10-Q 1 r10q0801.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended Commission file number June 30, 2001 000-29619 KIEWIT MATERIALS COMPANY (Exact name of registrant as specified in its charter) Delaware 47-0819021 (State of Incorporation) (I.R.S. Employer Identification No.) Kiewit Plaza, Omaha Nebraska 68131 (Address of principal executive offices) (Zip Code) (402) 536-3661 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] The number of shares outstanding of each of the registrant's classes of common stock as of August 13, 2001: Title of Class Shares Outstanding Common Stock, $0.01 par value 36,278,239 KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Table of Contents Page ----------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements. Consolidated Condensed Balance Sheets as of June 30, 2001 and December 31, 2000 1 Consolidated Condensed Statements of Earnings for the three and six months ended June 30, 2001 and 2000 2 Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2001 and 2000 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk. 15 PART II - OTHER INFORMATION --------------------------- Item 4. Submission of Matters to a Vote of Security Holders. 16 Item 6. Exhibits and Reports on Form 8-K. 16 Signatures 18 Index to Exhibits 19 ----------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Condensed Balance Sheets June 30, December 31, 2001 2000 (in thousands, except share data) (unaudited) ----------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 75,713 $ 68,468 Receivables, less allowance of $1,753 and $1,424 72,068 67,556 Inventories 14,904 14,126 Deferred income taxes 4,026 3,625 Other 4,772 3,176 --------- --------- Total current assets 171,483 156,951 Property, plant and equipment, less accumulated depreciation of $117,471 and $111,982 142,395 139,005 Goodwill, less accumulated amortization Of $8,710 and $7,413 57,627 58,924 Intangible and other assets 20,200 20,234 --------- --------- Total assets $ 391,705 $ 375,114 ========= ========= Liabilities and Redeemable Common Stock Current liabilities: Accounts payable $ 29,174 $ 26,632 Accounts payable with affiliates 13,701 14,908 --------- --------- Total accounts payable 42,875 41,540 Current portion of long-term debt 1,349 1,112 Accrued payroll and payroll taxes 6,312 6,824 Accrued insurance costs 5,832 5,293 Income taxes payable 4,611 1,964 Other 3,061 4,112 --------- -------- Total current liabilities 64,040 60,845 Long-term debt, less current portion 2,083 3,779 Convertible debentures 8,054 8,075 Deferred income taxes 13,789 12,528 Other liabilities 404 789 Minority interest 1,145 1,087 --------- -------- Total liabilities 89,515 87,103 --------- -------- Preferred Stock, par $.01; 10 million shares authorized, no shares issued - - Redeemable Common Stock ($284 million aggregate redemption value): Common Stock, par $.01; and 100 million shares authorized, 36,191,599 and 36,463,482 issued and outstanding 362 365 Additional paid-in capital 175,357 177,490 Retained earnings 126,471 110,156 ------- ------- Total redeemable common stock 302,190 288,011 ------- ------- Total liabilities and redeemable common stock $391,705 $375,114 ======== ======== ----------------------------------------------------------------------------- See accompanying notes to consolidated condensed financial statements. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Condensed Statement of Earnings (unaudited) Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2001 2000 2001 2000 ----------------------------------------------------------------------------- Revenue $ 135,611 $ 123,343 $ 247,503 $ 218,854 Revenue from affiliates 2,221 3,443 3,398 6,465 --------- --------- --------- --------- Total revenue 137,832 126,786 250,901 225,319 Cost of revenue (110,007) (105,351) (202,711) (188,456) Depreciation, depletion and amortization (5,812) (5,003) (11,535) (9,716) ---------- ---------- ---------- --------- Gross profit 22,013 16,432 36,655 27,147 General and administrative expenses (6,794) (5,390) (13,228) (11,842) Gain on sale of property, plant and equipment 1,222 339 1,782 437 --------- --------- --------- --------- Operating earnings 16,441 11,381 25,209 15,742 --------- --------- --------- --------- Other income (expense): Investment income 1,216 1,258 2,455 2,706 Interest expense (216) (551) (471) (1,282) Other, net 91 34 97 69 --------- --------- --------- --------- Total other income (expense) 1,091 741 2,081 1,493 --------- --------- --------- --------- Earnings before income taxes and minority interest 17,532 12,122 27,290 17,235 Minority interest in net earnings of subsidiaries (36) 59 (59) 15 Provision for income taxes (7,015) (4,831) (10,916) (6,868) --------- --------- --------- --------- Net earnings $ 10,481 $ 7,350 $ 16,315 $ 10,382 ========= ========= ========= ======== Net earnings per share: Basic $ .29 $ .20 $ .45 $ .29 ========= ========= ========= ======== Diluted $ .28 $ .20 $ .44 $ .29 ========= ========= ========= ======== ---------------------------------------------------------------------------- See accompanying notes to consolidated condensed financial statements. