRACTIONAL SHARES As an administrative and cost-saving convenience, no fractional shares of Materials common stock will be issued in the share exchange. To the extent fractional shares of Materials common stock would otherwise be issued to holders of Kiewit common stock in the share exchange, Kiewit will apply a convention whereby such fractional shares are rounded to whole shares without affecting the total number of shares of Materials common stock. For this purpose, Kiewit will calculate the aggregate number of shares of Materials common stock that would otherwise be issuable as fractional shares. Of such number of shares, one whole share will be distributed to each holder of Kiewit common stock who would otherwise be entitled to receive fractional shares of the stock, in the order of the magnitude of the fractions, until all of those shares have been distributed. The remaining holders of Kiewit common stock will not be entitled to receive any consideration in respect of the fractional shares otherwise issuable to them. FORMULA PRICE The formula price of Kiewit common stock is the per share price at which Kiewit buys and sells shares of its common stock and is based on the adjusted book value of Kiewit at the end of the previous year less the amount of declared dividends during the current year. The formula price of Kiewit common stock on April 30, 2000 was $20.35 per share. The Kiewit formula price will be reduced in the event Kiewit pays a cash dividend prior to the completion of the share exchange. The formula price of Materials common stock is the per share price at which Materials will buy shares of its common stock and is based on the adjusted book value of Materials at the end of the previous year less the amount of declared dividends during the current year. In addition to any adjustments for declared dividends during the current year, the initial formula price for Materials common stock is also adjusted for the amount of any capital contributions made by Kiewit to Materials during fiscal year 2000 prior to the spin-off, other than with respect to amounts contributed in connection with the issuance of Materials debentures in the debenture exchange offer. TRANSFER RESTRICTIONS The Materials common stock will be subject to substantial transfer restrictions. Specifically, holders of Materials common stock will be prohibited from transferring the Materials common stock in any manner except in a sale to Materials or in a transfer for estate planning purposes that meets specified requirements. Upon the death of a Materials stockholder, the shares of Materials common stock owned by the deceased stockholder will be permitted to be transferred to his or her estate, provided that the shares transferred to the transferee will be subject to the same transfer restrictions. However, unlike Kiewit common stock, Materials stockholders will not be required to sell their Materials common stock back to Materials upon their retirement or other termination of their employment with Materials or Kiewit, as the case may be. All transfer restrictions may be terminated by the Materials board at any time. Holders of Materials common stock are permitted to pledge their Materials common stock for loans in connection with ownership of the Materials common stock. 24 30 DETERMINING TO PARTICIPATE IN THE SHARE EXCHANGE Whether you should participate in the share exchange depends on whether you would prefer to sell your shares of Kiewit common stock back to Kiewit for cash following the spin-off or exchange them for shares of Materials common stock. If you participate in the share exchange, you will receive shares of Materials common stock in a transaction that is intended to be tax-free to stockholders for U.S. federal income tax purposes, but you will not receive the Materials common stock being distributed to Kiewit stockholders as a dividend in the spin-off. If you do not participate in the share exchange, you will be required to sell your Kiewit common stock back to Kiewit for cash in a taxable transaction at the then current formula price, but you will receive the dividend of Materials common stock in the spin-off. You should consider all of the factors described under "Risk Factors" starting at page 11. Neither Kiewit, Materials nor any of their respective directors make any recommendation as to whether you should tender your shares of Kiewit common stock. You must make your own decision as to whether to tender your shares of Kiewit common stock after reading this document and consulting with your advisors based on your own financial position and requirements. EXCHANGE OF SHARES OF KIEWIT COMMON STOCK If all of the conditions to the share exchange are met, Kiewit will accept for exchange shares of Kiewit common stock that have been validly tendered and not properly withdrawn or deemed withdrawn prior to the expiration date, except as described in "Extension of Tender Period; Termination; Amendment" on page 27. Kiewit may, subject to the rules under the Securities Act, delay accepting or exchanging any shares of Kiewit common stock in order to comply in whole or in part with any applicable law. For a description of Kiewit's right to delay, terminate or amend the share exchange, see "-- Extension of Tender Period; Termination; Amendment" on page 27. Holders who tender their shares of Kiewit common stock for exchange will generally not be obligated to pay any transfer tax in connection with the share exchange. However, if the payment of any stock transfer taxes is required, tendering stockholders will be responsible for the payment of those taxes. Kiewit will not pay interest under the share exchange, regardless of any delay in making the exchange or crediting or delivering shares. PROCEDURES FOR TENDERING SHARES OF KIEWIT COMMON STOCK To tender your shares of Kiewit common stock, you must send to Kiewit, by registered mail, return receipt requested, the following documents to be received by Kiewit before the expiration date for the share exchange: - a completed and executed letter of transmittal indicating the number of shares of Kiewit common stock to be tendered and any other documents required by the letter of transmittal; and - the actual certificates representing the shares of Kiewit common stock. Kiewit's address is listed on the back cover of this document. If Kiewit common stock has been pledged to a lender, the registered holder of the pledged Kiewit common stock must make appropriate arrangements with the lender for the valid tender of the certificates representing the pledged Kiewit common stock. If, however, the lender is Enterprise Bank, N.A., Kiewit will arrange directly with the bank for the delivery of the pledged certificates to Kiewit. Kiewit will deliver the Materials common stock issued in exchange for Kiewit common stock directly to any lending institution to which the Kiewit common stock was pledged if so directed by the registered holder of the pledged stock in the holder's letter of transmittal. If the Kiewit common stock received in exchange for the tendered Kiewit common stock is to be delivered to a lender other than Enterprise Bank, N.A., the letter of transmittal must state with specificity the necessary information, including the name, address and contact person of the lender, 25 31 to effect the delivery. If a holder of pledged Kiewit common stock does not designate the lending institution to which the Materials common stock received in exchange for tendered Kiewit common stock is to be delivered, Kiewit may deliver the Materials common stock to the exchanging stockholder, but reserves the right to deliver the stock directly to a lending institution if Kiewit believes in good faith that the lending institution is entitled to receive the Materials common stock under a borrowing arrangement with the exchanging stockholder. Persons who have pledged Kiewit common stock to a lender and who are considering participation in the share exchange should consult with the lender as to the effect of the share exchange on their loan arrangements. LOST OR DESTROYED CERTIFICATES If any certificate representing shares of Kiewit common stock has been mutilated, destroyed, lost or stolen, the stockholder must: - furnish to Kiewit evidence, satisfactory to it in its discretion, of the ownership of and the destruction, loss or theft of the certificate; - furnish to Kiewit indemnity, satisfactory to it in its discretion; and - comply with any other reasonable regulations Kiewit may prescribe. KIEWIT'S INTERPRETATIONS ARE BINDING Kiewit will determine at its own discretion all questions as to the form of documents, including notices of withdrawal, and the validity, form, eligibility, including time of receipt, and acceptance for exchange of any tender of shares of Kiewit common stock. This determination will be final and binding on all tendering stockholders. Kiewit reserves the right to: - reject any and all tenders of any shares of Kiewit common stock not properly tendered; - waive any defects or irregularities in the tender of shares of Kiewit common stock or any conditions of the share exchange either before or after the expiration date; and - request any additional information from any Kiewit stockholder that Kiewit deems necessary. Neither Kiewit nor Materials will be under any duty to notify tendering stockholders of any defect or irregularity in tenders or notices of withdrawal. WITHDRAWAL RIGHTS You may withdraw tenders of shares of Kiewit common stock at any time prior to the expiration date and, unless Kiewit has accepted your tender as provided in this document, after the expiration of 40 business days from the commencement of the share exchange. If Kiewit: - delays its acceptance of shares of Kiewit common stock tendered for exchange; - extends the share exchange; or - is unable to accept shares of Kiewit common stock tendered for exchange under the share exchange for any reason, then, without prejudice to Kiewit's rights under the share exchange, Kiewit may retain shares of Kiewit common stock tendered, and those shares of Kiewit common stock may not be withdrawn except as otherwise provided in this document, subject to provisions under the Securities Exchange Act that provide that an issuer 26 32 making a share exchange shall either pay the consideration offered or return tendered securities promptly after the termination or withdrawal of the share exchange. For a withdrawal to be effective, a written notice of withdrawal must be received by Kiewit at its address set forth on the back cover of this document. The notice of withdrawal must: - specify the name of the person having tendered the shares of Kiewit common stock to be withdrawn; and - identify the number of shares of Kiewit common stock to be withdrawn. If certificates for the shares of Kiewit common stock have been delivered or otherwise identified to Kiewit, then, before the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn, and a signed notice of withdrawal with signatures guaranteed by an eligible institution, unless the holder is an eligible institution. Any shares of Kiewit common stock withdrawn will be deemed not to have been validly tendered for exchange for purposes of the share exchange. Properly withdrawn shares may be retendered by following one of the procedures described under "-- Procedures for Tendering Shares of Kiewit Common Stock" above at any time on or before the expiration date. Except as otherwise provided above, any tender of shares of Kiewit common stock made under the share exchange is irrevocable. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT Kiewit expressly reserves the right, in its discretion, for any reason, including the non-satisfaction of the conditions for completion set forth below, to extend the period of time during which the share exchange is open or to amend the share exchange in any respect. If Kiewit materially changes the terms of or information concerning the share exchange, Kiewit will extend the share exchange. The SEC has stated that, as a general rule, it believes that an offer should remain open for a minimum of five business days from the date that notice of the material change is first given. The actual length of time will depend on the particular facts and circumstances. Subject to the preceding paragraph, the share exchange will be extended so that it remains open for a minimum of ten business days following the announcement if: - Kiewit changes the exchange ratio, the number of Kiewit shares eligible for exchange or imposes a minimum condition; or - the share exchange is scheduled to expire within ten business days of announcing a material change. If the conditions indicated in the next section have not been met, Kiewit reserves the right, in its sole discretion, so long as shares of Kiewit common stock have not been accepted for exchange, to delay acceptance for exchange of or exchange for any shares of Kiewit common stock or to terminate the share exchange and not accept for exchange any shares of Kiewit common stock. If Kiewit extends the share exchange, is delayed in accepting any shares of Kiewit common stock or is unable to accept for exchange any shares of Kiewit common stock under the share exchange for any reason, then, without affecting Kiewit's rights under the share exchange, it may retain all shares of Kiewit common stock tendered. These shares of Kiewit common stock may not be withdrawn except as provided in "-- Withdrawal Rights" above. Kiewit's reservation of the right to delay acceptance of any shares of Kiewit common stock is subject to applicable law, which requires that Kiewit pay the consideration offered or return the shares of Kiewit common stock deposited promptly after the termination or withdrawal of the share exchange. 27 33 Kiewit will issue a press release or other public announcement no later than 9:00 a.m., Omaha time, on the next business day following any extension, amendment, non-acceptance or termination of the previously scheduled expiration date. CONDITIONS TO THE SHARE EXCHANGE Kiewit has received a ruling from the IRS confirming that, based on certain factual representations by Kiewit and Materials, the share exchange, the debenture exchange offer and the spin-off generally will be tax-free transactions for U.S. federal income tax purposes. The ruling is based, in part, on those Kiewit stockholders who are key Materials employees obtaining a meaningful increase in their percentage ownership of Materials as a result of the share exchange. If the Kiewit board of directors determines at any time that Kiewit may be unable to rely on the ruling or that the ruling is not otherwise in effect, Kiewit would not complete the share exchange. Kiewit expressly reserves the right to abandon the share exchange and not accept for exchange any shares of Kiewit common stock if the Kiewit board of directors reasonably determines that any material change in the business, financial condition, results of operations or prospects of Kiewit or Materials has occurred, or in any other circumstance, and that, as a result, completion of the share exchange would no longer be in the best interest of Kiewit and its stockholders. Kiewit also expressly reserves the right to abandon the debenture exchange offer. If Kiewit abandons either the share exchange or the debenture exchange offer, it will not complete the spin-off or the other exchange. Kiewit also reserves the right to abandon the spin-off at any time prior to the completion of the debenture exchange offer and the share exchange. If Kiewit abandons the spin-off, it will not complete the share exchange or the debenture exchange offer. Kiewit also expressly reserves the right, at any time or from time to time, whether or not the conditions to the share exchange have been satisfied, (1) to extend the expiration date or (2) if the Kiewit board of directors determines for any reason that such action would be in the best interest of Kiewit and its stockholders, to modify the share exchange in any respect, by giving written notice of such extension or modification to Kiewit stockholders. If Kiewit abandons the share exchange, it will return all tendered shares of Kiewit common stock to the tendering stockholders promptly after the termination of the share exchange. 28 34 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF KIEWIT The following table presents selected historical and pro forma financial data of Kiewit. The historical income statement information as of and for each of the fiscal years ended 1997 through 1999, and historical balance sheet information for each of the fiscal years ended 1998 and 1999, is derived from Kiewit's historical consolidated financial statements and the notes to those financial statements included elsewhere in this prospectus. The balance sheet information as of the fiscal years ended 1995, 1996 and 1997 and the income statement information for the fiscal years ended 1995 and 1996 were derived from audited consolidated financial statements not included in this document. The historical information for the three months ended March 31, 1999 and March 31, 2000 is derived from the unaudited consolidated condensed financial statements included elsewhere in this prospectus which, in the opinion of management, reflect all adjustments, which are of a recurring nature necessary to present fairly the financial position and results of operations and cash flows for the interim periods. Results for the three months ended March 31, 1999 and March 31, 2000 are not necessarily indicative of the results of operations to be expected for the full fiscal year.
HISTORICAL -------------------------------------------------------------- THREE MONTHS FISCAL YEAR ENDED ENDED ------------------------------------------ ----------------- 1995 1996 1997 1998 1999 3/31/99 3/31/00 ---- ---- ---- ---- ---- ------- ------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Results of Operations: Revenue...................... $2,330 $2,303 $2,742 $3,379 $4,013 $773 $1,083 Net Earnings................. 104 108 155 136 165 12 14 Per Common Share: Net Earnings Basic...................... 1.95 2.53 4.00 4.07 4.81 0.35 0.43 Diluted.................... 1.91 2.44 3.84 4.02 4.71 0.34 0.42 Dividends(4)................. 0.26 0.33 0.38 0.43 0.52 -- -- Stock Price(5)............... 8.10 10.18 12.80 15.90 20.63 15.90 20.63 Book Value................... 10.73 12.76 16.10 19.35 24.01 20.09 24.77 Financial Position: Total Assets................. 978 1,039 1,342 1,379 1,599 1,430 1,485 Current Portion of Long-term Debt....................... 2 -- 5 8 4 24 2 Long-term Debt, Net of Current Portion............ 9 12 22 13 18 11 17 Redeemable Common Stock(6)..... 467 562 652 691 837 675 790 PRO FORMA(1)(2)(3) ------------------------------------------------- FISCAL YEAR ENDED THREE MONTHS ENDED 12/25/99 3/31/00 ----------------------- ----------------------- SCENARIO 1 SCENARIO 2 SCENARIO 1 SCENARIO 2 ---------- ---------- ---------- ---------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Results of Operations: Revenue...................... $3,586 $3,586 $ 987 $ 987 Net Earnings................. 139 139 11 11 Per Common Share: Net Earnings Basic...................... 4.20 4.20 0.37 0.37 Diluted.................... 4.11 4.11 0.36 0.36 Dividends(4)................. 0.52 0.52 -- -- Stock Price(5)............... 14.75 14.40 13.90 13.60 Book Value................... 18.16 17.74 17.68 17.24 Financial Position: Total Assets................. 1,291 1,280 1,169 1,158 Current Portion of Long-term Debt....................... 3 3 1 1 Long-term Debt, Net of Current Portion............ 7 10 6 9 Redeemable Common Stock(6)..... 603 589 553 539
- --------------- (1) Completion of the share exchange, the debenture exchange offer and the spin-off has been assumed to be as of December 26, 1998 in the pro forma results of operations data for the year ended December 25, 1999 and the three months ended March 31, 2000 and as of March 31, 2000 in the pro forma financial position data. (2) The pro forma results of operations, per common share and financial position data assume the earnings statement and balance sheet accounts of Materials have been removed, the share exchange, the debenture exchange offer and the spin-off have been completed, and Kiewit has made a $50 million capital contribution to Materials. (3) The pro forma results of operations are based upon ownership information of Kiewit securities as of March 31, 2000 and assume that (i) in Scenario 1, (a) all Materials employees who hold shares of Kiewit common stock and Kiewit convertible debentures exchanged their Kiewit shares in the share exchange and their Kiewit debentures for Materials debentures in the debenture exchange offer, and (b) all Kiewit employees who hold Kiewit debentures exchanged them for new reduced principal amount Kiewit debentures and shares of Materials common stock in the debenture exchange offer, and (ii) in Scenario 2, (a) those Materials employees exchanged 50% of their Kiewit shares in the share exchange with the other 50% of their Kiewit shares being sold back to Kiewit for cash immediately after the spin-off and exchanged 50% of the principal amount of their Kiewit debentures for Materials debentures in the debenture exchange offer with the other 50% of the principal amount of their Kiewit debentures being 29 35 sold back to Kiewit for cash immediately after the spin-off, and (b) all Kiewit employees who hold Kiewit debentures exchanged them for new reduced principal amount Kiewit debentures and shares of Materials common stock in the debenture exchange offer. (4) The 1995, 1996, 1997, 1998 and 1999 Kiewit dividends include $.15, $.175, $.20, $.225 and $.27 for dividends declared in those years, respectively, but paid in January of the subsequent year. (5) Pursuant to Kiewit's restated certificate of incorporation, the formula price calculation is calculated annually at the end of the fiscal year, except that adjustments to reflect dividends are made when declared. (6) Ownership of Kiewit common stock is restricted to employees conditioned upon the execution of repurchase agreements which restrict employees from transferring the stock. Kiewit is generally required to purchase all of its common stock at the formula price. The aggregate redemption value of Kiewit common stock at March 31, 2000 was $658 million. 30 36 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF MATERIALS The following table presents selected historical and pro forma financial data of Materials. The historical income statement information as of and for each of the fiscal years ended 1997 through 1999, and historical balance sheet information for each of the fiscal years ended 1998 and 1999, is derived from Materials' historical consolidated financial statements and the notes to those financial statements included elsewhere in this prospectus. The balance sheet information as of the fiscal years ended 1995, 1996 and 1997 and the income statement information for the fiscal years ended 1995 and 1996 were derived from audited consolidated financial statements not included in this document. The historical information for the three months ended March 31, 1999 and March 31, 2000 is derived from the unaudited consolidated condensed financial statements included elsewhere in this prospectus which, in the opinion of management, reflect all adjustments, which are of a recurring nature necessary to present fairly the financial position and results of operations and cash flows for the interim periods. Results for the three months ended March 31, 1999 and March 31, 2000 are not necessarily indicative of the results of operations to be expected for the full fiscal year. For all historical periods presented, Materials operated as a part of Kiewit. Because Materials did not operate as an independent company during these periods, the data may not reflect the results of operations or the financial condition which would have resulted if Materials had operated as a separate, independent company. In addition, the data may not necessarily be indicative of Materials' future results of operations or financial position.
HISTORICAL ------------------------------------------------------------------------------- THREE MONTHS FISCAL YEAR ENDED ENDED ------------------------------------------------------- --------------------- 1995 1996 1997 1998 1999 3/31/99 3/31/00 ---- ---- ---- ---- ---- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Results of Operations: Revenue............. $233,068 $246,083 $277,309 $333,060 $437,058 $99,448 $99,540 Net Earnings........ 13,161 14,204 16,542 15,378 25,828 3,876 3,032 Per Common Share: Net Earnings Basic............. 131,609 142,043 165,423 153,783 258,280 38,756 30,323 Diluted........... 131,609 142,043 165,423 153,783 258,280 38,756 30,323 Dividends(4)........ 80,975 143,553 39,700 -- -- -- -- Book Value.......... 915,115 986,516 1,216,306 1,392,870 2,097,326 1,559,290 2,125,892 Financial Position: Total Assets........ 133,882 152,771 181,699 207,054 276,891 277,459 286,638 Current Portion of Long-term Debt.... -- -- 387 740 562 4,667 566 Long-term Debt, Net of Current Portion........... -- -- 1,492 761 3,753 13,029 3,615 Stockholders' Equity............ 91,512 98,652 121,631 139,287 209,733 155,929 212,589 PRO FORMA (1)(2)(3) ------------------------------------------------- FISCAL YEAR ENDED THREE MONTHS ENDED 12/25/99 3/31/00 ----------------------- ----------------------- SCENARIO 1 SCENARIO 2 SCENARIO 1 SCENARIO 2 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Results of Operations: Revenue............. $437,058 $437,058 $99,540 $99,540 Net Earnings........ 25,793 25,811 3,023 3,028 Per Common Share: Net Earnings Basic............. 0.65 0.72 0.09 0.09 Diluted........... 0.67 0.72 0.09 0.09 Dividends(4)........ -- -- -- -- Book Value.......... 2,401,350 2,399,410 2,429,770 2,427,830 Financial Position: Total Assets........ 307,963 307,434 316,696 316,167 Current Portion of Long-term Debt.... 562 562 566 566 Long-term Debt, Net of Current Portion........... 4,423 4,088 4,285 3,950 Stockholders' Equity............ 240,135 239,941 242,977 242,783
- --------------- (1) Completion of the share exchange, the debenture exchange offer and the spin-off has been assumed to be as of December 26, 1998 in the pro forma results of operations data for the year ended December 25, 1999 and three months ended March 31, 2000 and as of March 31, 2000 in the pro forma financial position data. (2) The pro forma results of operations, per common share and financial position data assume the share exchange, the debenture exchange offer and the spin-off have been completed, and that Kiewit has made a $50 million capital contribution to Materials. (3) The pro forma results of operations are based upon ownership information of Kiewit securities as of March 31, 2000 and assume that (i) in Scenario 1, (a) all Materials employees who hold shares of Kiewit common stock and Kiewit convertible debentures exchanged their Kiewit shares in the share exchange and their Kiewit debentures for Materials debentures in the debenture exchange offer, and (b) all Kiewit employees who hold Kiewit debentures exchanged them for new reduced principal Kiewit debentures and 31 37 shares of Materials common stock in the debenture exchange offer, and (ii) in Scenario 2, (a) those Materials employees exchanged 50% of their Kiewit shares in the share exchange with the other 50% of their Kiewit shares being sold back to Kiewit for cash immediately after the spin-off and exchanged 50% of the principal amount of their Kiewit debentures for Materials debentures in the debenture exchange offer with the other 50% of the principal amount of their Kiewit debentures being sold back to Kiewit for cash immediately after the spin-off, and (b) all Kiewit employees who hold Kiewit debentures exchanged them for new reduced principal Kiewit debentures and shares of Materials common stock in the debenture exchange offer. (4) The 1996 dividends include $100,000 for dividends declared in 1996, but paid in January of the subsequent year. The 1995 and 1996 dividends per share include $40,975 and $3,553 of non-cash dividends, respectively. 32 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KIEWIT The following discussion is based upon and should be read in conjunction with Kiewit's Consolidated Financial Statements, including the notes thereto, included elsewhere in this offering circular-prospectus. Kiewit became an independent company in March 1998 when Level 3 Communications, Inc., then known as "Peter Kiewit Sons', Inc.", separated its construction and materials businesses from its other businesses in a spin-off. As a result of that transaction, Kiewit holds Level 3's former construction and materials businesses and Level 3 continues to hold the other businesses. Management has proposed to separate its materials and construction businesses in the form of a spin-off. The spin-off will result in a decrease in equity, revenue and net income for Kiewit, but it is not expected to have an adverse impact on the future liquidity of Kiewit. The construction operations have historically generated cash flows sufficient to fund their operations, and this trend is expected to continue. RESULTS OF OPERATIONS -- FIRST QUARTER 2000 VS. FIRST QUARTER 1999 Revenue from each of Kiewit's segments was (in millions):
THREE MONTHS ENDED MARCH 31, ---------------- 2000 1999 ------ ------ Construction....................................... $ 991 $ 682 Materials.......................................... 92 91 ------ ------ $1,083 $ 773 ====== ======
Included in the construction segment are construction revenues and margins earned by two subsidiaries which perform construction in addition to their materials operations. Those subsidiaries had $3.9 million of construction revenue in the first quarter of 2000 and $5.8 million of construction revenue in the first quarter of 1999. Construction. Construction revenue for the first quarter of 2000 increased $309 million or 45% from the same period in 1999. The most significant contributor to this increase was a large fiber optic installation project which was in the start-up phase during the first quarter of 1999 as compared to the peak construction phase during the first quarter of 2000. Contract backlog at March 31, 2000 was $3.6 billion, of which 8% is attributable to foreign operations located primarily in Canada. Domestic projects are spread geographically throughout the U.S. Margins, as a percentage of revenue, for the first quarter of 2000 decreased to 4.5% compared to 5.1% for the same period in 1999. The decrease is attributed to higher than anticipated costs on certain large, complex projects. Margins may vary between periods due to the inherent uncertainties associated with fixed price contracts and the state of completion of individual projects. Materials. Revenues increased $1 million or 1% in the first quarter of 2000 to $92 million, as compared to $91 million for the same time period in 1999. The increase is primarily due to a 4% increase in average selling prices and the inclusion of additional revenues of $9 million from acquired companies. Offsetting the increases were declines in unit volumes for aggregate and asphalt sales. Aggregate sales were unfavorably impacted by customer scheduling at certain quarries and a softening of market demand in the Northwest. Asphalt sales declined, as Kiewit became more selective in supplying the market in an effort to improve product margins. Margins decreased to 7% in the first quarter of 2000 as compared to 9% in the first quarter of 1999. Increases in asphalt oil prices and fuel costs unfavorably impacted operating margins. The fixed cost nature of certain quarry costs also caused lower margins at those sites with reduced aggregate sales. 33 39 General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2000 increased $2 million to $45 million when compared to the same period in 1999. The increase was attributed to increased costs related to higher construction revenues. As a percentage of revenue, general and administrative expenses decreased from 5.6% in 1999 to 4.2% in 2000 as a proportionate increase in administration costs was not necessary to support Kiewit's revenue growth. Investment Income and Equity Earnings. Investment income for the first quarter of 2000 increased $1 million to $6 million as compared to the same period in 1999. An increase in interest income due to higher interest rates was responsible for the improved results. Other, net. Other income is primarily comprised of mine management fee income from Level 3 and gains and losses on the disposition of property, plant and equipment and other assets. Kiewit manages three active coal mines for Level 3. Fees for these services for the first quarter 2000 were $8 million as compared to $7 million for the same period in 1999. The increase is due to timing of revenues generated from a coal customer and decreased cost of mining at one of the mines. Kiewit's fee is a percentage of adjusted operating earnings of the coal mines, as defined in the mine management agreement with Level 3. The mines managed by Kiewit for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. After a significant long-term contract expires this year, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by Kiewit to approximately $6 million in 2001. Additionally, the Minerals Management Service and Montana Department of Revenue have issued separate assessments to the Level 3 mines for the underpayment of royalties and production taxes. On May 9, 2000, the Montana Supreme Court issued an order dismissing the assessment of the Montana Department of Revenue. Level 3 is vigorously contesting the Minerals Management Service assessment. If Level 3 is ultimately required to pay the Minerals Management Service assessment of approximately $18.9 million, of which $9.3 million is principal and $9.6 million is interest, the payment would decrease future mine management fees in total by as much as $2.79 million, but not affect fees previously received. Net gains on the disposition of property, plant and equipment and other assets decreased to $4 million in the first quarter of 2000 from $7 million in the same period in 1999. The decrease is due to a decline in sales of excess construction equipment. Provision for income taxes. The effective income tax rates during the first quarter of 2000 and 1999 were 40%. These rates differ from the federal statutory rate of 35% primarily due to state income taxes. RESULTS OF OPERATIONS -- 1999 VS. 1998 Revenue from each of Kiewit's segments was (in millions):
1999 1998 ------ ------ Construction....................................... $3,594 $3,057 Materials.......................................... 419 322 ------ ------ $4,013 $3,379 ====== ======
Included in the construction segment are construction revenues and margins earned by two subsidiaries which perform construction in addition to their materials operations. Those subsidiaries had $16.6 million of construction revenue in 1999 and $10.6 million of construction revenue in 1998. During 1998, the materials segment included revenues of $6 million and losses of $3 million from the Oak Mountain coal operations venture, which were disposed of during 1998. Construction. Revenues for the construction business increased $537 million or 18% from the same time period in 1998. The increase is due to favorable market conditions in the business sectors that Kiewit operates. 34 40 Construction backlog at December 25, 1999 was nearly $4 billion, of which 6% was attributable to foreign operations located primarily in Canada. Domestic projects are spread geographically throughout the U.S. Margins on construction projects as a percentage of revenue for the twelve months ended December 25, 1999 were consistent with margins in the same period in 1998, increasing from 8.6% to 8.7%. Materials. Revenues for the materials business increased $97 million or 30% from the same time period in 1998. The consolidation of Pacific Rock Products, L.L.C. in 1999 contributed $54 million of the increase. A continued strong market for materials products in the Southwest that resulted in additional unit sales of asphalt, ready mix and aggregates accounted for 80% of the balance of the increase. The remaining 20% of the balance of the increase resulted from increased selling prices. Materials margins increased from 7% to 11% when compared to the same time period in 1998. The consolidation of Pacific Rock combined with the elimination of $3 million in losses taken in 1998 for the Oak Mountain coal operations contributed to the increase. General and Administrative Expenses. General and administrative expenses for the twelve months ended December 25, 1999 were consistent with 1998, increasing from $142 million to $144 million. Investment Income and Equity Earnings, Net. During 1999, Kiewit determined that the decline in market value of an investment security was other-than-temporary. This investment was written down to the current market value and a loss of $18 million was recognized in the Statement of Earnings. This investment had previously been carried at market value and the write-down had been recorded as an unrealized loss as a separate component of other comprehensive income. As a result, this write-down had no effect on total comprehensive income or total redeemable common stock. Subsequent changes in the market value of the security will be included as a separate component of comprehensive income. Other, net. Other income is primarily comprised of mine management fee income from Level 3 and gains and losses on the disposition of property, plant and equipment and other assets. Kiewit manages 3 active coal mines for Level 3. Fees for these services were $33 million in 1999 compared to $34 million in 1998. Kiewit's fee is a percentage of adjusted operating earnings of the coal mines. The mines managed by Kiewit for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. After a significant long-term contract expires next year, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by Kiewit to approximately $6 million in 2001. Additionally, the Minerals Management Service and Montana Department of Revenue have issued assessments to the Level 3 mines for the underpayment of royalties and production taxes. The assessment of the Montana Department of Revenue was dismissed on May 9, 2000. Level 3 is vigorously contesting the Minerals Management Service assessments. If Level 3 pays the Minerals Management Service assessment, the payment could materially decrease future mine management fees, but will not affect fees previously received. Net gains on the disposition of property, plant and equipment and other assets were $20 million for each of 1999 and 1998. Provision for Income Taxes. The effective income tax rates in 1999 and 1998 differ from the federal statutory rate of 35% due primarily to state income taxes. The effective income tax rates for 1999 and 1998 were 37.6% and 36.2%, respectively. 35 41 RESULTS OF OPERATIONS -- 1998 VS. 1997 Revenue from Kiewit's segments for the twelve months ended December 26, 1998 and December 27, 1997 was (in millions):
1998 1997 ------ ------ Construction....................................... $3,057 $2,474 Materials.......................................... 322 268 ------ ------ $3,379 $2,742 ====== ======
Included in the construction segment are construction revenues and margins earned by two subsidiaries which perform construction in addition to their materials operations. Those subsidiaries had $10.6 million of construction revenue in 1998 and $12.3 million of construction revenue in 1997. During 1998 and 1997, the materials segment included revenues of $6 million and $11 million and losses of $3 million and $16 million, respectively, from the Oak Mountain coal operations mining venture which operations were disposed of during 1998. Construction. Revenues for the construction business increased $583 million or 23.6% from the same time period in 1997. $210 million of the increase in revenues resulted from several new domestic power production facilities. Joint ventures performing electrical work on railway systems contributed another $82 million. Another major factor was the "I-15" project, a $1.4 billion design build joint venture, of which Kiewit's share is $780 million, to reconstruct 16 miles of interstate through the Salt Lake City, Utah area which contributed $135 million to the increase. Several new projects account for the remainder of the increase. Contract backlog at December 26, 1998 was nearly $5 billion, of which 3.5% was attributable to foreign operations located primarily in Canada. Domestic projects are spread geographically throughout the U.S. Margins on construction projects as a percentage of revenue for the twelve months ended December 26, 1998 decreased to 8.6% from 13% for the same time period in 1997. Favorable resolutions of project uncertainties, change order settlements and bonuses for cost savings and early completion increased margins for the twelve months ended December 27, 1997. Margins in 1996 and 1995 were 9.6% and 7.7%, respectively. Materials. Revenues for the materials business were up 20%, from $268 million to $322 million, for the twelve months ended December 26, 1998 as compared to the same time period in 1997. Greater sales volume and higher average selling prices for aggregates, ready mix concrete and asphalt products resulted in a 27% increase which was partially offset by the decrease in revenues from $11 million in 1997 to $6 million in 1998 from the Oak Mountain Coal operations. The investment in Oak Mountain was sold on June 9, 1998. The Oak Mountain investment was previously written off as an impaired asset in December 1997. In 1998, Kiewit realized operating losses of $3 million. Margins from materials sales as a percentage of revenue for the twelve months ended December 26, 1998 increased from 4% in 1997 to 7% in 1998. The increase in margins was attributable to higher average selling prices and improvements in the performance of recent acquisitions. Also contributing to the increase was the reduction of losses from the Oak Mountain Coal operations. General and Administrative Expenses. General and administrative expenses decreased in 1998. General and administrative expenses, as a percent of revenue, decreased from 5.4% in 1997 to 4.2% in 1998, as a proportionate increase in administration costs were not necessary to support Kiewit's revenue growth. Investment Income and Equity Earnings, Net. Net investment income and equity earnings decreased by $5 million. The decrease was predominantly due to the increased interest expense on long-term debt of $2 million and a decrease in gains on sales of marketable securities of $2 million from 1997. Other, Net. Other income is primarily comprised of mine management fee income from Level 3 and gains and losses on the disposition of property, plant and equipment and other assets. 36 42 Kiewit manages 3 active coal mines for Level 3. Fees for these services were $34 million in 1998 and $32 million in 1997. Kiewit's fee is a percentage of adjusted operating earnings of the coal mines, as defined. The mines managed by Kiewit for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. As a significant long-term contract expires over the next two years, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by Kiewit to approximately $6 million in 2001. Additionally, the Minerals Management Service and Montana Department of Revenue have issued assessments to the Level 3 mines for the underpayment of royalties and production taxes. The assessment of the Montana Department of Revenue was dismissed on May 9, 2000. Level 3 is vigorously contesting the Minerals Management Service assessment. If Level 3 pays the Minerals Management Service assessment, the payments could materially decrease future mine management fees, but will not affect fees previously received. Net gains on the disposition of property, plant and equipment and other assets decreased to $20 million in 1998 from $23 million in 1997 as a result of a decrease in the amount of equipment sold in the ordinary course of business. Provision for Income Taxes. The effective income tax rates in 1998 and 1997 differ from the expected rate of 35% primarily due to state income taxes and prior year tax adjustments. The income tax rates were 36.2% for 1998 and 40.5% for 1997. FINANCIAL CONDITION -- MARCH 31, 2000 Cash and cash equivalents decreased $106 million to $232 million at March 2000 from $338 million at December 1999. The decrease reflects net cash provided by operations of $33 million offset by net cash used in investing activities of $48 million and $91 million used in financing activities. Net cash provided by operating activities of $33 million represented a decrease of $47 million from the same period in 1999. Although net income increased for the first quarter of 2000 compared to the comparable period in 1999, the decrease in cash and cash equivalents generated from operating activities was due primarily to increased working capital requirements for construction contracts. Cash provided or used by operating activities is affected to a large degree by the mix, timing, state of completion and terms of individual contracts which are reflected through changes in current assets and liabilities. Net cash used in investing activities in the first quarter of 2000 increased by $46 million to $48 million as compared to the first quarter of 1999. This increase was due to increases in acquisitions of $31 million and capital expenditures of $5 million and decreases in proceeds from the sale of property, plant and equipment in the ordinary course of business of $9 million and distributions from investees of $4 million. These changes were partially offset by a decrease in purchases of marketable securities of $3 million. Net cash used in financing activities in the first quarter of 2000 increased by $48 million to $91 million as compared to the same time period in 1999. This increase was due to additional repurchases of Kiewit common stock of $33 million and change in outstanding checks in excess of funds on deposit of $15 million. Kiewit anticipates investing between $50 and $100 million annually in its construction and materials businesses. Kiewit continues to explore opportunities to acquire additional businesses. Other long-term liquidity uses include the payment of income taxes and the payment of dividends. Currently Kiewit has no material firm binding purchase commitments related to the investments described in Note 5 of the financial statements other than meeting the normal course of business needs of the construction partnership as well as other construction joint ventures. There are also no significant commitments between the construction and materials businesses. The current portion of long-term debt is $4 million. Kiewit paid dividends during the first quarter 2000 and 1999 of $8 million and $8 million, respectively. These amounts were determined by the board of directors and were paid in January of each such year. Kiewit also has the commitment to repurchase stock at any time during the year from shareholders. Kiewit's current financial condition and borrowing capacity, together with anticipated cash flows from operations, should be sufficient for immediate cash requirements and future investing activities. 37 43 FINANCIAL CONDITION -- DECEMBER 25, 1999 Cash and cash equivalents increased $111 million to $338 million at December 1999 from $227 million at December 1998. The increase reflects net cash provided by operations of $192 million offset by net cash used in investing activities of $80 million and $4 million used in financing activities. Net cash generated from operating activities of $192 million represented a decrease of $4 million from 1998. Although net income had increased for 1999 compared to 1998, the decrease in cash and cash equivalents generated from operating activities was due primarily to increased working capital requirements for construction contracts. Cash provided or used by operating activities is affected to a large degree by the mix, timing, and state of completion and terms of the individual contracts, which are reflected through changes in current assets and liabilities. Net cash used in investing activities in 1999 of $80 million increased $7 million when compared to 1998. Kiewit had an additional $7 million in proceeds from the sale of property, plant and equipment in the ordinary course of business, a decrease in capital expenditures of $12 million and issued notes receivable of $2 million in 1999 compared to $20 million in 1998. Proceeds from sales and maturities of marketable securities decreased by $21 million. Kiewit made $23 million of additional investments in acquisitions. Net cash used in financing activities in 1999 decreased by $121 million from 1998. This decrease was substantially attributable to the exchange of Level 3's Class C Stock for Level 3's Class D Stock in 1998, which was no longer an option for shareholders in 1999. FINANCIAL CONDITION -- DECEMBER 26, 1998 Cash and cash equivalents decreased $5 million to $227 million at December 1998 from $232 million at December 1997. The decrease reflects net cash provided by operations of $196 million offset by net cash used in investing activities of $73 million and $125 million used in financing activities. Net cash provided by operating activities of $196 million represented an increase of $54 million over 1997. $19 million of the increase was due to the increase in net income. The remaining increase was due to the change in working capital requirements for construction contracts. Cash provided or used by operating activities is affected to a large degree by the mix, timing, and state of completion and terms of the individual contracts, which are reflected in changes in current assets and liabilities. Net cash used in investing activities in 1998 of $73 million was an increase of $15 million when compared to 1997. Kiewit decreased capital expenditures by $20 million, purchased $32 million less in marketable securities and invested $8 million less in partnerships and acquisitions. Kiewit issued $20 million of notes receivable and received $5 million in payments on those notes. Kiewit also received $49 million less on the sale of marketable securities than in 1997 as well as $11 million less on the sale of property, plant and equipment. Net cash used in financing activities amounted to $125 million in 1998, which was an increase of $102 million from 1997. $50 million of this change resulted from the additional exchange of Level 3's Class C Stock for Level 3's Class D Stock related to the March 1998 spin-off. Long-term borrowings decreased $8 million and net payments on short-term borrowings increased net cash used by $5 million. Net stock sales, repurchases and dividends provided $1 million less than in 1997. The remaining $38 million increase in net cash used related to the increase in the outstanding checks in excess of funds on deposits. