-----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, FTtzg/kG34axf37osRmzzWK+yr6olpoBvSHVh0z4gqsAo1DV4A1shNGS7IQHiDhW d8Z9ZhTlasnWvHxoHi8ZIQ== 0001102755-02-000011.txt : 20020514 0001102755-02-000011.hdr.sgml : 20020514 ACCESSION NUMBER: 0001102755-02-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIEWIT MATERIALS CO CENTRAL INDEX KEY: 0001102755 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 470819021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29619 FILM NUMBER: 02645383 BUSINESS ADDRESS: STREET 1: KIEWIT PLAZA CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023422052 MAIL ADDRESS: STREET 1: KIEWIT PLAZA CITY: OMAHA STATE: NE ZIP: 68131 10-Q 1 r10q0502.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 March 31, 2002 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 May 14, 2002: Title of Class Shares Outstanding Common Stock, $0.01 par value 36,036,677 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Table of Contents - ------------------------------------------------------------------ PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements. Consolidated Condensed Balance Sheets as of March 31, 2002 and December 31, 2001 1 Consolidated Condensed Statements of Earnings for the three months ended March 31, 2002 and 2001 2 Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2002 and 2001 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk. 12 PART II - OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K. 13 Signatures 14 - ------------------------------------------------------------------ Item 1. Financial Statements. KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Condensed Balance Sheets March 31, December 31, 2002 2001 (in thousands, except share data) (unaudited) - ---------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 95,937 $ 117,218 Receivables, less allowance of $1,174 and $1,083 57,252 51,534 Inventories 15,210 13,829 Deferred income taxes 3,556 3,622 Refundable income taxes - 435 Other 6,539 5,265 ------------ ---------- Total current assets 178,494 191,903 Investment in limited partnership 24,281 - Property, plant and equipment, less accumulated depreciation and depletion of $130,985 and $126,942 146,413 145,883 Goodwill, less accumulated amortization of $10,008 and $10,008 57,476 57,476 Intangible, less accumulated amortization of $2,226 and $2,053 and other assets 19,587 20,387 ------------ ---------- Total assets $ 426,251 $ 415,649 ============ ========== Liabilities and Redeemable Common Stock Current liabilities: Accounts payable $ 38,176 $ 37,101 Current portion of long-term debt 1,053 1,127 Accrued payroll and payroll taxes 7,826 8,770 Accrued insurance costs 5,752 6,103 Income taxes payable 3,306 - Other 6,174 4,449 ------------ ---------- Total current liabilities 62,287 57,550 Long-term debt, less current portion 1,953 2,534 Convertible debentures 15,743 15,762 Deferred income taxes 17,298 16,495 Other liabilities 946 1,111 ------------ ---------- Total liabilities 98,227 93,452 ------------ ---------- Minority interest 1,262 1,233 ------------ ---------- Preferred stock, par $.01; 10 million shares authorized, no shares issued - - Redeemable common stock ($316,464 and $317,622 aggregate redemption value): Common stock, par $.01; 100 million shares authorized, 36,084,817 and 36,216,902 issued and outstanding 361 362 Additional paid-in capital 174,398 175,555 Accumulated other comprehensive loss (194) (194) Retained earnings 152,197 145,241 ------------ ---------- Total redeemable common stock 326,762 320,964 ------------ ---------- Total liabilities and redeemable common stock $ 426,251 $ 415,649 ============ ========== - ----------------------------------------------------------------- See accompanying notes to consolidated condensed financial statements. 1 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Condensed Statement of Earnings (unaudited) Three Months Ended March 31, ------------------- (in thousands) 2002 2001 - ---------------------------------------------------------------------------- Revenue $ 113,231 $113,069 Cost of revenue (91,370) (92,704) Depreciation, depletion and amortization (5,442) (5,760) ---------- -------- Gross profit 16,419 14,605 General and administrative expenses (7,118) (6,398) Gain on sale of property, plant and equipment 2,727 560 ---------- -------- Operating earnings 12,028 8,767 ---------- -------- Other income (expense): Investment income 605 1,238 Equity earnings (loss) (719) - Interest expense (341) (255) Other, net 70 8 ---------- -------- Total other income (expense) (385) 991 ---------- -------- Earnings before income taxes and minority interest 11,643 9,758 Minority interest in net earnings of subsidiaries (30) (23) Provision for income taxes (4,657) (3,901) ---------- -------- Net earnings $ 6,956 $ 5,834 ========== ======== Net earnings per share: Basic and diluted $ .19 $ .16 ========== ======== - ----------------------------------------------------------------- See accompanying notes to consolidated condensed financial statements. 