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (unaudited) Six Months Ended June 30, ---------------------------- (in thousands) 2001 2000 ---------------------------------------------------------------------------- Cash flows from operations: Net cash provided by operations $ 29,167 $ 26,371 ---------- ---------- Cash flows from investing activities: Sales of marketable securities - 2,500 Short-term note receivable (5,824) - Proceeds from sales of property, plant and equipment 5,694 697 Purchases of plant and equipment (10,091) (20,882) Investments in land and mineral properties (6,539) - Acquisitions (750) (33,515) ---------- ---------- Net cash used in investing activities (17,510) (51,200) ---------- ---------- Cash flows from financing activities: Payments on long-term debt (2,275) (275) Repurchases of common stock (2,137) - Contributions from former parent - 202 ---------- ---------- Net cash used in financing activities (4,412) (73) ---------- ---------- Net increase (decrease) in cash and cash equivalents 7,245 (24,902) Cash and cash equivalents at beginning of period 68,468 72,368 ---------- ---------- Cash and cash equivalents at end of period $ 75,713 $ 47,466 ========== ========== ---------------------------------------------------------------------------- See accompanying notes to consolidated condensed financial statements. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (in thousands, except per share data) 1. Organization: Kiewit Materials Company ("KMC") was formed on February 2, 1999 as a wholly owned subsidiary of Peter Kiewit Sons', Inc. ("PKS"). The consolidated condensed financial statements include the accounts of KMC and its subsidiaries (collectively, the "Company"). KMC's subsidiaries represent several affiliated operating corporations under common ownership, each of which is engaged in an aspect of the materials business, that were combined (the "Combination") on March 1, 1999 through a series of non-monetary contributions from PKS. On September 30, 2000, KMC became an independent company when PKS spun off its materials businesses in a tax-free transaction (the "Spin-off"). The Combination has been accounted for at historical cost in a manner similar to a pooling of interests. All significant intercompany transactions have been eliminated in consolidation. 2. Basis of Presentation: Subsequent to the Spin-off, the consolidated condensed financial statements include the accounts and operations of the Company on a stand- alone basis. PKS and the Company have entered into a number of agreements to facilitate the transition of the Company to an independent business enterprise. Prior to the Spin-off, the consolidated condensed financial statements reflect the assets, liabilities, revenues and expenses that were directly related to the Company as they were operated within PKS. Where assets and liabilities were not specifically identifiable to any particular business of PKS, only those assets and liabilities transferred to the Company are included in the Company's consolidated balance sheets. Regardless of the allocation of these assets and liabilities, however, the Company's consolidated condensed statements of earnings include all of the related costs of doing business including an allocation of certain general corporate expenses of PKS which were not directly related to the Company including costs for information technology, finance, legal, and corporate executive. These allocations were based on a variety of factors including, for example, personnel, space, time and effort and sales volume. Management believes these allocations were made on a reasonable basis. The financial information included herein for periods prior to the Spin- off may not necessarily be indicative of the financial position, results of operations or cash flows of the Company if it had been a separate, independent company during the periods prior to the Spin-off. The consolidated balance sheet of the Company at December 31, 2000 has been condensed from the Company's audited balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of financial position and results of operations for the periods presented. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10K filed with the Securities and Exchange Commission on March 29, 2001. When appropriate, items within the consolidated condensed financial statements have been reclassed in the previous periods to conform to current year presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 3. Separation of KMC: On September 30, 2000, PKS management separated PKS's construction business and materials business into two separate, independent companies by distributing shares of common stock of KMC it then held as a dividend on a pro rata basis to PKS stockholders in the Spin-off. PKS stockholders received one share of KMC common stock for each share of PKS common stock they held on the record date. In connection with the Spin-off, KMC and PKS entered into various agreements including a Separation Agreement and a Tax Sharing Agreement. The Separation Agreement provides for the allocation of certain risks and responsibilities between KMC and PKS and for cross-indemnifications that are intended to allocate financial responsibility to PKS for liabilities arising out of the construction business and to allocate to KMC liabilities arising out of the materials business. Under the Tax Sharing Agreement, with respect to periods, or portions thereof, ending on or before the Spin-off, KMC and PKS generally 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 businesses and construction businesses, respectively. The Tax Sharing Agreement also provides that KMC and PKS will indemnify the other from certain taxes and expenses that would be assessed if the Spin-off were determined to be taxable, but solely to the extent that such determination arose out of the breach by KMC or PKS, respectively, of certain representations made to the Internal Revenue Service in connection with the private letter ruling issued with respect to the Spin-off. 4. 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 gives effect to convertible debentures considered to be dilutive common stock equivalents. The potentially dilutive convertible debentures are calculated in accordance with the "if converted" method. This method assumes that the after-tax interest expense associated with the debentures is an addition to income and the debentures are converted into equity with the resulting common shares being aggregated with the weighted average shares outstanding. Earnings per share, as presented in the Consolidated Condensed Statements of Earnings was calculated as if the 36,343,869 common shares issued in connection with the Spin-off were outstanding for all periods prior to the Spin-off. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ----------------------------------------------------------------------------- Net earnings available to common stockholders $ 10,481 $ 7,350 $ 16,315 $ 10,382 Interest expense, net of tax effect, associated with convertible debentures 93 - 184 - --------- -------- --------- --------- Net earnings for diluted shares$ 10,574 $ 7,350 $ 16,499 $ 10,032 ========= ======== ========= ========= Total number of weighted average shares outstanding used to compute basic earnings per share 36,248 36,344 36,302 36,344 Additional dilutive shares assuming conversion of convertible debentures 1,158 - 1,158 - --------- -------- --------- --------- Total number of shares used to compute diluted earnings per share 37,406 36,344 37,460 36,344 ========= ======== ========= ========= Net Earnings per share: Basic $ .29 $ .20 $ .45 $ .29 ========= ======== ========= ========= Diluted $ .28 $ .20 $ .44 $ .29 ========= ======== ========= ========= 5. Inventories: Inventories consist of the following: June 30, December 31, 2001 2000 ---------- ------------ Raw materials $ 13,293 $ 12,147 Other 1,611 1,979 ---------- ------------ Total inventories $ 14,904 $ 14,126 ========== ============ ------------------------------------------------------------------------- 6. Intangible and Other Assets Intangible and other assets consist of the following: June 30, December 31, 2001 2000 ---------- ------------ Intangible assets, net of accumulated amortization of $1,708 and $1,363 $ 15,110 $ 15,454 Land option 2,000 2,000 Notes receivable 2,713 2,403 Other 377 377 ---------- ------------ Total intangible and other assets $ 20,200 $ 20,234 ========== ============ ------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 7. Comprehensive Income: Comprehensive income includes net earnings and unrealized gains (losses) on securities. Comprehensive income for the three and six months ended June 30, 2001 and 2000 was as follows: Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---------------------------------------------------------------------------- Net earnings $ 10,481 $ 7,350 $ 16,315 $ 10,382 Other comprehensive income (loss), before tax: Unrealized losses arising during period - (1) - (1) --------- --------- ---------- --------- Comprehensive income $ 10,481 $ 7,349 $ 16,315 $ 10,381 ========= ========= ========== ========= 8. Segment Reporting: The Company has four operating segments: Arizona Operations, Pacific Northwest Operations, Northern California Operations and Quarries Operations, which