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which established accounting and reporting standards for derivative instruments and for hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect adoption of this statement to materially affect Kiewit's financial statements as Kiewit has no significant derivative instruments or hedging activities. 38 44 YEAR 2000 UPDATE Kiewit's Year 2000 effort, which was comprised of internal updating and replacement of computer systems and external coordination with its customers, was completed on schedule. Kiewit has not experienced any material Year 2000 related difficulties. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Kiewit does not believe that its business is subject to significant market risks arising from interest rates, foreign exchange rates or equity prices. 39 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MATERIALS The following discussion is based upon and should be read in conjunction with Materials' Consolidated Financial Statements, including the notes thereto, included elsewhere in this offering circular-prospectus. Management has proposed to separate its materials and construction businesses by means of a spin-off. The spin-off is not expected to adversely impact Materials' equity, revenue or net income. Current cash flows are expected to be sufficient to fund current operations. Materials' ability to execute its future growth strategy will, however, be dependent upon the ability to obtain borrowings on terms deemed appropriate. RESULTS OF OPERATIONS -- FIRST QUARTER 2000 VS. FIRST QUARTER 1999 Revenue. Revenues of $99,539,837 in the first quarter of 2000 remained constant with the first quarter 1999 revenue of $99,488,000. During the first quarter of 2000, a 9% reduction in revenues attributable to a decline in unit volumes for aggregate and asphalt sales was offset by a 4% increase in average selling price and the inclusion of additional revenues of $9,283,796 from acquired companies. Aggregate sales in the Northwest were unfavorably impacted by customer scheduling at certain quarries and a softening of market demand. The overall impact of this was minimal as only 10% of revenues were earned in the Northwest. Asphalt sales declined as the company became more selective in supplying the market in an effort to improve product margins. Gross Profit. Gross profit margins decreased to 10.8% in the first quarter of 2000 from 12.6% in the first quarter of 1999. Increases in asphalt oil costs and fuel expenses unfavorably impacted operating margins during the first quarter of 2000. General and Administrative Expenses. General and administrative expenses were relatively constant for the first quarter of 2000 when compared to the first quarter of 1999. As a percentage of sales, this expense decreased to 6.5% in 2000 from 6.6% in 1999. Other Income and Expense. Other income decreased $370,993 from $1,240,302 in the first quarter of 1999 to $869,309 in the first quarter of 2000. The primary reason for the decrease is the consolidation of Pacific Rock in 1999 which reduced equity earnings. Income Tax Expense. The effective income tax rates during the first quarter of 2000 and 1999 were 40%. These rates differ from the federal statutory rates of 35% primarily due to state income taxes. RESULTS OF OPERATIONS -- 1999 VS. 1998 Revenue. In 1999 and 1998, 82% and 95% of revenues, respectively, were earned in the Southwest region of the United States. The remainder was earned through other locations in the United States. Revenue increased $103,997,646, from $333,060,002 in 1998 to $437,057,648 in 1999. The consolidation of Pacific Rock (see footnote 13 of the December 25, 1999 financial statements), due to the increase in Materials' ownership from 40% to 100%, contributed $54,510,558, and additional ballast sales at quarries in Wyoming and Utah accounted for $4,351,486 of the increase. Approximately 80% of the balance of the increase in revenues was derived from additional unit sales with the other 20% of the balance resulting from higher average selling prices for ready mix concrete and aggregates. Gross Profit. Gross profit margins increased from 10.5% in 1998 to 14.2% in 1999. The consolidation of Pacific Rock which had a higher margin on its sales was responsible for the percentage increase. General and Administrative Expenses. General and administrative expenses increased $5,620,915 in 1999 when compared to 1998. Increases in unit volume and the inclusion of Pacific Rock account for $3,690,754 of the additional expense. Other Income and Expense. Other income is comprised of investment income, equity earnings from Pacific Rock, interest expense and gains and losses on the sale of property, plant and equipment. Other income declined $5,253,501 in 1999 from 1998 as a result of the decline in equity earnings due to the consolidation of Pacific Rock, which equity earnings were $5,599,268 in 1998. 40 46 Income Tax Expense. Income taxes differ from the federal statutory rate primarily because of state income tax and percentage depletion. The effective tax rates were 37.7% for 1999 and 38.8% for 1998. RESULTS OF OPERATIONS -- 1998 VS. 1997 Revenue. In 1998 and 1997, 95% and 96%, respectively, of revenues were earned in the Southwest region of the United States. The remainder was earned through other locations in the United States. Revenue increased 20% from $277,308,896 in 1998 to $333,060,002 in 1997. Approximately 79% of the increase resulted from additional unit sales. The remaining 21% resulted from higher average selling prices for ready-mix concrete, asphalt and aggregates. Gross Profit. Gross profit margins declined from 13% in 1997 to 10.5% in 1998. A 5% increase in cement and other costs, coupled with $1 million of start-up expenses incurred at a newly developed quarry site offset higher selling prices and unit volume increases. General and Administrative Expenses. General and administrative expenses increased from $16,277,521 in 1997 to $19,062,488 in 1998. As a percentage of revenue, this expense declined slightly from 5.9% in 1997 to 5.7% in 1998. The overall increase in expense was necessary to support sales volume increases and the expansion of product lines. Other Income and Expense. Other income is comprised of investment income, equity earnings from Pacific Rock and gains and losses on the sale of equipment in the ordinary course of business. Other income increased $836,819 during the twelve months ended 1998 when compared to the same period in 1997. Increases in equity earnings, primarily from better operating results at Pacific Rock, were responsible for the change. Higher interest expense and smaller gain from the sale of equipment mitigated the investment income increase. Income Tax Expense. Income tax expense differs from the federal statutory rate primarily because of state income taxes and percentage depletion. The effective income tax rates were 38.8% for 1998 and 39.7% for 1997. FINANCIAL CONDITION -- MARCH 31, 2000 Cash and cash equivalents decreased $21,655,456 to $50,674,671 at March 2000 from $72,330,127 at December 1999. This decrease reflects net cash provided by operations of $15,417,630 offset by net cash used in investing activities of $36,765,067 and $308,019 used in financing activities. Net cash provided by operating activities of $15,417,630 represented an increase of $16,149,484 from the same period in 1999. Although net income decreased in the first quarter of 2000 compared to the first quarter of 1999, the increase in cash resulted primarily from a reduction in receivables. Net cash used in investing activities in the first quarter of 2000 increased by $29,397,122 to $36,765,067 as compared to the first quarter of 1999. This increase was due to acquisitions of $30,880,432 and decreases in proceeds from the sale of property, plant and equipment in the ordinary course of business of $1,090,410. These changes were partially offset by a decrease in capital expenditures of $2,080,122, a decrease in additions to notes receivable of $256,213 and an increase in payments on notes receivable of $237,385. Net cash used in financing activities in the first quarter of 2000 increased by $12,845,215 to 308,019 as compared to a net source of cash of $12,537,196 for the same period in 1999. This change was due to a reduction in contributions from Kiewit of $13,640,308 and a reduction in long-term borrowings of $332,307. These changes were partially offset by a decrease in payments on long-term debt of $1,127,400. Materials continues to explore opportunities to acquire additional businesses. Other long-term liquidity uses include the payment of income taxes. The current portion of long-term debt is $566,127. Materials believes that its current financial condition, together with anticipated cash flows from operations, should be sufficient for the operational needs of its business for the next 12 months. 41 47 Materials intends to pursue a growth strategy that will require substantial capital. These capital requirements will be in addition to amounts necessary to replace existing equipment and make long-term debt payments. Materials is unable to estimate capital requirements for its growth strategy for fiscal year 2000. Materials is actively pursuing its growth strategy, but capital requirements largely depend on the number of acquisition candidates in the market and the level of success Materials has in completing acquisitions. Capital requirements for acquisitions that are in excess of internally generated funds are expected to come from the issuance of debt securities, which may be senior or junior to, or pari passu with, the Materials convertible debentures being issued in the debenture exchange offer, or borrowings under credit facilities. Materials believes that its working capital at the time of the spin-off, together with its capacity to borrow funds, will provide flexibility in pursuing its growth strategy and will allow it to make significant capital investments in connection with acquisitions. However, should Materials be unable to issue sufficient debt securities or obtain funds on terms deemed appropriate to fund its growth strategy, Materials would then be limited in its ability to fully execute its growth strategy. While Materials believes its growth strategy to be important in enhancing shareholder value, it does not believe that the inability to fully execute it would have a material adverse impact on current operations, financial condition or liquidity. Materials receives its revenue by selling ready mix, asphalt and aggregate products. Materials also generates a small amount of revenue from construction contracts. Materials does not generate a revenue backlog of any size given the nature of its business. Materials typically has a small number of notes receivable that are due from customers. These notes are usually short in duration and insignificant in amount. Materials does not have any note receivable commitments with customers on an on-going basis. Materials does not have any established credit facilities. At March 31, 2000, Materials had $4.2 million of notes payable. FINANCIAL CONDITION -- DECEMBER 25, 1999 Cash and cash equivalents increased $6,728,257 to $72,330,127 at December 1999 from $65,601,870 at December 1998. The increase reflects net cash provided by operations of $31,701,592 and net cash provided by financing activities of $28,402,215 which were partially offset by net cash used in investing activities of $53,375,550. Net cash provided by operating activities of $31,701,592 represented an increase of $2,072,600 from 1998. Although net earnings increased by $10,449,640 compared to 1998, this increase was offset by an increase in the reduction of accounts payable by $20,454,352 which was subsequently partially offset by an increase in income taxes payable of $6,624,167. Net cash used in investing activities increased by $39,559,000 to $53,375,550 in 1999 from $13,816,550 in 1998. This increase was primarily due to increased acquisitions activity of $34,015,297 related mainly to the Pacific Rock Products and River City Machinery acquisitions and increased capital expenditures in the normal course of business of $6,096,225. Net cash provided by financing activities increased by $26,634,711 to $28,402,215 in 1999 from $1,767,504 in 1998. Additional parent contributions of $42,015,056 which were partially offset by increased long-term debt reductions of $15,380,345 accounted for the increase. FINANCIAL CONDITION -- DECEMBER 26, 1998 Cash and cash equivalents increased $17,579,946 to $65,601,870 at December 1998 from $48,021,924 at December 1997. The increase reflects net cash provided by operations of $29,628,992 and net cash provided by financing activities of $1,767,504 which were partially offset by net cash used in investing activities of $13,816,550. Net cash provided by operating activities of $29,628,992 represented an increase of $1,153,431 from 1997. Although net earnings decreased by $1,163,970 compared to 1997, there were various offsetting factors. The undistributed equity earnings were $3,167,775 less in 1998 compared to 1997 and there was less reduction of 42 48 accounts receivable by $2,714,512 compared to 1997. These factors were offset by less of an increase in accounts payable of $7,878,902 compared to 1997 in 1998. Net cash used in investing activities decreased by $13,665,454 to $13,816,550 in 1998 from $27,482,004 in 1997. This decrease was primarily due to a decrease in cash used in acquisitions of $5,996,007 and decreased capital expenditures in the normal course of business of $6,862,136. Net cash provided by financing activities increased by $4,901,196 to $1,767,504 in 1998 as compared to a net use of cash of $3,133,692 in 1997. There were no dividends paid in 1998 compared to $13,970,000 paid in 1997. This was offset by a decrease in contributions received from Kiewit of $8,567,161. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which established accounting and reporting standards for derivative instruments and for hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect adoption of this statement to materially affect Materials' financial statements as Materials has no significant derivative instruments or hedging activities. YEAR 2000 UPDATE Materials' Year 2000 effort, which was comprised of internal updating and replacement of computer systems and external coordination with its customer was completed on schedule. Materials has not experienced any material Year 2000 related difficulties. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Materials does not believe that its business is subject to significant market risks arising from interest rates, foreign exchange rates or equity prices. 43 49 BUSINESS OF MATERIALS In 1968, Kiewit began its construction materials business in Arizona with its acquisition of Union Rock & Materials Corporation which principally operated in Phoenix and Tucson. In 1994, Kiewit acquired United Metro Materials which had operations throughout Arizona and merged its Arizona materials operations under the United Metro name. Following the United Metro acquisition, Kiewit continued to expand its Arizona materials operations through five additional acquisitions. Kiewit began its materials operations in the Vancouver, Washington and Portland, Oregon areas in 1981. In 1996, Kiewit merged those materials operations with Pacific Rock Products, retaining a 40% interest in the combined entity. In 1999, Kiewit acquired the remaining 60% of Pacific Rock Products. Kiewit entered the Northern California market with its acquisition of Solano Concrete Co., Inc. in the first quarter of 2000 and its acquisition of the assets of Dixon Redi-Mix, Inc. in the second quarter of 2000. Kiewit first entered the quarry business in 1950 with a quarry in Guernsey, Wyoming. In 1953, it began a quarry operation near Des Moines, New Mexico. Kiewit also holds a 49% joint venture interest in the Granite Canyon quarry near Cheyenne, Wyoming and a 51% joint venture interest in quarry operations near Little Lake and Hector, California. In 1997, Kiewit developed the Milford quarry in Utah. Materials was formed in February 1999 to consolidate the materials businesses of Kiewit under one holding company. Materials operates aggregate, ready mix, asphalt and materials operations in Arizona, Washington, Oregon, California, Wyoming, Utah and New Mexico, with primary operations in Arizona, centered in the Phoenix and Tucson metropolitan areas and in the Pacific Northwest, centered in the Vancouver, Washington and Portland, Oregon metropolitan areas. Aggregate products are used as highway construction materials, railroad ballast, decorative landscape rock, roofing aggregate and building stone. Materials also provides construction services in and around Yuma, Arizona, focusing mainly on paving and related projects. In 1999, Materials produced in excess of 28 million tons of construction materials and generated approximately $437 million of revenue. Materials' Arizona and Pacific Northwest markets have been some of the highest growth markets in the United States. Factors contributing to this growth include large population increases and increases in public sector spending on highway projects. Materials believes that it should continue to experience strong demand for its products, due in large part to federally funded highway construction projects under the Transportation Equity Act for the 21st Century. This act provides $218 billion for highway, transit and safety spending for years 1998 through 2003, which represents a 40% increase in average annual federal highway spending when compared to federal funding programs for the preceding six years. Materials has a favorable market position with the combination of its strong market presence, extensive, high quality aggregate reserves, efficient operations and experienced management team. Materials seeks to be a low cost producer, facilitate employee involvement, promote favorable community relations and be a safety conscious employer. It intends to leverage these attributes with a growth strategy to expand its presence in existing markets and to enter new markets with high-growth potential. Materials believes that there exists a significant opportunity for growth through acquisitions given the large number of independent materials companies that operate in the United States. These acquisition opportunities coupled with its current expertise and the expected strong demand for its products provide for a positive environment in which to pursue its growth oriented business plan. INDUSTRY BACKGROUND/MARKET OVERVIEW Materials is a vertically integrated manufacturer of aggregates, ready-mix concrete and hot-mix asphalt for use primarily in construction. 44 50 Aggregates Aggregates are a basic construction material, comprising sand, gravel and crushed stone, used extensively for highway and infrastructure construction and maintenance as well as for commercial and residential construction. In addition, Materials also produces aggregates for use as railroad track ballast. For these purposes, aggregates have few, if any, substitutes. The United States market for all aggregates was approximately 2.9 billion tons in 1999 with a value of $13.7 billion. This represents an increase of 2.7% in volume and 5.1% in dollar value above 1998 levels. Historically, demand for aggregates has been only moderately cyclical, especially relative to other building materials such as cement and gypsum wallboard. In addition to moderate cycles and with the exception of 1998, the national per ton average price for aggregates has not experienced an annual decline between 1985 and 1999. Spending on highway and infrastructure construction and maintenance significantly drives demand for aggregates. Spending levels are influenced by public sector expenditures for construction and regional economic conditions. Residential and commercial construction spending is influenced by general economic conditions and prevailing interest rates and consequently is generally more cyclical than public construction spending. Demand is also seasonal because of the impact of weather conditions on construction activity. Materials' management believes that the aggregates industry is currently undergoing significant consolidation, although generally the industry remains fragmented nationally as well as in many regional areas. Due to the high cost of transportation relative to the value of the product, competition within the aggregates industry tends to be localized. Generally, individual aggregate production sites compete for customers within a limited geographic area, which may be as small as 20 to 30 miles depending on local availability of suitable aggregates and the geographic density of demand. As a result, the proximity of aggregate production sites to customers is an important factor in competition for customers. There are four primary factors which limit the availability of economically viable aggregates reserves in a particular market: - the geological existence of suitable aggregates within a particular market; - the physical characteristics of available aggregates and the difficulty in satisfying increasingly rigorous specifications required by customers; - the difficulty in and increasingly higher cost of obtaining the necessary permits for potential reserves; and - the feasibility of cost-effectively extracting, processing and delivering available reserves. In addition to factors that limit the availability of suitable aggregates, increasing levels of operational, technical and financial sophistication in the aggregates industry have rewarded efficient producers with a competitive advantage in terms of their ability to meet the increasing demand for quality aggregates and to satisfy increasingly demanding and technically sophisticated customers. The difficulty and related expense of complying with environmental and other regulations may make it difficult for small producers to open new aggregate production sites, enter new markets and compete 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 45 51 - the safety of blasting and other mining techniques. Often new aggregate production sites require, among other things, zoning changes and local, state and federal permits and plans regarding mining, reclamation and air and water emissions. Once appropriate zoning is secured and approved, it is permanent. Generally, permits must be renewed every five years. Their renewal can only be denied, however, if the controlling agency is able to prove that the permit holder has repeatedly violated the set guidelines and has not taken remedial action when notified of violations. New site approval procedures may require the preparation of archaeological surveys, endangered species studies and other studies to assess the environmental impact. Compliance with these regulatory requirements necessitates a significant up-front investment and adds to the length of time to develop a new site. Aggregates producers often face opposition from the communities in which new aggregate production sites are to be located. Public concerns center on noise levels and blasting safety, the visual impact of an aggregate production site on neighboring properties and high volume of truck traffic. To respond to these issues, producers must operate in a more sophisticated manner, such as developing blasting techniques to minimize surface vibrations and noise and developing an effective community communications program. Producers are often required to acquire larger tracts of property to allow for extended buffer zones between aggregate production sites and surrounding properties and to invest significant capital to improve road and highway access. Ready-mix Concrete Ready-mix concrete is a versatile, low-cost manufactured material the construction industry uses in substantially all of its projects. It is a stone-like compound that results from combining fine and coarse aggregates, such as sand, gravel and crushed stone, with water, various admixtures and cement. Ready-mix concrete can be manufactured in thousands of variations, which in each instance may reflect a specific design use. Manufacturers of ready-mix concrete generally maintain less than one day's requirements of raw materials and must coordinate their daily material purchases with the time-sensitive delivery requirements of their customers. Annual usage of ready-mix concrete in the United States is currently at a record level and is projected to continue growing. According to the National Ready-mix Concrete Association, total sales from production and delivery of ready-mix concrete in the United States grew from $17.6 billion in 1996 to $19.3 billion in 1997, an increase of 9.7%, and to $21.3 billion in 1998, an increase of 10.4%, and are expected to grow to $22.1 billion in 1999. Also according to this industry association, the following segments of the construction industry accounted for the following approximate percentages of total sales of ready-mix concrete in the United States in 1998:
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. 46 52 On the basis of information from the National Ready-mix Concrete Association, in addition to vertically integrated manufacturers of cement and ready-mix concrete, more than 3,500 independent producers currently operate a total of approximately 5,300 plants in the United States. Larger markets generally have numerous producers competing for business on the basis of price, timing of delivery and reputation for quality and service. The typical ready-mix concrete company is family-owned and has limited access to capital, limited financial and technical expertise and limited exit strategies for its owners. Given these constraints, many ready-mix concrete companies are finding it difficult to both grow their businesses and compete effectively against larger, more cost-efficient and technically capable competitors. These characteristics present consolidation and growth opportunities. Hot Mix Asphalt Hot mix asphalt is a combination of approximately 95% aggregates bound together by asphalt cement, also known as asphalt oil, a crude oil product. It is used almost exclusively for paving and related applications. To make hot mix asphalt, the asphalt cement is heated, combined and mixed with the aggregates at a hot mix asphalt facility. It is then loaded into trucks for transport to the paving site. The trucks dump the hot mix asphalt into hoppers located at the front of paving machines. The asphalt is placed, and then is compacted using a heavy roller which is driven over the asphalt. Because the temperature of the hot mix asphalt drops rapidly after spreading and because compaction of the hot mix asphalt to achieve a specified density must take place at temperatures above 175 degrees, compaction usually takes place within a matter of minutes after the paver spreads the hot mix asphalt. This generally also limits the market a hot mix asphalt facility can serve to within a radius of approximately 20 miles around the facility. Hot mix asphalt is recyclable. One hundred percent of an asphalt pavement can be picked up, remixed with a portion of fresh materials, and used again. According to the National Asphalt Pavement Association, of the 2.27 million miles of paved road in the U.S., 94% is surfaced with asphalt, including 65% of the interstate system. Materials believes the hot mix asphalt industry has similar characteristics to the ready mix concrete industry in that there are many local, independent operators as well as some large consolidators. In many instances, hot mix asphalt will be provided in conjunction with paving services by integrated paving contractors. BUSINESS STRATEGY Materials intends to continue to grow its business over the next 3 to 5 years through a four-part business strategy. First, Materials plans to continue to build value in markets currently served. In accomplishing this objective, Materials will strive for significant amounts of negotiated work that command higher margins by continuing its focus on customer satisfaction and loyalty and continuing its efforts to retain and improve upon its market share leadership. Materials also will continue to invest in technology to develop more efficient and service-oriented truck dispatching, improve production methods to lower costs and maintain superior equipment maintenance standards. Second, Materials plans to expand its presence in existing markets through acquisitions in exchange for cash or debt securities. Materials should have the opportunity to purchase smaller materials companies that operate in or near current operations, as these markets remain fragmented and include a large number of family-owned businesses facing inter-generational transition issues. Successful acquisition of additional operations will allow Materials to eliminate duplicate overhead functions, improve efficiencies through the use of newer technologies and benefit from cost savings derived from economies of scale in operations and the purchasing of parts and supplies. Third, Materials plans to enter, via acquisition in exchange for cash or debt securities, new high-growth potential markets. Metropolitan communities with high rates of expected population growth, coupled with greater than average increases in spending on retirement and leisure activities, are some of the variables that are considered in selecting an area for expansion. Materials has begun to implement this strategy with its recent acquisition of a materials operation located in Northern California. This business is an integrated 47 53 supplier of high quality aggregates, ready mix concrete and asphalt. It serves the rapidly expanding market between San Francisco and Sacramento. Finally, Materials will seek to acquire and develop additional strategic aggregate reserves in selected markets. The successful implementation of this strategy element will not only replace reserves consumed by operations, but will enhance Materials' competitive cost position by the ownership of reserves in attractive locations. Since 1992, Materials has acquired ten materials companies and developed one site in the implementation of its four-part strategy. The purchase price payable in these acquisitions ranged from approximately $2 million to $47 million. Two of the acquisitions were in excess of $40 million, one was in excess of $30 million and the remainder were between $2 million and $7 million. These acquisitions have allowed Materials to expand its presence in existing markets in Arizona and the Vancouver, Washington and Portland, Oregon areas and to enter new markets in Northern California. Revenues have increased from $40 million in 1992, to approximately $437 million for 1999 and production tonnage has grown from 5.5 million tons in 1992, to in excess of 28 million tons in 1999. Materials intends to continue its disciplined investment approach to achieve profitable growth through acquisitions. Although as a part of its growth strategy, Materials evaluates potential acquisitions from time to time, Materials is not currently a party to any agreements which, alone or in combination, would be material to its business. OPERATIONS AND PROPERTIES Materials is organized into four operating divisions: Arizona Operations, Pacific Northwest Operations, North California Operations and Quarries Operations. Materials believes that a decentralized management structure allows for a quicker reaction to localized events and a more profitable operation. Each division is responsible for maintenance and operation of significant investments in fixed plant assets and a substantial mobile equipment fleet. Each operation also is charged with customer relations, dispatching of delivery vehicles, quality control, scheduling of production and the development and maintenance of certain computer systems. Materials is a vertically integrated provider of aggregates, ready-mix concrete and asphalt products. Its operations employ approximately 2,300 people. Materials operates 62 ready-mix batch plants or asphalt plants at 23 locations in Arizona, California, Oregon and Washington. Its aggregates operations are located in Arizona, California, New Mexico, Utah, Washington and Wyoming. Materials manages a truck fleet of about 1,000 vehicles, 900 of which are owned and 100 of which are either leased on a long-term basis or managed on a day-to-day rental basis. In 1999, Materials' combined operations produced and sold in excess of 28 million tons of aggregates consisting of construction materials, ballast, highway aggregates, roofing aggregates, concrete block aggregates and landscape rock products. Its Arizona operation also manages a construction service business in the Yuma, Arizona area. Materials' executive management provides its four operating divisions with strategic planning, corporate development and acquisitions and operations oversight. Materials also has a centralized administrative staff that provides labor relations, various accounting functions, legal, tax planning and compliance, equipment purchasing and equipment maintenance support. RESERVES Materials estimates that its total recoverable aggregates reserves are in excess of 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. Materials' mining plans are developed by experienced mining engineers and operating personnel using drilling and geological studies in conjunction with mine planning software. In certain instances, reserve extraction is limited to phases or yearly amounts. Various properties also have reserves under lease that have not been included in a mining permit. These reserves have been excluded from Materials' recoverable reserve estimate. 48 54 Materials owns about 170 million tons of aggregates reserves and leases another 380 million tons of aggregates reserves. Materials' leases usually require royalty payments based on either revenue derived from the location or an amount for each ton of materials removed and sold from a site and have terms ranging from one year to 27 years. Materials' royalty payments range from $0.40 to $1.00 per ton. Most of its long-term leases also provide an option for the lease to be renewed. PRODUCTS Aggregates. Materials primarily sells to third parties and utilizes internally various types of aggregate products. The production of these products typically involves extracting the material, crushing and sizing the material and shipping it to the customer using either trucks 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. Materials produces ready-mix concrete by combining aggregates, cement, water and additives. The additives allow Materials to customize the product to customer specifications for overall strength, drying speed and other properties. Product ingredients are combined at a batch plant site and loaded into a mixer truck for delivery to the customer's location. Asphalt. Materials also produces and sells asphalt products. Asphalt is a mixture of aggregates and asphalt oil. The asphalt oil is heated and combined at a plant site and then loaded into dump trucks for transit to the customer's location. Customer specifications can require the use of certain types or sizes of aggregates and/or varying proportions of aggregates and asphalt oil. CUSTOMERS Materials markets to a wide variety of customers including street and highway contractors, industrial and residential contractors, public works contractors, wholesalers and retailers of decorative rock products, interstate railroads and manufacturers of concrete block products. Produced material is used in both publicly and privately funded projects. No single customer accounts for more than 3% of sales. COMPETITION Due to the high cost of transportation, the materials business is highly dependent on the availability of high quality aggregates proximate to customers and production facilities. While price is an important factor in the customer's purchase decision, qualitative factors such as response time, reliability and product quality influence the purchase decision as well. With much of the industry consisting of small to medium sized independent firms, economies of scale, good site locations and technical knowledge will often provide a competitive advantage. While Materials believes it possesses these attributes in the markets it serves, in certain segments of those markets it competes directly with integrated materials companies that have greater financial resources. It is also possible that competitors with a lower cost structure or a willingness to accept lower margins than Materials may have an advantage on price sensitive projects. EMPLOYEES Materials employs approximately 2,300 people. Of these, about 400 are officers, operations management, sales personnel, technical staff, administrative personnel and clerical staff. Approximately 1,600 employees are represented by labor unions under collective bargaining agreements and approximately 300 are non-union craft employees. The collective bargaining agreements have multi-year terms and expiration dates spread out over a period of time. These agreements call for specified wage rates, payments to pension plans or benefit trusts and require Materials to comply with various workplace rules. Materials considers relations with its employees to be good. GOVERNMENTAL AND ENVIRONMENTAL REGULATION Materials' facilities are subject to various evolving federal, state and local laws and regulations relating to the environment, including those relating to discharges to air, water and land, the handling and disposal of 49 55 solid and hazardous waste and the cleanup of properties affected by hazardous substances. Certain environmental laws impose substantial penalties for non-compliance and others, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances. Materials continually evaluates whether it must take additional steps at its locations to ensure compliance with certain environmental laws. Materials believes that its operations are in substantial compliance with applicable laws and regulations and that any noncompliance is not likely to have a material adverse effect on its business, financial position, results of operations or cash flows. However, future events, such as changes in, or modified interpretations of, existing laws and regulations or enforcement policies, or further investigation or evaluation of the potential health hazards of certain products or business activities, may give rise to additional compliance and other costs that could have a material adverse effect on Materials' business. Materials, as well as other companies in the aggregates industry, produces certain products containing varying amounts of crystalline silica. Excessive and prolonged inhalation of very small particles of crystalline silica has been associated with non-malignant lung disease. The carcinogenic potential of excessive exposure to crystalline silica has been evaluated for over a decade by a number of research groups including the International Agency for Research on Cancer, the National Institute for Occupational Safety and Health and the National Toxicology Program, a part of the Department of Health and Human Services. Results of various studies have ranged from classifying crystalline silica as a probable to a known carcinogen. Other studies concluded higher incidences of lung cancer in some operations were due to cigarette smoking, not silica. Governmental agencies, including the Occupational Safety and Health Administration and Mine Safety Health Administration, coordinate to establish standards for controlling permissible limits on crystalline silica. Materials believes it currently meets government guidelines for crystalline silica exposure and will continue to employ advanced technologies as they become available to ensure worker safety and to comply with all applicable regulations. Materials believes that its compliance with environmental laws has not had a material adverse effect on its business, financial position, results of operations or cash flows. LEGAL PROCEEDINGS From time to time, Materials has been involved in various legal proceedings relating to its operations and properties, all of which it believes are routine in nature and incidental to the conduct of its business. Although the ultimate legal and financial liability associated with such proceedings cannot be estimated with certainty, Materials believes, based on its examination of such matters, that none of these proceedings, if determined adversely, would have a material adverse effect on its business, financial position, results of operations or cash flows. 50 56 BUSINESS OF KIEWIT Kiewit, together with its subsidiaries, is one of the largest construction contractors in North America and also owns materials businesses. Kiewit was incorporated in Delaware in 1997 to continue a construction business founded in Omaha, Nebraska in 1884. THE CONSTRUCTION BUSINESS The construction business is conducted by operating subsidiaries of Kiewit. Kiewit and its joint ventures and partnerships perform construction services for a broad range of public and private customers primarily in the United States and Canada. New contract awards during 1999 were distributed among the following construction markets (approximately, by number): power, heat, cooling -- 34%, transportation (including highways, bridges, airports, railroads, and mass transit) -- 33%, commercial buildings -- 27%, water supply/ dams -- 3%, oil and gas -- 2% and other markets -- 1%. Kiewit primarily performs its services as a general contractor. As a general contractor, Kiewit is responsible for the overall direction and management of construction projects and for completion of each contract in accordance with its terms, plans, and specifications. Kiewit plans and schedules the projects, procures materials, hires workers as needed, and awards subcontracts. Kiewit generally requires performance and payment bonds or other assurances of operational capability and financial capacity from its subcontractors. Contract Types Kiewit performs its construction work under various types of contracts, including fixed unit or lump-sum price, guaranteed maximum price, and cost-reimbursable contracts. Contracts are either competitively bid and awarded or negotiated. Kiewit's public contracts generally provide for the payment of a fixed price for the work performed. Profit on a fixed-price contract is realized on the difference between the contract price and the actual cost of construction, and the contractor bears the risk that it may not be able to perform all the work for the specified amount. Construction contracts generally provide for progress payments as work is completed, with a retainage, ranging from 0% to 10%, to be paid when performance is substantially complete. Construction contracts frequently contain penalties or liquidated damages for late completion and infrequently provide bonuses for early completion. Government Contracts Public contracts accounted for approximately 76% of the combined prices of contracts awarded to Kiewit during 1999. Most of these contracts were awarded by government and quasi-government units under fixed price contracts after competitive bidding. Most public contracts are subject to termination at the election of the government. In the event of termination, the contractor is entitled to receive the contract price on completed work and payment of termination related costs. COMPETITION A contractor's competitive position is based primarily on its prices for construction services and its reputation for quality, timeliness, experience, and financial strength. The construction industry is highly competitive and lacks firms with dominant market power. In 1999, Engineering News Record, a construction trade publication, ranked Kiewit as the eighth largest United States contractor in terms of 1998 revenue and 14th largest in terms of 1998 new contract awards. It ranked Kiewit 1st in the transportation market in terms of 1998 revenue. DEMAND The volume and profitability of Kiewit's construction work depends to a significant extent upon the general state of the economies of the United States and Canada, and the volume of work available to contractors. Fluctuating demand cycles are typical of the industry, and such cycles determine to a large extent the degree of competition for available projects. Kiewit's construction operations could be adversely affected 51 57 by labor stoppages or shortages, adverse weather conditions, shortages of supplies, or governmental action. The volume of available government work is affected by budgetary and political considerations. A significant decrease in the amount of new government contracts, for whatever reason, would have a material adverse effect on Kiewit. BACKLOG At the end of 1999, Kiewit had backlog (anticipated revenue from uncompleted contracts) of approximately $4 billion, a decrease from approximately $4.9 billion at the end of 1998. Of current backlog, approximately $1 billion is not expected to be completed during 2000. In 1999, Kiewit was low bidder on 168 jobs with total contract prices of approximately $1.5 billion, an average price of approximately $9.1 million per job. There were 19 new projects with contract prices over $20 million, accounting for approximately 63% of the successful bid volume. JOINT VENTURES Kiewit frequently enters into joint ventures to efficiently allocate expertise and resources among the venturers and to spread risks associated with particular projects. In most joint ventures, if one venturer is financially unable to bear its share of expenses, the other venturers may be required to pay those costs. Kiewit prefers to act as the sponsor of its joint ventures. The sponsor generally provides the project manager, the majority of venturer-provided personnel, and accounting and other administrative support services. The joint venture generally reimburses the sponsor for such personnel and services on a negotiated basis. The sponsor is generally allocated a majority of the venture's profits and losses and usually has a controlling vote in joint venture decision making. In 1999, Kiewit derived approximately 62% of its joint venture revenue from sponsored joint ventures and approximately 38% from non-sponsored joint ventures. Kiewit's share of joint venture revenue accounted for approximately 25% of its 1999 total revenue. SIGNIFICANT CUSTOMER During 1999, Kiewit earned 21.7% of revenues from contracts with Level 3. THE MATERIALS BUSINESS Several of Kiewit's subsidiaries, located in Arizona, Washington, Oregon, California, Wyoming, Utah and New Mexico, produce construction materials, including ready-mix concrete, asphalt, sand and gravel, landscaping materials and railroad ballast. As a result of the spin-off, these materials operations will no longer be a part of Kiewit. They will be owned and operated by Materials. LOCATIONS Kiewit structures its construction operations around 20 principal operating offices located throughout North America, including its headquarters located in Omaha, Nebraska. Through its decentralized system of management, Kiewit has been able to quickly respond to changes in the local markets. At the end of 1999, Kiewit had current projects in 47 states, Puerto Rico, Washington, D.C. and 8 Canadian provinces. PROPERTIES Kiewit's headquarters facilities are located in Omaha, Nebraska and are owned by Kiewit. Kiewit also has 19 principal district offices in its construction operations, 15 of which are located in owned facilities and 4 of which operate from leased facilities. Kiewit also has 14 area offices in its construction operation, 2 of which are owned facilities and 12 of which are leased facilities. Kiewit owns or leases numerous shops, equipment yards, storage facilities, warehouses, and construction material quarries. Since construction projects are inherently temporary and location-specific, Kiewit owns approximately 1,000 portable offices, shops and transport trailers. Kiewit has a large equipment fleet, including approximately 5,100 trucks, pickups and automobiles and 3,800 heavy construction vehicles, such as graders, scrapers, backhoes and cranes. Joint 52 58 ventures in which Kiewit is a participant also own an approximate additional 100 portable offices, shops and transport trailers, 600 trucks, pickups and automobiles and 1,000 heavy construction vehicles. ENVIRONMENTAL PROTECTION Compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not and is not expected to have a material effect upon the capital expenditures, earnings, or competitive position of Kiewit and its subsidiaries. EMPLOYEES At the end of 1999, Kiewit and its majority-owned subsidiaries employed approximately 20,300 people. Of these, approximately 2,300 were employees of Materials and its subsidiaries. 53 59 MANAGEMENT OF MATERIALS SENIOR MANAGEMENT AND DIRECTORS OF MATERIALS The following table provides material information concerning Materials' board of directors and executive officers who will be serving or in office as of the date of the spin-off.