2 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (unaudited) Three Months Ended March 31, ------------------- (in thousands) 2002 2001 - ---------------------------------------------------------------------------- Cash flows from operations: Net cash provided by operations $ 8,742 $ 15,544 --------- -------- Cash flows from investing activities: Proceeds from sales of property, plant and equipment 3,476 1,390 Capital expenditures (2,531) (6,685) Investments in land and mineral property and acquisitions (4,017) - Investment in limited partnership (25,000) - --------- -------- Net cash used in investing activities (28,072) (5,295) --------- -------- Cash flows from financing activities: Payments on long-term debt (731) (147) Repurchases of common stock (1,220) (1,190) --------- -------- Net cash used in financing activities (1,951) (1,337) --------- -------- Net increase (decrease) in cash and cash equivalents (21,281) 8,912 Cash and cash equivalents at beginning of period 117,218 68,468 --------- -------- Cash and cash equivalents at end of period $ 95,937 $ 77,380 ========= ======== - ----------------------------------------------------------------- See accompanying notes to consolidated condensed financial statements. 3 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (in thousands, except per share data) 1. Organization: Kiewit Materials Company ("KMC") includes the accounts of KMC and its subsidiaries (collectively, the "Company"). KMC's subsidiaries represent several affiliated operating entities under common ownership, each of which is engaged in an aspect of the materials business. 2. Basis of Presentation: The consolidated balance sheet of the Company at December 31, 2001 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 27, 2002. 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 three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the full year. 3. Spin-off Agreements: On September 30, 2000, KMC became an independent company when Peter Kiewit Sons', Inc. ("PKS") spun off its materials businesses in a tax-free transaction (the "Spin-off"). 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 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 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. Three Months Ended March 31, -------------------- 2002 2001 -------------------- Net earnings available to common stockholders $ 6,956 $ 5,834 Interest expense, net of tax effect, associated with convertible debentures 165 91 --------- -------- Net earnings for diluted shares $ 7,121 $ 5,925 ========= ======== Total number of weighted average shares outstanding used to compute basic earnings per share 36,137 36,357 Additional dilutive shares assuming conversion of convertible debentures 2,119 1,158 --------- -------- Total number of shares used to compute diluted earnings per share 38,256 37,515 ========= ======== Net earnings Basic and diluted earnings per share $ .19 $ .16 ========= ======== 5. Inventories: Inventories consist of the following: March 31, December 31, 2002 2001 --------- ----------- Raw materials $ 13,308 $ 11,749 Other 1,902 2,080 --------- --------- Total inventories $ 15,210 $ 13,829 ========= ========= 6. Intangible and Other Assets: Intangible and other assets consist of the following: March 31, December 31, 2002 2001 --------- ---------- Intangibles: Mining Permit Carrying value $ 15,448 $ 15,448 Accumulated amortization (1,264) (1,124) Non-compete agreements Carrying value 1,405 1,405 Accumulated amortization (962) (929) Land option 2,000 2,000 Notes receivable 2,432 2,400 Other 528 1,187 --------- ---------- Total intangible and other assets $ 19,587 $ 20,387 ========= ========== 5 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 6. Intangible and Other Assets: (continued) Amortization expense amounted to $173 and $821 as of March 31, 2002 and March 31, 2001, respectively. Amortization expense for 2002 and the subsequent five years is as follows: Mining Permit Non-compete ------------- ----------- 2002 562 130 2003 562 100 2004 562 40 2005 562 33 2006 562 20 2007 562 19 7. Comprehensive Income: Comprehensive income includes net earnings and unrealized gains (losses) on securities and minimum pension liability adjustments. Comprehensive income for the three months ended March 31, 2002 and 2001 was as follows: Three Months Ended March 31, --------------------- 2002 2001 --------------------- Net earnings $ 6,956 $ 5,834 Other comprehensive income (loss), before tax: Minimum pension liability adjustment (323) - Income tax expense related to items of other comprehensive income 129 - --------- --------- Comprehensive income $ 6,762 $ 5,834 ========= ========= - ------------------------------------------------------------------ 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 meet the requirements of quantitative thresholds and are being disclosed as reportable operating segments. Other Operations includes the Northern California and Quarries Operations. Corporate depreciation, depletion and amortization and operating income (loss) includes general corporate expenses and goodwill and intangible amortization related to acquisitions, which collectively are not reported to the chief operating decision maker by segment. Corporate identifiable assets include corporate cash and cash equivalents, home office facilities, investments in non- materials related operations and deferred tax assets. 