represent separately managed strategic business units that have different marketing strategies. Arizona Operations derives its revenue from the sale of aggregates, ready-mix, asphalt and paving operations. The Pacific Northwest Operations and Northern California Operations derive their revenues from the sale of aggregates, ready-mix and asphalt. Quarries Operations derives its revenue from the sale of aggregates. Arizona and Pacific Northwest Operations met the requirements of quantitative thresholds and are being disclosed as reportable operating segments. Other Operations includes the Northern California and Quarries Operations. Corporate Operations include corporate overhead, amortization and management fees for corporate overhead, which collectively are not reported to the chief operating decision maker by segment. The Company evaluates operating performance based on profit or loss from operations before the following items: goodwill amortization related to acquisitions, interest income, interest expense, management fees for corporate overhead and income taxes. Due to geographic locations, no intersegment sales or transfers are made between the segments. Segment asset information has not been presented as it is not reported to or reviewed by the chief operating decision maker. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Pacific Arizona Northwest Other Corporate Operations Operations Operations Operations Total ------------------------------------------------------ Three months ended June 30, 2001 ------------------ Revenues $ 109,871 $ 11,740 $ 16,221 $ - $ 137,832 Depreciation, depletion and amortization $ 2,667 $ 1,295 $ 1,029 $ 821 $ 5,812 Operating income (loss) $ 14,570 $ 2,420 $ 4,553 $ (5,102) $ 16,441 Three months ended June 30, 2000 ------------------ Revenues $ 100,350 $ 14,091 $ 12,345 $ - $ 126,786 Depreciation, depletion and amortization $ 898 $ 1,057 $ 2,422 $ 626 $ 5,003 Operating income (loss) $ 9,040 $ 1,975 $ 3,784 $ (3,418) $ 11,381 Pacific Arizona Northwest Other Corporate Operations Operations Operations Operations Total ------------------------------------------------------ Six months ended June 30, 2001 ------------------ Revenues $ 202,482 $ 21,728 $ 26,691 $ - $ 250,901 Depreciation, depletion and amortization $ 5,214 $ 2,612 $ 2,067 $ 1,642 $ 11,535 Operating income (loss) $ 23,925 $ 2,408 $ 5,875 $ (6,999) $ 25,209 Six months ended June 30, 2000 ------------------ Revenues $ 180,563 $ 24,277 $ 20,479 $ - $ 225,319 Depreciation, depletion and amortization $ 3,146 $ 2,323 $ 3,024 $ 1,223 $ 9,716 Operating income (loss) $ 13,514 $ 2,200 $ 5,291 $ (5,263) $ 15,742 The Company's revenues by product for the three and six months ended June 30, 2001 and 2000 are as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2001 2000 2001 2000 -------------------------------------------- Aggregates (sand, gravel, crushed stone and railroad ballast) $ 31,585 $ 30,244 $ 56,363 $ 51,969 Asphalt 26,465 19,755 43,761 32,521 Ready mix concrete 75,799 74,397 142,858 135,689 Other 3,983 2,390 7,919 5,140 --------- --------- --------- --------- Total revenue $ 137,832 $ 126,786 $ 250,901 $ 225,319 ========= ========= ========= ========= KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 9. Acquisitions and Dispositions: 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. The acquisition was accounted for by the purchase method of accounting. Identifiable intangible assets related to this purchase of $15,448 are being amortized over their useful life of 27.5 years. There was no goodwill related to this transaction. On August 4, 2000, the Company acquired substantially all of the assets of Fort Calhoun Stone Company, a limestone quarry located in Washington County, Nebraska, for $41,753. 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 $30,836 was recognized as goodwill and is being amortized over 40 years. The following pro forma financial information assumes the aforementioned acquisitions occurred at the beginning of 2000. 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 2000, or the results which may occur in the future: Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------- 2001 2000 2001 2000 -------------------------------------------- Revenue $ 137,832 $ 129,522 $ 250,901 $ 229,666 Net earnings $ 10,481 $ 8,042 $ 16,315 $ 11,172 Net earnings per share: Basic $ .29 $ .22 $ .45 $ .31 Diluted $ .28 $ .22 $ .44 $ .31 On June 22, 2001, the Company acquired the assets of an operation in Arizona. This acquisition was accounted for by the purchase method and, accordingly, results of operations for the acquired business have been included in the consolidated statements of income from the date of acquisition. Pro forma financial information is not presented for the acquisition because the impact is not material to the results