NAME AGE POSITION - ---- --- -------- Christopher J. Murphy................ 45 President, Chief Executive Officer and Director Donald E. Bowman..................... 51 Vice President and Chief Financial Officer Mark E. Belmont...................... 46 Vice President, General Counsel and Secretary Todd A. Freyer....................... 39 Controller Daniel W. Speck...................... 44 Vice President John J. Shaffer...................... 49 Vice President Richard W. Colf...................... 56 Director Richard Geary........................ 65 Director James S. Goodwin..................... 44 Director Bruce E. Grewcock.................... 46 Director William L. Grewcock.................. 74 Director Walter Scott, Jr..................... 68 Director Kenneth E. Stinson................... 57 Chairman of the Board of Directors
OTHER KEY PERSONNEL The following table provides material information concerning other key personnel of Materials.
NAME AGE POSITION - ---- --- -------- John L. Fowler....................... 57 Vice President, United Metro Materials Inc. and Vice President, Solano Concrete Co., Inc., each a Materials subsidiary R. David Jennings.................... 53 Vice President, Twin Mountain Rock Company, a Materials subsidiary William G. Heeter.................... 62 Vice President -- Sales and Marketing, United Metro Materials, Inc. Rick W. Thomas....................... 43 Director of Business Development, Materials
Christopher J. Murphy. Mr. Murphy has been a director and the Chief Executive Officer of Materials since January 1, 2000. Mr. Murphy has been the President of Materials since February 2, 1999. Mr. Murphy has been the President of Kiewit Mining Group Inc., a Kiewit subsidiary, since July 1996 and was Vice President of Kiewit Mining Group Inc. from October 1995 to July 1996. Mr. Murphy has been the President of United Metro Materials since July 1996, and was Senior Vice President of United Metro Materials from August 1994 to July 1996. Mr. Murphy is the Chairman of the Executive Committee of Materials. Following the spin-off, Mr. Murphy will cease to be an officer of Kiewit Mining Group. Donald E. Bowman. Mr. Bowman has been Vice President and Chief Financial Officer of Materials since April 24, 2000. Mr. Bowman was President, Eastern Region, Construction Materials of Lafrage Corporation from January 1998 to March 1999. Mr. Bowman was President and Chief Executive Officer of Redland Genstar, Inc., for more than five years prior to January 1998. Mark E. Belmont. Mr. Belmont has been General Counsel and Secretary of Materials since January 1, 2000 and a Vice President of Materials since February 2, 1999. Mr. Belmont has been Senior Corporate Counsel of Kiewit since July 1991. Todd A. Freyer. Mr. Freyer has been Controller of Materials since April 1, 2000. Mr. Freyer has been Accounting Manager of Kiewit Mining Group since April 1999 and was Accounting Supervisor of Kiewit 54 60 Mining Group for more than five years prior to April 1999. Following the spin-off, Mr. Freyer will cease to be an employee of Kiewit Mining Group. Daniel W. Speck. Mr. Speck has been a Vice President of Materials since January 1, 2000. Mr. Speck has been Vice President of United Metro Materials since April 1997. Mr. Speck was the manager of Walnut Creek Mining Company from March 1993 to March 1997. John J. Shaffer. Mr. Shaffer has been a Vice President of Materials since January 1, 2000. Mr. Shaffer has been Vice President of Pacific Rock Products, L.L.C. since February 1, 1996. Mr. Shaffer was Vice President of Pacific Rock Products, Inc. for more than five years prior to February 1, 1996. Richard W. Colf. Mr. Colf has been a director of Materials since January 1, 2000. Mr. Colf has been an Executive Vice President of Kiewit since July 1998. Mr. Colf has been an Executive Vice President of Kiewit Pacific Co., a Kiewit subsidiary, since September 1998, was a Senior Vice President of Kiewit Pacific from October 1995 to September 1998 and was a Vice President of Kiewit Pacific for more than five years prior to October 1995. Mr. Colf is currently also a director of Kiewit. Mr. Colf is a member of the Audit Committee of Materials. Richard Geary. Mr. Geary has been a director of Materials since January 1, 2000. Mr. Geary was an Executive Vice President of Kiewit from August 1997 to July 1998. Mr. Geary was an Executive Vice President of Kiewit Construction Group Inc., a Kiewit subsidiary, and President of Kiewit Pacific Co. for more than five years prior to August 1997. Mr. Geary is currently also a director of Kiewit, and serves on the board of directors of Standard Insurance Company, David Evans & Associates and Today's Bank, and is a trustee of the Oregon Health Sciences University Foundation. Mr. Geary is the Chairman of the Audit Committee of Materials. James S. Goodwin. Mr. Goodwin has been a director of Materials since April 1, 2000. Mr. Goodwin has been a private investor since February 1998. Mr. Goodwin was a Managing Director at Gleacher NatWest, Inc. for more than five years prior to February 1998. Mr. Goodwin is also a director of Champps Entertainment, Inc. Mr. Goodwin is a member of the Compensation Committee of Materials. Bruce E. Grewcock. Mr. Grewcock has been a director of Materials since February 2, 1999. Mr. Grewcock has been an Executive Vice President of Kiewit since August 1997. Mr. Grewcock has been the President of Kiewit Western Co., a Kiewit subsidiary, since July 1997. Mr. Grewcock was an Executive Vice President of Kiewit Construction Group Inc. from July 1996 to June 1998 and President of Kiewit Mining Group Inc., from January 1992 to July 1996. Mr. Grewcock is currently also a director of Kiewit and Kinross Gold Corporation. Mr. Grewcock is a member of the Executive Committee and the Compensation Committee of Materials. William L. Grewcock. Mr. Grewcock has been a director of Materials since January 1, 2000. Mr. Grewcock was Vice Chairman of Level 3 Communications, Inc. for more than five years prior to April 1998. Mr. Grewcock is currently also a director of Kiewit and Level 3. Mr. Grewcock is a member of the Audit Committee of Materials. Walter Scott, Jr. Mr. Scott has been a director of Materials since January 1, 2000. Mr. Scott has been the Chairman Emeritus of Kiewit since August 1997 and has been the Chairman of the Board of Level 3 Communications, Inc. for more than the last five years. Mr. Scott was the Chief Executive Officer of Level 3 for more than five years prior to August 1997. Mr. Scott is currently also a director of Berkshire Hathaway Inc., Burlington Resources Inc., MidAmerican Energy Holding Co., ConAgra, Inc., Commonwealth Telephone Enterprises, Inc., RCN Corporation, Kiewit, Valmont Industries, Inc. and Level 3. Mr. Scott is a member of the Compensation Committee of Materials. Kenneth E. Stinson. Mr. Stinson has been a director and Chairman of Materials since January 1, 2000. Mr. Stinson has been President of Kiewit since August 1997 and Chairman and Chief Executive Officer of Kiewit since March 1998. Mr. Stinson has been the Chairman and Chief Executive Officer of Kiewit Construction Group Inc. for more than the last five years. Mr. Stinson was Executive Vice President of Level 3 Communications, Inc. from June 1991 to August 1997. Mr. Stinson is currently also a director of 55 61 ConAgra, Inc., Valmont Industries, Inc., Kiewit and Level 3. Mr. Stinson is a member of the Executive Committee and is the Chairman of the Compensation Committee of Materials. John L. Fowler. Mr. Fowler has been Vice President of United Metro Materials since March 1, 1994 and was President of the United Metro Division of The Tanner Companies from 1985 to 1994. Mr. Fowler has been Vice President of Solano Concrete Co., Inc. since January 3, 2000. R. David Jennings. Mr. Jennings has been Vice President of Twin Mountain Rock Company, a Materials subsidiary, since 1986. William G. Heeter. Mr. Heeter has been Vice President -- Sales and Marketing of United Metro Materials and its predecessors since 1971. Rick W. Thomas. Mr. Thomas has been Director of Business Development of Materials since January 1999. From 1997 to 1998, Mr. Thomas held a senior operations position with Kiewit Mining Group Inc. From 1996 to 1997, Mr. Thomas was Vice President -- Engineering of Anker Energy Corporation. Mr. Thomas was Vice President -- Operations of Great Western Coal Company for more than five years prior to 1996. The Materials board of directors is divided into three classes, designated Class I, Class II and Class III, each class consisting, as nearly as possible, of one-third of the total number of directors constituting the Materials board. The initial Class I directors are: Messrs. Bruce Grewcock, William Grewcock and Scott. The initial Class II directors are: Messrs. Colf, Geary and Goodwin. The initial Class III directors are: Messrs. Murphy and Stinson. The term of the initial Class I directors will terminate on the date of the 2001 annual meeting of stockholders. The term of the initial Class II directors will terminate on the date of the 2002 annual meeting of stockholders. The term of the initial Class III directors will terminate on the date of the 2003 annual meeting of the stockholders. At each annual meeting of stockholders beginning in 2001, successors to the class of directors whose term expires at that annual meeting will be elected for three-year terms. COMMITTEES The board of directors has an Audit Committee, a Compensation Committee and an Executive Committee. The Audit Committee recommends the selection of and reviews the services provided by Materials' independent auditors, consults with the independent auditors and reviews the need for internal auditing procedures and the adequacy of internal controls and reports and makes recommendations to the full board. The initial Audit Committee members are Messrs. Geary (Chairman), Colf and William Grewcock. The Compensation Committee determines the compensation of the Chief Executive Officer, recommends the compensation of Materials' key management and personnel and recommends securities ownership and other benefits. The initial Compensation Committee members are Messrs. Stinson (Chairman), Goodwin, Bruce Grewcock and Scott. The Executive Committee exercises, to the maximum extent permitted by law, all powers of the board between board meetings, except those functions assigned to specific committees. The initial Executive Committee members are Messrs. Murphy (Chairman), Bruce Grewcock and Stinson. 56 62 SECURITY OWNERSHIP OF MATERIALS COMMON STOCK BY CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF MATERIALS The table below shows information about the expected ownership of Materials common stock as of the date of the spin-off, by each of Materials' directors and the four most highly compensated executive officers in 1999 and each person who is expected to beneficially own more than 5 percent of Materials common stock. The table also shows the expected ownership of Materials common stock by all of the directors and executive officers as a group as of that date. The ownership information presented below with respect to all persons: - is based on the ownership of Materials common stock after the completion of the share exchange, the debenture exchange offer and the spin-off; - assumes that, in the share exchange, the persons listed below who are employees of Materials exchanged any shares of Kiewit common stock they held for shares of Materials common stock; - assumes that in the debenture exchange offer, the persons listed below who are employees of Materials exchanged any Kiewit convertible debentures they held for Materials convertible debentures; - assumes that, in the debenture exchange offer, the persons listed below who are employees of Kiewit exchanged any Kiewit convertible debentures they held for both new reduced principal amount Kiewit convertible debentures and shares of Materials common stock; - assumes a formula price for Kiewit common stock immediately prior to the spin-off of $20.35 per share, the formula price as of April 30, 2000; - assumes a formula price for Materials common stock of $7.44 per share; - reflects the beneficial ownership of Kiewit common stock at April 30, 2000 and the distribution ratio of one share of Materials common stock for each share of Kiewit common stock in the spin-off, and the Materials common stock split necessary to achieve that ratio; and - assumes no change in beneficial ownership of Kiewit common stock between April 30, 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 NAME BENEFICIALLY OWNED PERCENT OF SHARES - ---- ------------------ ----------------- Kenneth E. Stinson(1)(2).................................... 2,880,492 8.29% Richard W. Colf............................................. 1,725,960 4.97% Bruce E. Grewcock........................................... 958,804 2.76% Christopher J. Murphy....................................... 814,722 2.35% Richard Geary............................................... 717,780 2.07% Walter Scott, Jr............................................ 400,000 1.15% Daniel W. Speck............................................. 203,380 * Mark E. Belmont............................................. 39,190 * John J. Shaffer............................................. 9,573 * William L. Grewcock......................................... 8,192 * --------- ----- Directors and Executive Officers as a Group (13 Individuals).............................................. 7,803,498 22.47%
- --------------- * Less than 1% (1) Includes 766,773 shares of Materials common stock expected to be held in trusts, for which Mr. Stinson is the trustee with sole voting and investment powers. (2) Mr. Stinson's address is c/o Kiewit Plaza, Omaha, Nebraska 68131. 57 63 EXECUTIVE COMPENSATION OF MATERIALS SUMMARY COMPENSATION TABLE The following table presents information regarding the compensation paid by Kiewit to Materials' Chief Executive Officer and each of Materials' three other most highly compensated executive officers for the fiscal year ended December 25, 1999. Kiewit does not maintain plans under which options, stock appreciation rights, restricted stock awards, long-term incentive compensation, profit sharing, or pension benefits were granted to Materials' executive officers.
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) - --------------------------- ---- --------- -------- Christopher J. Murphy....................................... 1999 185,700 150,000 President and Chief Executive Officer John J. Shaffer............................................. 1999 138,312 111,754 Vice President Mark E. Belmont............................................. 1999 134,875 13,000 Vice President, General Counsel and Secretary Daniel W. Speck............................................. 1999 117,650 30,000 Vice President
Other annual compensation is not included because, in 1999, no executive officer received any other annual compensation in excess of the reporting threshold. DIRECTOR COMPENSATION Directors of Materials who are not employees or officers of Materials or its subsidiaries or employees, officers or directors of Kiewit or its subsidiaries will receive directors' fees consisting of an annual retainer of $35,000 payable in shares of Materials common stock. OTHER COMPENSATION AND EQUITY PROGRAMS Materials intends to implement a retention bonus program for certain of its key employees to ensure their continued employment during Materials' transition to an independent company. Materials anticipates that any bonuses under this bonus program will be paid to such key employees who remain employed on January 1, 2001 and January 1, 2002. The amount of any bonuses and the determination of the individuals to whom bonuses may be paid will be determined by the Materials board of directors and management in their sole discretion. The compensation payable to certain of Materials' executive officers who previously were employees of Kiewit is expected to increase following the spin-off. Kiewit has historically offered certain of its employees the opportunity to purchase securities in annual common stock and debenture offerings. The Kiewit board of directors and management, in their sole discretion, select the employees to whom Kiewit's securities will be offered and determine the amount of securities to be offered. Kiewit securities are offered only to salaried employees who are satisfactorily performing on a continuing basis in either an executive, managerial, administrative or professional capacity. The following factors are among those considered in determining whether an employee will be offered Kiewit securities and the amount of securities to be offered; the employee's effort and relative contribution to Kiewit's economic performance; the employee's level of responsibility; potential displayed by the employee; the employee's length of service; and the amount of securities presently owned by the employee. In addition, Kiewit debentures are only offered to those employees whom the Kiewit board and management determine have contributed significantly to the growth and performance of Kiewit. Materials intends to follow Kiewit's 58 64 prior practice by regularly selling Materials common stock and debentures to Materials employees in annual offerings. However, although Materials intends to follow Kiewit's prior practice, Materials is not required to offer its securities in any particular year, nor is Materials obligated to offer securities to any particular employee, whether or not that employee is already a security holder of Materials, in any particular year. In addition, Materials does not anticipate selling capital stock that represents, in the aggregate, more than 12% of the capital stock of Materials outstanding on a fully diluted basis immediately after the spin-off to employees over the next four to six years. 59 65 MANAGEMENT OF KIEWIT SENIOR MANAGEMENT AND DIRECTORS OF KIEWIT The following table provides material information concerning Kiewit's board of directors and executive officers who will be serving or in office as of the date of the spin-off.
NAME AGE POSITION - ---- --- -------- Mogens C. Bay........................ 51 Director John B. Chapman...................... 54 Vice President -- Human Resources and Administration Roy L. Cline......................... 62 Executive Vice President and Director Richard W. Colf...................... 56 Executive Vice President and Director James Q. Crowe....................... 50 Director Richard Geary........................ 65 Director Bruce E. Grewcock.................... 46 Executive Vice President and Director William L. Grewcock.................. 74 Director Kenneth M. Jantz..................... 57 Vice President and Treasurer Peter Kiewit, Jr..................... 73 Director Allan K. Kirkwood.................... 56 Executive Vice President and Director Ben E. Muraskin...................... 36 Vice President Gerald S. Pfeffer.................... 54 Vice President Jerry C. Porter...................... 56 Vice President Rodney K. Rosenthal.................. 46 Controller Tobin A. Schropp..................... 38 Vice President, General Counsel and Secretary Walter Scott, Jr..................... 68 Director Stephen A. Sharpe.................... 48 Vice President Kenneth E. Stinson................... 57 Chief Executive Officer, President and Chairman of the Board of Directors George B. Toll, Jr................... 63 Director
Mogens C. Bay. Mr. Bay has been a director of Kiewit since March 1999. Mr. Bay has been Chairman of Valmont Industries, Inc. since January 1997 and President and Chief Executive Officer of Valmont since August 1993. Mr. Bay is also currently a director of Valmont and ConAgra, Inc. Mr. Bay is a member of the Compensation Committee and the Executive Compensation Subcommittee of the Compensation Committee of Kiewit. John B. Chapman. Mr. Chapman has been Vice President of Human Resources and Administration of Kiewit since August 1997. Mr. Chapman was Vice President of Human Resources for Kiewit Construction Group Inc. for more than five years prior to August 1997. Roy L. Cline. Mr. Cline has been a director and Executive Vice President of Kiewit since June 1999. Mr. Cline was the President of Kiewit Industrial Co. from March 1992 until June 1999. Mr. Cline is a member of the Executive Committee of Kiewit. Richard W. Colf. Biographical information regarding Mr. Colf is included in "Management of Materials." Mr. Colf is also a member of the Executive Committee of Kiewit. James Q. Crowe. Mr. Crowe has been a director of Kiewit since August 1997. Mr. Crowe has been the President and Chief Executive Officer of Level 3 Communications, Inc. since August 1997. Mr. Crowe was Chairman of the Board of MFS Communications Company, Inc. for more than five years prior to December 1997, Chief Executive Officer from November 1991 until December 1997 and was President from Janu- 60 66 ary 1988 to June 1989 and from April 1990 until January 1992. Mr. Crowe was Chairman of the Board of MCI WorldCom, Inc. from January 1997 until July 1997. Mr. Crowe is currently also a director of Commonwealth Telephone Enterprises, Inc., RCN Corporation, InaCom Corp. and Level 3. Mr. Crowe is a member of the Compensation Committee of Kiewit. Richard Geary. Biographical information regarding Mr. Geary is included in "Management of Materials." Bruce E. Grewcock. Biographical information regarding Mr. Grewcock is included in "Management of Materials." Mr. Grewcock is also a member of the Executive Committee of Kiewit. William L. Grewcock. Biographical information regarding Mr. Grewcock is included in "Management of Materials." Mr. Grewcock is also a member of the Compensation Committee of Kiewit. Kenneth M. Jantz. Mr. Jantz has been a Vice President and Treasurer of Kiewit since August 1997. Mr. Jantz was a Vice President of Kiewit Construction Group Inc. from May 1994 to June 1998. Peter Kiewit, Jr. Mr. Kiewit has been a director of Kiewit since August 1997. Mr. Kiewit has been Of Counsel to the law firm of Gallagher & Kennedy, Phoenix, Arizona, for more than the last five years. Mr. Kiewit is a member of the Audit Committee, the Compensation Committee and the Executive Compensation Subcommittee of the Compensation Committee of Kiewit. Allan K. Kirkwood. Mr. Kirkwood has been a director of Kiewit since August 1997. Mr. Kirkwood has been an Executive Vice President of Kiewit since July 1998. Mr. Kirkwood has been an Executive Vice President of Kiewit Pacific Co. since September 1998, was a Senior Vice President of Kiewit Pacific from October 1995 to September 1998 and was a Vice President of Kiewit Pacific for more than five years prior to October 1995. Mr. Kirkwood is a member of the Executive Committee and is the Chairman of the Audit Committee of Kiewit. Ben E. Muraskin. Mr. Muraskin has been a Vice President of Kiewit since January 2000. Mr. Muraskin was a partner at Alston & Bird LLP from January 1999 to December 1999, and an associate at that firm from May 1992 to January 1999. Gerald S. Pfeffer. Mr. Pfeffer has been a Vice President of Kiewit since April 1998. Mr. Pfeffer was a Vice President of Kiewit Construction Group from December 1997 to June 1998. Mr. Pfeffer was Vice President of Kiewit SR91 Corp. from January 1993 to December 1997. Jerry C. Porter. Mr. Porter has been a Vice President of Kiewit since May 2000. Mr. Porter has been the design/build manager for Kiewit since September 1999. Mr. Porter was a construction design manager for Kiewit Pacific from September 1996 until September 1999. Mr. Porter was an engineering manager and a construction manager for Kiewit SR91 Corp. from October 1993 until September 1996. Rodney K. Rosenthal. Mr. Rosenthal has been the Controller of Kiewit since March 1998. Mr. Rosenthal was Controller of Kiewit Construction Group Inc. from October 1995 to June 1998. Mr. Rosenthal was Corporate Accounting Manager of Kiewit Construction Group from April 1991 to October 1995. Tobin A. Schropp. Mr. Schropp has been a Vice President, General Counsel and Secretary of Kiewit since September 1998. Mr. Schropp was Director of Taxes of Kiewit from March 1998 to September 1998. Mr. Schropp was Director of Taxes of Level 3 Communications, Inc. from August 1996 to March 1998, and Director of Research, Planning and Audit of Level 3 from September 1993 to August 1996. Walter Scott, Jr. Biographical information regarding Mr. Scott is included in "Management of Materials." Mr. Scott is also the Chairman of the Compensation Committee of Kiewit. Stephen A. Sharpe. Mr. Sharpe has been a Vice President of Kiewit since August 1997. Mr. Sharpe was a Vice President of Kiewit Construction Group Inc. from October 1996 to June 1998. Mr. Sharpe was a Vice President of U.S. Generating Company for more than five years prior to October 1996. 61 67 Kenneth E. Stinson. Biographical information regarding Mr. Stinson is included in "Management of Materials." Mr. Stinson is also the Chairman of the Executive Committee of Kiewit. George B. Toll, Jr. Mr. Toll has been a director of Kiewit since August 1997. Mr. Toll was an Executive Vice President of Kiewit from August 1994 to June 1999. Mr. Toll was an Executive Vice President of Kiewit Construction Group Inc. from April 1994 to June 1998, and a Vice President of Kiewit Pacific from June 1992 to August 1994. COMMITTEES The Kiewit board of directors has an Audit Committee, a Compensation Committee and an Executive Committee. The Audit Committee recommends the selection of and reviews the services provided by Kiewit's independent auditors, consults with the independent auditors and reviews the need for internal auditing procedures and the adequacy of internal controls and reports and makes recommendations to the full board. The current Audit Committee members are Messrs. Kirkwood (Chairman), Bay and Kiewit. The Compensation Committee determines the compensation of the Chief Executive Officer and reviews the compensation, securities ownership, and benefits of Kiewit's executive officers. The current Compensation Committee members are Messrs. Scott (Chairman), Bay, Crowe, Kiewit and William Grewcock. The Compensation Committee has an Executive Compensation Subcommittee. The Executive Compensation Subcommittee reviews and approves or disapproves, all compensation of whatever nature to be paid to the Chief Executive Officer of Kiewit and Kiewit's next four highest paid executive officers; establishes and administers performance goals pursuant to Kiewit's executive bonus plans, if any, adopted pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended; and approves or disapproves, on behalf of the board, the creation of any new bonus plans for the executive officers of Kiewit pursuant to Section 162(m) of the Code. The current Executive Compensation Subcommittee members are Messrs. Kiewit (Chairman) and Bay. The Executive Committee exercises, to the maximum extent permitted by law, all powers of the board of directors between board meetings, except those functions assigned to specific committees. The current Executive Committee members are Messrs. Stinson (Chairman), Cline, Colf, Bruce Grewcock, and Kirkwood. 62 68 SECURITY OWNERSHIP OF KIEWIT COMMON STOCK BY CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF KIEWIT The table below shows information about the expected ownership of Kiewit common stock as of the date of the spin-off by each of Kiewit's directors and five most highly compensated executive officers in 1999 and each person who is expected to beneficially own more than 5 percent of Kiewit common stock. The table also shows the expected ownership of Kiewit common stock by all of the directors and executive officers as a group as of that date. The ownership information presented below with respect to all persons reflects the beneficial ownership of Kiewit common stock at April 30, 2000 and assumes no change in beneficial ownership of Kiewit common stock between that date and the date of the spin-off. "Beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared power to dispose of, or to direct the disposition of, a security. A person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
NUMBER OF SHARES PERCENT OF NAME BENEFICIALLY OWNED SHARES - ---- ------------------ ---------- Kenneth E. Stinson(1)(2).................................... 2,770,968 8.7% Richard W. Colf(3).......................................... 1,715,960 5.4% Allan K. Kirkwood........................................... 1,207,664 3.8% George B. Toll, Jr.......................................... 1,140,824 3.7% Bruce E. Grewcock........................................... 911,336 2.9% Richard Geary............................................... 717,780 2.3% Roy L. Cline................................................ 553,416 1.7% Walter Scott, Jr............................................ 400,000 1.3% William L. Grewcock......................................... 8,192 * Mogens C. Bay............................................... 2,000 * James Q. Crowe.............................................. 2,000 * Peter Kiewit, Jr............................................ 2,000 * ---------- ---- Directors and Executive Officers as a Group (20 Individuals).............................................. 10,029,336 31.4%
- --------------- * Less than 1%. (1) Includes 766,773 shares of Kiewit common stock held in trusts, for which Mr. Stinson is the trustee with sole voting and investment powers. (2) Mr. Stinson's address is c/o Kiewit Plaza, Omaha, Nebraska 68131. (3) Mr. Colf's address is c/o 215 V Street, Vancouver, Washington 98661. 63 69 EXECUTIVE COMPENSATION OF KIEWIT SUMMARY COMPENSATION TABLE The table below shows the annual compensation paid by Kiewit to its Chief Executive Officer and each of Kiewit's four other most highly compensated executive officers. In addition, annual compensation information is also provided for George B. Toll, Jr., who resigned as Executive Vice President of Kiewit in June 1999. Kiewit does not currently have plans under which options, stock appreciation rights, restricted stock awards, long-term incentive compensation, profit sharing, or pension benefits are held by its executive officers.