6 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 8. Segment Reporting: (continued) The Company evaluates operating performance based on operating income, which excludes the following items: general corporate expenses, goodwill and intangible amortization related to acquisitions, interest income, interest expense, results from non-materials related operations and income taxes. Due to geographic locations, no intersegment sales or transfers are made between the segments. Pacific Three months ended Arizona Northwest Other March 31, 2002 Operations Operations Operations Corporate Total - --------------------------------------------------------------------------- Aggregates $ 13,980 $ 4,768 $ 5,919 $ - $ 24,667 Hot-mix asphalt 14,815 1,379 554 - 16,748 Ready mix concrete 61,432 3,776 3,762 - 68,970 Other 2,846 - - - 2,846 -------- --------- --------- -------- -------- Total revenues $ 93,073 $ 9,923 $ 10,235 $ - $113,231 Depreciation, depletion and amortization $ 2,731 $ 1,342 $ 1,109 $ 260 $ 5,442 Operating income (loss) $ 12,203 $ 271 $ 1,359 $ (1,805) $ 12,028 Identifiable assets $127,595 $ 49,450 $ 70,384 $121,346 $368,775 Goodwill, net of accumulated amortization $ 11,855 $ 14,854 $ 30,767 $ - $ 57,476 Capital expenditures $ 787 $ - $ 1,625 $ 119 $ 2,531 Three months ended March 31, 2001 - ------------------ Aggregates $ 14,176 $ 4,383 $ 6,219 $ - $ 24,778 Hot-mix asphalt 15,365 1,624 307 - 17,296 Ready mix concrete 59,134 3,981 3,944 - 67,059 Other 3,936 - - - 3,936 -------- --------- --------- -------- -------- Total revenues $ 92,611 $ 9,988 $ 10,470 $ - $113,069 Depreciation, depletion and amortization $ 2,547 $ 1,317 $ 1,038 $ 858 $ 5,760 Operating income (loss) $ 9,355 $ (12) $ 1,321 $ (1,897) $ 8,767 Identifiable assets $125,905 $ 50,975 $ 62,442 $ 84,938 $324,260 Goodwill, net of accumulated amortization $ 11,445 $ 15,503 $ 31,328 $ - $ 58,276 Capital expenditures $ 3,167 $ 1,361 $ 2,151 $ 6 $ 6,685 7 - ------------------------------------------------------------------ KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 9. Transitional Disclosure for Adoption of SFAS 142: On January 1, 2002, the Company adopted SFAS 142, and, accordingly, discontinued goodwill amortization. Results for the three months ended March 31 assuming the elimination of goodwill amortization are summarized below: 2002 2001 ---------- ---------- Net earnings As reported $ 6,956 $ 5,834 Goodwill amortization (net of tax) - 389 ---------- ---------- As adjusted net earnings $ 6,956 $ 6,223 ---------- ---------- Basic net earnings per share As reported $ .19 $ .16 Goodwill amortization (net of tax) - .01 ---------- ---------- As adjusted $ .19 $ .17 ---------- ---------- Diluted net earnings per share As reported $ .19 $ .16 Goodwill amortization (net of tax) - .01 ---------- ---------- As adjusted $ .19 $ .17 ---------- ---------- The Company completed the first step of the two-step test for goodwill impairment. There was no indication of goodwill impairment. Therefore, the second test is not necessary and no impairment loss is required 10. 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. 8 - ------------------------------------------------------------------ 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 the Company's Consolidated Condensed Financial Statements, including the notes thereto, included elsewhere in this quarterly report on Form 10-Q. Due to seasonal weather related conditions, earnings of any one quarter should not be considered indicative of results to be expected for a full year or any other interim period. Results of Operations - First Quarter 2002 vs. First Quarter 2001 The Consolidated Statements of Earnings summarizes the operating performance of the Company for the two quarters ended March 31, 2002 and 2001. To faciliate analysis, these results are discussed on an overall basis and by reporting segment as explained in Footnote No. 8 of the Notes to Consolidated Condensed Financial Statements. Revenue. Overall sales for the first quarter of 2002 were $113 million. This is unchanged from sales for the first quarter of 2001. Pricing improvements averaging 4% across product lines and a 3% increase in hot-mix asphalt sales volumes were offset by a 10% decline in shipments of aggregate products. Sales of ready mix products were approximately equal to the first quarter of 2001. Gross Profit. Gross profit increased approximately $2 million to $16.4 million in the first quarter of 2002 as compared to $14.6 million in 2001. Gross margin improvements for each segment combined to increase the gross margin percentage from 12.9% to 14.5% in the first quarters of 2001 and 2002, respectively. Approximately one third of this gross margin improvement was from the elimination of goodwill amortization as required by Financial Accounting Standards Board Statement of Financial Standards No. 142. General and Administrative Expenses. General and administrative expenses increased $0.7 million in the first quarter of 2002 when compared to 2001. Increases in expenses occurred for corporate support and at each segment. Corporate expenses increased by $0.2 million largely due to higher insurance and computer costs. Gain on Sale of Property, Plant, and Equipment. Gains from the sale of property, plant and equipment increased $2 million in the first quarter of 2002 when compared to the same period in 2001. The increase resulted from a gain recognized on the sale of depleted mineral property in Arizona in the first quarter of 2002. Other Income and Expenses. Other income decreased $1.4 million resulting from lower investment income due to the general decline in interest rates, a loss experienced by the limited partnership investment that is accounted for using the equity method and greater interest expense from the increased amount of convertible debenture debt outstanding. Provision for Income Taxes. The income tax rate for the first quarter of 2002 and 2001 was 40%. The rate differs from the federal statutory rate because of state income taxes and percentage depletion deductions that are in excess of cost depletion. 