of operations. The initial purchase price was $1,000 of which $750 has been paid. Contingent consideration of $1,500 may be paid in August 2001 based on the seller obtaining permits and zoning. In April 2001, the Company sold land, which resulted in the recognition of a gain of $882. The Company also purchased land for $947 in cash and issued a note with a face value of $797, due August 2003. The note has no stated interest rate and is collateralized by land. On June 25, 2001, the Company paid $5,592 for land and mineral property and $300 for assets unrelated to the materials businesses. In connection with this purchase, the Company issued a $5,824 short-term note, which is reflected as accounts receivable in the financial statements at June 30, 2001. Later this year, the Company anticipates receiving full payment on the note and utilizing the proceeds to purchase additional land and mineral property for $5,824. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 10. 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 future financial position, results of operations or cash flows. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This document contains forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to the Company. When used in this document, the words "anticipate," "believe," "estimate," "expect" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks or uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document. The following discussion is based upon and should be read in conjunction with our Consolidated Condensed Financial Statements, including the notes thereto, included elsewhere in this quarterly report on Form 10-Q. On September 30, 2000, Peter Kiewit Sons', Inc. ("PKS") management separated PKS's construction business and materials business into two separate, independent companies by distributing shares of common stock of Kiewit Materials Company ("KMC") to PKS stockholders in a tax-free transaction (the "Spin-off"). Prior to the completion of the share exchange, the debenture exchange offer and the Spin-off described below, KMC was a wholly owned subsidiary of PKS. On August 15, 2000, PKS commenced a share exchange in which it offered PKS stockholders who were KMC employees the opportunity to exchange their shares of PKS common stock for shares of KMC common stock with an equal aggregate formula price. The share exchange expired September 14, 2000. In the share exchange, KMC employees collectively exchanged 1,081,226 shares of PKS common stock, representing 100% of the shares of PKS common stock collectively owned by them and 3.24% of the total issued and outstanding PKS common stock on September 14, 2000. For each share of PKS common stock tendered, KMC employees received 2.85 shares of KMC common stock. KMC employees who participated in the share exchange collectively received 3,081,646 shares of KMC common stock, representing 8.48% of the issued and outstanding KMC common stock on September 15, 2000. On August 15, 2000, PKS also commenced a debenture exchange offer in which it offered the holders of its outstanding convertible debentures the opportunity to exchange their debentures for (1) KMC debentures convertible into shares of KMC common stock, or (2) both shares of KMC common stock and new reduced principal amount PKS debentures convertible into shares of PKS common stock. In the debenture exchange offer, PKS debentureholders collectively exchanged $13,095,000 principal amount original PKS debentures for (1) $670,000 aggregate principal amount KMC debentures, and (2) both 973,383 shares of KMC common stock and $5,475,045 principal amount new PKS debentures. On September 30, 2000, PKS distributed the shares of KMC common stock it then held as a dividend on a pro rata basis to holders of PKS common stock in the Spin-off. The record date for the Spin-off dividend was the close of business on September 15, 2000. PKS stockholders received one share of KMC common stock for each share of PKS common stock they held on the record date. Upon completion of the Spin-off, PKS no longer had any interest in its materials operations. The materials operations are owned and operated solely by KMC. The Spin-off has not and is not expected to adversely impact KMC's equity, revenue or net income. Current cash flows are expected to be sufficient to fund current operations. KMC's ability to execute its future growth strategy will, however, be dependent upon its ability to continue to obtain borrowings on terms deemed appropriate. Results of Operations - Second Quarter 2001 vs. Second Quarter 2000 Revenue. Revenue increased $11 million to $138 million for the second quarter of 2001 as compared to $127 million in the same period of 2000. Revenue from Arizona Operations increased $10 million, primarily due to higher unit sales of aggregates, ready