OTHER ANNUAL NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($)(2) - --------------------------- ---- ---------- ------------ ------------------- Kenneth E. Stinson........................ 1999 656,207 1,500,000 109,780(3) Chief Executive Officer 1998 570,835 1,500,000 111,422(4) 1997 476,670 900,000 George B. Toll, Jr. ...................... 1999 229,585 700,000 1998 290,921 650,000 1997 257,706 500,000 Allan K. Kirkwood......................... 1999 300,768 400,000 Executive Vice President 1998 254,885 360,000 1997 221,250 310,000 Roy L. Cline.............................. 1999 295,890 365,000 Executive Vice President 1998 271,046 407,260 1997 257,670 223,667 Richard W. Colf........................... 1999 302,229 250,000 Executive Vice President 1998 261,530 360,000 1997 234,750 310,000 Bruce E. Grewcock......................... 1999 286,145 270,000 Executive Vice President 1998 226,415 175,000 1997 199,831 175,000
- --------------- (1) Bonuses reflect payments made in the specified year with respect to performance in the prior year. (2) Other Annual Compensation means perquisites and other personal benefits received, if, in the aggregate, in excess of the lesser of $50,000 or 10% of their combined salary and bonus. No executive officer other than Mr. Stinson received any Other Annual Compensation in excess of the reporting threshold. (3) In 1999, taxable income in the amount of $51,535 was imputed to Mr. Stinson with respect to the non-business use of corporate aircraft and taxable income in the amount of $57,430 was imputed with respect to his interest-free loan described below. (4) In 1998, taxable income in the amount of $40,778 was imputed to Mr. Stinson with respect to the non-business use of corporate aircraft and taxable income in the amount of $70,644 was imputed with respect to his interest-free loan described below. DIRECTOR COMPENSATION During 1999, each of the directors of Kiewit who were not employed by Kiewit during 1999 received directors' fees consisting of an annual retainer of $30,000 and fees of $1,500 for attending each board meeting and $1,200 for attending each committee meeting. Non-employee directors also receive $1,500 for attending Kiewit's annual operations meeting. CERTAIN TRANSACTIONS Transactions with Level 3. In March 1998, Level 3 Communications, Inc., then known as "Peter Kiewit Sons', Inc.," separated its construction and materials business from its other businesses in a spin-off. As a result of that transaction, Kiewit became an independent company holding Level 3's former construction and materials businesses, with Level 3 retaining the other businesses. James Q. Crowe, a director of Kiewit, is the 64 70 President and Chief Executive Officer and a director of Level 3. Walter Scott, Jr., a director of Kiewit, is the Chairman of the Board of Level 3. Kenneth E. Stinson, the President, Chief Executive Officer and Chairman of the Board of Kiewit, is a director of Level 3. A subsidiary of Level 3 and Kiewit Engineering Company, a subsidiary of Kiewit, are parties to various aircraft operating agreements pursuant to which Kiewit Engineering Company provides Level 3's subsidiary with aircraft maintenance, operations and related services. During 1999, Level 3's subsidiary reimbursed Kiewit Engineering Company approximately $2.1 million in expenses incurred in connection with the operation of Level 3 aircraft. Level 3 also paid Kiewit Engineering Company a management fee of approximately $80,000. Level 3 and Kiewit Mining Group, Inc., a subsidiary of Kiewit, are parties to an amended mine management agreement pursuant to which Kiewit Mining Group provides mine management and related services for Level 3's coal mining properties. During 1999, Level 3 paid Kiewit Mining Group approximately $33 million in connection with services provided pursuant to such agreement. Level 3 and Kiewit Construction Company, a subsidiary of Kiewit, are parties to a contract for the construction of Level 3's North American Intercity Network. Construction, which is expected to be completed by the end of 2000, will cost an estimated $3 billion. In 1999, Level 3 paid Kiewit Construction Company approximately $699 million under this contract. In addition, Level 3 has retained Kiewit Construction Company as the general contractor for the construction of Level 3's campus headquarters facility being built in Broomfield, Colorado. In 1999, Level 3 paid Kiewit Construction Company approximately $100 million in connection with such activities. In connection with the 1998 spin-off of Kiewit from Level 3, Kiewit and Level 3 entered into various agreements intended to implement that spin-off, including a separation agreement and a tax sharing agreement, pursuant to which the parties allocated certain liabilities associated with their respective businesses and the costs and other liabilities related to the spin-off. Other Transactions. On January 25, 1999, Kiewit Engineering Company sold its 60% interest in an aircraft to Elk Mountain Ventures, Inc., a corporation controlled by Mr. Scott, a director of Kiewit, for $10,800,000, the fair market value of the aircraft interest. Kiewit Engineering acquired the aircraft interest in a capital contribution from Level 3. Elk Mountain Ventures, Inc. and Kiewit Engineering Company are parties to various aircraft operating agreements pursuant to which Kiewit Engineering Company provides Elk Mountain with aircraft maintenance, operations and related services. During 1999, Elk Mountain reimbursed Kiewit Engineering Company approximately $1.4 million in expenses incurred in connection with the operation of Elk Mountain's aircraft. Elk Mountain also paid the subsidiary of Kiewit a management fee of approximately $44,000. Kiewit Construction Company provided various construction related services to Walter Scott, Jr. during 1999. Mr. Scott paid Kiewit Construction Company approximately $4 million in connection with those services. Kiewit provided George B. Toll, Jr., a director and a former executive officer of Kiewit, an interest-free loan of $800,000 during 1994 in connection with the purchase of a residence and relocation expenses. The full principal amount of his demand note payable to Kiewit is currently outstanding. The loan is scheduled to be repaid in January 2002. Kiewit provided its holders of convertible debentures with interest-free loans in connection with the spin-off of Kiewit from Level 3 in 1998. The following is a list of directors and executive officers who had outstanding interest-free loans from Kiewit in excess of $60,000 during 1999, the largest aggregate amount outstanding during 1999 and the amount, if any, currently outstanding: (a) Kenneth E. Stinson -- $1,080,000 ($700,000 currently); (b) Roy L. Cline -- $250,000 ($200,000 currently); (c) Bruce E. Grewcock -- $250,000 ($200,000 currently); (d) Allan K. Kirkwood -- $240,000 ($200,000 currently); (e) Richard W. Colf -- $150,000 ($100,000 currently); (f) Kenneth M. Jantz -- $150,000 ($100,000 currently); (g) Richard Geary -- $100,000 ($0 currently); (h) Stephen A. Sharpe -- $100,000 ($100,000 currently); and (i) John Brad Chapman -- $80,000 ($55,000 currently). The loans are scheduled to be repaid over the next two years, with the final payments due on November 1, 2001. 65 71 Valmont Industries, Inc. has retained Kiewit Construction Company as the general contractor for the construction of Valmont's headquarters facility in Omaha, Nebraska. Mogens C. Bay, a director of Kiewit, is the Chairman, President and Chief Executive Officer of Valmont. In 1999, Valmont paid Kiewit Construction Company approximately $7 million in connection with such activities. In 1999, Richard W. Colf, an executive vice president and director of Kiewit, acquired a used piece of construction equipment from a subsidiary of Kiewit for $80,000. The law firm of Gallagher & Kennedy provided various legal services to Kiewit and its subsidiaries during 1999. Peter Kiewit Jr., a director of Kiewit, is Of Counsel to Gallagher & Kennedy. Fees paid to Gallagher & Kennedy by Kiewit and its subsidiaries did not exceed 5% of Gallagher & Kennedy's revenues for 1999. Bruce E. Grewcock, an executive vice president and director of Kiewit, is the son of William L. Grewcock, a director of Kiewit. In connection with the spin-off, Kiewit and Materials will enter into agreements defining the ongoing relationships between them and their subsidiaries and affiliates after the spin-off and providing for an orderly separation of the two companies. See "Relationship between Kiewit and Materials." Kiewit believes that the fees paid in each of the transactions described above approximates the fair market value for the services rendered. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Kiewit board of directors consists of Messrs. Bay, Crowe, William Grewcock, Kiewit and Scott. Messrs. Scott and William Grewcock are employees of Kiewit. Messrs. Scott, William Grewcock and Crowe were formerly officers of Kiewit or its subsidiaries. A corporation controlled by Mr. Scott was a joint owner of an aircraft with Kiewit Engineering Company and such corporation's successor acquired Kiewit Engineering Company's interest in such aircraft on January 25, 1999. That company also paid Kiewit Engineering Company for certain aircraft related expenses in 1999. In 1999, Level 3 Communications, Inc. paid several subsidiaries of Kiewit for the construction of Level 3's North American Intercity Network and campus headquarters facilities and for certain mine management and aircraft related services. See "Certain Transactions." Mr. Stinson, the President, Chief Executive Officer and Chairman of the Board of Kiewit, is a director of Valmont Industries, Inc. Mr. Bay, a director of Kiewit, is the Chairman, President and Chief Executive Officer of Valmont. COMPARISON OF RIGHTS OF HOLDERS OF KIEWIT COMMON STOCK AND MATERIALS COMMON STOCK GENERAL The following is a summary of material differences between the rights of holders of Kiewit common stock and the rights of holders of Materials common stock. Because each of Kiewit and Materials are organized under the laws of Delaware, these differences arise principally from provisions of the restated certificate of incorporation and bylaws of each of Kiewit and Materials. The authorized capital stock of Materials consists of 100,000,000 shares of common stock, par value $0.01 per share and 10,000,000 shares of preferred stock, par value $0.01 per share. The authorized capital stock of Kiewit consists of 125,000,000 shares of common stock, par value $0.01 per share and 250,000 shares of preferred stock, par value $0.01 per share. The following summary does not purport to be a complete statement of the rights of stockholders of Kiewit under the restated certificate of incorporation and bylaws of Kiewit as compared with the rights of Materials stockholders under the restated certificate of incorporation and the bylaws of Materials or a 66 72 complete description of the specific provisions referred to in this summary. The identification of specific differences is not meant to indicate that other equal or more significant differences do not exist. The summary is qualified in its entirety by reference to the governing corporate instruments of Kiewit and Materials, to which stockholders are referred. Copies of the governing corporate instruments of Kiewit and Materials have been filed with the SEC. See "Where You Can Find More Information" on page 75. DIVIDEND POLICY Materials currently does not intend to pay cash dividends on the Materials common stock. Kiewit pays a regular cash dividend on its common stock based upon a percentage of its prior year's earnings, with any special cash dividends based on extraordinary earnings. VOTING RIGHTS The holders of Materials common stock are entitled to one vote per share on all matters to be voted on by stockholders and are entitled to receive such dividends, if any, as may be declared from time to time by the board of directors from legally available funds. Holders of Materials common stock are not entitled to cumulative voting rights. The holders of Materials common stock have no preemptive or other subscription rights and there are no conversion rights or redemption or sinking fund provisions with respect to the Materials common stock. All outstanding shares of Materials common stock, including the shares being offered in the share exchange, the debenture exchange offer and the spin-off, are, or will be upon completion of the share exchange, the debenture exchange offer and the spin-off, fully paid and non-assessable. The Materials restated certificate of incorporation provides that any amendments to the provisions in the restated certificate of incorporation regarding the classification of the board of directors require the approval of at least 80% of the Materials common stock. Any amendment to the 80% threshold requires the approval of at least 80% of the Materials common stock. Amendments to the provisions in the restated certificate of incorporation regarding stockholders' repurchase rights, the definition of the formula price, stock ownership and transfer restrictions, the prohibition of stockholder action by written consent in place of a meeting, the limitation on the right of stockholders to call special meetings, the limitation on the right of stockholders to present proposals or nominate directors for election at annual meetings of stockholders and amendments to the restated certificate of incorporation require the approval of at least 66 2/3% of the Materials common stock. Holders of Kiewit common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders of Kiewit. Holders of Kiewit common stock are entitled to elect the entire Kiewit board of directors by cumulative voting. The Kiewit restated certificate of incorporation provides that certain fundamental corporate changes, such as changes in the capital structure of Kiewit, are effective only upon the approval of at least 80% of Kiewit common stock, while certain other actions require the approval of 66 2/3% of Kiewit common stock. REPURCHASE RIGHTS Holders of Materials common stock are generally permitted, at any time on or prior to the 15th day of any calendar month, to offer to sell all or part of their common stock to Materials at the current formula price. Materials is generally required to accept the offer within 10 days of receipt of the offer, provided, however, that after giving effect to the purchase, there remain at least 1,000 shares of capital stock of Materials issued and outstanding and having full voting power. The Materials board of directors may suspend Materials' duties to repurchase Materials common stock offered by a stockholder upon the Materials board's determination that the Materials adjusted book value to be determined at the end of the current fiscal year is likely to be less that the Materials adjusted book value determined at the end of the prior fiscal year, less dividends declared on Materials common stock since the prior fiscal year end. This suspension may not exceed one year. The Materials board has the right to decide to conserve Materials' cash by temporarily halting Materials' duty to repurchase Materials common stock for cash. In such event, payment will be in the form of interest- 67 73 bearing promissory notes instead of cash. Such promissory notes will have such term to maturity, up to 5 years, as the Materials board may determine. Holders may withdraw tenders of shares of Materials common stock that would be paid for with notes. The Materials board has the right to invoke this cash repurchase limitation only after more than 5% of the outstanding shares of Materials common stock have been tendered in any fiscal year. Under Section 160 of the Delaware General Corporation Law, Materials may not repurchase shares of its common stock if its capital is impaired or if the repurchase would impair its capital. Materials' repurchase obligations may be terminated by Materials' board of directors at any time. However, the board shall not have that authority unless it has also determined that the Materials common stock is publicly traded. Holders of Kiewit common stock are generally permitted, at any time on or prior to the 15th day of any calendar month, to offer to sell all or a part of their common stock to Kiewit at the current formula price. Kiewit is generally required to accept the offer within 10 days of receipt of the offer, provided, however, that after giving effect to the purchase, there remain at least 1,000 shares of capital stock of Kiewit issued and outstanding having full voting power. The Kiewit board of directors may suspend Kiewit's duties to repurchase Kiewit common stock offered by a stockholder upon the Kiewit board's determination that the Kiewit adjusted book value to be determined at the end of the current fiscal year is likely to be less than the Kiewit adjusted book value determined at the end of the prior year, less, dividends declared on Kiewit common stock since the prior fiscal year end. This suspension may not exceed one year. Under Section 160 of the Delaware General Corporation Law, Kiewit may not repurchase shares of its common stock if its capital is impaired or if the repurchase would impair its capital. LIQUIDATION RIGHTS Upon the liquidation, dissolution or winding up of Materials, after the creditors of Materials and the holders of Materials preferred stock (if any), receive the full preferential amounts to which they are entitled, holders of Materials common stock will be entitled to receive any assets available for distribution to stockholders of Materials. The holders of Kiewit common stock have comparable rights on liquidation of Kiewit. FORMULA PRICE The formula price of Materials common stock is the price at which Materials purchases shares of its common stock and is based upon the adjusted book value of Materials at the end of the previous year. The per share Materials formula price is determined by decreasing the prior year's book value by the stockholders' equity attributable to any preferred stock, and increasing such result by the portion of the face amount of any outstanding Materials debentures convertible into Materials common stock at the end of such year, and then dividing this result by the sum of (1) the number of outstanding shares of Materials common stock and (2) the number of shares reserved for conversion of such debentures into Materials common stock, each at the end of such year. This quotient is rounded down to the nearest $.01 and the result represents the adjusted book value per share of the Materials common stock. For purposes of determining the formula price during the fiscal year 2000, shares of Materials common stock issued to Kiewit prior to the spin-off shall be deemed to be outstanding at the end of the fiscal year 1999. The per share formula price is determined by reducing this amount by any dividends per share declared on the Materials common stock since the prior year end. In addition to any adjustments for declared dividends during the current year, the initial formula price for Materials common stock is also adjusted for the amount of any capital contributions made by Kiewit to Materials during fiscal year 2000 prior to the spin-off, other than any capital contribution made in connection with the issuance of Materials debentures in exchange for Kiewit debentures. 68 74 The formula price of Kiewit common stock is the price at which Kiewit purchases and sells shares of its common stock and is based upon the adjusted book value of Kiewit at the end of the previous year. The per share Kiewit formula price is determined by decreasing the prior year's book value by the sum of the book value of construction related property, plant and equipment and the stockholders' equity attributable to any preferred stock, and increasing such result by the portion of the face amount of any outstanding Kiewit debentures convertible into Kiewit common stock at the end of such year, and then dividing this result by the sum of (1) the number of outstanding shares of Kiewit common stock and (2) the number of shares reserved for conversion of such debentures into Kiewit common stock, each at the end of such year. This quotient is rounded to the nearest $.05 and the result represents the adjusted book value per share of the Kiewit common stock. The per share formula price is determined by reducing this amount by any dividends per share declared on the Kiewit common stock since the prior year end. OWNERSHIP AND TRANSFER RESTRICTIONS Holders of Materials common stock are prohibited from transferring the common stock in any manner except in a sale to Materials and, with prior approval by the Materials board of directors, to certain authorized transferees of the holders. Those authorized transferees consist of fiduciaries for the benefit of the holders and members of the immediate families of the holders, corporations wholly owned by holders or holders and their spouses and/or children, fiduciaries for the benefit of such corporations and charities and fiduciaries for charities designated by any such persons. Upon the death of a Materials stockholder, the shares of Materials common stock owned by the deceased stockholder would be permitted to be transferred to his or her estate, provided that the shares transferred to the transferee would be subject to the same transfer restrictions. There is no restriction on the maximum amount of materials common stock that may be owned by any individual or entity. Holders of Materials common stock are permitted to pledge the Materials common stock for loans in connection with the ownership of the Materials common stock. In the event that the board of directors decides to conduct an initial public offering of the Materials common stock, officers and directors of Materials and stockholders owning one percent or more of the Materials common stock outstanding at the time of the offering will not be permitted to sell or otherwise transfer any shares held by them for a period of up to one hundred eighty days following the offering. In addition to any officers and directors who may be subject to the 180 day transfer restriction following an initial public offering, Materials estimates that there may be up to seven additional stockholders, all of whom are Kiewit employees, who may own 1% or more of Materials common stock and thus be subject to this transfer restriction. All transfer restrictions on Materials common stock may be terminated by the Materials board at any time. Kiewit common stock may generally be owned only by directors of Kiewit, employees of Kiewit and its subsidiaries and, with prior Kiewit board of directors approval, by certain authorized transferees of such employees (i.e., fiduciaries for the benefit of members of the immediate families of employees, corporations wholly owned by employees or employees and their spouses and/or children, fiduciaries for the benefit of such corporations, charities, and fiduciaries for charities designated by any such persons). No more than 10% of the total Kiewit common stock may be owned by any one employee and certain transferees at any time. Each holder of Kiewit common stock is required to execute a repurchase agreement which provides that a stockholder may offer to sell all or part of the Kiewit common stock owned by such stockholder to Kiewit at any time at the current formula price and that Kiewit must accept any such offer. Upon the tender of a part of such holder's shares of Kiewit common stock, Kiewit is entitled, at its option, to require the holder to sell any or all remaining Kiewit common stock held by such holder back to Kiewit. Under the repurchase agreement, the employee will not be entitled to transfer the shares of Kiewit common stock held by such employee except in a sale to Kiewit or a transfer to an authorized transferee (i.e., a charity, etc.). Upon the death, termination 69 75 of employment or retirement of such employee, all Kiewit common stock held by the employee and by such employee's authorized transferees is required to be sold back to Kiewit. Holders of Kiewit common stock are permitted to pledge the Kiewit common stock for loans in connection with the ownership of the Kiewit common stock. LISTING Neither Materials common stock nor Kiewit common stock is listed on any national securities exchange or quoted on the Nasdaq National Market. LIMITATION ON DIRECTORS' LIABILITY The Materials restated certificate of incorporation provides that a director of Materials will not be personally liable to Materials or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for: - any breach of the director's duty of loyalty to Materials or its stockholders; - acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or - any transaction from which the director derived an improper personal benefit. The restated certificate of incorporation of Kiewit contains a comparable limitation on directors' liability. PREFERRED STOCK The Materials board of directors is empowered, without approval of the stockholders, to issue shares of Materials preferred stock in one or more series, with the numbers of shares of each series and the powers, preferences, rights and limitations of each series to be determined by the board. Among the specific matters that may be determined by the board of directors are: - the rate of dividends; - the rights and terms of conversion or exchange; - voting rights; - the terms of redemption; - the amount payable in the event of any voluntary liquidation, dissolution or winding up of the affairs of Materials; and - the terms of a sinking or purchase fund. The board of directors of Kiewit has similar power to issue shares of one or more series of preferred stock without stockholder approval and to determine the powers, preferences, rights and limitations of each series. However, no series of preferred stock may have any voting rights or be convertible into shares of stock having any voting rights. ACTION BY STOCKHOLDER CONSENT; STOCKHOLDERS' MEETINGS Under the Delaware General Corporation Law, unless otherwise provided in a corporation's certificate of incorporation, any action which is required or permitted to be taken at an annual or special meeting of stockholders may instead be taken without a meeting, without prior notice and without a vote, if the requirements for an action by written consent are met. The Materials restated certificate of incorporation provides that stockholders of Materials may only take action at an annual or special meeting and may not act by written consent. Under the Delaware General Corporation Law, special meetings of stockholders of a corporation may be called by the corporation's board of directors or by persons authorized by the corporation's certificate of incorporation or by-laws. The Materials restated certificate of incorporation provides that special meetings of the stockholders may be called only by the Materials board of directors, the Chairman of the Board or the 70 76 Chief Executive Officer and may not be called by any other person or persons. Accordingly, stockholders of Materials may not call a special meeting of stockholders. Kiewit has no comparable consent and meeting provisions in its restated certificate of incorporation. RELATIONSHIP BETWEEN KIEWIT AND MATERIALS This section describes the primary agreements between Materials and Kiewit that will define the ongoing relationship between them and their subsidiaries and affiliates after the spin-off and will provide for an orderly separation of the two companies. The following description of agreements summarizes the material terms of the agreements. All stockholders should read the agreements which are filed as exhibits to the registration statement of which this information statement is a part. SEPARATION AGREEMENT The separation agreement provides for the principal corporate transactions necessary to effect the spin-off, the relationship between Kiewit and Materials after the spin-off, the allocation of certain risks and responsibilities between Kiewit and Materials after the spin-off and the ongoing relationship between Kiewit and Materials after the spin-off. The separation agreement provides for the distribution of Materials common stock to holders of Kiewit common stock, the share exchange and the debenture exchange offer and capital contributions necessary to effect the spin-off, the share exchange and the debenture exchange offer. The separation agreement also provides that Kiewit and Materials will each use their respective best efforts to effect the spin-off, the debenture exchange offer and the share exchange. The separation agreement provides that each of Materials and Kiewit will indemnify the other with respect to breaches of the separation agreement and with respect to the activities of its subsidiary business groups, except as specifically provided under the tax sharing agreement described below. The cross-indemnities are intended to allocate financial responsibility for liabilities arising out of the historical and future business of the construction business to Kiewit, and financial responsibility for liabilities arising out of the historical and future business of the materials business to Materials. The separation agreement provides that each of Materials and Kiewit will be granted access to certain records and information in the possession of the other company, and requires that each of Materials and Kiewit retain all such information in its possession for a period of ten years following the spin-off. Under the separation agreement, each company is required to give the other company prior notice of any intention to dispose of any such information. The separation agreement also provides that Kiewit and Materials will cooperate to ensure that any assets and liabilities of the construction business are retained by or transferred to Kiewit and any assets and liabilities of the materials business are retained by or transferred to Materials. The separation agreement provides that effective as of the date of the spin-off, all intercompany receivables and loans will be settled. In addition, any guarantees by Kiewit in favor of Materials or any of Materials' subsidiaries will also be terminated as of the effective date of the spin-off. The separation agreement provides Materials with a non-exclusive right to use the name "Kiewit" solely as part of the name "Kiewit Materials Company" at the sole discretion of the board of directors of Kiewit. The separation agreement provides that, except as otherwise set forth therein or in any related agreement, all costs and expenses in connection with the spin-off will be paid by Kiewit. The separation agreement also contains, among other things, short-term arrangements relating to: - the lease of office space by Kiewit to Materials; and - the provision of administrative services by Kiewit to Materials. 71 77 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 Materials 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 Materials, and state tax returns for Kiewit and Materials. In general, under the tax allocation agreement, Materials and Kiewit will be responsible for paying the taxes relating to such returns (including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities) that are allocable to the materials business and the construction business, respectively. Materials and Kiewit will cooperate with each other and share information in preparing such tax returns and in dealing with other tax matters. OTHER After the distribution, Kiewit will not own any of Materials' common stock. Six of Materials' eight initial directors will also be Kiewit directors. Of these six directors three are executive officers of Kiewit. Conflicts of interest may arise between Kiewit and Materials in a number of areas relating to their past and ongoing relationships including the nature, quality and pricing of services rendered by the parties to each other. A majority of Materials' current board of directors are designees of Kiewit and several current members of Materials' board hold positions with Kiewit. The directors holding positions in both companies may face conflicts of interest with respect to such matters as acquisitions, finances and other corporate opportunities that might be suitable for both Kiewit and Materials. In addition, Kiewit may, in the ordinary course of business, purchase construction materials from Materials, although it is under no contractual obligation to do so. Sales to Kiewit represented approximately 3% of Materials' total sales in 1999. MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following is a discussion of the material United States federal income tax consequences of the share exchange. The discussion which follows is based on the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder and judicial and administrative interpretations of the Code and Treasury regulations, all as they exist on the date of this document, and is subject to any changes in these or other laws occurring after that date, possibly with retroactive effect. The discussion below is for general information only and does not address the effects of any state, local or foreign tax laws on the share exchange. The tax treatment of a holder of Kiewit common stock may vary depending on his or her particular situation, and some stockholders may be subject to special rules not discussed below. The discussion assumes that a holder of Kiewit common stock holds that stock as a capital asset and that the stock was not received, and will not be treated, as compensation. Except as set forth below, the following discussion does not address the tax consequences to a holder of Kiewit common stock that is a non-U.S. person. A non-U.S. person is (1) an alien individual who is not a resident of the United States, (2) a corporation or partnership that is not created or organized under the laws of the United States or of any state, (3) an estate that is not subject to United States federal income tax on a net income basis or (4) a trust the administration of which is not subject to primary supervision of a United States court or with respect to which no United States person has authority to control all substantial decisions. EACH HOLDER OF KIEWIT COMMON STOCK IS URGED TO CONSULT THE HOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE SHARE EXCHANGE TO THE HOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS AND OF CHANGES IN APPLICABLE TAX LAWS. 72 78 Kiewit has received a private letter ruling from the Internal Revenue Service to the effect that the exchange of Materials common stock for Kiewit common stock will qualify as a transaction described in Sections 355(a) and 368(a)(1)(D) of the Code. The IRS ruling is based on current law and on representations as to factual matters made by, among others, Kiewit and Materials. Such representations, if incorrect in material respects, could jeopardize the conclusions reached in the IRS ruling. Neither Kiewit nor Materials is aware of any facts or circumstances that would cause any of those representations to be untrue or incorrect in any material respect. Based on the IRS ruling, the material United States federal income tax consequences expected to result from the exchange of Materials common stock for Kiewit common stock are as follows. No gain or loss will be recognized by Kiewit or Materials upon the exchange. A holder of Kiewit common stock who receives shares of Materials common stock in exchange for shares of Kiewit common stock (1) will not recognize gain or loss as a result of the exchange, (2) will have, immediately after the exchange, a tax basis for the shares of Materials common stock received that equals the holder's tax basis in his or her Kiewit common stock exchanged, and (3) will include in his or her holding period for the Materials common stock the period during which the holder held the Kiewit common stock exchanged. A holder of Kiewit common stock who acquired shares on different dates at different prices and who exchanges some, but not all, of his or her shares for Materials common stock may identify the specific shares exchanged for purposes of determining his or her tax basis and holding period for the shares of Materials common stock received and for the shares of Kiewit common stock retained; absent such specific identification, the Materials common stock will be assumed to have been received in exchange for the shares of Kiewit common stock acquired earliest. If the spin-off does not qualify as a tax-free transaction under Section 355 of the Code, then, among other consequences, (1) Kiewit would recognize gain equal to the amount by which the fair market value of the Materials common stock distributed exceeded Kiewit's adjusted tax basis therein, and (2) each holder who received Materials common stock in exchange for Kiewit common stock generally would recognize capital gain or loss equal to the difference between the fair market value of the Materials common stock on the date of the exchange and the holder's tax basis in the Kiewit common stock exchanged for such Materials common stock. That capital gain or loss would be long-term capital gain or loss if the Kiewit common stock exchanged were held for more than one year at the time of the exchange. The incurrence of significant tax liabilities by Kiewit, in the event that the spin-off does not qualify as a tax-free transaction under Section 355, could have a material adverse effect on Kiewit's business and financial condition. NON-U.S. PERSONS If the spin-off qualifies as a transaction described in Section 355 of the Code, the receipt of Materials common stock by a non-U.S. person who exchanges Kiewit common stock will not be subject to withholding of United States federal income tax. Even if the spin-off does not qualify under Section 355, a non-U.S. person generally would not be subject to withholding of United States federal income tax, provided that (1) any gain recognized on the exchange of Materials common stock for Kiewit common stock is not effectively connected with the conduct by the non-U.S. person of a trade or business in the United States, (2) the non-U.S. person (if an individual) is not present in the United States for 183 days or more during his or her taxable year and (3) applicable certification requirements are met. REPORTING REQUIREMENTS Applicable Treasury regulations require that each holder of Kiewit common stock attach to his or her federal income tax return for the taxable year in which the holder receives the Materials common stock in exchange for Kiewit common stock a statement indicating that Section 355 of the Code applies to the exchange. Kiewit will provide each holder with the information necessary to comply with this requirement. BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER OF KIEWIT COMMON STOCK IS URGED TO CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF THE SHARE EXCHANGE, INCLUDING THE EFFECT OF UNITED STATES FEDERAL, STATE AND LOCAL, AND FOREIGN AND OTHER TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN SUCH LAWS. 73 79 NEBRASKA TAX LETTER Kiewit has received a letter from the State of Nebraska Department of Revenue to the effect that, even though Kiewit and Materials will become independent companies if the spin-off is consummated, Kiewit and Materials generally would continue to be considered the same corporation for purposes of the Nebraska capital gain exclusion provisions. The letter provides that, provided certain requirements are met and an appropriate election is made, the Nebraska capital gain exclusion generally would be available for the sale of Materials common stock by residents of Nebraska. The above discussion is not intended to be, nor should it be construed as being, legal or tax advice to any particular stockholder. Each stockholder is urged to consult his or her own tax advisor as to any applicable state and local or other tax laws. LEGAL MATTERS The validity of the Materials common stock being issued in the share exchange will be passed upon by Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019. EXPERTS The audited financial statements of Peter Kiewit Sons', Inc. as of December 25, 1999 and December 26, 1998 and for each of the three years in the period ended December 25, 1999 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The audited financial statements of Kiewit Materials Company as of December 25, 1999 and December 26, 1998 and for the three years in the period ended December 25, 1999 included in this prospectus have been audited by PricewaterhouseCoopers LLP, independent accountants, and, insofar as they relate to Granite Canyon Joint Venture as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 by Arthur Andersen LLP, independent public accountants, and Pacific Rock Products L.L.C. and Pacific Rock Products Trucking L.L.C. (formerly River City Machinery, L.L.C.) as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998, and by Perkins & Company, P.C., independent accountants, respectively, both of whose reports thereon appear herein. Such financial statements have been so included in reliance on the reports of such independent accountants given on the authority of such firms as experts in auditing and accounting. The audited financial statements of Granite Canyon Joint Venture as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999, not separately presented in this prospectus, have been audited by Arthur Andersen LLP, independent public accountants, whose report thereon appears herein. Such financial statements, to the extent they have been included in the financial statements of Kiewit Materials Company, have been so included in reliance upon the reports of said firm as experts in auditing and accounting. The audited financial statements of Pacific Rock Products L.L.C. and Pacific Rock Products Trucking L.L.C. (formerly River City Machinery, L.L.C.) as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998 included in this prospectus have been so included in reliance on the report of Perkins & Company, P.C., independent accountants, given on the authority of said firm as experts in auditing and accounting. 74 80 WHERE YOU CAN FIND MORE INFORMATION Kiewit files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information filed by Kiewit at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Kiewit's SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." Following the spin-off, Materials will be required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Materials filed a registration statement on Form S-4 to register with the SEC the Materials common stock to be issued to Kiewit stockholders who tender their shares in the share exchange and whose shares of Kiewit common stock are accepted for exchange. Kiewit will also file a tender offer statement on Schedule TO with respect to the share exchange. This prospectus is a part of that registration statement. As allowed by SEC rules, this prospectus does not contain all the information you can find in the registration statement, or the exhibits to the registration statement. You should rely only on the information contained in this prospectus or in the letter of transmittal in connection with the share exchange. Neither Kiewit nor Materials has authorized anyone to provide you with information that is different from what is contained in this prospectus. This prospectus is dated , 2000. You should not assume that the information contained in this prospectus is accurate as of any date other than such date, and neither the mailing of this prospectus to stockholders nor the issuance of Materials common stock shall create any implication to the contrary. This prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the Materials common stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Kiewit is not aware of any jurisdiction where the making of the exchange offer or the acceptance thereof would not be in compliance with applicable law. If Kiewit becomes aware of any jurisdiction where the making of the exchange offer or acceptance thereof would not be in compliance with any valid applicable law, Kiewit will make a good faith effort to comply with such law. If, after such good faith effort, Kiewit cannot comply with such law, the exchange offer will not be made to, nor will tenders be accepted from or on behalf of, holders of shares of Kiewit common stock in any such jurisdiction. 75 81 PETER KIEWIT SONS', INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGES ----- Report of Independent Accountants........................... F-2 Consolidated Financial Statements as of December 25, 1999 and December 26, 1998 and for the three years in the period ended December 25, 1999: Consolidated Statements of Earnings....................... F-3 Consolidated Balance Sheets............................... F-4 Consolidated Statements of Cash Flows..................... F-6 Consolidated Statements of Changes in Redeemable Common Stock and Comprehensive Income......................... F-8 Notes to Consolidated Financial Statements................ F-10 Report of Independent Accountants on Consolidated Financial Schedule.................................................. F-24 Consolidated Financial Statement Schedule for the three years in the period ended December 25, 1999............... F-25 Consolidated Condensed Financial Statements as of March 31, 2000 and for the three months ended March 31, 2000 and 1999: Consolidated Condensed Statements of Earnings............. F-26 Consolidated Condensed Balance Sheet...................... F-27 Consolidated Condensed Statements of Cash Flows........... F-28 Notes to Consolidated Condensed Financial Statements...... F-29
F-1 82 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders Peter Kiewit Sons', Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of changes in redeemable common stock and comprehensive income, and of cash flows present fairly, in all material respects, the consolidated financial position of Peter Kiewit Sons', Inc. and Subsidiaries at December 25, 1999, and December 26, 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 25, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Omaha, Nebraska March 17, 2000 F-2 83 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE YEARS ENDED DECEMBER 25, 1999
1999 1998 1997 ------- ------- ------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Revenue..................................................... $ 4,013 $ 3,379 $ 2,742 Cost of revenue............................................. (3,655) (3,095) (2,408) ------- ------- ------- 358 284 334 General and administrative expenses......................... (144) (142) (148) ------- ------- ------- Operating earnings.......................................... 214 142 186 Other income (expense): Investment income and equity earnings..................... -- 17 20 Interest expense.......................................... (4) (5) (3) Other, net................................................ 56 61 61 ------- ------- ------- 52 73 78 ------- ------- ------- Earnings before income taxes and minority interest.......... 266 215 264 Minority interest in net earnings of subsidiaries........... (1) (1) (2) Provision for income taxes.................................. (100) (78) (107) ------- ------- ------- Net earnings................................................ $ 165 $ 136 $ 155 ======= ======= ======= Net earnings per share: Basic..................................................... $ 4.81 $ 4.07 $ 4.00 ======= ======= ======= Diluted................................................... $ 4.71 $ 4.02 $ 3.84 ======= ======= =======
See accompanying notes to consolidated financial statements. F-3 84 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 25, 1999 AND DECEMBER 26, 1998
1999 1998 --------- --------- (DOLLARS IN MILLIONS) ASSETS Current assets: Cash and cash equivalents................................. $ 338 $ 227 Marketable securities..................................... 12 9 Receivables, less allowance of $7 and $5.................. 507 457 Unbilled contract revenue................................. 73 88 Contract costs in excess of related revenue............... 31 26 Investment in construction joint ventures................. 197 190 Deferred income taxes..................................... 60 64 Other..................................................... 21 15 ------ ------ Total current assets........................................ 1,239 1,076 Property, plant and equipment, at cost: Land...................................................... 40 19 Buildings................................................. 51 42 Equipment................................................. 660 640 ------ ------ 751 701 Less accumulated depreciation and amortization............ (508) (489) ------ ------ Net property, plant and equipment........................... 243 212 Other assets................................................ 117 91 ------ ------ $1,599 $1,379 ====== ======
See accompanying notes to consolidated financial statements. F-4 85 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 25, 1999 AND DECEMBER 26, 1998
1999 1998 --------- --------- (DOLLARS IN MILLIONS) LIABILITIES AND REDEEMABLE COMMON STOCK Current liabilities: Accounts payable, including retainage of $50 and $47...... $ 270 $ 183 Current portion of long-term debt......................... 4 8 Accrued costs on construction contracts................... 120 125 Billings in excess of related costs and earnings.......... 122 132 Accrued insurance costs................................... 84 81 Other..................................................... 62 63 ------ ------ Total current liabilities................................... 662 592 Long-term debt, less current portion........................ 18 13 Deferred income taxes....................................... 2 1 Other liabilities........................................... 67 70 Minority interest........................................... 13 12 Preferred stock, no par value, 250,000 shares authorized, no shares outstanding........................................ -- -- Redeemable common stock ($720 million aggregate redemption value): Common stock, $0.01 par value, 125 million shares authorized, 34,876,718 and 35,692,820 outstanding...... -- -- Additional paid-in capital................................ 175 161 Accumulated other comprehensive income.................... (10) (22) Retained earnings......................................... 672 552 ------ ------ Total redeemable common stock............................... 837 691 ------ ------ $1,599 $1,379 ====== ======
See accompanying notes to consolidated financial statements. F-5 86 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 25, 1999