9 - ------------------------------------------------------------------ Arizona Operations. Revenue remained at $93 million for the two periods. The segment experienced a 19% decline in aggregate sales volumes from weather related delays in certain areas of Arizona and the completion in 2001 of several projects that were large purchasers of company aggregates. The decline in aggregate sales was offset by higher average selling prices for aggregates, ready mix concrete, and hot-mix asphalt products. Combined, these price increases averaged 3% of sales revenue. Sales volumes for ready mix concrete products were essentially unchanged when comparing the two quarters. Hot-mix asphalt volumes declined approximately 2% between the two periods. Gross profit margins increased slightly between the two quarters as a result of higher selling prices. The segment also benefited from the sale of depleted mineral property generating a $2 million gain. General and administrative expenses for this segment increased $0.3 million primarily from higher legal and professional service costs. Pacific Northwest Operations. Revenue equaled $10 million for the two quarters. Sales volumes for aggregates rose 22% in 2002 from the low volume of shipments experienced in the first quarter of 2001. Offsetting this increase was a 12% decline in hot-mix asphalt sales volumes and a price decrease for products that averaged 7% of sales revenue. Gross profit margins increased principally from the 22% increase in aggregate unit sales. General and administrative expenses for this segment increased slightly as a result of costs relating to a purchasing program. Other Operations. Revenue remained at $10 million for each period. Price increases averaging 4% across product lines compensated for a 7% unit volume decline in aggregate sales. The majority of this unit volume decrease was attributable to the timing requirements of the primary customer at a quarry. Gross profit margins benefited from the higher selling prices in 2002. General and administrative expenses increased due to costs related to computer systems installed since the first quarter of 2001 that were necessary to support an expanded service area. Liquidity and Financial Condition - March 31, 2002 - -------------------------------------------------- Cash and cash equivalents decreased $21 million to $96 million at March 31, 2002 from $117 million at December 31, 2001. The decrease reflects cash provided from operations of $9 million less cash used in investing activities of $28 million and $2 million used in financing activities. Net cash provided by operations for the first three months of 2002 of $9 million represented a $7 million decrease from the same period in 2001. The decrease was mainly due to changes in working capital balances which were partially offset by a $1 million increase in net income. Net cash used in investing activities in the first three months of 2002 increased $23 million as compared to the first three months of 2001. The increase was mainly due to an investment in a limited partnership for $25 million. This investment was partially offset by an increase of $2 million in proceeds from sales of property, plant and equipment as the Company disposed of fully depleted assets. Net cash used in financing activities increased $.6 million in 2002 as compared to the first quarter of 2001. Payments on long-term debt constituted the reason for the increase in cash used. The Company 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 the Company for the next twelve months. The Company does not have any established credit facilities. At March 31, 2002, the Company had $19 million of notes payable and convertible debentures payable. Further, the Company does not currently intend to pay any cash dividends. The Company is continuously engaged in evaluating strategies to enhance shareholder value. The Company's business plan to grow through acquisitions will require capital that is in addition to ongoing operational requirements. While historically the Company has received contributions from PKS to fund a portion of acquisitions, the Company believes that cash on 10 - ------------------------------------------------------------------ hand, cash generated by operations, and the ability to borrow funds will allow the Company 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 the Company has in completing these transactions. Should the Company be unable to obtain any necessary funds from borrowings on terms deemed appropriate, the Company would be limited in its ability to fully execute its growth strategy. While the Company believes its growth strategy to be important in enhancing shareholder value, the Company does not believe that the inability to fully pursue it would have a material adverse impact on current operations, financial condition or liquidity. Critical Accounting Policies - ---------------------------- The Company has prepared its financial statements in conformity with accounting principles generally accepted in the United States, and these statements necessarily include some amounts that are based on informed judgments and estimates of management. The Company's critical accounting policies are subject to judgments and uncertainties, which affect the application of such policies. As discussed below the Company's financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. The Company's critical