mix concrete and asphalt. This segment also benefited from higher average asphalt selling prices as they become more selective in supplying the market in an effort to improve gross profit margins. Revenue from Pacific Northwest Operations decreased $2 million between the two periods primarily resulting from a 9% decline in aggregate unit sales volumes. Other Operations increased $3 million as revenue produced from 2000 acquisitions compensated for a 25% decrease in aggregate unit sales for operations, which existed during both periods. Gross Profit. Gross profit margins increased to 16% in the second quarter of 2001 from 13% in the second quarter of 2000. Gross profit for Arizona Operations increased largely due to improved asphalt margins as a result of higher average selling prices. Gross profit margins for both Pacific Northwest Operations and Other Operations declined. Pacific Northwest Operations and Other Operations margins were adversely affected by the decrease in aggregate unit sales. General and Administrative. General and administrative expenses increased $1 million in the second quarter of 2001 when compared to the second quarter of 2000. Cost efficiency measures at the Arizona Operations and Pacific Northwest Operations were responsible for decreases at these segments. Other Operations expenses increased to support an expanded operating area as a result of an acquisition in the second half of 2000 at the Northern California Operations. Corporate Operations experienced an increase due to ongoing costs related to becoming an independent company in September 2000. Gain on Sale of Property, Plant and Equipment. Gain on sale of property, plant and equipment increased $1 million in the second quarter of 2001 when compared to the second quarter of 2000 due to the gain realized on the sale of land at the Pacific Northwest Operations. Other Income and Expenses. Other income increased $0.4 million in the second quarter of 2001 when compared to the same period in 2000. The increase was attributable to higher invested cash balances in 2001 that generated greater investment income and to the payoff of long-term debt, which decreased interest expense. Provision for Income Taxes. The income tax rates for the second quarter of 2001 and 2000 were 40%. Income taxes differ from the federal statutory rate primarily because of state income taxes and percentage depletion. Results of Operations - Six Months 2001 vs. Six Months 2000 Revenue. Revenue increased $26 million to $251 million for the first six months of 2001 as compared to $225 million in the same period of 2000. Revenue from Arizona Operations increased $22 million, primarily due to higher unit sales of aggregates, ready mix concrete and asphalt. This segment also benefited from higher average asphalt selling prices as they become more selective in supplying the market in an effort to improve gross profit margins. Revenue from Pacific Northwest Operations decreased $2 million between the two periods resulting from a 18% decline in aggregate unit sales volumes, which was partially offset by 8% and 3% increases in asphalt and ready-mix unit sales volumes, respectively. Other Operations increased $6 million as revenue produced from 2000 acquisitions compensated for a 38% decrease in aggregate unit sales for operations, which existed during both periods. Gross Profit. Gross profit margins increased to 15% in the first six months of 2001 from 12% in the first six months of 2000. Gross profit for Arizona Operations increased largely due to improved asphalt margins as a result of higher average selling prices. Gross profit margins for both Pacific Northwest Operations and Other Operations declined. Pacific Northwest Operations and Other Operations margins were adversely affected by the decrease in aggregate unit sales. General and Administrative. General and administrative expenses increased $1 million in the first six months of 2001 when compared to the first six months of 2000. Cost efficiency measures at the Arizona Operations and Pacific Northwest Operations were responsible for decreases at these segments. Other Operations expenses increased to support an expanded operating area as a result of an acquisition in the second half of 2000 at the Northern California Operations. Corporate Operations experienced an increase due to ongoing costs related to becoming an independent company in September 2000. Gain on Sale of Property, Plant and Equipment. Gain on sale of property, plant and equipment increased $1 million in the first six months of 2001 when compared to the first six months of 2000 due to the gain realized on the sale of land at the Pacific Northwest Operations. Other Income and Expenses. Other income increased $0.6 million in the first six months of 2001 when compared to the same period in 2000. The