1999 1998 1997 ---- ---- ----- (DOLLARS IN MILLIONS) Cash flows from operations: Net earnings.............................................. $165 $136 $ 155 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization.......................... 73 71 67 Gain on sale of property, plant and equipment and other investments, net...................................... (2) (20) (24) Equity (earnings) loss, net of distributions........... (13) -- 11 Change in other noncurrent liabilities................. -- (7) 18 Deferred income taxes.................................. (1) 6 -- Change in working capital items: Receivables.......................................... (41) (6) (114) Unbilled contract revenue and contract costs in excess of related revenue........................... 10 5 (39) Investment in construction joint ventures............ (8) (13) (82) Other current assets................................. 9 -- 7 Accounts payable..................................... 42 (6) 10 Accrued construction costs and billings in excess of revenue on uncompleted contracts.................... (16) 28 102 Other liabilities.................................... (8) 5 23 Other................................................ (18) (3) 8 ---- ---- ----- Net cash provided by operations............................. 192 196 142 Cash flows from investing activities: Proceeds from sales and maturities of marketable securities............................................. 3 24 73 Purchases of marketable securities........................ (7) (7) (39) Proceeds from sale of property, plant and equipment....... 32 25 36 Capital expenditures...................................... (75) (87) (107) Investments and acquisitions, net of cash acquired........ (36) (13) (21) Additions to notes receivable............................. (2) (20) -- Payments received on notes receivable..................... 5 5 -- ---- ---- ----- Net cash used in investing activities....................... (80) (73) (58) ---- ---- -----
See accompanying notes to consolidated financial statements. F-6 87 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 25, 1999
1999 1998 1997 ----- ---- ---- (DOLLARS IN MILLIONS) Cash flows from financing activities: Long-term debt borrowings................................. $ 5 $ 4 $ 12 Short-term debt borrowings, net........................... -- (5) -- Payments on long-term debt................................ (22) -- -- Issuances of common stock................................. 25 67 34 Repurchases of common stock............................... (39) (35) (2) Dividends paid............................................ (16) (13) (12) Exchange of Class C Stock for Level 3's Class D Stock, net.................................................... -- (122) (72) Change in outstanding checks in excess of funds on deposit................................................ 43 (21) 17 ----- ---- ---- Net cash used in financing activities....................... (4) (125) (23) Effect of exchange rates on cash............................ 3 (3) (2) ----- ---- ---- Net change in cash and cash equivalents..................... 111 (5) 59 Cash and cash equivalents at beginning of year.............. 227 232 173 ----- ---- ---- Cash and cash equivalents at end of year.................... $ 338 $227 $232 ===== ==== ==== Supplemental disclosures of cash flow information: Taxes paid................................................ $ 95 $ 91 $ 94 Interest paid............................................. 4 5 2 Non-cash financing activities: Conversion of convertible debentures to common stock...... $ -- $(10) $ --
See accompanying notes to consolidated financial statements. F-7 88 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND COMPREHENSIVE INCOME FOR THE THREE YEARS ENDED DECEMBER 25, 1999
ACCUMULATED TOTAL REDEEMABLE ADDITIONAL OTHER REDEEMABLE COMMON PAID-IN COMPREHENSIVE RETAINED COMMON STOCK CAPITAL INCOME EARNINGS STOCK ---------- ---------- ------------- -------- ---------- BALANCE AT DECEMBER 28, 1996.......... $1 $100 $ (6) $467 $562 -- ---- ---- ---- ---- Dividends(a).......................... (13) (13) Issuance of stock..................... -- 34 -- -- 34 Repurchase of stock................... -- -- -- (2) (2) Exchange of Class C stock for Class D Stock, net.......................... -- (17) -- (55) (72) Comprehensive income: Net earnings........................ -- -- -- 155 155 Other comprehensive income: Foreign currency adjustment......... -- -- (2) -- (2) Change in unrealized holding loss, net of tax....................... -- -- (10) -- (10) ---- Total other comprehensive income.... (12) ---- Total comprehensive income............ -- -- -- -- 143 -- ---- ---- ---- ---- BALANCE AT DECEMBER 27, 1997.......... 1 117 (18) 552 652 -- ---- ---- ---- ---- Dividends(a).......................... -- -- -- (13) (13) Issuance of stock..................... -- 77 -- -- 77 Repurchase of stock................... -- (7) -- (28) (35) Exchange of Class C stock for Class D stock, net.......................... -- (27) -- (95) (122) Change in par value of common stock... (1) 1 -- -- -- Comprehensive income: Net earnings........................ -- -- -- 136 136 Other comprehensive income: Foreign currency adjustment......... -- -- (1) -- (1) Change in unrealized holding loss, net of tax....................... -- -- (3) -- (3) Total other comprehensive income.... (4) ---- Total comprehensive income............ 132 -- ---- ---- ---- ---- BALANCE AT DECEMBER 26, 1998.......... -- 161 (22) 552 691 -- ---- ---- ---- ----
See accompanying notes to consolidated financial statements. F-8 89 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND COMPREHENSIVE INCOME -- (CONTINUED) FOR THE THREE YEARS ENDED DECEMBER 25, 1999
ACCUMULATED TOTAL REDEEMABLE ADDITIONAL OTHER REDEEMABLE COMMON PAID-IN COMPREHENSIVE RETAINED COMMON STOCK CAPITAL INCOME EARNINGS STOCK ---------- ---------- ------------- -------- ---------- Dividends(a)...................... -- -- -- (17) (17) Issuance of stock................. -- 25 -- -- 25 Repurchase of stock............... -- (11) -- (28) (39) Comprehensive income: Net earnings.................... -- -- -- 165 165 Other comprehensive income: Foreign currency adjustment..... -- -- 1 -- 1 Change in unrealized holding loss, net of tax............. -- -- 11 -- 11 ----- Total other comprehensive income....................... 12 ----- Total comprehensive income........ -- -- -- -- 177 --- ---- ---- ---- ----- BALANCE AT DECEMBER 25, 1999...... $-- $175 $(10) $672 $ 837 === ==== ==== ==== =====
- --------------- (a) Dividends include $.27, $.225 and $.20 for dividends declared in 1999, 1998 and 1997 but paid in January of the following year. See accompanying notes to consolidated financial statements. F-9 90 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: Peter Kiewit Sons', Inc. (the "Company") was formed by its former parent, Level 3 Communications, Inc. (formerly Peter Kiewit Sons', Inc.) ("Level 3"), in connection with a transaction (the "Transaction") intended to separate the Construction and Materials Businesses and the diversified business of Level 3 into two independent companies. On March 31, 1998, pursuant to the terms of a Separation Agreement between the Company, Level 3 and certain other parties (the "Separation Agreement"), Level 3 consummated the Transaction by: (i) transferring 100 shares of the $100 par value common stock ("KCG Stock") of Kiewit Construction Group Inc. ("KCG"), representing all of the issued and outstanding shares of KCG Stock, as well as certain other assets and liabilities related to the construction and materials businesses which together comprised the Construction and Mining Group (the "Construction & Mining Group"), to the Company in exchange for 30,711,680 shares of the $.01 par value common stock of the Company ("Common Stock") (125 million shares authorized) and (ii) distributing 100% of its shares of the Common Stock to the holders of Level 3's $0.0625 par value Class C Construction & Mining Group Restricted Redeemable Convertible Exchangeable Common Stock ("Class C Stock") as of March 31, 1998, in exchange for such shares of Class C Stock. Prior to the Transaction, the Company was a wholly-owned subsidiary of Level 3. As a result of the Transaction, the Company became owned by the former holders of Level 3's Class C Stock. Prior to consummation of the Transaction, Level 3's Class C Common stock was convertible to Level 3's Class D Common Stock ("Class D Stock"). As the Construction & Mining Group comprised all of the net assets and operations of the Company at the time of the Transaction, the Construction & Mining Group is the Company's predecessor. Thus, the term "the Company", as used herein, refers to Peter Kiewit Sons', Inc., its predecessor, and its consolidated subsidiaries. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements include the accounts of the Company and subsidiaries in which it has control, which are engaged in enterprises primarily related to construction and materials. Investments in construction joint ventures and partnerships in which the Company exercises significant influence over operating and financial policies are accounted for by the equity method in the consolidated balance sheet. The Company accounts for its share of the operations of the construction joint ventures and partnerships on a pro rata basis in the consolidated statements of earnings. Investments in materials limited liability companies in which the Company exercises significant influence over operations and financial policies are accounted for by the equity method. The Company accounts for its share of a materials joint venture on a pro rata basis. All significant intercompany accounts and transactions have been eliminated. Construction Contracts: The Company operates as a general contractor throughout North America and engages in various types of construction projects for both public and private owners. Credit risk is minimal with public (government) owners since the Company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on public projects. Most public contracts are subject to termination at the election of the government. However, in the event of termination, the Company is entitled to receive the contract price on completed work and reimbursement of termination-related costs. Credit risk with private owners is minimized because of statutory mechanics liens, which give the Company high priority in the event of lien foreclosures following financial difficulties of private owners. The construction industry is highly competitive and lacks firms with dominant market power. A substantial portion of the Company's business involves construction contracts obtained through competitive bidding. The volume and profitability of the Company's construction work depends to a significant extent upon the general state of the economies of North America and the volume of work available to contractors. The F-10 91 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Company's construction operations could be adversely affected by labor stoppages or shortages, adverse weather conditions, shortages of supplies or other governmental action. The Company uses the percentage of completion method of accounting on long-term construction contracts and joint ventures. Under the percentage of completion method, an estimated percentage for each contract, as determined by the Company's engineering estimate based on the amount of work performed, is applied to total estimated revenue. Provision is made for the entire amount of future estimated losses on contracts and joint ventures in progress; claims for additional contract compensation, however, are not reflected in the accounts until the year in which such claims are allowed. Revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. It is at least reasonably possible that cost and profit estimates will be revised in the near-term. In accordance with industry practice, amounts realizable and payable under contracts which may extend beyond one year are included in current assets and liabilities. Depreciation: Property, plant and equipment are recorded at cost. Depreciation for the majority of the Company's property, plant and equipment is calculated using accelerated methods. Intangible Assets: Intangible assets primarily consist of amounts allocated upon purchase of existing operations. Those assets are amortized on a straight-line basis over the expected period of benefit, which does not exceed 20 years. Long-Lived Assets: The Company reviews the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Measurement of any impairment would include a comparison of the present value of the estimated future operating cash flows anticipated to be generated during the remaining life of the assets to the net carrying value of the assets. Foreign Currencies: The local currencies of foreign subsidiaries are the functional currencies for financial reporting purposes. Assets and liabilities are translated into U.S. dollars at year end exchange rates. Revenue and expenses are translated using average exchange rates prevailing during the year. Gains or losses resulting from currency translation are recorded as adjustments to accumulated other comprehensive income. Earnings Per Share: Basic earnings per share have been computed using the weighted average number of shares outstanding during each period. Diluted earnings per share give effect to convertible debentures considered to be dilutive common stock equivalents. The potentially dilutive convertible debentures are calculated in accordance with the "if converted" method. This method assumes that the after-tax interest expense associated with the debentures is an addition to income and the debentures are converted into equity with the resulting common shares being aggregated with the weighted average shares outstanding. F-11 92 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
1999 1998 1997 ------ ------ ------ Net earnings available to common stockholders (in millions).............................................. $ 165 $ 136 $ 155 Add: Interest expense, net of tax effect, associated with convertible debentures................................. * * 1 ------ ------ ------ Net earnings for diluted shares.......................... $ 165 $ 136 $ 156 ====== ====== ====== Total number of weighted average shares outstanding used to compute basic earnings per share (in thousands)..... 34,299 33,396 38,912 Additional dilutive shares assuming conversion of convertible debentures................................. 753 432 1,764 ------ ------ ------ Total number of shares used to compute diluted earnings per share.............................................. 35,052 33,828 40,676 ====== ====== ====== Net earnings Basic earnings per share............................... $ 4.81 $ 4.07 $ 4.00 ====== ====== ====== Diluted earnings per share............................. $ 4.71 $ 4.02 $ 3.84 ====== ====== ======
- --------------- * Interest expense attributable to convertible debentures was less than $.5 million. Income Taxes: Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect adoption of this statement to materially affect the Company's financial statements as the Company has no significant derivative instruments or hedging activities. Stock Split: On January 11, 1999, the Company declared a four-for-one stock split in the form of a stock dividend of three shares of Common Stock for each share issued and outstanding, payable on January 15, 1999. All share and per share amounts for all periods presented have been retroactively restated to reflect the stock split. F-12 93 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Fiscal Year: The Company has a 52-53 week fiscal year which ends on the last Saturday in December. 1999, 1998 and 1997 were all 52 week years. Reclassifications: When appropriate, items within the consolidated financial statements have been reclassified in the previous periods to conform to current year presentation. Additionally, the 1998 and 1997 financial statements differ from those originally issued because of certain reclassifications related to the presentation of operating results of materials limited liability companies. Such reclassifications had no impact on redeemable common stock or net earnings. 3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to determine classification and fair values of financial instruments: Cash and Cash Equivalents: Cash equivalents generally consist of funds invested in Wilmington Trust-Money Market Portfolio and highly liquid instruments purchased with original maturities of three months or less. The securities are stated at cost, which approximates fair value. Outstanding checks in excess of funds on deposit in the amount of $100 million and $57 million at December 25, 1999 and December 26, 1998, respectively, have been reclassified to accounts payable. Marketable Securities and Non-current Investments: The Company has classified all marketable securities and marketable non-current investments not accounted for under the equity method as available-for-sale. The amortized cost of the securities used in computing unrealized and realized gains and losses is determined by specific identification. Fair values are estimated based on quoted market prices for the securities on hand or for similar investments. Net unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive income, net of tax. F-13 94 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED: The following summarizes the amortized cost, unrealized holding gains and losses, and estimated fair values of marketable securities and marketable non-current investments at December 25, 1999 and December 26, 1998:
UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ----- (DOLLARS IN MILLIONS) 1999 Marketable securities: U.S. debt securities.............................. $12 $ -- $ -- $12 --- ---- ---- --- Non-current investments: Equity securities................................. $12 $ -- $ (4) $ 8 === ==== ==== === 1998 Marketable securities: U.S. debt securities.............................. $ 9 $ -- $ -- $ 9 --- ---- ---- --- Non-current investments: Equity securities................................. $30 $ -- $(21) $ 9 === ==== ==== ===
For debt securities, amortized costs do not vary significantly from principal amounts. Realized gains and losses on sales of marketable securities were each less than $1 million in 1999, 1998 and 1997. The contractual maturities of the debt securities are from one to five years. During 1999, the Company determined that the decline in market value of an investment was other-than-temporary. This investment was written down to market value and a loss of $18 million was recognized in the Statement of Earnings. This investment had previously been carried at market value and the write-down had been recorded as an unrealized loss as a separate component of other comprehensive income. As a result, this write-down had no effect on total comprehensive income or total redeemable common stock. Subsequent changes in the market value of the security will be included as a separate component of comprehensive income. Retainage on Construction Contracts: Receivables at December 25, 1999 and December 26, 1998 include approximately $90 million and $86 million of retainage on uncompleted projects, the majority of which is expected to be collected within one year. Included in the retainage amounts are $29 million and $26 million, respectively, of securities which are being held by the owners of various construction projects in lieu of retainage. Also included in accounts receivable are $15 million and $15 million, respectively, of securities held by the owners which are now due as the contracts are completed. These securities are carried at fair value which is determined based on quoted market prices for the securities on hand or for similar investments. Net unrealized holding gains and losses, if any, are reported as a separate component of accumulated other comprehensive income, net of tax. Long-term Debt: The fair value of debt was estimated using the incremental borrowing rates of the Company for debt of the same remaining maturities and approximates the carrying amount. F-14 95 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INVESTMENT IN CONSTRUCTION JOINT VENTURES AND PARTNERSHIP: The Company has entered into a number of construction joint venture arrangements and owns a 49% interest in a partnership, Aker-Gulf Marine. The partnership engages in the engineering, construction, fabrication and installation of steel and concrete structures. Under these arrangements, if one venturer is financially unable to bear its share of the costs, the other venturers will be required to pay those costs. Summary joint venture and partnership financial information follows:
FINANCIAL POSITION 1999 1998 - ------------------ --------- -------- (DOLLARS IN MILLIONS) TOTAL JOINT VENTURES AND PARTNERSHIP Current assets.............................................. $ 866 $ 917 Other assets (principally construction equipment)........... 105 145 ------ ----- 971 1,062 Current liabilities......................................... (600) (703) ------ ----- Net assets................................................ $ 371 $ 359 ====== ===== COMPANY'S SHARE Equity in net assets........................................ $ 192 $ 199 Receivable from joint ventures and partnership.............. 52 15 ------ ----- 244 214 Less: Construction partnership (Note 5)..................... (47) (24) ------ ----- Investment in construction joint ventures................. $ 197 $ 190 ====== =====
OPERATIONS 1999 1998 1997 - ---------- ------ ------ ------ (DOLLARS IN MILLIONS) TOTAL JOINT VENTURES AND PARTNERSHIP Revenue.................................................. $1,841 $2,237 $1,635 Costs.................................................... 1,692 2,082 1,461 ------ ------ ------ Operating income....................................... $ 149 $ 155 $ 174 ====== ====== ====== COMPANY'S SHARE Revenue.................................................. $ 908 $1,116 $ 857 Costs.................................................... 833 1,024 753 ------ ------ ------ Operating income....................................... $ 75 $ 92 $ 104 ====== ====== ======
Depreciation is computed by the joint ventures and partnership using straight-line and declining balance methods over the estimated useful lives of the assets which range from 2 to 20 years. F-15 96 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. OTHER ASSETS: Other assets consist of the following at December 25, 1999 and December 26, 1998:
1999 1998 ------- ------- (DOLLARS IN MILLIONS) Marketable securities (note 3)............................ $ 8 $ 9 Equity method investments................................. 5 14 Construction partnership (note 4)......................... 47 24 Goodwill, net of accumulated amortization of $15 and $12..................................................... 40 26 Land option............................................... 2 -- Notes receivable.......................................... 15 18 ---- --- $117 $91 ==== ===
The marketable securities are an investment in a publicly traded company. The notes receivable are primarily non-interest bearing employee notes. The equity method investments consist of a 33% interest in a concrete products business that is not publicly traded and does not have a readily determinable market value and a 40% interest in Pacific Rock Products, L.L.C. and a 40% interest in Pacific Rock Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.) (collectively "Pacific Rock") in 1998 and 1997. In 1999, Pacific Rock became a wholly owned subsidiary. Pacific Rock is engaged in the mining of rock products. Financial data relating to the equity method investments are summarized below:
1999 1998 1997 ----- ----- ----- (DOLLARS IN MILLIONS) Current assets......................................... $ 11 $ 28 Property, plant and equipment, net..................... 6 38 Other noncurrent assets................................ -- 1 ---- ---- 17 67 ---- ---- Current liabilities.................................... (4) (11) Noncurrent liabilities................................. -- (13) ---- ---- Net assets........................................... $ 13 $ 43 ==== ==== Equity in net assets................................... $ 5 $ 14 ==== ==== Revenue................................................ $ 37 $ 80 $ 81 ==== ==== ==== Gross margin........................................... $ 7 $ 21 $ 19 ==== ==== ==== Net earnings........................................... $ 3 $ 16 $ 13 ==== ==== ==== Equity in net earnings................................. $ 1 $ 6 $ 5 ==== ==== ====
F-16 97 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. LONG-TERM DEBT: At December 25, 1999 and December 26, 1998 long-term debt consisted of the following:
1999 1998 ------- ------- (DOLLARS IN MILLIONS) 7.35% - 8.03% Convertible debentures, 2007 - 2009........... $14 $ 8 BICC Cables Corp. note...................................... -- 6 Stockholder notes and other................................. 8 7 --- --- 22 21 Less current portion........................................ 4 8 --- --- $18 $13 === ===
The convertible debentures are convertible during October of the fifth year preceding their maturity date. Each annual series may be redeemed in its entirety prior to the due date except during the conversion period. At December 25, 1999, 1,032,069 shares of stock were reserved for future conversions. In 1997, the Company borrowed $6 million from BICC Cables Corp. ("BICC"). BICC is affiliated with a joint venture partner of the Company. The note was paid in full in 1999 and required quarterly interest payments at a rate equal to one month LIBOR. The proceeds from the note were used for working capital requirements. In 1998, $9 million of convertible debentures were converted to common stock. Scheduled maturities of long-term debt are as follows (in millions): 2000 -- $4; 2001 -- $1; 2002 -- $1; 2003 -- $0; 2004 -- $0; and 2005 and thereafter -- $16. 7. INCOME TAXES: An analysis of the (provision) benefit for income taxes relating to earnings before minority interest and income taxes for the three years ended December 25, 1999 follows:
1999 1998 1997 ----- ----- ----- (DOLLARS IN MILLIONS) Current: U.S. federal............................................. $ (85) $ (55) $ (88) Foreign.................................................. (4) (5) (9) State.................................................... (12) (12) (10) ----- ----- ----- (101) (72) (107) Deferred: U.S. federal............................................. 5 (8) 1 Foreign.................................................. (2) 2 (1) State.................................................... (2) -- -- ----- ----- ----- 1 (6) -- ----- ----- ----- $(100) $ (78) $(107) ===== ===== =====
F-17 98 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES, CONTINUED: The United States and foreign components of earnings, for tax reporting purposes, before minority interest and income taxes follows:
1999 1998 1997 ----- ----- ----- (DOLLARS IN MILLIONS) United States............................................... $267 $213 $228 Foreign..................................................... (1) 2 36 ---- ---- ---- $266 $215 $264 ==== ==== ====
A reconciliation of the actual (provision) benefit for income taxes and the tax computed by applying the U.S. federal rate (35%) to the earnings before minority interest and income taxes for the three years ended December 25, 1999 follows:
1999 1998 1997 ----- ---- ----- (DOLLARS IN MILLIONS) Computed tax at statutory rate.............................. $ (93) $(75) $ (92) State income taxes.......................................... (9) (7) (8) Prior year tax adjustments.................................. 2 -- (5) Other....................................................... -- 4 (2) ----- ---- ----- $(100) $(78) $(107) ===== ==== =====
Possible taxes, beyond those provided, on remittances of undistributed earnings of foreign subsidiaries, are not expected to be material. The components of the net deferred tax assets for the years ended December 25, 1999 and December 26, 1998 were as follows:
1999 1998 ------- ------- (DOLLARS IN MILLIONS) Deferred tax assets: Construction accounting................................... $26 $27 Investments in construction joint ventures................ 24 27 Insurance claims.......................................... 34 33 Compensation -- retirement benefits....................... 2 8 Other..................................................... 9 2 --- --- Total deferred tax assets................................... 95 97 Deferred tax liabilities: Asset bases/accumulated depreciation...................... 15 14 Other..................................................... 22 20 --- --- Total deferred tax liabilities.............................. 37 34 --- --- Net deferred tax assets..................................... $58 $63 === ===
F-18 99 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. EMPLOYEE BENEFIT PLANS: The Company makes contributions, based on collective bargaining agreements related to its construction operations, to several multi-employer union pension plans. These contributions are included in the cost of revenue. Under federal law, the Company may be liable for a portion of future plan deficiencies; however, there are no known deficiencies. Approximately 16% of the employees of the Company are covered under the Company's profit sharing plan. The expense related to the profit sharing plan was $4 million in 1999, $3 million in 1998 and $5 million in 1997. 9. REDEEMABLE COMMON STOCK: Ownership of Redeemable Common Stock is restricted to certain employees conditioned upon the execution of repurchase agreements which restrict the employees from transferring the Redeemable Common Stock. The Company is generally committed to purchase all Redeemable Common Stock at the amount computed pursuant to its Restated Certificate of Incorporation. Issuances and repurchases of Redeemable Common Stock, including conversions, for the three years ended December 25, 1999, were as follows: Balance at December 28, 1996................................ 44,026,564 Shares issued in 1997....................................... 3,575,696 Shares repurchased in 1997.................................. (7,072,888) ----------- Balance at December 27, 1997................................ 40,529,372 Shares issued in 1998....................................... 6,852,196 Shares repurchased in 1998.................................. (11,688,748) ----------- Balance at December 26, 1998................................ 35,692,820 Shares issued in 1999....................................... 1,622,550 Shares repurchased in 1999.................................. (2,438,652) ----------- Balance at December 25, 1999................................ 34,876,718 ===========
10. SEGMENT AND GEOGRAPHIC DATA: The Company is managed and operated in two segments, Construction and Materials. The Construction segment performs services for a broad range of public and private customers primarily in North America. Construction services are performed in the following construction markets: transportation (including highways, bridges, airports, railroads and mass transit), commercial buildings, water supply, sewage and waste disposal, dams, mining, power, heat and cooling, and oil and gas. The Materials segment primarily operates in Southwest and Northwest portions of the United States. This segment produces construction materials including ready-mix concrete, asphalt and sand and gravel, landscaping materials and railroad ballast. Intersegment sales are recorded at cost. Operating earnings are comprised of net sales less all identifiable operating expenses, allocated general and administrative expenses, depreciation and amortization. Interest income, interest expense and income taxes have been excluded from segment operations. The management fee earned by the Company as described in Note 11 is excluded from the segment information that follows as it is F-19 100 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. SEGMENT AND GEOGRAPHIC DATA, CONTINUED: included in other income on the Statement of Earnings and not included in operating earnings. Segment asset information has not been presented as it is not reported to or reviewed by the chief operating decision maker.
1999 1998 1997 ------------------------ ------------------------ ------------------------ SEGMENT DATA CONSTRUCTION MATERIALS CONSTRUCTION MATERIALS CONSTRUCTION MATERIALS - ------------ ------------ --------- ------------ --------- ------------ --------- (DOLLARS IN MILLIONS) Revenue External customers............. $3,594 $422 $3,057 $346 $2,474 $290 Intersegment................... -- 10 -- 6 -- 8 ------ ---- ------ ---- ------ ---- Total revenues.............. 3,594 432 3,057 352 2,474 298 Equity earnings adjustment(1)............... -- (3) -- (24) -- (22) Elimination of intersegment revenues.................... -- (10) -- (6) -- (8) ------ ---- ------ ---- ------ ---- Total consolidated revenues.................. $3,594 $419 $3,057 $322 $2,474 $268 ====== ==== ====== ==== ====== ==== Depreciation and amortization.... $ 56 $ 17 $ 65 $ 6 $ 61 $ 6 ====== ==== ====== ==== ====== ==== Operating earnings............... $ 178 $ 36 $ 124 $ 18 $ 178 $ 8 ====== ==== ====== ==== ====== ====
- --------------- (1) Adjust revenue of limited liability companies accounted for by the equity method.
GEOGRAPHIC DATA 1999 1998 1997 - --------------- ------ ------ ------ (DOLLARS IN MILLIONS) Revenue, by location of services provided: United States............................................. $3,907 $3,282 $2,572 Canada.................................................... 87 77 90 Other..................................................... 19 20 80 ------ ------ ------ $4,013 $3,379 $2,742 ====== ====== ====== Long-lived assets: United States............................................. $ 239 $ 208 Canada.................................................... 4 4 ------ ------ $ 243 $ 212 ====== ======
During 1999, the Company earned 21.7% of revenues from contracts with Level 3. 11. MANAGEMENT FEES: The Company manages certain coal mines for Level 3. Fees for these services were $33 million in 1999, $34 million in 1998 and $32 million in 1997. The Company's fee is a percentage of adjusted operating earnings of the coal mines, as defined. The mines managed by the Company for Level 3 earn the majority of their revenues under long-term contracts. The remainder of the mines' sales are made on the spot market where prices are substantially lower than those of the long-term contracts. After a significant long-term contract expires next year, adjusted operating earnings at the mines will decrease substantially, thereby similarly decreasing the management fee earned by the Company. Additionally, the Minerals Management Service and Montana Department of Revenue have issued assessments to the Level 3 mines for the underpayment of royalties and production taxes. Level 3 is vigorously contesting the assessments. If Level 3 pays these assessments, the payments could materially decrease future mine management fees, but will not affect fees previously received. F-20 101 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. OTHER COMPREHENSIVE INCOME: Other comprehensive income consisted of the following:
TAX (EXPENSE) BEFORE TAX BENEFIT AFTER TAX ---------- --------- --------- (DOLLARS IN MILLIONS) FOR THE YEAR ENDED DECEMBER 27, 1997 Foreign currency translation adjustments............ $ (3) $ 1 $ (2) ---- ---- ---- Unrealized holding loss: Unrealized holding losses arising during the period......................................... (14) 5 (9) Plus reclassification adjustment for gains realized in net earnings....................... (1) -- (1) ---- ---- ---- (15) 5 (10) ---- ---- ---- Other comprehensive income December 27, 1997........ $(18) $ 6 $(12) ==== ==== ==== FOR THE YEAR ENDED DECEMBER 26, 1998 Foreign currency translation adjustments............ $ (2) $ 1 $ (1) ---- ---- ---- Unrealized holding loss: Unrealized holding losses arising during the period......................................... (4) 1 (3) Plus reclassification adjustment for gains realized in net earnings....................... -- -- -- ---- ---- ---- (4) 1 (3) ---- ---- ---- Other comprehensive income December 26, 1998........ $ (6) $ 2 $ (4) ==== ==== ==== FOR THE YEAR ENDED DECEMBER 25, 1999 Foreign currency translation adjustments............ $ 1 $ -- $ 1 ---- ---- ---- Unrealized holding loss: Unrealized holding losses arising during the period......................................... (1) -- (1) Less reclassification adjustment for losses realized in net earnings....................... 18 (6) 12 ---- ---- ---- 17 (6) 11 ---- ---- ---- Other comprehensive income December 25, 1999........ $ 18 $ (6) $ 12 ==== ==== ====
F-21 102 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. OTHER COMPREHENSIVE INCOME, CONTINUED: Accumulated other comprehensive income consisted of the following:
FOREIGN UNREALIZED ACCUMULATED CURRENCY HOLDING OTHER TRANSLATION GAIN/(LOSS) COMPREHENSIVE ADJUSTMENTS ON SECURITIES INCOME ----------- ------------- ------------- (DOLLARS IN MILLIONS) BALANCE AT DECEMBER 28, 1996.................. $(5) $ (1) $ (6) Change during the year........................ (2) (10) (12) --- ---- ---- BALANCE AT DECEMBER 27, 1997.................. (7) (11) (18) Change during the year........................ (1) (3) (4) --- ---- ---- BALANCE AT DECEMBER 26, 1998.................. (8) (14) (22) --- ---- ---- Change during the year........................ 1 11 12 --- ---- ---- BALANCE AT DECEMBER 25, 1999.................. $(7) $ (3) $(10) === ==== ====
13. OTHER MATTERS: In connection with the Transaction, the Company and Level 3 entered into various agreements including a Separation Agreement, a Tax-Sharing Agreement and an amended Mine Management Agreement. The Separation Agreement provides for the allocation of certain risks and responsibilities between Level 3 and the Company and for cross-indemnifications that are intended to allocate financial responsibility to the Company for liabilities arising out of the construction business and to allocate to Level 3 financial responsibility for liabilities arising out of the non-construction businesses. The Separation Agreement also provides for the payment, by the Company, of a majority of the third party costs and expenses associated with the Transaction. Under the Tax Sharing Agreement, with respect to periods, or portions thereof, ending on or before the closing date of the Transaction, Level 3 and the Company generally will be responsible for paying the taxes relating to such periods, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities, that are allocable to the non-construction businesses and construction businesses, respectively. The Tax Sharing Agreement also provides that Level 3 and the Company will indemnify the other from certain taxes and expenses that would be assessed if the Transaction was determined to be taxable, but solely to the extent that such determination arose out of the breach by Level 3 or the Company, respectively, of certain representations made to the Internal Revenue Service in connection with the ruling issued with respect to the Transaction or made in the Tax-Sharing Agreement. If the Transaction were determined to be taxable for any other reason, those taxes ("Transaction Taxes") would be allocated 50% to Level 3 and 50% to the Company. Finally, under certain circumstances, Level 3 would make certain liquidated damage payments to the Company if the Transaction was determined to be taxable in order to take into account the fact that the Transaction is taxable to the holders of the Company's Common Stock. Additionally, the Mine Management Agreement, pursuant to which the Company provides mine management and related services to Level 3's coal mining operations, was amended to provide the Company with a right of offer in the event that Level 3 would determine to sell any or all of its coal mining properties. Under the right of offer, Level 3 would be required to offer to sell those properties to the Company at the price that Level 3 would seek to sell the properties to a third party. If the Company declined to purchase the properties at that price, Level 3 would be free to sell them to a third party for an amount greater than or equal F-22 103 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. OTHER MATTERS, CONTINUED: to that price. If Level 3 sold the properties to a third party, thus terminating the Mine Management Agreement, it would be required to pay the Company an amount equal to the discounted present value of the Mine Management Agreement, determined, if necessary, by an appraisal process. In 1997, the Company and a partner each invested $15 million to acquire a 96% interest in Oak Mountain Energy LLC ("Oak Mountain"). Oak Mountain then acquired the existing assets of an underground coal mine located in Alabama for approximately $18 million and assumed approximately $14 million of related liabilities. Oak Mountain used cash and $18 million of nonrecourse bank borrowings to retire the existing debt and develop and modernize the mine. Oak Mountain's results are consolidated with those of the Company on a pro-rata basis since the date of acquisition. Due to higher than anticipated costs in modernizing and operating the mine, Oak Mountain incurred operating losses since acquisition. Production at the mine was significantly below anticipated levels, and as a result of this and other factors, Oak Mountain fell out of compliance with certain covenants of the bank borrowings. Those events caused the Company to assess whether its investment was impaired. In 1997, the Company determined its investment in Oak Mountain was impaired and reduced the Company's investment to zero. In June 1998, the Company disposed of its investment in Oak Mountain. In 1998, the Company realized operating losses of $3 million. On February 28, 1999, the Company purchased the remaining 60% of a materials operation in Portland, Oregon/Vancouver, Washington area. Goodwill recognized on the purchase is being amortized over 20 years. Had the results of operations of this acquisition been consolidated for the periods prior to acquisition, there would have been no material impact to the Company's results. The Company and certain other defendants are party to certain litigation involving repairs to runways at Denver International Airport. In December 1998, a jury determined that the defendants were liable for compensatory and punitive damages. The Company intends to appeal the verdict. Management believes that any resulting liability, beyond that provided, should not materially affect the Company's financial position, future results of operations or future cash flows. The Company is involved in various other lawsuits and claims incidental to its business. Management believes that any resulting liability, beyond that provided, should not materially affect the Company's financial position, future results of operations or future cash flows. The Company leases various buildings and equipment under both operating and capital leases. Minimum rental payments on buildings and equipment subject to noncancellable operating leases during the next 20 years aggregate $32 million. It is customary in the Company's industry to use various financial instruments in the normal course of business. These instruments include items such as letters of credit. Letters of credit are conditional commitments issued on behalf of the Company in accordance with specified terms and conditions. The Company has informal arrangements with a number of banks to provide such commitments. As of December 25, 1999, the Company had outstanding letters of credit of approximately $201 million. 14. SUBSEQUENT EVENTS: The Company has filed various documents with the Securities and Exchange Commission pursuant to which the Company is proposing to spin-off the Materials Business to its shareholders in a transaction that is intended to be tax-free for U.S. Federal income tax purposes. F-23 104 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders Peter Kiewit Sons', Inc. Our audits of the consolidated financial statements referred to in our report dated March 17, 2000 appearing on page F-2 also included an audit of the financial statement schedule appearing on page F-25. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Omaha, Nebraska March 17, 2000 F-24 105 PETER KIEWIT SONS', INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS AMOUNTS BALANCE CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO END OF OF PERIOD EXPENSES RESERVES OTHER PERIOD --------- ---------- -------- ----- ------- (DOLLARS IN MILLIONS) YEAR ENDED DECEMBER 25, 1999 Allowance for doubtful trade accounts....... $ 5 $ 3 $ (1) $-- $ 7 Reserves: Insurance claims.......................... 81 23 (20) -- 84 YEAR ENDED DECEMBER 26, 1998 Allowance for doubtful trade accounts....... $ 9 $-- $ (4) $-- $ 5 Reserves: Insurance claims.......................... 76 15 (10) -- 81 YEAR ENDED DECEMBER 27, 1997 Allowance for doubtful trade accounts....... $17 $ 3 $(11) $-- $ 9 Reserves: Insurance claims.......................... 81 7 (12) -- 76
F-25 106 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 ---------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Revenue..................................................... $ 1,083 $ 773 Cost of revenue............................................. (1,032) (730) ------- ----- 51 43 General and administrative expenses......................... (45) (43) ------- ----- Operating earnings.......................................... 6 -- Other income (expense): Investment income and equity earnings..................... 6 5 Interest expense.......................................... -- (1) Other, net................................................ 12 16 ------- ----- 18 20 ------- ----- Earnings before income taxes................................ 24 20 Provision for income taxes.................................. (10) (8) ------- ----- Net earnings................................................ $ 14 $ 12 ======= ===== Net earnings per share: Basic..................................................... $ .43 $ .35 ======= ===== Diluted................................................... $ .42 $ .34 ======= =====
See accompanying notes to consolidated condensed financial statements. F-26 107 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 2000 ------------ (DOLLARS IN MILLIONS) ASSETS Current assets: Cash and cash equivalents................................. $ 232 Marketable securities..................................... 15 Receivables, less allowance of $6......................... 410 Unbilled contract revenue................................. 134 Contract costs in excess of related revenue............... 38 Investment in construction joint ventures................. 187 Deferred income taxes..................................... 61 Other..................................................... 27 ------ Total current assets........................................ 1,104 Property, plant and equipment, less accumulated depreciation and amortization of $517.................................. 261 Other assets................................................ 120 ------ $1,485 ====== LIABILITIES AND REDEEMABLE COMMON STOCK Current liabilities: Accounts payable, including retainage of $50.............. $ 208 Current portion of long-term debt......................... 2 Accrued costs on construction contracts................... 131 Billings in excess of related costs and earnings.......... 119 Accrued insurance costs................................... 89 Other..................................................... 45 ------ Total current liabilities................................... 594 Long-term debt, less current portion........................ 17 Deferred income taxes....................................... 4 Other liabilities........................................... 66 Minority interest........................................... 14 ------ Total liabilities......................................... 695 Preferred stock, no par value, 250,000 shares authorized, no shares outstanding........................................ -- Redeemable common stock ($658 million aggregate redemption value): Common stock, $0.01 par value; 125 million shares authorized 31,918,732 shares outstanding............... -- Additional paid-in capital................................ 160 Accumulated other comprehensive income.................... (10) Retained earnings......................................... 640 ------ Total redeemable common stock............................... 790 ------ $1,485 ======
See accompanying notes to consolidated condensed financial statements. F-27 108 PETER KIEWIT SONS', INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------- 2000 1999 -------- ------- (DOLLARS IN MILLIONS) Cash flows from operations: Net cash provided by operations............................. $ 33 $ 80 Cash flows from investing activities: Purchases of marketable securities........................ -- (3) Proceeds from sales of property, plant and equipment...... 4 13 Acquisitions.............................................. (31) -- Distributions from investees.............................. -- 4 Capital expenditures...................................... (21) (16) ----- ---- Net cash used in investing activities....................... (48) (2) Cash flows from financing activities: Long-term debt payments................................... (2) (2) Repurchases of common stock............................... (62) (29) Dividends paid............................................ (8) (8) Change in outstanding checks in excess of funds on deposit................................................ (19) (4) ----- ---- Net cash used in financing activities....................... (91) (43) ----- ---- Net (decrease) increase in cash and cash equivalents........ (106) 35 Cash and cash equivalents at beginning of period............ 338 227 ----- ---- Cash and cash equivalents at end of period.................. $ 232 $262 ===== ==== Noncash investing activities: Issuance of debt for materials acquisitions............... $ -- $ 42
See accompanying notes to consolidated condensed financial statements. F-28 109 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The consolidated condensed 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 contained in the Company's Annual Report on Form 10-K. Receivables at March 31, 2000 include approximately $105 million of retainage on uncompleted projects, the majority of which is expected to be collected within one year. Included in the retainage amount is $34 million of securities which are being held by the owners of various construction projects in lieu of retainage. Also included in receivables is $11 million of securities held by the owners which are now due as the contracts are completed. These securities are carried at fair value which is determined based on quoted market prices for the securities on hand or for similar investments. Net unrealized holding gains and losses, if any, are reported as a separate component of accumulated other comprehensive income, net of tax. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. When appropriate, items within the consolidated condensed financial statements have been reclassified in the previous periods to conform to current year presentation. 2. EARNINGS PER SHARE: Basic earnings per share has been computed using the weighted average number of shares outstanding during each period. Diluted earnings per share give effect to convertible debentures considered to be dilutive common stock equivalents. The potentially dilutive convertible debentures are calculated in accordance with the "if converted" method. This method assumes that the after-tax interest expense associated with the debentures is an addition to income and the debentures are converted into equity with the resulting common shares being aggregated with the weighted average shares outstanding.