accounting policies include: Impairment of long-lived assets and intangibles. The Company reviews the carrying values of its long-lived assets, including goodwill and identifiable intangibles, whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Unforeseen events and changes in circumstances and market conditions and material differences in the value of intangible assets due to changes in estimates of future cash flows could negatively affect the fair value of the Company's assets and result in an impairment charge. Accrued insurance cost. The Company maintains insurance coverage for various aspects of its business and operations. The Company has elected, however, to retain a portion of losses that occur through the use of various deductibles, limits and retentions under its insurance programs. The Company accrues for the estimated ultimate liability for incurred losses. Consequently, the actual ultimate liability could differ from these estimated liabilities. Purchase accounting. The Company accounts for its acquisitions under the purchase method of accounting and accordingly, the acquired assets and liabilities assumed are recorded at their respective fair values. The recorded values of assets and liabilities are based on third-party estimates and valuations when available. The remaining values are based on management's judgments and estimates, and accordingly, the Company's financial position or results of operations may be affected by changes in estimates and judgments. Revenue recognition. Revenue is recognized when the earnings process is complete, as evidenced by an agreement between the customer and the Company, when delivery has occurred or services have been rendered, when the fee is fixed or determinable and when collection is probable. The recognition of revenue in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of revenue. New Accounting Pronouncement In July 2001, the FASB issued SFAS No. 141 ("SFAS 141"), "Business Combinations," and SFAS No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 supercedes Accounting Principles Board Opinion ("APB") No. 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 11 - ------------------------------------------------------------------ amortized). Adoption of this statement did not materially affect the Company's consolidated financial position or results of operations. 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 are 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. On January 1, 2002, the Company adopted SFAS 142, and, accordingly, discontinued goodwill amortization. Results for the three months ended March 31 assuming the elimination of goodwill amortization are summarized in Footnote 9 in the Notes to Consolidated Condensed Financial Statements. During June 2001, the FASB issued SFAS No. 143 (SFAS 143), Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002. In several of the states in which the Company operates, a reclamation obligation is not required by the governing bodies, therefore, the Company does not anticipate the adoption of this statement to have a material effect on the Company's consolidated financial position or results of operations. On October 3, 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that Statement. SFAS 144 is effective for fiscal years beginning after December 31, 2001. Adoption of this statement did not materially affect the Company's consolidated financial position or results of operations. Item 3. Quantitative and Qualitative Disclosure about Market Risk. Other than discussed below, the Company does not believe it is subject to significant market risks arising from interest rates, foreign exchange rates or equity price fluctuations associated with market risk sensitive instruments. The Company may be subject to market risks arising from interest rate fluctuations if the Company borrows funds to make investments in future acquisitions. In addition, the Company became a limited partner in a private investment fund limited partnership (the "Partnership") on February 1, 2002. The investment objective of the Partnership is to generate current income and capital appreciation while minimizing the potential for loss of principal. The Partnership may use a variety of investment strategies with the principal one being merger arbitrage. In general, a merger arbitrage strategy involves purchasing the stock of a company being acquired or merged with another company and selling short the stock of the acquiring company. A particular merger arbitrage transaction will either derive a profit or a loss depending on the price differential between the price of the securities when purchased and the price ultimately realized when the transaction is completed. The primary risk is that a loss could result if the transaction is not completed. The Partnership invests in a diversified portfolio of these types of transactions to minimize risk of loss. 12 - ------------------------------------------------------------------ PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a) Exhibits required by Item 601 of Regulation S-K. None. b) No reports on Form 8-K have been filed during the first quarter of 2002. 13 - ------------------------------------------------------------------ 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: May 14, 2002 /s/ Donald E. Bowman -------------------------------- Donald E. Bowman Vice President, Chief Financial Officer 14 - ------------------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----