increase was attributable to higher invested cash balances in 2001 that generated greater investment income and to the payoff of long-term debt, which decreased interest expense. Provision for Income Taxes. The income tax rates for the first six months of 2001 and 2000 were 40%. Income taxes differ from the federal statutory rate primarily because of state income taxes and percentage depletion. Financial Condition - June 30, 2001 -------------------------------------------- Cash and cash equivalents increased $7 million to $75 million at June 30, 2001 from $68 million at December 31, 2000. The increase reflects cash provided from operations of $29 million less $18 million used in investing activities and $4 million used in financing activities. Net cash provided by operations amounted to $29 million compared to $26 million for the same period in 2000. Increased cash provided of $6 million from higher net income and $2 million from greater depreciation, depletion and amortization were offset by an overall increase in working capital requirements. Net cash used in investing activities in the first six months of 2001 decreased $33 million as compared to the first six months of 2000. A $32 million decrease in acquisitions, $4 million decrease in purchases of plant and equipment and investments in land and mineral properties and an increase in proceeds from sales of property, plant and equipment of $5 million were offset by a $2 million decrease in proceeds from the sales of marketable securities and a $6 million increase in accounts receivable due to the issuance of a short-term note receivable in connection with a land and mineral property purchase. Net cash used in financing activities increased $4 million compared to the first quarter of 2000. Repurchases of common stock of $2 million and $2 million of payments on long-term debt were responsible for the increase. KMC believes that its current cash position together with anticipated cash flows from operations will be sufficient for the working capital and equipment replacement requirements of KMC for the next twelve months. KMC does not have any established credit facilities. At June 30, 2001, KMC had $11 million of notes payable and convertible debentures payable. Further, KMC does not currently intend to pay any cash dividends. KMC intends to pursue a business plan to grow through acquisitions that will require capital that is in addition to ongoing operational requirements. While historically KMC has received contributions from PKS to fund a portion of acquisitions, KMC believes that cash on hand, cash generated by operations and the ability to borrow funds will allow KMC to make investments in connection with future acquisitions. Ultimate growth strategy capital requirements will largely depend on the number of acquisition candidates, the cost of the acquisitions, and the level of success KMC has in completing these transactions. Should KMC be unable to obtain any necessary funds from borrowings on terms deemed appropriate, KMC would be limited in its ability to fully execute its growth strategy. While KMC believes its growth strategy to be important in enhancing shareholder value, KMC does not believe that the inability to fully pursue it would have a material adverse impact on current operations, financial condition or liquidity. Recent Accounting Pronouncements. In September 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 as amended, is effective for all fiscal years beginning after September 15, 2000. The adoption of this statement on January 1, 2001 had no impact on our financial statements as KMC has no derivative instruments or hedging activities. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations," and No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." SFAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations." The most significant changes made by SFAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill, and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS 142 supercedes APB 17, "Intangible Assets." SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite-lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. KMC has not yet determined the effect the adoption of SFAS No. 141 and 142 will have on our consolidated financial position or results of operations. Item 3. Quantitative and Qualitative Disclosure about Market Risk. KMC does not believe that its business is subject to significant market risks arising from interest rates, foreign exchange rates or equity prices. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of KMC was held on June 15, 2001. The holders of 26,999,001 of the 36,279,655 issued and outstanding shares of $0.01 par value common stock of KMC ("Common Stock") eligible to vote were present in person or by proxy at the annual meeting. At the annual meeting, the slate of nominees for Class I directors of KMC listed below was proposed by the incumbent Board of Directors ("Board"). No additional nominations were received and all of the nominees proposed by the Board were elected to serve for a term expiring at the end of the third succeeding annual meeting of stockholders, or until their respective successors are elected and qualified. The results were as follows: Director Nominee Votes For Withheld ---------------- ---------- -------- Bruce E. Grewcock 26,991,000 8,001 William L. Grewcock 26,975,697 23,304 Water Scott, Jr. 26,996,601 600 Item 6. Exhibits and Reports on Form 8-K. a) Exhibits required by Item 601 of Regulation S-K. Exhibits incorporated by reference are indicated in parentheses: Exhibit Number Description ------- ----------- 3.1 Restated Certificate of Incorporation, effective July 28, 2000 (Incorporated by reference to Exhibit 3.1 to Amendment No. 5 to Kiewit Materials Company's Registration Statement on Form 10, filed with the Securities and Exchange Commission on September 15, 2000) 3.2 Amended and Restated By-laws, effective July 28, 2000 (Incorporated by reference to Exhibit 3.2 to the Amendment No. 5 to Kiewit Materials Company's Registration Statement on Form 10, filed with the Securities and Exchange Commission on September 15, 2000). 4.1 Indenture, dated as of September 14, 2000, by and between Kiewit Materials Company and UMB Bank, N.A., as trustee. (Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000). 4.2 Form of Series 2000A Convertible Debentures due October 31, 2010 of Kiewit Materials Company. (Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000). 4.3 Form of Series 2000B Convertible Debentures due October 31, 2010 of Kiewit Materials Company. (Incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000). 4.4 Form of Series 2000C Convertible Debentures due October 31, 2010 of Kiewit Materials Company. (Incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report of Form 10-Q, for the quarter ended June 30, 2000). 4.5 Form of Series 2000D Convertible Debentures due November 30, 2010 of Kiewit Materials Company (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed October 13, 2000). 4.6 Form of Repurchase Agreement for Convertible Debentures (Incorporated by reference to Exhibit 4.15 to Amendment No. 4 to the Company's and Kiewit's Joint Registration Statement on Form S-4 filed with the Securities and Exchange Commission on August 8, 2000). 4.7 Form of Series 2001 Convertible Debentures due July 31, 2011 of Kiewit Materials Company (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed June 7, 2001). b) No reports on Form 8-K have been filed during the second quarter of 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KIEWIT MATERIALS COMPANY Date: /s/ Donald E. Bowman -------------------------------- Donald E. Bowman Vice President, Chief Financial Officer KIEWIT MATERIALS COMPANY INDEX TO EXHIBITS Exhibit Number Description -------- ----------- 3.1 Restated Certificate of Incorporation, effective July 28, 2000 (Incorporated by reference to Exhibit 3.1 to Amendment No. 5 to Kiewit Materials Company's Registration Statement on Form 10, filed with the Securities and Exchange Commission on September 15, 2000) 3.2 Amended and Restated By-laws, effective July 28, 2000 (Incorporated by reference to Exhibit 3.2 to the Amendment No. 5 to Kiewit Materials Company's Registration Statement on Form 10, filed with the Securities and Exchange Commission on September 15, 2000). 4.1 Indenture, dated as of September 14, 2000, by and between Kiewit Materials Company and UMB Bank, N.A., as trustee. (Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000). 4.2 Form of Series 2000A Convertible Debentures due October 31, 2010 of Kiewit Materials Company. (Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000). 4.3 Form of Series 2000B Convertible Debentures due October 31, 2010 of Kiewit Materials Company. (Incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000). 4.4 Form of Series 2000C Convertible Debentures due October 31, 2010 of Kiewit Materials Company. (Incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report of Form 10-Q, for the quarter ended June 30, 2000). 4.5 Form of Series 2000D Convertible Debentures due November 30, 2010 of Kiewit Materials Company (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed October 13, 2000). 4.6 Form of Repurchase Agreement for Convertible Debentures (Incorporated by reference to Exhibit 4.15 to Amendment No. 4 to the Company's and Kiewit's Joint Registration Statement on Form S-4 filed with the Securities and Exchange Commission on August 8, 2000). 4.7 Form of Series 2001 Convertible Debentures due July 31, 2011 of Kiewit Materials Company (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed June 7, 2001).