THREE MONTHS ENDED MARCH 31, ------------------ 2000 1999 ------- ------- Net earnings available to common shareholders (in millions)................................................. $ 14 $ 12 Add: Interest expense, net of tax effect, associated with convertible debentures.................................... * * ------ ------ Net earnings for diluted shares............................. $ 14 $ 12 ====== ====== Total number of weighted average shares outstanding used to compute basic earnings per share (in thousands)........... 32,344 33,872 Additional dilutive shares assuming conversion of convertible debentures.................................... 1,029 707 ------ ------ Total number of shares used to compute diluted earnings per share..................................................... 33,373 34,579 ====== ====== Net earnings Basic earnings per share.................................. $ .43 $ .35 ====== ====== Diluted earnings per share................................ $ .42 $ .34 ====== ======
- --------------- * Interest expense attributable to convertible debentures was less than $.5 million. F-29 110 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 3. COMPREHENSIVE INCOME: Comprehensive income includes net income, unrealized gains (losses) on securities and foreign currency translation adjustments which are charged or credited to the cumulative translation account within Redeemable Common Stock. Comprehensive income for the three months ended March 31, 2000 and 1999 was as follows:
THREE MONTHS ENDED MARCH 31, --------------------- 2000 1999 ------ ------ (DOLLARS IN MILLIONS) Net earnings................................................ $14 $12 Other comprehensive income, before tax: Foreign currency translation adjustments.................... -- 2 Income tax expense related to items of other comprehensive income.................................................... -- (1) --- --- Comprehensive income........................................ $14 $13 === ===
4. SEGMENT DATA: The Company is managed and operated in two segments, Construction and Materials. The Construction segment performs services for a broad range of public and private customers primarily in North America. Construction services are performed in the following construction markets: transportation (including highways, bridges, airports, railroads and mass transit), commercial buildings, water supply, sewage and waste disposal, dams, mining, power, telecommunication infrastructure, heating and cooling, and oil and gas. The Materials segment primarily operates in the Southwest and Northwest portions of the United States. This segment produces construction materials primarily for sale to the private sector including ready-mix concrete, asphalt, sand and gravel, landscaping materials and railroad ballast. Intersegment sales are recorded at cost. Operating earnings are comprised of net sales less all identifiable operating expenses, allocated general and administrative expenses, depreciation and amortization. Investment income, interest expense, mine management fees and income taxes have been excluded from segment operations. Segment asset information has not been presented as it is not reported to or reviewed by the chief operating decision maker. F-30 111 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 4. SEGMENT DATA, CONTINUED:
MARCH 31, MARCH 31, 2000 1999 ------------------------- ------------------------- CONSTRUCTION MATERIALS CONSTRUCTION MATERIALS ------------ --------- ------------ --------- (DOLLARS IN MILLIONS) Revenue External customers..................... $991 $92 $682 $93 Intersegment........................... -- 4 -- 2 ---- --- ---- --- Total revenues...................... 991 96 682 95 Equity earnings adjustment(1).......... -- -- -- (2) Elimination of intersegment revenues... -- (4) -- (2) ---- --- ---- --- Total consolidated revenues.............. $991 $92 $682 $91 ==== === ==== === Depreciation and amortization............ $ 12 $ 5 $ 12 $ 2 ==== === ==== === Operating earnings....................... $ 2 $ 4 $ (6) $ 6 ==== === ==== ===
- --------------- (1) Adjust revenue of limited liability companies accounted for by the equity method. During the first quarter 2000 and 1999, the Company earned 38.5% and 18.2%, respectively, of revenues from contracts with Level 3. 5. OTHER MATTERS: In connection with the spin-off of the Company from Level 3 Communications, Inc. ("Level 3") in 1998, various agreements were entered into including a Separation Agreement, a Tax-Sharing Agreement and an amended Mine Management Agreement. The Separation Agreement provides for the allocation of certain risks and responsibilities between Level 3 and the Company and for cross-indemnifications that are intended to allocate financial responsibility to the Company for liabilities arising out of the construction business and to allocate to Level 3 financial responsibility for liabilities arising out of the non-construction businesses. The Tax Sharing Agreement provides, with respect to periods, or portions thereof, ending on or before the closing date of the spin-off that Level 3 and the Company generally will be responsible for paying the taxes relating to such periods, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities, that are allocable to the non-construction businesses and construction businesses, respectively. The Tax Sharing Agreement also provides that Level 3 and the Company will indemnify the other from certain taxes and expenses that would be assessed if the spin-off was determined to be taxable, but solely to the extent that such determination arose out of the breach by Level 3 or the Company, respectively, of certain representations made to the Internal Revenue Service in connection with the ruling issued with respect to the spin-off or made in the Tax-Sharing Agreement. If the spin-off was determined to be taxable for any other reason, those taxes would be allocated 50% to Level 3 and 50% to the Company. Finally, under certain circumstances, Level 3 would make certain liquidated damage payments to the Company if the spin-off was determined to be taxable in order to take into account the fact that the spin-off is taxable to the holders of Common Stock. F-31 112 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 5. OTHER MATTERS, CONTINUED: The amended Mine Management Agreement, pursuant to which the Company provides mine management and related services to Level 3's coal mining operations, provides the Company with a right of offer in the event that Level 3 would determine to sell any or all of its coal mining properties. Under the right of offer, Level 3 would be required to offer to sell those properties to the Company at the price that Level 3 would seek to sell the properties to a third party. If the Company declined to purchase the properties at that price, Level 3 would be free to sell them to a third party for an amount greater than or equal to that price. If Level 3 sold the properties to a third party, thus terminating the Mine Management Agreement, it would be required to pay the Company an amount equal to the discounted present value of the Mine Management Agreement, determined, if necessary, by an appraisal process. The Company and certain other defendants are party to certain litigation involving repairs to runways at Denver International Airport. In December 1998, a jury determined that the defendants were liable for compensatory and punitive damages. The Company intends to appeal the verdict. Management believes that any resulting liability, beyond that provided, should not materially affect the Company's financial position, future results of operations or future cash flows. The Company is involved in various other lawsuits and claims incidental to its business. Management believes that any resulting liability, beyond that provided, should not materially affect the Company's financial position, future results of operations or future cash flows. 6. SUBSEQUENT EVENTS: The Company has filed various documents with the Securities and Exchange Commission pursuant to which the Company is proposing to spin-off its materials business to its shareholders in a transaction that is generally intended to be tax-free for U.S. Federal income tax purposes. F-32 113 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGES ----- Reports of Independent Accountants.......................... F-34 Consolidated Financial Statements as of December 25, 1999 and December 26, 1998 and for the three years in the period ended December 25, 1999: Consolidated Statements of Earnings....................... F-37 Consolidated Balance Sheets............................... F-38 Consolidated Statements of Cash Flows..................... F-39 Consolidated Statements of Changes in Stockholder's Equity and Comprehensive Income............................... F-40 Notes to Consolidated Financial Statements................ F-41 Report of Independent Accountants on Consolidated Financial Schedule.................................................. F-53 Consolidated Financial Statement Schedule for the three years in the period ended December 25, 1999............... F-54 Consolidated Condensed Financial Statements as of March 31, 2000 and for the three months ended March 31, 2000 and 1999: Consolidated Condensed Statements of Earnings............. F-55 Consolidated Condensed Balance Sheet...................... F-56 Consolidated Condensed Statements of Cash Flows........... F-57 Notes to Consolidated Condensed Financial Statements...... F-58
F-33 114 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholder Kiewit Materials Company In our opinion, based on our audits and the reports of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of earnings, changes in stockholder's equity and comprehensive income, and cash flows present fairly, in all material respects, the financial position of Kiewit Materials Company and its subsidiaries (the "Company") at December 25, 1999 and December 26, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 25, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Granite Canyon Quarry for 1999, 1998 and 1997 and, Pacific Rock Products, L.L.C. and Pacific Rock Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.) for 1998 and 1997 the investments in which comprise $5,121,686 and $15,615,740 of the Company's total assets as of December 25, 1999 and December 26, 1998, respectively, and $4,290,969, $8,190,779 and $6,243,716 of the Company's earnings before income taxes for each of the three years in the period ended December 25, 1999. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Granite Canyon Quarry, Pacific Rock Products, L.L.C. and Pacific Rock Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.), is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Omaha, Nebraska March 17, 2000 F-34 115 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Management Committee of Granite Canyon Quarry: We have audited the balance sheets of GRANITE CANYON QUARRY (the "Venture") as of December 31, 1999 and 1998, and the related statements of income, changes in venturers' capital and cash flows for the years then ended (not presented herein). These financial statements are the responsibility of the Venture's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Granite Canyon Quarry as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Denver, Colorado, March 3, 2000 F-35 116 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Management Committee of Granite Canyon Quarry: We have audited the balance sheets of GRANITE CANYON QUARRY (the "Venture") as of December 31, 1998 and 1997, and the related statements of income, changes in venturers' capital and cash flows for the years then ended (not presented herein). These financial statements are the responsibility of the Venture's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Granite Canyon Quarry as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Arthur Andersen LLP Denver, Colorado, March 29, 1999 F-36 117 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE YEARS ENDED DECEMBER 25, 1999
1999 1998 1997 ------------- ------------- ------------- Revenue....................................... $ 437,057,648 $ 333,060,002 $ 277,308,896 Cost of revenue............................... (358,112,282) (286,046,917) (231,304,212) Depreciation, depletion and amortization...... (16,819,147) (12,112,930) (10,985,109) ------------- ------------- ------------- 62,126,219 34,900,155 35,019,575 General and administrative expenses........... (24,683,403) (19,062,488) (16,227,521) ------------- ------------- ------------- Operating earnings............................ 37,442,816 15,837,667 18,792,054 Other income (expense): Investment income........................... 4,585,287 3,551,074 3,526,354 Equity earnings............................. 265,664 5,599,268 4,272,210 Interest expense............................ (1,853,497) (934,888) (547,704) Gain on sale of property, plant and equipment, net........................... 899,122 853,436 1,005,530 Other....................................... 242,135 323,322 299,003 ------------- ------------- ------------- 4,138,711 9,392,212 8,555,393 ------------- ------------- ------------- Earnings before income taxes and minority interests................................... 41,581,527 25,229,879 27,347,447 Minority interests in (earnings) losses of subsidiaries................................ (60,727) (58,101) 52,277 Income tax expense............................ (15,692,822) (9,793,440) (10,857,416) ------------- ------------- ------------- Net earnings.................................. $ 25,827,978 $ 15,378,338 $ 16,542,308 ============= ============= ============= Net earnings per share: Basic and diluted........................... $ 258,280 $ 153,783 $ 165,423 ============= ============= =============
See accompanying notes to consolidated financial statements. F-37 118 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 25, 1999 AND DECEMBER 26, 1998
1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 72,330,127 $ 65,601,870 Marketable securities..................................... 2,533,975 2,584,050 Accounts receivable: Trade, net of allowance for doubtful accounts of $993,998 and $780,445................................ 51,042,146 40,529,060 Affiliates............................................. 325,014 292,108 ------------ ------------ Total accounts receivable................................. 51,367,160 40,821,168 Inventories............................................... 11,140,897 7,766,988 Deferred income taxes..................................... 4,662,000 2,855,000 Other..................................................... 1,884,960 2,200,369 ------------ ------------ Total current assets................................... 143,919,119 121,829,445 Property, plant and equipment at cost....................... 196,278,215 145,892,746 Less accumulated depreciation............................. 96,277,685 86,454,443 ------------ ------------ Net property, plant and equipment........................... 100,000,530 59,438,303 Investments and other assets................................ 32,970,988 25,785,949 ------------ ------------ $276,890,637 $207,053,697 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable: Trade.................................................. $ 18,202,993 $ 22,913,995 Affiliates............................................. 5,600,639 14,675,013 ------------ ------------ Total accounts payable.................................... 23,803,632 37,589,008 Current portion of long-term debt......................... 561,538 739,965 Accrued payroll and payroll taxes......................... 6,772,340 5,787,804 Accrued insurance costs................................... 6,776,798 5,626,346 Income taxes payable -- parent company.................... 11,815,841 5,559,111 Other..................................................... 1,719,859 2,040,055 ------------ ------------ Total current liabilities.............................. 51,450,008 57,342,289 Long-term debt, less current portion........................ 3,753,298 760,834 Deferred income taxes....................................... 8,976,000 6,606,000 Other liabilities........................................... 2,622,906 2,762,503 Minority interest........................................... 355,770 295,044 Stockholder's equity: Common stock of $.01 par value. 100 shares authorized, issued and outstanding................................. 1 1 Additional paid-in capital................................ 126,627,470 82,466,491 Accumulated other comprehensive income.................... 1,434 (456,172) Retained earnings......................................... 83,103,750 57,276,707 ------------ ------------ Total stockholder's equity.................................. 209,732,655 139,287,027 ------------ ------------ $276,890,637 $207,053,697 ============ ============
See accompanying notes to consolidated financial statements. F-38 119 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 25, 1999
1999 1998 1997 ------------ ------------ ------------ Cash flows from operating activities: Net earnings................................... $ 25,827,978 $ 15,378,338 $ 16,542,308 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion and amortization.... 16,819,147 12,112,930 10,985,109 Gain on sale of property, plant and equipment, net............................ (899,122) (853,436) (1,005,530) Gain on sale of securities.................. -- (25,714) -- Deferred income taxes....................... 748,000 707,000 1,038,000 Undistributed equity earnings............... 129,273 (1,078,437) (4,246,212) Minority interest in earnings (losses)...... 60,727 58,101 (52,277) Change in operating assets and liabilities: Accounts receivable....................... (1,669,564) (3,548,729) (6,263,241) Inventories............................... (2,002,757) (163,240) (278,122) Other assets.............................. 933,929 (749,466) (469,808) Accounts payable.......................... (15,016,433) 5,437,919 13,316,821 Accrued payroll and other................. 984,536 2,135,446 (111,141) Accrued insurance cost.................... 1,150,453 792,517 327,575 Income taxes payable...................... 6,256,730 (367,437) (87,334) Other liabilities......................... (1,621,305) (206,800) (1,220,587) ------------ ------------ ------------ Net cash provided by operating activities........ 31,701,592 29,628,992 28,475,561 Cash flows from investing activities: Proceeds from sale of property, plant and equipment................................... 2,676,119 1,448,503 1,304,334 Capital expenditures........................... (19,447,225) (13,351,000) (20,213,136) Purchases of marketable securities............. -- (16,874) (43,947) Sales of marketable securities................. -- 760,621 -- Additions to notes receivable.................. (1,994,973) (1,837,933) (760,642) Payments received on notes receivable.......... 1,542,182 1,316,489 363,750 Investments and acquisitions................... (36,151,653) (2,136,356) (8,132,363) ------------ ------------ ------------ Net cash used in investing activities............ (53,375,550) (13,816,550) (27,482,004) Cash flows from financing activities: Payments of long-term debt..................... (15,758,764) (378,419) (86,221) Contributions by minority owner................ -- -- 209,445 Contributions from parent...................... 44,160,979 2,145,923 10,713,084 Dividends...................................... -- -- (13,970,000) ------------ ------------ ------------ Net cash provided by (used in) financing activities..................................... 28,402,215 1,767,504 (3,133,692) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.................................... 6,728,257 17,579,946 (2,140,135) Cash and cash equivalents at beginning of year... 65,601,870 48,021,924 50,162,059 ------------ ------------ ------------ Cash and cash equivalents at end of year......... $ 72,330,127 $ 65,601,870 $ 48,021,924 ============ ============ ============ Supplemental disclosures of cash flow information: Interest paid.................................. $ 1,848,988 $ 944,672 $ 528,031 Income taxes paid.............................. 7,465,923 7,701,132 7,441,421
See accompanying notes to consolidated financial statements. F-39 120 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME FOR THE THREE YEARS ENDED DECEMBER 25, 1999
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S STOCK CAPITAL INCOME EARNINGS EQUITY ------ ------------ ------------- ----------- ------------- BALANCE AT DECEMBER 28, 1996..... $ 1 $ 69,408,464 $ (82,951) $29,326,061 $ 98,651,575 Dividends ($39,700 per share).... -- -- -- (3,970,000) (3,970,000) Contribution from parent......... -- 10,713,084 -- -- 10,713,084 Comprehensive income: Net earnings................... -- -- -- 16,542,308 16,542,308 Other comprehensive income: Change in unrealized holding gain, net of tax.......... -- -- 8,537 -- 8,537 Minimum pension liability adjustment................ -- -- (314,926) -- (314,926) ------------ Total other comprehensive income.................... (306,389) ------------ Total comprehensive income....... 16,235,919 --- ------------ --------- ----------- ------------ BALANCE AT DECEMBER 27, 1997..... 1 80,121,548 (389,340) 41,898,369 121,630,578 Contribution from parent......... -- 2,344,943 -- -- 2,344,943 Comprehensive income: Net earnings................... -- -- -- 15,378,338 15,378,338 Other comprehensive income: Change in unrealized holding loss, net of tax.......... -- -- (7,857) -- (7,857) Minimum pension liability adjustment................ -- -- (58,975) -- (58,975) ------------ Total other comprehensive income.................... (66,832) ------------ Total comprehensive income....... 15,311,506 --- ------------ --------- ----------- ------------ BALANCE AT DECEMBER 26, 1998..... 1 82,466,491 (456,172) 57,276,707 139,287,027 --- ------------ --------- ----------- ------------ Dividends($9 per share).......... (935) (935) Contribution from parent......... -- 44,160,979 -- -- 44,160,979 Comprehensive income: Net earnings................... -- -- -- 25,827,978 25,827,978 Other comprehensive income: Change in unrealized holding loss, net of tax.......... -- -- (24,578) -- (24,578) Minimum pension liability adjustment................ -- -- 482,184 -- 482,184 ------------ Total other comprehensive income.................... 457,606 ------------ Total comprehensive income....... 26,285,584 --- ------------ --------- ----------- ------------ BALANCE AT DECEMBER 25, 1999..... $ 1 $126,627,470 $ 1,434 $83,103,750 $209,732,655 === ============ ========= =========== ============
See accompanying notes to consolidated financial statements. F-40 121 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General: The consolidated financial statements include the accounts of Kiewit Materials Company ("KMC") and its subsidiaries (collectively, the "Company") and the Company's pro rata portion of the accounts of Granite Canyon Joint Venture. The Company was formed on February 2, 1999. Several affiliated operating corporations under common ownership (the "Predecessors"), each one of which is engaged in an aspect of the materials business, were combined (the "Combination") on March 1, 1999 through a series of nonmonetary contributions from KMC's parent, Peter Kiewit Sons', Inc. ("Kiewit"). The Combination has been accounted for at historical cost in a manner similar to a pooling of interests. All material intercompany transactions have been eliminated in consolidation. The Company has a 52-53 week fiscal year which ends on the last Saturday in December. 1999, 1998 and 1997 were all 52 week years. The Company principally operates in the Southwest and Northwest portions of the United States. The Company produces and distributes construction materials including ready-mix concrete, asphalt, sand, gravel, crushed stone and railroad ballast ("materials products"). Demand for the Company's products is subject to factors affecting the level of general construction activity including the level of interest rates, availability of funds for construction, appropriations by federal and state governments for construction, past overbuilding, labor relations in the construction industry, energy shortages, material shortages, weather, climate and other factors affecting the construction industry in general. Labor disputes in the construction industry may result in work stoppages which may interrupt sales in the affected area. Precipitation or freezing temperatures may cause a reduction in construction activity and related demand for the Company's products. During the winter months, sales and income of the Company's quarries and Northwest operations are adversely affected by the impact of inclement weather. A decrease in the level of general construction activity in any of the Company's market areas caused by any of the above factors may have a material adverse effect on the Company's sales and income derived therefrom. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition: Materials revenue, net of discounts, is recognized at the time the products are shipped and all significant contractual obligations have been satisfied. Construction revenue is recognized using the percentage of completion method of accounting. Under the percentage of completion method, an estimated percentage for each contract, as determined by the Company's engineering estimate based on the amount of work performed, is applied to total estimated profit. Provision is made for the entire amount of future estimated losses on contracts in progress; claims for additional contract compensation, however, are not reflected in the accounts until the year in which such claims are allowed. Revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. It is at least reasonably possible that cost and profit estimates will be revised in the near-term. F-41 122 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-42 123 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.
1999 1998 1997 ----------- ----------- ----------- Net earnings available to common stockholders.............................. $25,827,978 $15,378,338 $16,542,308 =========== =========== =========== Total number of weighted average shares outstanding............................... 100 100 100 =========== =========== =========== Basic and diluted earnings per share........ $ 258,280 $ 153,783 $ 165,423 =========== =========== ===========
Recent Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect adoption of this statement to materially affect the Company's financial statements as the Company has no derivative instruments or hedging activities. 2. FINANCIAL INSTRUMENTS: The following methods and assumptions were used to determine classification and fair values of financial instruments: Cash and Cash Equivalents: Cash and cash equivalents are stated at cost, which approximates fair value. Cash equivalents generally consist of highly liquid instruments purchased with a maturity of three months or less and cash deposited with Kiewit Construction Company ("KCC"), an indirect subsidiary of Kiewit. The Company's deposits with KCC are commingled with the funds of other affiliated companies for investment purposes and are available for withdrawal upon demand. These deposits earn interest at a rate based on LIBOR. The Company's net deposits totaled $57,791,265 and $54,520,320 in 1999 and 1998. Marketable Securities: The Company has classified all marketable securities as available-for-sale. The amortized cost of the securities used in computing unrealized and realized gains and losses are determined by specific identification. Fair values are estimated based on quoted market prices for the securities on hand or similar investments. Net unrealized holding gains and losses, if any, are reported as a separate component of accumulated other comprehensive income, net of tax. F-43 124 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. FINANCIAL INSTRUMENTS, CONTINUED: At December 25, 1999 and December 26, 1998, the cost, estimated fair values and unrealized holding gains of the Company's marketable securities are as follows:
UNREALIZED AMORTIZED HOLDING FAIR COST GAIN VALUE ---------- ---------- ---------- 1999: U.S. debt securities............................ $2,531,652 $ 2,323 $2,533,975 ========== ======= ========== 1998: U.S. debt securities............................ $2,541,925 $42,125 $2,584,050 ========== ======= ==========
Realized gain on sale of marketable securities was $-- in 1999 and $25,714 in 1998. All debt securities mature within one to five years. Long-term debt: The fair value of debt was estimated using the incremental borrowing rates of the Company for debt of the same remaining maturities and approximates the carrying amount. 3. INVENTORIES: Inventories consist of the following:
1999 1998 ----------- ---------- Raw materials...................................... $ 9,523,973 $6,573,036 Other.............................................. 1,616,924 1,193,952 ----------- ---------- $11,140,897 $7,766,988 =========== ==========
4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consists of the following:
1999 1998 ------------ ------------ Land and mineral properties..................... 25,039,783 $ 8,844,421 Buildings and improvements...................... 7,176,851 6,073,090 Equipment and other............................. 164,061,581 130,975,235 ------------ ------------ $196,278,215 $145,892,746 ============ ============
F-44 125 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INVESTMENT AND OTHER ASSETS: Investments and other assets consists of the following:
1999 1998 ----------- ----------- Investment in limited liability companies......... $ -- $10,724,511 Intangible assets, principally goodwill, net of accumulated amortization of $6,050,026 and $4,169,800...................................... 29,738,772 14,063,793 Land option....................................... 2,000,000 -- Notes receivable.................................. 949,252 521,218 Other............................................. 282,964 476,427 ----------- ----------- $32,970,988 $25,785,949 =========== ===========
The Company's investment in limited liability companies is comprised of a 40% interest in Pacific Rock Products, L.L.C. and a 40% interest in Pacific Rock Products Trucking, L.L.C. (formerly River City Machinery, L.L.C.). Pacific Rock Products, L.L.C. is engaged in the production and distribution of materials products. Pacific Rock Products Trucking, L.L.C. rents equipment to affiliated companies. During 1999, the Company acquired the remaining 60% interest of both limited liability companies. 6. EMPLOYEE BENEFIT PLANS: The Company makes contributions based on collective bargaining agreements to several multi-employer union pension plans. These contributions are included in cost of revenue. Under federal law, the Company may be liable for a portion of future plan deficiencies; however, there are no known deficiencies. Approximately 10% of the employees of the Company are covered under the Kiewit profit sharing plan. The expense related to the profit sharing plan was $302,774, $447,795 and $617,784 in 1999, 1998 and 1997, respectively. The Company sponsors a defined benefit pension plan covering certain union employees. Benefits are based on negotiated rates multiplied by years of service. It is the Company's policy to make contributions to these plans sufficient to meet minimum funding requirements of the applicable laws and regulations, plus such additional amounts, if any, as the Company's actuarial consultants advise to be appropriate. Plan assets consist principally of fixed income instruments, equity securities and cash equivalents. F-45 126 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. EMPLOYEE BENEFIT PLANS, CONTINUED:
1999 1998 ----------- ----------- Change in benefit obligation: Benefit obligation at beginning of year................. $ 4,799,238 $ 3,174,787 Service cost............................................ 1,137,407 974,369 Interest cost........................................... 310,258 226,788 Actuarial (gain) loss................................... (1,190,656) 577,594 Benefits paid........................................... (201,781) (154,300) ----------- ----------- Benefit obligation at end of year......................... 4,854,466 4,799,238 Change in plan assets: Fair value of plan assets at beginning of year.......... 3,340,878 2,821,262 Actual return on plan assets............................ 603,336 673,916 Employer contribution................................... 1,023,964 -- Benefits paid........................................... (201,781) (154,300) ----------- ----------- Fair value of plan assets at end of year.................. 4,766,397 3,340,878 ----------- ----------- Funded status............................................. (88,069) (1,458,360) Unrecognized net actuarial (gain) loss.................... (762,296) 741,822 Unrecognized prior service cost........................... 160,943 183,216 ----------- ----------- (Accrued) prepaid benefit cost............................ $ (689,422) $ (533,322) =========== =========== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost.................................... $ -- $ -- Accrued benefit liability............................... (689,422) (1,458,360) Intangible asset........................................ -- 183,216 Accumulated other comprehensive income.................. -- 741,822 ----------- ----------- Net amount recognized..................................... $ (689,422) $ (533,322) =========== ===========
1999 1998 1997 ---------- ---------- -------- Weighted-average assumptions as of year end: Discount rate................................ 8.0% 6.5% 7.0% Expected return on plan assets............... 8.0% 8.0% 8.0% Components of net periodic benefit cost: Service cost................................. $1,137,407 $ 974,369 $762,450 Interest cost................................ 310,258 226,788 156,768 Expected return on plan assets............... (313,813) (224,321) (145,444) Amortization of prior service cost........... 22,273 22,273 22,273 Recognized net actuarial loss................ 23,939 37,268 968 ---------- ---------- -------- Net periodic benefit cost...................... $1,180,064 $1,036,377 $797,015 ========== ========== ========
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets were $4,854,466, $4,854,466 and $4,766,397, respectively, as of December 25, 1999 and $4,799,238, $4,799,238 and $3,340,878, respectively, as of December 26, 1998. F-46 127 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT: Long-term debt consists of the following:
1999 1998 ---------- ---------- 8% note payable monthly to 2009............................. $1,442,074 $ -- 7% note payable quarterly to 2003........................... 355,858 430,429 9.5% note payable monthly to 2002........................... 151,902 205,228 9.25% notes payable monthly to 2003......................... -- 304,830 9% note payable monthly to 2007............................. 649,104 81,044 7.629% note payable monthly to 2016......................... 776,272 -- Other....................................................... 939,626 479,268 ---------- ---------- 4,314,836 1,500,799 Less current portion........................................ 561,538 739,965 ---------- ---------- $3,753,298 $ 760,834 ========== ==========
Long-term debt repayments are due as follows: 2000............................................. $ 561,538 2001............................................. 921,155 2002............................................. 304,985 2003............................................. 294,023 2004............................................. 205,646 2005 and thereafter.............................. 2,027,489 ---------- $4,314,836 ==========
The 8% note payable was issued in 1999 to purchase land and is collateralized by a deed of trust. The 7% note payable is not collateralized and was issued as additional consideration as part of a 1997 acquisition. The 9.25% notes payable were collateralized by deeds of trust and were retired in February 1999. The 9% and 7.629% notes payable are collateralized by deeds of trust and were assumed as part of the Company's 1999 acquisition of the remaining 60% of Pacific Rock Products, L.L.C. All remaining items of debt are collateralized by equipment. F-47 128 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES: An analysis of the provision for income taxes relating to earnings before minority interest and income taxes for the three years ended December 25, 1999 follows:
FEDERAL STATE TOTAL ----------- ---------- ----------- 1999: Current...................................... $11,691,349 $3,253,473 $14,944,822 Deferred..................................... 559,000 189,000 748,000 ----------- ---------- ----------- $12,250,349 $3,442,473 $15,692,822 =========== ========== =========== 1998: Current...................................... $ 6,961,899 $2,124,541 $ 9,086,440 Deferred..................................... 593,000 114,000 707,000 ----------- ---------- ----------- $ 7,554,899 $2,238,541 $ 9,793,440 =========== ========== =========== 1997: Current...................................... $ 7,643,867 $2,175,549 $ 9,819,416 Deferred..................................... 833,000 205,000 1,038,000 ----------- ---------- ----------- $ 8,476,867 $2,380,549 $10,857,416 =========== ========== ===========
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:
1999 1998 1997 ----------- ----------- ----------- Federal income tax expense at statutory rate...................................... $14,553,534 $ 8,830,458 $ 9,571,606 State income tax, net of Federal tax benefit................................... 2,307,998 1,394,993 1,584,486 Percentage depletion........................ (1,161,782) (1,310,610) (942,905) Prior year adjustment....................... (367,132) 521,371 496,187 Other....................................... 360,204 357,228 148,042 ----------- ----------- ----------- $15,692,822 $ 9,793,440 $10,857,416 =========== =========== ===========
F-48 129 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES, CONTINUED: The components of the net deferred tax liabilities for the years ended December 25, 1999 and December 26, 1998 were as follows:
1999 1998 ----------- ----------- Deferred tax assets: Construction accounting................................. $(2,905,384) $ (806,000) Insurance claims........................................ (2,762,474) (2,229,000) Compensation and retirement benefits.................... (1,340,608) (1,291,000) Other................................................... (1,513,534) (1,033,000) ----------- ----------- Total deferred tax assets................................. (8,522,000) (5,359,000) Deferred tax liabilities: Asset bases/accumulated depreciation.................... 9,162,071 7,332,000 Investments in limited liability companies/joint ventures............................................. 3,673,265 1,678,000 Other................................................... 664 100,000 ----------- ----------- Total deferred tax liabilities............................ 12,836,000 9,110,000 ----------- ----------- Net deferred tax liabilities.............................. $ 4,314,000 $ 3,751,000 =========== ===========
9. SEGMENT REPORTING: The Company currently operates under one segment and all operations and long-lived assets are in the United States. The Company's external revenues by product for the three years ended December 25, 1999 are as follows:
1999 1998 1997 ------------ ------------ ------------ Aggregates (sand, gravel, crushed stone and railroad ballast).................. $ 98,976,438 $ 54,722,819 $ 44,388,081 Asphalt.................................. 78,442,724 57,862,340 75,732,891 Ready mix concrete....................... 250,874,384 209,842,986 144,908,912 Construction............................. 8,764,102 10,631,857 12,279,012 ------------ ------------ ------------ $437,057,648 $333,060,002 $277,308,896 ============ ============ ============
F-49 130 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 ---------- ---------- --------- 1999: Unrealized holding losses: Unrealized holding losses arising during the period..................................... $ (39,802) $ 15,224 $ (24,578) Minimum pension liability adjustment............ 741,822 (259,638) 482,184 --------- --------- --------- Other comprehensive income...................... $ 702,020 $(244,414) $ 457,606 ========= ========= ========= 1998: Unrealized holding losses: Unrealized holding gains arising during the period..................................... $ 11,924 $ (4,561) $ 7,363 Plus reclassification adjustment for gains realized in net earnings................... (24,648) 9,428 (15,220) --------- --------- --------- Net unrealized losses........................... (12,724) 4,867 (7,857) Minimum pension liability adjustment............ (90,731) 31,756 (58,975) --------- --------- --------- Other comprehensive income...................... $(103,455) $ 36,623 $ (66,832) ========= ========= ========= 1997: Unrealized holding gains: Unrealized holding gains arising during the period..................................... $ 13,825 $ (5,288) $ 8,537 Minimum pension liability adjustment............ (484,502) 169,576 (314,926) --------- --------- --------- Other comprehensive income...................... $(470,677) $ 164,288 $(306,389) ========= ========= =========
Accumulated other comprehensive income consisted of the following:
CURRENT BEGINNING YEAR ENDING BALANCE CHANGE BALANCE --------- --------- --------- 1999: Unrealized holding gain on securities........... $ 26,012 $ (24,578) $ 1,434 Minimum pension liability adjustment............ (482,184) 482,184 -- --------- --------- --------- Accumulated other comprehensive income.......... $(456,172) $ 457,606 $ 1,434 ========= ========= ========= 1998: Unrealized holding gain on securities........... $ 33,869 $ (7,857) $ 26,012 Minimum pension liability adjustment............ (423,209) (58,975) (482,184) --------- --------- --------- Accumulated other comprehensive income.......... $(389,340) $ (66,832) $(456,172) ========= ========= ========= 1997: Unrealized holding gain on securities........... $ 25,332 $ 8,537 $ 33,869 Minimum pension liability adjustment............ (108,283) (314,926) (423,209) --------- --------- --------- Accumulated other comprehensive income.......... $ (82,951) $(306,389) $(389,340) ========= ========= =========
F-50 131 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. OPERATING LEASES: The Company leases mineral properties, buildings and certain equipment under noncancelable operating lease agreements. Total rent expense was $12,291,760, $11,625,294 and $10,176,629 in 1999, 1998 and 1997, respectively. Future minimum lease commitments are as follows: 2000............................................ $ 9,093,959 2001............................................ 8,096,764 2002............................................ 7,504,509 2003............................................ 6,682,634 2004............................................ 5,622,128 Thereafter...................................... 26,797,577 ----------- $63,797,571 ===========
12. RELATED PARTY TRANSACTIONS: During 1999, 1998 and 1997 the Company was involved in transactions with affiliated companies as follows:
1999 1998 1997 ----------- ---------- ---------- Equipment rental income....................... $ 39,076 $ 203,334 $ 186,911 Equipment rental expense...................... 562,022 19,288 -- Insurance premium expense..................... 43,738 32,839 49,387 Interest income............................... 3,180,932 2,847,501 2,753,194 Interest expense.............................. 1,236,391 583,673 478,885 Administrative service fee income............. 106,282 199,031 182,001 Administrative service fee expense............ 3,973,892 1,402,834 1,181,156 Asset acquisitions............................ 2,031,475 135,500 107,558 Asset disposals, proceeds..................... 444,900 223,500 270,907 Gain on asset disposals....................... 183,129 11,134 101,607 Engineering & estimating expense.............. -- 79,249 52,505 Sales......................................... 10,411,786 7,326,151 8,838,367
During 1997, the Company declared and paid a cash dividend of $3,970,000. During 1998, the Company received a noncash contribution from its parent for the assumption of certain operating liabilities of $199,020. During 1999, the Company dividended net operating assets of $935 to a subsidiary of Kiewit. F-51 132 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. ACQUISITIONS: During 1999, 1998 and 1997, the Company acquired the assets of various materials operations, all of which were accounted for by the purchase method and, accordingly, results of operations for the acquired businesses have been included in the consolidated statement of income from their respective dates of acquisition. Pro forma financial information is not presented for the acquisitions because the impact is not material to the results of operations. The aggregate purchase prices were $4,270,000, $2,136,356 and $9,477,347 during 1999, 1998 and 1997, respectively. A $1,450,000 long-term note payable was issued in connection with the 1999 purchase. Included in the 1997 purchase price was the assumption of long-term debt totaling $1,339,381 and the issuance of a $500,000 long-term note payable. Goodwill related to these acquisitions was $357,111 and $2,120,022 during 1998 and 1997, respectively, and is amortized over periods of 15 to 20 years. On February 28, 1999, the Company purchased the remaining 60% of Pacific Rock Products, L.L.C., and Pacific Rock Products Trucking L.L.C. (formerly River City Machinery L.L.C.), a materials operation operating in the Portland, Oregon area, for $40,000,000. The acquisition was accounted for by the purchase method of accounting. The fair value of the identifiable assets acquired and liabilities assumed was $35,791,460 and $13,096,664, respectively. The excess of aggregate purchase price over fair value of identifiable assets and liabilities acquired of approximately $17,305,204 was recognized as goodwill and is being amortized over 20 years. The operating results of the remaining 60% are included in the consolidated results of operations from the date of acquisition. The following pro forma financial information assumes the acquisition occurred at the beginning of 1998. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of 1998, or the results which may occur in the future.
DECEMBER 25, DECEMBER 26, 1999 1998 ------------ ------------ Revenue................................................. $444,119,978 $395,820,004 Net earnings............................................ 26,038,104 20,837,624 Net earnings per share: Basic and diluted..................................... $ 260,381 $ 208,376
14. OTHER MATTERS: The Company is involved in various lawsuits and claims incidental to its business. Management believes that any resulting liability should not materially affect the Company's financial position, future results of operations or cash flows. 15. SUBSEQUENT EVENTS: On January 3, 2000, the Company acquired 100% of the outstanding common stock and related assets of a materials operation operating in the Northern California area, for approximately $30,000,000. Identifiable intangible assets related to this purchase will be amortized over their useful life of 27.5 years. There was no goodwill related to this transaction. The Company has filed various documents with the Securities and Exchange Commission pursuant to which Kiewit is proposing to spin-off the Company to its shareholders in a transaction that is intended to be tax-free for U.S. Federal income tax purposes. F-52 133 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholder Kiewit Materials Company Our audit of the consolidated financial statements referred to in our report dated March 17, 2000 appearing on page F-34 also included an audit of the financial statement schedule appearing on page F-54. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Omaha, Nebraska March 17, 2000 F-53 134 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 25, 1999 Allowance for doubtful trade accounts.......................... $ 780 $ 447 $ (233) $-- $ 994 Reserves: Insurance claims.................. 5,626 2,370 (1,219) -- 6,777 YEAR ENDED DECEMBER 26, 1998 Allowance for doubtful trade accounts.......................... $ 785 $ 42 $ (47) $-- $ 780 Reserves: Insurance claims.................. 4,834 2,030 (1,238) -- 5,626 YEAR ENDED DECEMBER 27, 1997 Allowance for doubtful trade accounts.......................... $ 863 $ 153 $ (231) $-- $ 785 Reserves: Insurance claims.................. 4,506 1,427 (1,099) -- 4,834
F-54 135 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ------------ ------------ Revenue..................................................... $ 99,539,837 $ 99,488,000 Cost of revenue............................................. (84,157,144) (83,805,410) Depreciation, depletion and amortization.................... (4,674,528) (3,166,587) ------------ ------------ 10,708,165 12,516,003 General and administrative expenses......................... (6,450,902) (6,605,348) ------------ ------------ Operating earnings.......................................... 4,257,263 5,910,655 Other income (expense): Investment income......................................... 1,447,683 1,010,954 Equity earnings........................................... -- 271,494 Interest expense.......................................... (731,323) (242,234) Gain on sale of property, plant and equipment, net........ 96,036 145,314 Other, net................................................ 56,913 54,774 ------------ ------------ 869,309 1,240,302 ------------ ------------ Earnings before income taxes and minority interest.......... 5,126,572 7,150,957 Minority interest........................................... (57,141) (436,428) Income tax expense.......................................... (2,037,178) (2,838,960) ------------ ------------ Net earnings................................................ 3,032,253 3,875,569 ============ ============ Net earnings per share: Basic and diluted......................................... $ 30,323 $ 38,756 ============ ============
See accompanying notes to consolidated condensed financial statements. F-55 136 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 2000 ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 50,674,671 Marketable securities..................................... 2,575,663 Receivables, less allowance of $884,263................... 45,874,156 Inventories............................................... 14,469,774 Deferred income taxes..................................... 5,349,000 Other..................................................... 2,970,118 ------------ Total current assets........................................ 121,913,382 Property, plant and equipment, less accumulated depreciation of $99,922,577............................................ 116,254,275 Other assets................................................ 47,470,076 ------------ $285,637,733 ============ LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable.......................................... $ 26,205,580 Current portion of long-term debt......................... 566,217 Accrued payroll and payroll taxes......................... 6,456,753 Accrued insurance costs................................... 7,604,966 Income taxes payable -- parent company.................... 13,902,855 Other..................................................... 2,147,103 ------------ Total current liabilities................................... 56,883,474 Long-term debt, less current portion........................ 3,615,461 Deferred income taxes....................................... 9,517,000 Other liabilities........................................... 2,619,659 Minority interest........................................... 412,911 ------------ Total liabilities...................................... 73,048,505 Stockholder's equity: Common stock, par $.01; and 100 shares authorized, issued and outstanding........................................ 1 Additional paid-in capital................................ 126,452,609 Accumulated other comprehensive income.................... 614 Retained earnings......................................... 86,136,004 ------------ Total stockholder's equity.................................. 212,589,228 ------------ $285,637,733 ============
See accompanying notes to consolidated condensed financial statements. F-56 137 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------- 2000 1999 ------------ ----------- Cash flows from operations: Net cash provided by operations............................. $ 15,417,630 $ (731,854) Cash flows from investing activities: Proceeds from sales of property, plant and equipment...... 210,816 1,301,226 Investments and acquisitions.............................. (30,880,432) -- Capital expenditures...................................... (6,432,522) (8,512,644) Additions to notes receivable............................. (85,552) (341,765) Payments on notes receivable.............................. 422,623 185,238 ------------ ----------- Net cash used in investing activities....................... (36,765,067) (7,367,945) Cash flows from financing activities: Payments on long-term debt................................ (133,158) (1,260,558) Contributions from parent................................. (174,861) 13,465,447 Long-term debt borrowings................................. -- 332,307 ------------ ----------- Net cash (used in) provided by financing activities......... (308,019) 12,537,196 ------------ ----------- Net (decrease) increase in cash and cash equivalents........ (21,655,456) 4,437,397 Cash and cash equivalents at beginning of period............ 72,330,127 65,601,870 ------------ ----------- Cash and cash equivalents at end of period.................. $ 50,674,671 $70,039,267 ============ =========== Noncash investing activities: Issuance of debt for materials acquisition................ $ -- $42,000,000
F-57 138 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 three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. 2. EARNINGS PER SHARE: Basic earnings per share have been computed using the weighted average number of shares outstanding during each period.
THREE MONTHS ENDED MARCH 31, ------------------------ 2000 1999 ---------- ---------- Net earnings available to common stockholders............... $3,032,253 $3,875,569 ========== ========== Total number of weighted average shares outstanding used to compute basic earnings per share.......................... 100 100 ========== ========== Net earnings Basic earnings per share.................................. $ 30,323 $ 38,756 ========== ==========
3. INVENTORIES: Inventories consist of the following:
MARCH 31, 2000 ----------- Raw Materials............................................... $11,466,352 Other....................................................... 3,003,422 ----------- $14,469,774 ===========
4. COMPREHENSIVE INCOME: Comprehensive income includes net earnings and unrealized gains (losses) on securities and minimum pension liability adjustments. F-58 139 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 4. COMPREHENSIVE INCOME, CONTINUED: Comprehensive income for the three months ended March 31, 2000 and 1999 was as follows:
THREE MONTHS ENDED MARCH 31, ------------------------ 2000 1999 ---------- ---------- Net earnings................................................ $3,032,253 $3,875,569 Other comprehensive income, before tax: Unrealized losses arising during period................... (1,328) (9,712) Minimum pension liability adjustment...................... -- 5,985 Income tax benefit related to items of other comprehensive income................................... 508 1,620 ---------- ---------- Comprehensive income........................................ $3,031,433 $3,873,462 ========== ==========
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 1999. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of 1999, or the results which may occur in the future:
THREE MONTHS ENDED MARCH 31, --------------------------- 2000 1999 ----------- ------------ Revenue.................................................. $99,539,837 $106,550,329 Net earnings............................................. 3,032,253 4,225,780 Net earnings per share: Basic and diluted...................................... $ 30,323 $ 42,258
On January 3, 2000, the Company acquired 100% of the outstanding common stock and related assets of Solano Concrete Co., Inc., a materials operation operating in the Northern California area, for $30,880,432. Identifiable intangible assets related to this purchase of $15,447,711 will be amortized over their useful life of 27.5 years. There was no goodwill related to this transaction. Pro forma financial information is not presented for this acquisition because the impact is not material to the results of operations. 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. F-59 140 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, 1998 and December 31, 1997 and for the years ended December 31, 1998 and 1997: Independent Auditors' Report................................ F-61 Combined Balance Sheets..................................... F-62 Combined Statements of Income and Members' Equity........... F-63 Combined Statements of Cash Flows........................... F-64 Notes to Combined Financial Statements...................... F-65 Financial Statement Schedule for the two years in the period ended December 31, 1998................................... F-70
F-60 141 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-61 142 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-62 143 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-63 144 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-64 145 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-65 146 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-66 147 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-67 148 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-68 149 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-69 150 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-70 151 INDEX TO PRO FORMA INFORMATION
PAGES ----- Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma Consolidated Condensed Statements of Earnings............. F-73 Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma Consolidated Condensed Balance Sheet...................... F-77 Notes to Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma Consolidated Condensed Financial Statements............... F-81 Kiewit Materials Company and Subsidiaries Pro Forma Consolidated Condensed Statements of Earnings............. F-83 Kiewit Materials Company and Subsidiaries Pro Forma Consolidated Condensed Balance Sheet...................... F-87 Notes to Kiewit Materials Company and Subsidiaries Pro Forma Consolidated Condensed Financial Statements............... F-89
F-71 152 PRO FORMA FINANCIAL INFORMATION The pro forma financial information of Peter Kiewit Sons', Inc. ("Kiewit") and Kiewit Materials Company ("KMC") has been prepared to give effect, as further described below, to the share exchange, the debenture exchange offer and the spin-off. The pro forma consolidated condensed statements of earnings assume that these transactions are consummated at the beginning of the indicated period. The pro forma consolidated condensed balance sheets assume that these transactions are consummated as of March 31, 2000. The pro forma information assumes two separate scenarios concerning the transaction. The scenarios are as follows: 100% (Scenario 1) and 50% (Scenario 2) of Kiewit common stock held by KMC employees will be exchanged for KMC's common stock with an equal aggregate formula price. Each scenario also assumes that Kiewit debenture holders that are KMC employees will exchange 100% (Scenario 1) and 50% (Scenario 2) of their Kiewit debentures for KMC debentures. In both scenarios, the remaining debentures held by Kiewit employees will be exchanged for both shares of KMC common stock and reduced principal amount convertible debentures of Kiewit. The pro forma financial information is not intended to reflect results of operations or the financial position of Kiewit and KMC which actually would have resulted had these transactions been effected on the dates indicated. Moreover, the pro forma information is not intended to be indicative of future results of operations or financial position of Kiewit and KMC. The pro forma financial information should be read in conjunction with Kiewit's and KMC's historical financial statements, and the notes thereto which are contained elsewhere herein. F-72 153 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIOS 1 AND 2)
THREE MONTHS ENDED MARCH 31, 2000 --------------------------------------------------- SEPARATE OTHER HISTORICAL KMC ADJUSTMENTS PRO FORMA ---------- -------- ----------- --------- Revenue........................................ $ 1,083 $ (100) $ 4(b) $ 987 Cost of Revenue................................ (1,032) 89 (4)(b) (947) ------- -------- --------- ------- 51 (11) -- 40 General and Administrative Expenses............ (45) 7 -- (38) ------- -------- --------- ------- Operating Earnings............................. 6 (4) -- 2 Other Income (Expense) Investment Income (Loss) and Equity Earnings.................................. 6 (1) -- 5 Interest Expense............................. -- -- --(a) -- Other, net................................... 12 -- -- 12 ------- -------- --------- ------- 18 (1) -- 17 ------- -------- --------- ------- Earnings from Continuing Operations before Income Taxes................................. 24 (5) -- 19 Provision for Income Taxes..................... (10) 2 --(c) (8) ------- -------- --------- ------- Earnings from Continuing Operations............ $ 14 $ (3) $ -- $ 11 ======= ======== ========= ======= Earnings from Continuing Operations per Share: Basic........................................ $ 0.43 $ 0.37 ======= ======= Diluted...................................... $ 0.42 $ 0.36 ======= ======= Weighted Average Shares Outstanding (in thousands): Basic........................................ 32,344 (1,072)(d) 31,272 ======= ========= ======= Diluted...................................... 33,373 (1,124)(d) 32,249 ======= ========= =======
See accompanying notes to pro forma consolidated condensed financial statements. F-73 154 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIOS 1 AND 2)
YEAR ENDED DECEMBER 25, 1999 --------------------------------------------------- SEPARATE OTHER HISTORICAL KMC ADJUSTMENTS PRO FORMA ---------- -------- ----------- --------- Revenue........................................ $ 4,013 $ (437) $ 10(b) $ 3,586 Cost of Revenue................................ (3,655) 375 (10)(b) (3,290) ------- -------- --------- ------- 358 (62) -- 296 General and Administrative Expenses............ (144) 25 -- (119) ------- -------- --------- ------- Operating Earnings............................. 214 (37) -- 177 Other Income (Expense) Investment Income (Loss) and Equity Earnings.................................. -- (5) -- (5) Interest Expense............................. (4) 2 1(a) (1) Other, net................................... 56 (2) -- 54 ------- -------- --------- ------- 52 (5) 1 48 ------- -------- --------- ------- Earnings from Continuing Operations before Income Taxes................................. 266 (42) -- 225 Provision for Income Taxes..................... (101) 16 --(c) (85) ------- -------- --------- ------- Earnings from Continuing Operations............ $ 165 $ (26) $ 1 $ 140 ======= ======== ========= ======= Earnings from Continuing Operations per Share: Basic........................................ $ 4.81 $ 4.20 ======= ======= Diluted...................................... $ 4.71 $ 4.11 ======= ======= Weighted Average Shares Outstanding (in thousands): Basic........................................ 34,299 (1,100)(d) 33,199 ======= ========= ======= Diluted...................................... 35,052 (1,151)(d) 33,901 ======= ========= =======
See accompanying notes to pro forma consolidated condensed financial statements. F-74 155 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
YEAR ENDED DECEMBER 26, 1998 --------------------------------------------------- SEPARATE OTHER HISTORICAL KMC ADJUSTMENTS PRO FORMA ---------- -------- ----------- --------- Revenue....................................... $ 3,379 $ (333) $ 7(b) $ 3,053 Cost of Revenue............................... (3,095) 298 (7)(b) (2,804) ------- -------- ----------- ------- 284 (35) -- 249 General and Administrative Expenses........... (142) 19 -- (123) ------- -------- ----------- ------- Operating Earnings............................ 142 (16) -- 126 Other Income (Expense) Investment Income and Equity Earnings....... 17 (9) -- 8 Interest Expense............................ (5) 1 -- (4) Other, net.................................. 61 (1) -- 60 ------- -------- ----------- ------- 73 (9) 64 ------- -------- ----------- ------- Earnings from Continuing Operations before Income Taxes................................ 215 (25) -- 190 Provision for Income Taxes.................... (79) 10 -- (69) ------- -------- ----------- ------- Earnings from Continuing Operations........... $ 136 $ (15) $ -- $ 121 ======= ======== =========== ======= Earnings from Continuing Operations per Share: Basic....................................... $ 4.07 ======= Diluted..................................... $ 4.02 ======= Weighted Average Shares Outstanding (in thousands): Basic....................................... 33,396 ======= Diluted..................................... 33,828 =======
See accompanying notes to pro forma consolidated condensed financial statements. F-75 156 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
YEAR ENDED DECEMBER 27, 1997 -------------------------------------------------- SEPARATE OTHER HISTORICAL KMC ADJUSTMENTS PRO FORMA ---------- -------- ----------- --------- Revenue........................................ $ 2,742 $ (277) $ 9(b) $ 2,474 Cost of Revenue................................ (2,408) 242 (9)(b) (2,175) ------- -------- ------ ------- 334 (35) -- 299 General and Administrative Expenses............ (148) 16 -- (132) ------- -------- ------ ------- Operating Earnings............................. 186 (19) -- 167 Other Income (Expense) Investment Income and Equity Earnings........ 20 (8) -- 12 Interest Expense............................. (3) 1 -- (2) Other, net................................... 61 (1) -- 60 ------- -------- ------ ------- 78 (8) 70 ------- -------- ------ ------- Earnings from Continuing Operations before Income Taxes................................. 264 (27) 237 Provision for Income Taxes..................... (109) 10 -- (99) ------- -------- ------ ------- Earnings from Continuing Operations............ $ 155 $ (17) $ 138 ======= ======== ====== ======= Earnings from Continuing Operations per Share: Basic........................................ $ 4.00 ======= Diluted...................................... $ 3.84 ======= Weighted Average Shares Outstanding (in thousands): Basic........................................ 38,912 ======= Diluted...................................... 40,676 =======
See accompanying notes to pro forma consolidated condensed financial statements. F-76 157 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 1)
REPURCHASE/ EXCHANGE CASH STOCK/ SEPARATE HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA ---------- ------------ ----------- -------- --------- ASSETS Current Assets: Cash and cash equivalents.................. $ 232 $(50)(a) $(1)(b) $ (51) $ 130 Marketable securities...................... 15 -- -- (3) 12 Receivables, net........................... 410 -- -- (46) 364 Unbilled contract revenue.................. 134 -- -- -- 134 Contract costs in excess of related revenue................................. 38 -- -- -- 38 Investment in construction joint ventures................................ 187 -- -- -- 187 Deferred income taxes...................... 61 -- -- (5) 56 Other...................................... 27 -- -- (17) 10 ------ ---- --- ----- ------ Total Current Assets......................... 1,104 (50) (1) (122) 931 Property, Plant and Equipment, net........... 261 -- -- (116) 145 Other Assets................................. 120 -- -- (47) 73 ------ ---- --- ----- ------ $1,485 $(50) $(1) $(285) $1,149 ====== ==== === ===== ======
See accompanying notes to pro forma consolidated condensed financial statements. F-77 158 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 1)
REPURCHASE/ EXCHANGE CASH STOCK/ SEPARATE HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA ---------- ------------ ----------- -------- --------- LIABILITIES AND REDEEMABLE COMMON STOCK Current Liabilities: Accounts payable.............. $ 208 $ -- $ -- $ (26) $ 182 Current portion of long-term debt....................... 2 -- -- (1) 1 Accrued costs on construction contracts.................. 131 -- -- -- 131 Billings in excess of related costs and earnings......... 119 -- -- -- 119 Accrued insurance costs....... 89 -- -- (8) 81 Other......................... 45 -- -- (21) 24 ------ ---- ---- ----- ------ Total Current Liabilities....... 594 -- -- (56) 538 Long-term debt, less current portion....................... 17 -- (8)(b)(d) (4) 5 Other liabilities............... 70 -- -- (12) 58 Minority interest............... 14 -- 29(c)(d) (29)(e) 14 ------ ---- ---- ----- ------ Total Liabilities.......... 695 -- 21 (101) 615 Redeemable Common Stock......... Common Stock.................. -- -- -- -- -- Additional paid-in capital.... 160 -- (6)(c) -- 154 Accumulated other comprehensive income....... (10) -- -- -- (10) Retained earnings............. 640 (50)(a) (16)(c) (184)(e) 390 ------ ---- ---- ----- ------ Total Redeemable Common Stock... 790 (50) (22) (184) 534 ------ ---- ---- ----- ------ $1,485 $(50) $ (1) $(285) $1,149 ====== ==== ==== ===== ======
See accompanying notes to pro forma consolidated condensed financial statements. F-78 159 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 2)
REPURCHASE/ EXCHANGE CASH STOCK/ SEPARATE HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA ---------- ------------ ----------- -------- --------- ASSETS Current Assets: Cash and cash equivalents.................... $ 232 $(50)(a) $(12)(b)(c) $ (51) $ 119 Marketable securities........................ 15 -- -- (3) 12 Receivables, net............................. 410 -- -- (46) 364 Unbilled contract revenue.................... 134 -- -- -- 134 Contract costs in excess of related revenue.................................... 38 -- -- -- 38 Investment in construction joint ventures.... 187 -- -- -- 187 Deferred income taxes........................ 61 -- -- (5) 56 Other........................................ 27 -- -- (17) 10 ------ ---- ---- ----- ------ Total Current Assets........................... 1,104 (50) (12) (122) 920 Property, Plant and Equipment, net............. 261 -- -- (116) 145 Other Assets................................... 120 -- -- (47) 73 ------ ---- ---- ----- ------ $1,485 $(50) $(12) $(285) $1,138 ====== ==== ==== ===== ======
See accompanying notes to pro forma consolidated condensed financial statements. F-79 160 PETER KIEWIT SONS', INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 2)
REPURCHASE/ EXCHANGE CASH STOCK/ SEPARATE HISTORICAL CONTRIBUTION DEBENTURES KMC PRO FORMA ---------- ------------ ----------- -------- --------- LIABILITIES AND REDEEMABLE COMMON STOCK Current Liabilities: Accounts payable.............. $ 208 $ -- $ -- $ (26) $ 182 Current portion of long-term debt....................... 2 -- -- (1) 1 Accrued costs on construction contracts.................. 131 -- -- -- 131 Billings in excess of related costs and earnings......... 119 -- -- -- 119 Accrued insurance costs....... 89 -- -- (8) 81 Other......................... 45 -- -- (21) 24 ------ ---- ---- ----- ------ Total Current Liabilities....... 594 -- -- (56) 538 Long-term debt, less current portion....................... 17 -- (8)(b)(d) (4) 5 Other liabilities............... 70 -- -- (12) 58 Minority interest............... 14 -- 18(c)(d) (18)(e) 14 ------ ---- ---- ----- ------ Total Liabilities.......... 695 -- 10 (90) 616 Redeemable Common Stock......... Common Stock.................. -- -- -- -- -- Additional paid-in capital.... 160 -- (6)(c) -- 154 Accumulated other comprehensive income....... (10) -- -- -- (10) Retained earnings............. 640 (50)(a) (16)(c) (195)(e) 379 ------ ---- ---- ----- ------ Total Redeemable Common Stock... 790 (50) (22) (195) 523 ------ ---- ---- ----- ------ $1,485 $(50) $(12) $(285) $1,138 ====== ==== ==== ===== ======
See accompanying notes to pro forma consolidated condensed financial statements. F-80 161 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF REPORTING The accompanying pro forma consolidated condensed financial statements of Peter Kiewit Sons', Inc. ("Kiewit") are presented based upon the historical consolidated financial statements and the notes thereto of Kiewit, as adjusted to remove the earnings statement and balance sheet accounts of Kiewit Materials Company ("KMC") and to give effect to certain other elements of the share exchange, the debenture exchange offer and the spin-off. The pro forma information assumes, in two separate scenarios, that 100% (Scenario 1) and 50% (Scenario 2) of the current Kiewit shares held by KMC employees will be exchanged for shares of KMC common stock with an equal aggregate formula price. It also assumes that 100% (Scenario 1) and 50% (Scenario 2) of Kiewit's debenture holders that are employees of KMC will exchange their Kiewit debentures for KMC debentures and that the remaining Kiewit debentures held by Kiewit employees will be exchanged for both shares of KMC common stock and reduced principal amount convertible debentures of Kiewit. The remaining shares of KMC common stock will be distributed as a dividend on a pro rata basis to the Kiewit stockholders on a one-to-one ratio. Such pro forma financial statements should be read in conjunction with the separate historical consolidated financial statements and the notes thereto of Kiewit, included elsewhere herein. Such pro forma financial statements are not necessarily indicative of the future results of operations or financial position. Completion of the foregoing transactions has been assumed to be as of March 31, 2000 in the pro forma consolidated condensed balance sheet. In the pro forma consolidated condensed statements of earnings, completion of these transactions has been assumed to be at the beginning of the indicated period. If less than $1 million, no adjustment has been made due to effects of rounding. The significant accounting policies followed by Kiewit, described in the notes to its historical consolidated financial statements included elsewhere herein, have been used in preparing the accompanying pro forma consolidated condensed financial statements. 2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS As described in Note 1, the historical consolidated condensed statements of earnings for Kiewit have been adjusted to remove the earnings statement accounts of KMC. Other adjustments made in preparation of Kiewit's Pro Forma Consolidated Condensed Statements of Earnings are described below: (a) Adjustment made to reflect a decrease in interest expense due to the exchange of Kiewit's convertible debentures into either KMC debentures or both shares of KMC common stock and new reduced principal amount convertible debentures of Kiewit. The interest rates used to calculate the decrease in interest expense were the actual rates applicable to each issue of debentures as follows: 1999 issuance -- 8.25%, 1998 issuance -- 7.35% and 1997 issuance -- 8.028%. (b) Adjustment made to reverse any elimination of intercompany materials sales between Kiewit and KMC. (c) Adjustments made to reflect the tax effect of the above adjustments. (d) Adjustments made to reflect the change in the number of Kiewit's shares and convertible debentures outstanding as a result of the transactions described in Note 1. F-81 162 PETER KIEWIT SONS', INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 3. BALANCE SHEET PRO FORMA ADJUSTMENTS As described in Note 1, the historical consolidated condensed balance sheet of Kiewit has been adjusted to remove the balance sheet accounts of KMC. Other adjustments made in preparation of Kiewit's Pro Forma Consolidated Condensed Balance Sheet are described below: (a) Adjustments made to reflect the decrease in cash as a result of an estimated $50 million capital contribution to KMC. (b) Adjustments made to reflect the payment of cash of $1 million for Kiewit's debentures held by KMC employees exchanged for KMC debentures (Scenario 1) or partially exchanged and partially repurchased (Scenario 2). (c) (Scenario 1) Adjustments made to reflect the exchange of $22 million of Kiewit's common stock held by KMC employees for shares of KMC common stock. (Scenario 2) Adjustments made to reflect the exchange of 50% or $11 million of Kiewit's common stock held by KMC employees for shares of KMC common stock and an $11 million cash payment to KMC employees for the shares of common stock repurchased. (d) Adjustments made to reflect the conversion of Kiewit's convertible debentures into either KMC convertible debentures or both shares of KMC common stock and new reduced principal amount convertible debentures of Kiewit. $7 million in both scenarios. (e) Included in these line items is the impact of the minority interest in KMC held by KMC and Kiewit employees after the share exchange and the debenture exchange offer. 4. EARNINGS PER SHARE Basic and diluted earnings per share of Kiewit's common stock have been computed using the weighted average number of shares outstanding during each period after giving effect to common stock equivalents. F-82 163 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 1)
THREE MONTHS ENDED MARCH 31, 2000 ---------------------------------------- EXCHANGE OF HISTORICAL DEBENTURES PRO FORMA ---------- ----------- ----------- Revenue.............................................. $ 99,540 $ -- $ 99,540 Cost of Revenue...................................... (88,832) -- (88,832) --------- ----------- ----------- 10,708 -- 10,708 General and Administrative Expenses.................. (6,451) -- (6,451) --------- ----------- ----------- Operating Earnings................................... 4,257 -- 4,257 Other Income (Expense) Investment Income and Equity Earnings.............. 1,448 -- 1,448 Interest Expense................................... (731) (13)(a) (744) Other, net......................................... 95 -- 95 --------- ----------- ----------- 812 (13) 799 --------- ----------- ----------- Earnings before Income Taxes......................... 5,069 (13) 5,056 Provision for Income Taxes........................... (2,037) 4(b) (2,033) --------- ----------- ----------- Net Earnings......................................... $ 3,032 $ (9) $ 3,023 ========= =========== =========== Earnings per Share: Basic.............................................. $ 30,323 $ 0.09 ========= =========== Diluted............................................ $ 30,323 $ 0.09 ========= =========== Weighted Average Shares Outstanding: Basic.............................................. 100 33,219,994(c) 33,220,094 ========= =========== =========== Diluted............................................ 100 34,836,557(c) 34,836,657 ========= =========== ===========
See accompanying notes to pro forma consolidated condensed financial statements. F-83 164 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 2)
THREE MONTHS ENDED MARCH 31, 2000 ---------------------------------------- EXCHANGE OF HISTORICAL DEBENTURES PRO FORMA ---------- ----------- ----------- Revenue.............................................. $ 99,540 $ -- $ 99,540 Cost of Revenue...................................... (88,832) -- (88,832) --------- ----------- ----------- 10,708 -- 10,708 General and Administrative Expenses.................. (6,451) -- (6,451) --------- ----------- ----------- Operating Earnings................................... 4,257 -- 4,257 Other Income (Expense) Investment Income and Equity Earnings.............. 1,448 -- 1,448 Interest Expense................................... (731) (7)(a) (738) Other, net......................................... 95 -- 95 --------- ----------- ----------- 812 (7) 805 --------- ----------- ----------- Earnings before Income Taxes......................... 5,069 (7) 5,062 Provision for Income Taxes........................... (2,037) 3(b) (2,034) --------- ----------- ----------- Net Earnings......................................... $ 3,032 $ (4) $ 3,028 ========= =========== =========== Earnings per Share: Basic.............................................. $ 30,323 $ 0.09 ========= =========== Diluted............................................ $ 30,323 $ 0.09 ========= =========== Weighted Average Shares Outstanding: Basic.............................................. 100 33,219,994(c) 33,220,094 ========= =========== =========== Diluted............................................ 100 33,286,986(c) 33,287,086 ========= =========== ===========
See accompanying notes to pro forma consolidated condensed financial statements. F-84 165 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 1)
YEAR ENDED DECEMBER 25, 1999 ---------------------------------------- EXCHANGE OF HISTORICAL DEBENTURES PRO FORMA ---------- ----------- ----------- Revenue.............................................. $ 437,058 $ -- $ 437,058 Cost of Revenue...................................... (374,952) -- (374,952) --------- ----------- ----------- 62,106 -- 62,106 General and Administrative Expenses.................. (24,684) -- (24,684) --------- ----------- ----------- Operating Earnings................................... 37,422 -- 37,422 Other Income (Expense) Investment Income and Equity Earnings.............. 4,496 -- 4,496 Interest Expense................................... (1,852) (54)(a) (1,906) Other, net......................................... 1,516 -- 1,516 --------- ----------- ----------- 4,160 (54) 4,106 --------- ----------- ----------- Earnings before Income Taxes......................... 41,582 (54) 41,528 Provision for Income Taxes........................... (15,754) 19(b) (15,735) --------- ----------- ----------- Net Earnings......................................... $ 25,828 $ (35) $ 25,793 ========= =========== =========== Earnings per Share: Basic.............................................. $ 258,280 $ 0.68 ========= =========== Diluted............................................ $ 258,280 $ 0.68 ========= =========== Weighted Average Shares Outstanding: Basic.............................................. 100 38,084,235 38,084,335 ========= =========== =========== Diluted............................................ 100 38,191,779 38,191,879 ========= =========== ===========
See accompanying notes to pro forma consolidated condensed financial statements. F-85 166 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 2)
YEAR ENDED DECEMBER 25, 1999 ---------------------------------------- EXCHANGE OF HISTORICAL DEBENTURES PRO FORMA ---------- ----------- ----------- Revenue.............................................. $ 437,058 $ -- $ 437,058 Cost of Revenue...................................... (374,952) -- (374,952) --------- ----------- ----------- 62,106 -- 62,106 General and Administrative Expenses.................. (24,684) -- (24,684) --------- ----------- ----------- Operating Earnings................................... 37,422 -- 37,422 Other Income (Expense) Investment Income and Equity Earnings.............. 4,496 -- 4,496 Interest Expense................................... (1,852) (27)(a) (1,879) Other, net......................................... 1,516 -- 1,516 --------- ----------- ----------- 4,160 (27) 4,133 --------- ----------- ----------- Earnings before Income Taxes......................... 41,582 (27) 41,555 Provision for Income Taxes........................... (15,754) 10(b) (15,744) --------- ----------- ----------- Net Earnings......................................... $ 25,828 $ (17) $ 25,811 ========= =========== =========== Earnings per Share: Basic.............................................. $ 258,280 $ 0.71 ========= =========== Diluted............................................ $ 258,280 $ 0.71 ========= =========== Weighted Average Shares Outstanding: Basic.............................................. 100 36,344,995 36,345,095 ========= =========== =========== Diluted............................................ 100 36,419,015 36,419,115 ========= =========== ===========
See accompanying notes to pro forma consolidated condensed financial statements. F-86 167 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 1)
CASH ISSUE HISTORICAL CONTRIBUTION DEBENTURES PRO FORMA ---------- ------------ ---------- --------- ASSETS Current Assets: Cash and cash equivalents................... $ 50,675 $50,000(a) $1,058(b) $101,733 Marketable securities....................... 2,576 -- -- 2,576 Receivables, net............................ 45,874 -- -- 45,874 Deferred income taxes....................... 5,349 -- -- 5,349 Other....................................... 17,440 -- -- 17,440 -------- ------- ------ -------- Total Current Assets.......................... 121,914 50,000 1,058 172,972 Property, Plant and Equipment, net............ 116,254 -- -- 116,254 Other Assets.................................. 47,470 -- -- 47,470 -------- ------- ------ -------- $285,638 $50,000 $1,058 $336,696 ======== ======= ====== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable............................ $ 26,206 $ -- $ -- $ 26,206 Current portion of long-term debt........... 566 -- -- 566 Accrued insurance costs..................... 7,605 -- -- 7,605 Other....................................... 22,507 -- -- 22,507 -------- ------- ------ -------- Total Current Liabilities..................... 56,884 -- -- 56,884 Long-term debt, less current portion.......... 3,615 -- 670(b) 4,285 Other liabilities............................. 12,137 -- -- 12,137 Minority interest............................. 413 -- -- 413 -------- ------- ------ -------- Total Liabilities........................ 73,049 -- 670 73,719 Stockholder's Equity: Common stock................................ -- -- -- -- Additional paid-in capital.................. 126,452 50,000(a) 388(b) 176,840 Accumulated other comprehensive income...... 1 -- -- 1 Retained earnings........................... 86,136 -- -- 86,136 -------- ------- ------ -------- Total Stockholder's Equity.................... 212,589 50,000 388 262,977 -------- ------- ------ -------- $285,638 $50,000 $1,058 $336,696 ======== ======= ====== ========
See accompanying notes to pro forma consolidated condensed financial statements. F-87 168 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (SCENARIO 2)
CASH ISSUE HISTORICAL CONTRIBUTION DEBENTURES PRO FORMA ---------- ------------ ---------- --------- ASSETS Current Assets: Cash and cash equivalents................... $ 50,675 $50,000(a) $ 529(b) $101,204 Marketable securities....................... 2,576 -- -- 2,576 Receivables, net............................ 45,874 -- -- 45,874 Deferred income taxes....................... 5,349 -- -- 5,349 Other....................................... 17,440 -- -- 17,440 -------- ------- ------ -------- Total Current Assets.......................... 121,914 50,000 529 172,443 Property, Plant and Equipment, net............ 116,254 -- -- 116,254 Other Assets.................................. 47,470 -- -- 47,470 -------- ------- ------ -------- $285,638 $50,000 $ 529 $336,167 ======== ======= ====== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable............................ $ 26,206 $ -- $ -- $ 26,206 Current portion of long-term debt........... 566 -- -- 566 Accrued insurance costs..................... 7,605 -- -- 7,605 Other....................................... 22,507 -- -- 22,507 -------- ------- ------ -------- Total Current Liabilities..................... 56,884 -- -- 56,884 Long-term debt, less current portion.......... 3,615 -- 335(b) 3,950 Other liabilities............................. 12,137 -- -- 12,137 Minority interest............................. 413 -- -- 413 -------- ------- ------ -------- Total Liabilities........................ 73,049 -- 335 73,384 Stockholder's Equity: Common stock................................ -- -- -- -- Additional paid-in capital.................. 126,452 50,000(a) 194(b) 176,646 Accumulated other comprehensive income...... 1 -- -- 1 Retained earnings........................... 86,136 -- -- 86,136 -------- ------- ------ -------- Total Stockholder's Equity.................... 212,589 50,000 194 262,783 -------- ------- ------ -------- $285,638 $50,000 $ 529 $336,167 ======== ======= ====== ========
See accompanying notes to pro forma consolidated condensed financial statements. F-88 169 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF REPORTING The accompanying pro forma consolidated condensed financial statements of Kiewit Materials Company ("KMC") are presented based upon the historical consolidated financial statements and the notes thereto of KMC adjusted to give effect to certain elements of the share exchange, the debenture exchange offer and the spin-off. The pro forma information assumes, in two separate scenarios, that 100% (Scenario 1) and 50% (Scenario 2) of the current Kiewit shares held by KMC employees will be exchanged for shares of KMC common stock with an equal aggregate formula price. It also assumes that 100% (Scenario 1) and 50% (Scenario 2) of Kiewit debenture holders that are KMC employees will exchange their Kiewit debentures for debentures of KMC and that the remaining Kiewit debentures held by Kiewit employees will be exchanged for both shares of KMC common stock and reduced principal amount convertible debentures of Kiewit. The remaining shares of KMC's common stock will be distributed as a dividend at a pro rata basis to the Kiewit stockholders on a one-to-one ratio. Such pro forma financial statements should be read in conjunction with the separate historical consolidated financial statements and the notes thereto of KMC, included elsewhere herein. Such pro forma financial statements are not necessarily indicative of the future results of operations or financial position. Completion of the foregoing transactions has been assumed to be as of March 31, 2000 in the pro forma consolidated condensed balance sheet. In the pro forma consolidated condensed statements of earnings, completion of these transactions has been assumed to be at the beginning of the indicated period. The significant accounting policies followed by KMC, described in the notes to its historical consolidated financial statements included elsewhere herein, have been used in preparing the accompanying pro forma consolidated condensed financial statements. 2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS As described in Note 1, the historical consolidated condensed statements of earnings for KMC have been adjusted to give effect to certain elements of the transactions. The adjustments made in preparation of KMC's Pro Forma Consolidated Condensed Statements of Earnings are described below: (a) Adjustments made to reflect an increase in interest expense due to the exchange of the Kiewit convertible debentures held by KMC's employees into KMC's convertible debentures. The interest rate used to calculate the increase in interest were the actual rates applicable to each issue of debentures as follows: 1999 issuance -- 8.25%, 1998 issuance -- 7.35% and 1997 issuance -- 8.028%. (b) Adjustments made to reflect the tax effect of the above adjustments. (c) Adjustments made to reflect the change in the number of the Company's shares and convertible debentures outstanding as a result of the transactions described in Note 1. 3. BALANCE SHEET PRO FORMA ADJUSTMENTS As described in Note 1, the historical consolidated condensed balance sheet of the Company has been adjusted to reflect certain elements of the transactions. The adjustments made in preparation of the Company's Pro Forma Consolidated Condensed Balance Sheet are described below: (a) Adjustments made to reflect the increase in cash as a result of an estimated $50 million capital contribution from Kiewit. (b) Adjustments made to reflect the receipt of cash for the issuance of KMC's convertible debentures exchanged for Kiewit debentures held by KMC employees. F-89 170 KIEWIT MATERIALS COMPANY NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4. EARNINGS PER SHARE Basic and diluted earnings per share of KMC common stock have been computed using the weighted average number of shares outstanding during each period after giving effect to common stock equivalents. Pro forma earnings per share reflect the additional shares issued in the share exchange, the debenture exchange offer and the spin-off. F-90 171 DELIVERY OF LETTERS OF TRANSMITTAL Manually signed facsimile copies of the Letters of Transmittal will be accepted. The Letters of Transmittal and shares of Kiewit common stock and any other required documents should be sent or delivered by each tendering stockholder to Kiewit at the address set forth below: BY REGISTERED OR CERTIFIED MAIL: Peter Kiewit Sons', Inc. Kiewit Plaza Omaha, Nebraska 68131 Attention: Stock Registrar By Facsimile Transmission: (402) 271-2829 TO CONFIRM BY TELEPHONE OR FOR INFORMATION CALL: (402) 342-2052 Questions and requests for assistance or for additional copies of this prospectus may be directed to: Peter Kiewit Sons', Inc. Kiewit Plaza Omaha, Nebraska 68131 Telephone: (402) 342-2052 Attention: Stock Registrar [PETER KIEWIT SONS', INC. LOGO] Dealer Prospectus Delivery Obligation Until , 2000, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is an addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 172 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Materials has authority under Section 145 of the Delaware General Corporation Law to indemnify its directors and officers to the extent provided for in the statute. Materials' Certificate of Incorporation provides for indemnification of their officers and directors to the extent permitted under the Delaware General Corporation Law. Materials' Restated Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware General Corporation Law. Delaware law provides that the directors of a corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of their duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derives an improper personal benefit. Materials' Restated Certificate of Incorporation provides that Materials shall indemnify its directors and officers to the fullest extent permitted by Delaware law, except against actions by Materials approved by its board of directors, and requires Materials to advance expenses to such directors and officers to defend any action for which rights of indemnification are provided in the Certificate of Incorporation, and also permits the board of directors to grant such rights to its employees and agents. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, Materials and Kiewit have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of Materials or Kiewit in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Materials and/or Kiewit will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following exhibits are included as a part of this Registration Statement:
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1+ Form of Separation Agreement between Peter Kiewit Sons', Inc., Kiewit Materials Company and Kiewit Construction Group Inc. 3.1 Form of Restated Certificate of Incorporation of Kiewit Materials Company. 3.2 Form of Amended and Restated By-laws of Kiewit Materials Company. 4.1+ Specimen certificate representing shares of common stock, par value $0.01 per share, of Kiewit Materials Company. 5.1+ Opinion of Willkie Farr & Gallagher. 8.1+ Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect to certain tax matters. 10.1+ Form of Tax Sharing Agreement by and between Peter Kiewit Sons', Inc. and Kiewit Materials Company. 21.1* List of Subsidiaries of Kiewit Materials Company.
II-1 173
EXHIBIT NO. DESCRIPTION - ----------- ----------- 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Perkins & Company, P.C. 23.4+ Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1). 23.5+ Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in their opinion filed as Exhibit 8.1). 24.1* Power of attorney. 99.1+ Form of Letter of Transmittal. 99.2 Form of Letter to Kiewit stockholders who are Materials employees.
- --------------- * Previously filed. + To be filed by amendment. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby further undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of or included in the registration statement when it became effective. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-2 174 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on the 8th day of June, 2000. KIEWIT MATERIALS COMPANY By: /s/ CHRISTOPHER J. MURPHY ------------------------------------ Christopher J. Murphy President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons, in the capacities and on the dates indicated.
NAME TITLE DATE - ---- ----- ---- * President, Chief Executive June 8, 2000 - --------------------------------------------------- Officer and Director Christopher J. Murphy /s/ DONALD E. BOWMAN Vice President and Chief June 8, 2000 - --------------------------------------------------- Financial Officer Donald E. Bowman /s/ TODD A. FREYER Controller June 8, 2000 - --------------------------------------------------- Todd A. Freyer * Director June 8, 2000 - --------------------------------------------------- Richard W. Colf * Director June 8, 2000 - --------------------------------------------------- Bruce E. Grewcock * Director June 8, 2000 - --------------------------------------------------- Richard Geary /s/ JAMES S. GOODWIN Director June 8, 2000 - --------------------------------------------------- James S. Goodwin * Director June 8, 2000 - --------------------------------------------------- Walter Scott, Jr. * Chairman of the Board June 8, 2000 - --------------------------------------------------- of Directors Kenneth E. Stinson
Mark E. Belmont, by signing his name below, signs this document on behalf of each of the above named persons specified by an asterisk (*), pursuant to a power of attorney duly executed by such persons and filed with the Securities and Exchange Commission in the Registrant's Registration Statement on February 18, 2000. By: /s/ MARK E. BELMONT -------------------------------------------------------- Attorney-in-fact Mark E. Belmont II-3 175 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1+ Form of Separation Agreement between Peter Kiewit Sons', Inc., Kiewit Materials Company and Kiewit Construction Group Inc. 3.1 Form of Restated Certificate of Incorporation of Kiewit Materials Company. 3.2 Form of Amended and Restated By-laws of Kiewit Materials Company. 4.1+ Specimen certificate representing shares of common stock, par value $0.01 per share, of Kiewit Materials Company. 5.1+ Opinion of Willkie Farr & Gallagher. 8.1+ Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect to certain tax matters. 10.1+ Form of Tax Sharing Agreement by and between Peter Kiewit Sons', Inc. and Kiewit Materials Company. 21.1* List of Subsidiaries of Kiewit Materials Company. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Perkins & Company, P.C. 23.4+ Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1). 23.5+ Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in their opinion filed as Exhibit 8.1). 24.1* Power of attorney. 99.1+ Form of Letter of Transmittal. 99.2 Form of Letter to Kiewit stockholders who are Materials employees.
- --------------- * Previously filed. + To be filed by amendment. EX-3.1 2 0002.txt FORM OF RESTATED CERTIFICATE OF INCORPORATION 1 FORM OF RESTATED CERTIFICATE OF INCORPORATION OF KIEWIT MATERIALS COMPANY Pursuant to Section 245 of the Delaware General Corporation Law Kiewit Materials Company, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Kiewit Materials Company. 2. The original Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of the State of Delaware on February 2, 1999. 3. This Restated Certificate of Incorporation, which was duly adopted pursuant to Sections 242 and 245 of the Delaware General Corporation Law, restates and integrates and further amends the provisions of the Restated Certificate of Incorporation of the Corporation. 4. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: ARTICLE I NAME The name of the Corporation (the "Corporation") is Kiewit Materials Company. ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSES The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). ARTICLE IV AUTHORIZED CAPITAL STOCK The total number of shares of capital stock which the Corporation shall have the authority to issue is 110,000,000 shares, consisting of 100,000,000 shares of Common Stock, par value 2 $.01 per share (the "Common Stock") and 10,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). ARTICLE V COMMON STOCK A. Dividends. After dividends payable on any Preferred Stock have been declared and set aside on such Preferred Stock having a preference over the Common Stock with respect to the payment of such dividends, the holders of Common Stock shall be entitled to receive, when and as declared, out of assets and funds legally available therefor, cash or non-cash dividends payable as and when the Board of Directors in its sole business judgment so declares. Any such dividend shall be payable ratably to all record holders of Common Stock as of the record date fixed by the Board of Directors in accordance with the By-laws of the Corporation for the payment thereof. B. Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation ("Liquidation"), the holders of Common Stock, then outstanding shall be entitled to be paid ratably out of the assets and funds of the Corporation available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any Preferred Stock upon Liquidation, an amount equal to their share (including any declared but unpaid dividends on the Common Stock, subject to proportionate adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to such shares) of such assets and funds. C. Voting. 1. Except as required by law, or as otherwise provided herein or in any amendment hereof, the entire voting power of the Corporation with respect to all matters shall be vested in the holders of Common Stock. 2. Each holder of Common Stock entitled to vote shall at every meeting of the stockholders of the Corporation be entitled to one vote for each share of Common Stock registered in his or her name on the record of stockholders. ARTICLE VI PREFERRED STOCK The Preferred Stock may be issued from time to time as herein provided in one or more series. The designations, relative rights, preferences and limitations of the Preferred Stock, and particularly of the shares of each series thereof, may, to the extent permitted by law, be similar to or differ from those of any other series. The Board of Directors is hereby expressly granted authority, subject to the provisions of this Article VI, to fix, from time to time before issuance thereof, the number of shares in each series and all designations, relative rights, 2 3 preferences and limitations of the shares in each such series, including, but without limiting the generality of the foregoing, the following: A. the designation of the series and the number of shares to constitute each series; B. the dividend rate on the shares of each series, conditions on which and times at which dividends are payable, whether dividends shall be cumulative, and the preference or relation (if any) with respect to such dividends (including preferences over dividends on the Common Stock or any other class or classes); C. whether the series will be redeemable (at the option of the Corporation or the holders of such shares or both, or upon the happening of a specified event) and, if so, the redemption prices and the conditions and times upon which redemption may take place and whether for cash, property or rights, including securities of the Corporation or another corporation; D. the terms and amount of any sinking, retirement or purchase fund; E. the conversion or exchange rights (at the option of the Corporation or the holders of such shares or both, or upon the happening of a specified event), if any, including the conversion or exchange price and other terms of conversion or exchange; F. the voting rights, if any (other than any voting rights that the Preferred Stock may have as a matter of law); G. any restrictions on the issue or reissue or sale of additional Preferred Stock; H. the rights of the holders upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (including preferences over the Common Stock or any other class or classes or series of stock); and I. such other special rights and privileges, if any, for the benefit of the holders of Preferred Stock, as shall not be inconsistent with provisions of this Restated Certificate of Incorporation. All shares of Preferred Stock of the same series shall be identical in all respects, except that shares of any one series issued at different times may differ as to dates, if any, from which dividends thereon may accumulate. All shares of Preferred Stock of all series shall be of equal rank and shall be identical in all respects except that any series may differ from any other series with respect to any one or more of the designations, relative rights, preferences and limitations described or referred to in subparagraphs A. to I. inclusive above. ARTICLE VII DIRECTORS 3 4 A. The Board of Directors shall consist of no fewer than five persons and no more than fifteen persons, and such number shall be fixed by, or in the manner provided in, the By-laws of the Corporation. B. Upon the filing of this Restated Certificate of Incorporation with the Secretary of State of Delaware (the "Effective Time"), the Board of Directors shall be divided into three classes to be designated as Class I, Class II and Class III. The Board of Directors, by resolution, shall designate the class in which each of the directors then in office shall serve upon such classification. The terms of office of the classes of directors so designated by the Board of Directors shall expire at the times of the annual meetings of the stockholders as follows: Class I on the first annual meeting of stockholders following the Effective Time, Class II on the second annual meeting following the Effective Time and Class III on the third annual meeting following the Effective Time, or thereafter in each case when their respective successors are elected and qualified. At each subsequent annual election, the directors chosen to succeed those whose terms are expiring shall be identified as being of the same class as the directors whom they succeed, and shall be elected for a term expiring at the time of the third succeeding annual meeting of stockholders, or thereafter in each case when their respective successors are elected and qualified. The number of directorships shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible. C. A director may be removed from office only for cause and only by vote of the holders of at least eighty percent (80%) of the outstanding stock entitled to vote in an election of directors. D. Any vacancy on the Board of Directors, however resulting, may be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. ARTICLE VIII TRANSFER RESTRICTIONS AND DUTY OF THE CORPORATION TO REPURCHASE COMMON STOCK The following restrictions on the transfer of the Common Stock are hereby imposed: A. Transfer Restrictions on the Common Stock. 1. Transfer Restrictions. The holders of Common Stock shall not sell, assign, pledge, hypothecate or otherwise dispose of or encumber ("Transfer") such stock other than in accordance with the terms of this Article VIII. Any Transfer or purported Transfer of shares of Common Stock in violation of this Article VIII shall be null and void and of no effect. 2. Death. Upon the death of any holder of Common Stock, the Common Stock previously held by such stockholder shall be Transferred to such stockholder's heirs, executor or legal representative. The Common Stock so Transferred shall remain subject to the Transfer restrictions provided for in this Article VIII. 4 5 3. Pledges. Notwithstanding anything contained in this Article VIII to the contrary, a holder of Common Stock may pledge Common Stock for loans in connection with the ownership of Common Stock. 4. Distribution by Peter Kiewit Sons', Inc. Notwithstanding anything contained in this Section A to the contrary, Peter Kiewit Sons', Inc. may Transfer any shares of Common Stock it holds to any Person without complying with the provisions of this Article VIII. 5. Initial Public Offering. In the event that the Corporation decides to conduct an initial public offering of the Common Stock, each holder of Common Stock who, immediately prior to the completion of such offering, owns one percent (1%) or more of the Common Stock then outstanding and the officers and directors of the Corporation shall not Transfer any shares of Common Stock they hold for a period, to be determined by the Board of Directors, of up to one hundred and eighty days following completion of such offering; provided, however, such persons may, during such period, Transfer shares of Common Stock pursuant to paragraphs 2 and 3 of this Section A. 6. Termination. The Board of Directors may terminate any or all of the restrictions on Transfer of the Common Stock contained in this Article VIII at any time or from time to time. In the event that the Board of Directors so terminates any such Transfer restriction, the Corporation shall provide the holders of Common Stock with written notice of such termination within 10 days following such termination. B. Transfers to Certain Authorized Transferees. With the prior approval of the Board of Directors, a holder of Common Stock may transfer such stock to (i) fiduciaries for the benefit of such holder and/or such holder's spouse and/or children, (ii) corporations one hundred percent (100%) owned by such holder or by such holder and such holder's spouse and/or children, (iii) fiduciaries for the benefit of such corporations, and (iv) charities and fiduciaries for charities designated by such holder of Common Stock. Any stock so transferred shall remain subject to the Transfer restrictions in this Article VIII. C. Sales to the Corporation. Subject to the limitations set forth below in this Article VIII, holders of Common Stock may at any time on or prior to the fifteenth day of any calendar month offer to sell part or all of their shares of Common Stock to the Corporation by delivering the certificate or certificates for such stock with a written notice offering such stock to the Corporation. Any such offer shall be accepted by the Corporation, and payment shall be made for such stock within 10 days after receipt of such certificates and such written notice by the Corporation, without interest, unless after giving effect to such sale there remain outstanding fewer than 1,000 shares of stock of the Corporation having full voting power. 5 6 D. Termination of Repurchase Duties. If the Board of Directors determines that the Common Stock is publicly traded, the Board of Directors may terminate the Corporation's duty to repurchase shares of Common Stock in accordance with this Article VIII. In the event that the Board of Directors so terminates such repurchase obligations, the Corporation shall provide the holders of Common Stock with written notice of such termination within 10 days following such termination. E. Suspension of Repurchase Duties. If the Board of Directors determines that the Formula Value (as defined herein) at the end of the fiscal year during which such determination is made is likely to be less than (i) the Formula Value at the end of the prior fiscal year less (ii) the aggregate amount of dividends declared on the Common Stock since the end of the prior fiscal year, the Board of Directors may suspend the Corporation's duty to repurchase shares of Common Stock in accordance with this Article VIII. Any such suspension shall not extend for a period longer than 365 days from the date of the Board of Directors' declaration of suspension. During any such suspension period, the Corporation shall not repurchase any shares of Common Stock tendered for repurchase pursuant to paragraph C of this Article VIII. F. Limitations on Cash Repurchase Duties. 1. For purposes of this paragraph F, the "5% Threshold" means a number of shares of Common Stock equal to 5% of the aggregate number of such shares outstanding as of the end of the fiscal year ending immediately prior to the date of determination. 2. If, after taking into account the number of shares of Common Stock tendered for repurchase by the Corporation during the first 15 days of any calendar month (the "Tendered Shares"), the aggregate number of shares of such stock that have been tendered for repurchase during the fiscal year during which such month falls equals or exceeds the 5% Threshold, the Board of Directors may declare that cash payments for the repurchase of Common Stock are not in the best interests of the Corporation. The Board of Directors shall make any such declaration prior to the expiration of the 10-day period during which the Corporation must accept offers by holders of Common Stock to sell such stock, pursuant to Section C of this Article VIII, and shall promptly provide to the holders of Tendered Shares with respect to such calendar month a written notice specifying: a) the number of the Tendered Shares that will be purchased for cash (which may, in the discretion of the Board of Directors, be a number calculated to limit the aggregate number of shares purchased for cash during the relevant fiscal year to the 5% Threshold or a greater percentage); and b) the terms (including interest rate and prepayment rights, if any) of promissory notes maturing on a date to be determined by the Board of Directors, but not later than five years after the date upon which the holder of such promissory note tendered the Tendered Shares, which will be issued by the Corporation in payment for 6 7 any Tendered Shares that are not purchased for cash (the "Limited Tendered Shares") and the tender of which is not withdrawn pursuant to subparagraph 3, below. 3. Upon receipt of the notice required by subparagraph 2, each holder of Tendered Shares may elect to withdraw such holder's tender of all or any portion of the Limited Tendered Shares. Written notice of any such election shall be provided to the Corporation not later than 10 days after the date upon which the notice provided by the Corporation is given pursuant to subparagraph 2, above. 4. After the date of any declaration by the Board of Directors pursuant to subparagraph 2, the Corporation shall continue to be obligated to purchase shares of Common Stock subsequently tendered for repurchase during the relevant fiscal year, but payment for any such shares shall be made in the form of a promissory note maturing on a date to be determined by the Board of Directors, but not later than five years after the date upon which such shares are tendered. The terms of any such notes shall be determined by the Board of Directors at the time at which any of the Common Stock is tendered; provided, however, that the Corporation shall provide written notice to any tendering stockholder of the terms of such note not later than 10 days after the date of tender, and such stockholder shall be entitled to withdraw the tender of any or all of such shares by providing written notice of such withdrawal to the Corporation not later than 10 days after the date upon which the notice of such terms from the Corporation is given. G. Common Stock Per Share Price. Subject to the limitations set forth in this Article VIII, the Corporation shall purchase any share of Common Stock pursuant to this Article VIII for a price equal to the Common Stock Per Share Price (as defined herein). H. Payments Where Common Stock Per Share Price Not Yet Computed. If, with respect to any sale of Common Stock pursuant to Section C of this Article VIII, the Common Stock Per Share Price has not been computed within the time period prescribed for payment for such Common Stock because the preparation of the audited consolidated financial statements of the Corporation and its consolidated subsidiaries have not yet been completed, the Corporation shall, within the time period prescribed for payment for such Common Stock, make an initial payment to the holder of such Common Stock in an amount equal to the price that would have been paid if such sale had been made in the preceding fiscal year. The balance, if any, shall be paid by the Corporation to the holder of such Common Stock within 10 days after the date on which the Common Stock Per Share Price has been computed. In the event that the Common Stock Per Share Price is less than the per share price paid by the Corporation in the "initial payment" provided for in this Section (H), the Corporation shall be entitled to recover from such holder an amount equal to the product of (1) the number of shares of Common Stock sold, and (2) the excess of such price per share paid in the initial payment and the Common Stock Per Share Price. Such excess shall be paid by the person or entity to whom the Corporation made the "initial payment" within ten (10) days of the date of a written notice from the Corporation to pay such amount, without interest. 7 8 I. Definitions for purposes of Article VIII. 1. "Common Stock Per Share Price" with respect to any share of Common Stock, means the amount determined by dividing: a) the sum of (i) the Formula Value plus (ii) the face amount of any outstanding Convertible Debentures, determined as of the fiscal year end immediately preceding the date of determination (the "prior year end"); by b) the sum of (i) the total number of issued and outstanding shares of Common Stock, plus (ii) the total number of shares reserved for the conversion of outstanding Convertible Debentures convertible into Common Stock, in each case, except as specified below, determined as of the prior year end; and c) deducting from the quotient (rounded down to the nearest $0.01) the amount of any dividends per share declared on Common Stock subsequent to the prior year end and prior to the date of determination. Notwithstanding the foregoing, the number of issued and outstanding shares of Common Stock utilized for purposes of determining the Common Stock Per Share Price during fiscal year 2000 shall take into effect any shares of Common Stock issued to Peter Kiewit Sons', Inc., during fiscal year 2000. 2. "Convertible Debenture" means any debenture or other instrument evidencing indebtedness of the Corporation convertible at any time into shares of Common Stock. 3. "Formula Value" means: (a) the total stockholders' equity as shown on the consolidated balance sheet contained in the consolidated financial statements of the Corporation and consolidated subsidiaries, prepared in conformity with generally accepted accounting principles applied on a consistent basis for the Corporation and its consolidated subsidiaries as of the prior year end and audited and certified by an independent firm of certified public accountants selected and engaged by the Board of Directors; minus (b) the sum of (x) such total stockholders' equity attributable to any issued and outstanding Preferred Stock, plus (y) the amount of any accrued, accumulated and undeclared dividends on such Preferred Stock, all as of the date of determination. Notwithstanding the foregoing, the Formula Value determined on any date in fiscal year 2000 shall be increased by the amount, determined in accordance with generally accepted accounting principles, of any capital contributions made to the Corporation by Peter Kiewit Sons', Inc. during fiscal year 2000 prior to such date, other than any capital contributions made in connection with the issuance of any Convertible Debentures in exchange for convertible debentures of Peter Kiewit Sons', Inc. ARTICLE IX STOCKHOLDERS' VOTE Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or special meeting duly noticed and called, as provided in the By-laws of the Corporation, and may not be taken by a written consent of the stockholders. 8 9 ARTICLE X INDEMNIFICATION The Corporation shall indemnify each person who is or was a director, officer or employee of the Corporation (including the heirs, executors, administrators or estate of such person) or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted under applicable law. The indemnification provided by this Article X shall not be deemed exclusive of any other rights to which any of those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE XI LIMITATION OF LIABILITY A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith of which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended after approval by the stockholders of this Article XI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 9 10 ARTICLE XII SPECIAL MEETINGS Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors, the President or the Chairman of the Board of Directors. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. ARTICLE XIII RATIFICATION BY STOCKHOLDERS Any contract, transaction or act of the Corporation or of the directors, which shall be ratified by a majority of a quorum of the stockholders then entitled to vote at any annual meeting or at any special meeting called for such purpose, shall, so far as permitted by law and by this Restated Certificate of Incorporation, be as valid and as binding as though ratified by every stockholder entitled to vote at such meeting. ARTICLE XIV AMENDMENTS OF CERTIFICATE The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation or in any amendment hereto by the affirmative vote of a majority of the outstanding stock entitled to vote thereon; provided, however, that; (A) Articles VIII, IX and XII of the Restated Certificate of Incorporation and any amendments to such Articles shall not be amended except by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding stock entitled to vote thereon; (B) Article VII of this Restated Certificate of Incorporation shall not be amended except by the affirmative vote of at least eighty percent (80%) of the outstanding stock entitled to vote thereon; (C) clause (B) of this Article XIV shall not be amended except by the affirmative vote of at least eighty percent (80%) of the outstanding stock entitled to vote thereon; and (D) all other provisions of this Article XIV shall not be amended except by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding stock entitled to vote thereon. ARTICLE XV BY-LAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the By-laws of the Corporation. In addition, the By-laws of the Corporation may be adopted, repealed, altered, amended or rescinded by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding stock entitled to vote thereon; provided, however that Sections 3.2, 3.3, 3.4 and 3.5 of such By-Laws may only be repealed, altered, amended or rescinded by the affirmative vote of eighty percent (80%) of the outstanding stock entitled to vote thereon. 10 11 IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed by ___________________, its ___________________, this ____ day of ______, 2000. By:__________________________________ Name: Title: 11 EX-3.3 3 0003.txt FORM OF AMENDED AND RESTATED BYLAWS 1 FORM OF AMENDED AND RESTATED BY-LAWS OF KIEWIT MATERIALS COMPANY ARTICLE I. OFFICES SECTION 1.1. REGISTERED OFFICE AND AGENT. The registered office of Kiewit Materials Company (the "Corporation") is at 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The registered agent at that address is The Corporation Trust Company. SECTION 1.2. OTHER OFFICES. The Corporation may have other offices from time to time as the directors may designate or as the business may require. ARTICLE II. STOCKHOLDERS SECTION 2.1. ANNUAL MEETINGS. The annual meeting of stockholders shall be held at such place, date, and time as is designated by the Board of Directors. At this meeting, directors shall be elected and any other proper business may be transacted. SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders of the Corporation may be called for any purpose or purposes by the Chairman of the Board, the President or by a majority of the directors. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of the meeting. SECTION 2.3. PLACE OF MEETINGS. Meetings of stockholders shall be held at such place, either within or without the State of Delaware, as shall be designated by those calling the meeting. SECTION 2.4. NOTICES OF MEETINGS. A written notice shall be given to each stockholder entitled to vote at the meeting not less than 10 nor more than 60 days before each annual or special meeting. The notice shall state the place, date, and hour of the meeting. The notice of a special meeting shall state the purposes for which the meeting has been called. Written notices may be given by either personal delivery or mail. If mailed, notice is given when deposited in the United States mail, postage prepaid directed to the stockholder at his address as it appears on the records of the Corporation. No notice is required to be given to a stockholder to whom notices of two consecutive annual meetings (and any other written notice sent between those meetings) have been mailed addressed to that person at his address as shown on the corporate records and have been returned undeliverable. 2 SECTION 2.5. WAIVER OF NOTICE. A written waiver, signed by a stockholder, whether before or after an annual or special meeting, shall be equivalent to the giving of such notice. Attendance by a stockholder, without objection to the notice, whether in person or by proxy, at an annual or special meeting shall constitute waiver of notice of such meeting. SECTION 2.6. VOTING LIST. At least ten days before each stockholders' meeting, the Secretary shall prepare a complete list of stockholders entitled to vote at such meeting. Arranged in alphabetical order, the list shall show the name, address, and number of shares of each stockholder entitled to vote. For at least 10 days before the meeting, the list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, at (1) the meeting place, or (2) at another place within the city of the meeting which shall be specified in the notice of the meeting. The list shall also be available at the meeting for inspection by any stockholder present. SECTION 2.7. RECORD DATE. The Board of Directors may fix a record date to determine which stockholders are entitled to: (a) notice of a stockholders' meeting; (b) vote at a stockholders' meeting; (c) receive payment for a dividend; (d) receive a distribution or allotment of rights; (e) exercise any rights in respect of any change, conversion, or exchange of stock; or (f) notice for the purpose of any other lawful action. The record date shall not be less than 10 nor more than 60 days before any such action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 2.8. Each stockholder eligible to vote may authorize another person or persons to act for him by proxy. No proxy shall be valid after three years from its date, unless the proxy provides for a longer period. SECTION 2.9. VOTING RIGHTS. Unless otherwise provided in the Restated Certificate of Incorporation, each stockholder eligible to vote shall have one vote for each share of capital stock held by such stockholder. SECTION 2.10. QUORUM AND REQUIRED VOTE. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. Unless otherwise required by the Restated Certificate of Incorporation or by statute, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. However, if less than a quorum but more than one-third of all shares eligible to vote is present at a scheduled meeting, a majority of the shares present may adjourn the scheduled meeting. SECTION 2.11. ADJOURNED MEETINGS. No new notice is required if the time and place of the adjourned meeting is announced at the meeting at which the adjournment is taken and if the adjournment is for not more than 30 days. At an adjourned meeting, the stockholders may transact any business which might have been transacted at the original meeting. 2 3 SECTION 2.12. NO ACTION WITHOUT A MEETING. Any action required or permitted at a stockholders' meeting may be taken only upon the vote of the stockholders at an annual or special meeting duly noticed and called, and may not be taken by a written consent of the stockholders. SECTION 2.13. CONDUCT OF MEETINGS. (a) The President of the Corporation shall preside at each meeting of the stockholders. In the absence of the President, the meeting shall be chaired by an officer of the Corporation in accordance with the following order: Chairman of the Board, any Executive Vice President, any Senior Vice President and any Vice President. In the absence of any of such officers, the meeting shall be chaired by a person chosen by a majority in interest of the stockholders present in person or represented by proxy and entitled to vote thereat, who shall act as chairman. The Secretary or in his or her absence an Assistant Secretary or a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof. (b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meeting of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of the chairman, are necessary, appropriate or convenient for the proper conduct of the meeting including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comment by participants and regulation of the opening and closing of the ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. SECTION 2.14. ADVANCE NOTIFICATION OF BUSINESS TO BE TRANSACTED AT STOCKHOLDER MEETINGS. (a) No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this section and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this section. 3 4 (b) In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary. (c) To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive office of the Corporation not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. (d) To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names and addresses) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. (e) No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this section; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this section shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE III. DIRECTORS SECTION 3.1. GENERAL POWERS. The business and affairs of this Corporation shall be managed by its Board of Directors. SECTION 3.2. NUMBER AND QUALIFICATIONS. The Board of Directors shall fix, by resolution from time to time, the number of directors which shall constitute the whole Board of Directors; provided, however, that such number shall be no fewer than five and no more than fifteen. Directors need not be stockholders. 4 5 SECTION 3.3. ELECTION AND TERM. Upon the filing of the Corporation's Restated Certificate of Incorporation (the "Effective Time"), the Board of Directors shall be divided into three classes to be designated as Class I, Class II and Class III. The Board of Directors, by resolution, shall designate the class in which each of the directors then in office shall serve upon such classification. The terms of office of the classes of directors so designated by the Board of Directors shall expire at the times of the annual meetings of the stockholders as follows: Class I on the first annual meeting of stockholders following the Effective Time, Class II on the second annual meeting following the Effective Time and Class III on the third annual meeting following the Effective Time, or thereafter in each case when their respective successors are elected and qualified. At each subsequent annual election, the directors chosen to succeed those whose terms are expiring shall be identified as being of the same class as the directors whom they succeed, and shall be elected for a term expiring at the time of the third succeeding annual meeting of stockholders, or thereafter in each case when their respective successors are elected and qualified. The number of directorships shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible. SECTION 3.4. VACANCIES. Vacancies, however resulting, and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill such a vacancy or newly created directorship shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. SECTION 3.5. REMOVAL. Subject to any rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least eighty percent (80%) of the outstanding stock entitled to vote thereon. SECTION 3.6. ANNUAL MEETINGS. The Board of Directors may provide by resolution for the time and place of annual meetings of the Board of Directors, without notice other than such resolution. SECTION 3.7. REGULAR MEETINGS. The Board of Directors may provide by resolution for the time and place of regular meetings of the Board of Directors, without notice other than such resolution. SECTION 3.8. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be called by the Chairman of the Board or the President. The person calling the meeting may fix the specific time and place of the meeting. SECTION 3.9. NOTICE OF MEETING. Notice of any special meeting of the Board of Directors shall be given to each director at his business or residence in writing or by telegram or by telephone communication or by facsimile transmission. If mailed, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five days before such meeting. If by telegram, such 5 6 notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company at least twenty-four hours before such meeting. If by telephone, the notice shall be given at least twelve hours prior to the time set for the meeting. If by facsimile transmission, the notice shall be deemed adequately delivered if transmitted at least twenty-four hours before such meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these By-laws as provided under Article IX hereof. A meeting of the Board of Directors may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing, either before or after such meeting. SECTION 3.10. WAIVER OF NOTICE. A written waiver, signed by the director, whether before or after the meeting of the Board of Directors, shall be equivalent to the giving of such notice. Attendance by a director, without objection to the notice, at a meeting of the Board of Directors shall constitute waiver of notice of such meeting. SECTION 3.11. TELEPHONE PARTICIPATION. Directors may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment if all persons participating in the meeting can hear each other. Participation in a meeting of this kind shall constitute presence in person at the meeting. SECTION 3.12. QUORUM AND VOTING. A majority of the whole Board of Directors shall constitute a quorum for the transaction of business. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the vote of a greater number is required by statute, the Restated Certificate of Incorporation, or these By-laws. SECTION 3.13. ACTION WITHOUT A MEETING. Any action that may be taken at a meeting of the directors may be taken without a meeting if a consent in writing, setting forth the action taken, is signed by all directors. SECTION 3.14. COMPENSATION. By resolution of the Board of Directors, a director may be paid a fixed sum, and any expenses, for attendance at a meeting of the Board of Directors. No such payment shall preclude a director from receiving compensation for serving the Corporation in any other capacity. SECTION 3.15. NOMINATION OF DIRECTORS. (a) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this section and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this section. 6 7 (b) In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. (c) To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive office of the Corporation (a) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. (d) To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitation of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations promulgated thereunder, and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names and addresses) pursuant to which the nominations(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. (e) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this section. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. 7 8 ARTICLE IV. BOARD COMMITTEES SECTION 4.1. FORMATION OF COMMITTEES. The Board of Directors by resolution may create committees, each consisting of two or more directors, which committees shall hold office for such time and have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors. Three committees have previously been formed: the executive committee, the compensation committee and the audit committee. SECTION 4.2. EXECUTIVE COMMITTEE. The executive committee shall have all the powers of the Board of Directors in the management of the normal and ordinary business and affairs of the Corporation at all times when the Board of Directors is not in session, and in connection therewith, the executive committee shall have full charge of the property, interest, business and transactions of the Corporation. The executive committee shall have the following specific powers to: (a) review and approve business plans of subsidiaries and make recommendations concerning such plans to the appropriate subsidiary board of directors; (b) delegate authority to one or more persons to act on behalf of the Corporation or its subsidiaries, whether pursuant to a power of attorney or otherwise, and to establish policies regarding such delegations of authority; (c) fix all remuneration of the officers and employees of the Corporation, other than its executive officers; and (d) review and approve all requests by stockholders of the Corporation to transfer stock of the Corporation to transferees within the guidelines established by Article VIII of the Restated Certificate of Incorporation. SECTION 4.3. COMPENSATION COMMITTEE. The compensation committee shall have the following duties: (a) to review, and approve or disapprove, all compensation of whatever nature to be paid to the executive officers of the Corporation (as such persons are designated by the Board of Directors as the executive officers of the Corporation); (b) to recommend to the Board of Directors the compensation ranges of the management personnel of the Corporation; (c) to make recommendations to the Board of Directors about the salaries and bonuses to be paid to all key management personnel and the terms and conditions of their employment; (d) to make recommendations to the Board of Directors about any other plans affecting employees' remuneration, including fringe benefits, as well as ownership of the Corporation's stock, convertible debentures, stock options, or other incentive compensation rights; and (e) at the specific request of the Board of Directors or the Chairman of the Board, to conduct investigations, make recommendations, or perform other functions as requested. SECTION 4.4. AUDIT COMMITTEE. None of the members of the audit committee shall be directly involved in the supervision or management of the financial affairs of this Corporation or any of its subsidiaries. (a) The books, records, and accounts of the Corporation may be audited periodically by independent public accountants. In connection with the audit process, the audit committee shall have the following duties to: (i) make recommendations about the appointment, retention, and termination of independent public accountants; (ii) make recommendations about the scope of the audit and audit procedures; (iii) review for the Board of Directors all recommendations made by the independent public accountants about accounting methods and matters which are relevant to the Corporation; and 8 9 (iv) review with the independent public accountants those aspects of the following matters which pertain to the Corporation, upon completion of their audit: (a) the financial statements and any report or opinion proposed to be rendered in connection therewith; (b) the independent public accountants' perceptions of the personnel responsible for the Corporation's financial and accounting matters; (c) the cooperation which the independent public accountants receive during the course of their audit; (d) the extent which the resources of the Corporation were or should be utilized to minimize the audit fee; (e) any significant transactions which were not in the ordinary, routine, and regular course of business of the Corporation; (f) any change in accounting principles, policies or standards; (g) all significant adjustments proposed by the independent public accountants; (h) general policies and procedures relating to internal auditing and financial costs which pertain to the Corporation; and (i) any recommendations which the independent public accountants may have with respect to internal financial controls, choice of accounting policies and principles or management reporting systems. (b) The audit committee shall meet periodically with the staff responsible for the Corporation's financial and accounting matters to review and discuss the scope of internal accounting procedures and controls then in effect and the extent to which any recommendations made by the independent public accountants or any internal auditors have been implemented. (c) The audit committee shall direct and supervise any investigation into any matter brought to its attention within the scope of its duties which it believes is necessary. The audit committee may retain outside consultants in connection with any such investigation. (d) The audit committee shall monitor business practices of the Corporation as set forth in the written policies of the Corporation, such as compliance with antitrust policies and other policies, as directed by the Board of Directors. (e) The audit committee shall prepare and present to the Board of Directors a report covering its activities twice yearly at regular meetings of the Board of Directors or more often, when considered necessary, to report a material irregularity. SECTION 4.5. GENERAL. Any committee member may be removed by the Board of Directors at any time without cause. The Board of Directors may designate a chairman of a committee. The following provisions of the By-laws, which are applicable to the Board of Directors, shall also govern each Board of Directors committee: Section 3.4 (vacancies), Section 3.10 (waiver of notice), Section 3.11 (telephone participation), Section 3.12 (quorum and voting), and Section 3.13 (action without a meeting). Each committee may adopt its own rules of procedure and such rules may govern the call, time, place, and notice of meetings. Each committee may keep appropriate minutes of such proceedings and shall report all significant actions at regular meetings of the Board of Directors. 9 10 ARTICLE V. OFFICERS SECTION 5.1. NUMBER. The officers of the Corporation shall include a President and a Secretary. The Board of Directors may elect additional officers and appoint agents as it determines necessary. Any two or more offices may be held by the same person, except the office of President and Secretary. The Board of Directors in its discretion may also elect a Chairman of the Board. SECTION 5.2. ELECTION AND QUALIFICATION. The President and Secretary shall be elected at the annual meeting of the Board of Directors. Other officers may be elected by the Board of Directors from time to time. The Chairman of the Board, if any, and the President shall be directors of the Corporation. SECTION 5.3. TERM. Each officer shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. SECTION 5.4. REMOVAL. Any officer elected by the Board of Directors may be removed by a majority of the members of the whole Board of Directors whenever, in their judgment, the best interest of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. SECTION 5.5. VACANCY. Any vacancy in any office from any cause may be filled for the unexpired portion of the term by the Board of Directors. SECTION 5.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors at which he shall be present, and shall have such power and perform such duties as may from time to time be assigned to him by the Board of Directors. SECTION 5.7. PRESIDENT. The President shall, when present, preside at all meetings of the stockholders, and, in the absence of the Chairman of the Board, at meetings of the Board of Directors. He shall have power to call special meetings of the stockholders, of the Board of Directors or of the Executive Committee at any time. He shall be the chief executive officer of the Corporation, and shall have the general direction of the business, affairs and property of the Corporation, and of its several officers and shall have and exercise all such powers and discharge such duties as usually pertain to the office of President. SECTION 5.8. VICE-PRESIDENTS. The Vice-Presidents, if any, or any of them, shall, subject to the direction of the Board of Directors, at the request of the President or in his absence, or in case of his inability to perform his duties from any cause, perform the duties of the President, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the President. The Vice-Presidents shall also perform such other duties as 10 11 may be assigned to them by the Board of Directors, and the Board of Directors may determine the order of priority among them. SECTION 5.9. SECRETARY. The Secretary shall perform such duties as are incident to the office of Secretary, or as may from time to time be assigned to him by the Board of Directors, or as are prescribed by these By-laws. SECTION 5.10. TREASURER. The Treasurer shall perform such duties and have powers as are usually incident to the office of Treasurer or which may be assigned to him by the Board of Directors. SECTION 5.11. COMPENSATION. The compensation of all officers shall be fixed by the Board of Directors. An officer who is also a director may be compensated in both capacities. SECTION 5.12. BONDING. Any officer, agent or employee of the Corporation, if so required by the Board of Directors, shall be bonded for the faithful performance of his duties, with such penalties, conditions and security as the Board of Directors may require. ARTICLE VI. STOCK SECTION 6.1. STOCK CERTIFICATES. The directors shall determine the form of certificates which represent ownership of shares of the Corporation. Each certificate shall contain the holder's name and the number of shares issued. Each certificate shall be signed by the President or any Vice President and the Secretary or the Assistant Secretary; provided, however, that where such certificates are signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any such President, Vice-President, Secretary or Assistant Secretary, may be facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon have not ceased to be such officer or officers of the Corporation. Each certificate shall be impressed with or bear a reproduction of the corporate seal. Each certificate shall be consecutively numbered. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered in the stock ledger of the Corporation. SECTION 6.2. TRANSFER OF STOCK. Transfers of shares shall be made only on the stock transfer books of the Corporation. Subject to the provisions of the Corporation's Restated Certificate of Incorporation, on surrender to the Corporation of a stock certificate properly endorsed by the holder of record or accompanied by a proper evidence of 11 12 authority to transfer, a new certificate shall be issued to the person entitled. The old certificate shall be canceled and the transaction recorded in the stock ledger. SECTION 6.3. LOST CERTIFICATES. The Corporation shall issue a new stock certificate in place of a certificate previously issued, if the holder: (a) claims by affidavit that the certificate has been lost, destroyed, or stolen; and (b) gives the Corporation a bond or other indemnity as the directors determine appropriate. SECTION 6.4. REGISTERED STOCKHOLDERS. The person in whose name shares are registered in the Corporation's stock ledger shall be deemed by the Corporation to be the owner of those shares for all purposes. The Corporation shall not be required to recognize any equitable or other claim or interest in such shares by any other person, whether or not it has actual or other notice of such claim. ARTICLE VII. MISCELLANEOUS SECTION 7.1. SEAL. The corporate seal shall contain the name of the Corporation as well as the words "Corporate Seal" and "Delaware". SECTION 7.2. FISCAL YEAR. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. SECTION 7.3. CONTRACTS, ETC. The directors shall determine by resolution which persons shall be empowered to sign contracts, bids, proposals, certificates and other instruments of the Corporation. Such authority may be general or confined to specific instances. SECTION 7.4. CHECKS, ETC. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 7.5. DIVIDENDS. Dividends upon the capital stock of the Corporation may be declared by the Board of Directors or a committee of the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock. SECTION 7.6. RESERVES. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, determine proper as a reserve fund to meet contingencies, or for repairing or maintaining any property of the Corporation or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may abolish any such reserve in the manner in which it was created. SECTION 7.7. VOTING STOCK OF OTHER CORPORATIONS. Except as otherwise ordered by the Board of Directors, the President shall have full power on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any other 12 13 corporation of which the Corporation is a stockholder and to execute a proxy to any other person to represent the Corporation at any such meeting. ARTICLE VIII. INDEMNIFICATION SECTION 8.1. NON-DERIVATIVE SUITS. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. SECTION 8.2. DERIVATIVE SUITS. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 8.3. EXTENT OF INDEMNIFICATION. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 8.1 or 8.2 above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 13 14 SECTION 8.4. APPROVAL OF INDEMNIFICATION. Any indemnification under Section 8.1 or 8.2 above (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 8.1 or 8.2 above. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or (3) by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Corporation. SECTION 8.5. ADVANCES. Expenses (including attorneys' fees) incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. SECTION 8.6. NON-EXCLUSIVITY. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under any By-law, agreement, vote of stockholders or disinterested director or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. SECTION 8.7. INSURANCE. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section 8.7 or under the provisions of any applicable law or regulation. ARTICLE IX. AMENDMENTS SECTION 9.1. These By-laws may be repealed, altered, amended or rescinded and new by-laws may be adopted by the majority vote of the Board of Directors or by the affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the outstanding stock entitled to vote thereon; provided, however that Sections 3.2, 3.3, 3.4 and 3.5 may only be repealed, altered, amended or rescinded by the affirmative vote of eighty percent (80%) of the outstanding stock entitled to vote thereon. Dated: , 2000 14 EX-23.1 4 0004.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-4 of Kiewit Materials Company of our reports dated March 17, 2000 relating to the consolidated financial statements and financial statement schedule of Peter Kiewit Sons', Inc. and our reports dated March 17, 2000 relating to the consolidated financial statements and financial statement schedule of Kiewit Materials Company, which appear in such Registration Statement. We also consent to reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP Omaha, Nebraska June 7, 2000 EX-23.2 5 0005.txt CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use in this registration statement on Form S-4 of our reports dated March 3, 2000 and March 29, 1999, on the financial statements of Granite Canyon Quarry, which financial statements are consolidated into Kiewit Materials Company and subsidiaries' consolidated financial statements for the three years ended December 25, 1999 and to all references to our Firm included in this registration statement. Arthur Andersen LLP Denver, Colorado June 7, 2000 EX-23.3 6 0006.txt CONSENT OF PERKINS & COMPANY, P.C. 1 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 (Common Stock) of Kiewit Materials Company of our report dated February 24, 1999 relating to the combined financial statements and schedule of Pacific Rock Products, L.L.C. and River City Machinery L.L.C. (currently known as Pacific Rock Products Trucking L.L.C.). Perkins & Company, P.C. Portland, Oregon June 5, 2000 EX-99.2 7 0007.txt FORM OF LETTER TO STOCKHOLDERS 1 PETER KIEWIT SONS', INC. KIEWIT PLAZA OMAHA, NEBRASKA 68131 (402) 342-2052 [PETER KIEWIT SONS' LOGO] Dear Materials Employees: Peter Kiewit Sons', Inc. is offering Kiewit stockholders who are employees of Kiewit Materials Company the opportunity to exchange their shares of Kiewit common stock for shares of Materials common stock with an equal aggregate formula price. Kiewit Materials Company is a wholly owned subsidiary of Kiewit. The share exchange is being made in connection with a proposal by Kiewit to separate its construction and materials businesses into two separate, independent companies by distributing shares of Materials common stock to Kiewit stockholders in a spin-off that is intended to be tax-free for U.S. federal income tax purposes. Kiewit is also offering the holders of its outstanding convertible debentures the opportunity to exchange their debentures for (1) Materials debentures convertible into Materials common stock, or (2) both shares of Materials common stock and new reduced principal amount Kiewit debentures convertible into shares of Kiewit common stock. After the completion of the share exchange and the debenture exchange offer, Kiewit will distribute the shares of Materials common stock it then holds as a dividend on a pro rata basis to holders of Kiewit common stock in the spin-off. Following completion of the spin-off, Materials will own and operate Kiewit's materials business. Christopher J. Murphy will be the Chief Executive Officer and President of Materials. The exact exchange ratio for the share exchange will be set so that Kiewit stockholders who are Materials employees who tender their Kiewit common stock in the share exchange will receive Materials common stock with an equal aggregate formula price. The exact exchange ratio will not be known until the completion of the share exchange and the debenture exchange offer. Whether you should participate in the share exchange depends on whether you would prefer to sell your shares of Kiewit common stock back to Kiewit for cash in a taxable transaction following the spin-off or to exchange them for shares of Materials common stock in a transaction that is intended to be tax-free to stockholders for U.S. federal income tax purposes. Neither Kiewit nor Materials nor any of their respective directors makes any recommendation as to whether you should tender your shares of Kiewit common stock. You must make your own decision after reading the enclosed prospectus and consulting with your advisors based on your own financial position and requirements. Sincerely, KENNETH E. STINSON Chairman of the Board and President -----END PRIVACY-ENHANCED MESSAGE-----