10-K 1 r10k0302.txt FOR PERIOD ENDING DECEMBER 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 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) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The registrant's stock is not publicly traded, and therefore, there is no ascertainable market value of voting stock held by non-affiliates. 36,077,833 shares of the registrant's $0.01 par value Common Stock were issued and outstanding on March 27, 2002. Portions of the registrant's definitive proxy statement for its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. --------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- Part I Item 1. Business 1 Item 2. Properties 4 Item 3. Legal Proceedings 5 Item 4. Submissions of Matters to a Vote of Security Holders 6 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36 Part III Item 10. Directors and Executive Officers of the Registrant 36 Item 11. Executive Compensation 36 Item 12. Security Ownership of Certain Beneficial Owners and Management 36 Item 13. Certain Relationships and Related Transactions 36 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37 i --------------------------------------------------------------------------- Forward-Looking Statements. 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, 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. PART I Item 1. Business. General. Kiewit Materials Company and its subsidiaries ("KMC" or the "Company") operate ready mix, asphalt and aggregate operations in Arizona, Washington, Oregon, California, Wyoming, Nebraska, Utah and New Mexico. KMC, a formerly wholly owned subsidiary of Peter Kiewit Sons', Inc. ("PKS"), was incorporated under the laws of Delaware on February 2, 1999, to consolidate the materials businesses of PKS under one holding company. KMC has two reportable business segments with three product lines, aggregates, ready-mix concrete and hot-mix asphalt. Information about KMC's product lines and reportable segments for the fiscal years ended December 31, 2001, December 31, 2000, and December 25, 1999 is included in Note 14 of the "Notes to the Consolidated Financial Statements," of this Annual Report on Form 10-K. KMC's objective is to continue growing its businesses utilizing a four-part business strategy. First, KMC plans to continue to build value in markets currently served. Second, KMC plans to expand its presence in existing markets through cash or debt-financed acquisitions. Third, KMC intends to enter, via cash or debt-financed acquisitions, new high-growth potential markets. Finally, KMC seeks to acquire and develop additional strategic aggregate reserves in selected markets. The Spin-off. The Board of Directors and Management of PKS concluded that separation of its materials business and its construction business by means of a spin-off was in the best interests of PKS and PKS' stockholders. In reaching this conclusion, PKS' Board of Directors and Management considered that, as a result of the separation: (i) the senior management of KMC would acquire a larger, direct interest in the materials business that reflects solely the performance of KMC; (ii) KMC employees would acquire a larger, direct interest in the materials business, which the PKS Board of Directors believed was essential to KMC's ability to better retain, attract, and motivate its employees; and (iii) KMC would improve its ability to make sales to, and secure contracts from, unrelated construction businesses that may have concerns about doing business with KMC while it was owned and controlled by a direct competitor. On September 30, 2000, PKS completed the separation of its construction business and its materials business by distributing 32,288,840 shares of KMC common stock, representing all of the shares of KMC common stock it then held, to PKS stockholders of record on September 15, 2000, in a spin-off intended to be tax free for U.S. federal income tax purposes (the "Spin-off"). PKS distributed the KMC common stock as a dividend to its stockholders on a pro rata basis with each PKS stockholder receiving one share of KMC common stock for each share of PKS common stock that stockholder held on the record date. The Share Exchange. Prior to the Spin-off, PKS offered PKS stockholders who were then KMC employees the opportunity to exchange their shares of PKS common stock for shares of KMC common stock with an equal aggregate formula price. In the share exchange, KMC employees collectively exchanged 1,081,226 shares of their 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 PKS share tendered for exchange, 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 shares of KMC common stock on September 15, 2000. 1 --------------------------------------------------------------------------- The Debenture Exchange. Prior to the Spin-off and concurrently with the share exchange, PKS offered holders of its outstanding convertible debentures the opportunity to exchange their PKS debentures for: - KMC debentures convertible into shares of KMC common stock; or - both shares of KMC common stock and new reduced principal amount PKS debentures convertible into shares of PKS common stock. In the debenture exchange, PKS debentureholders collectively exchanged $13,095,000 principal amount outstanding PKS debentures for: - $670,000 principal amount KMC convertible debentures; and - both 973,383 shares of KMC common stock and $5,475,045 principal amount new PKS debentures. PKS and KMC now operate as two separate, independent companies. The Materials Business. KMC's business is conducted by operating subsidiaries of KMC and involves the production and sale of aggregates, ready- mix concrete and hot-mix asphalt. Locations. KMC operates in Arizona, Washington, Oregon, California, Wyoming, Nebraska, 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. KMC also provides construction services in and around Yuma, Arizona, focusing mainly on paving and related projects. Financial information about geographic areas for the fiscal years ended December 31, 2001, December 31, 2000 and December 25, 1999 is included in Note 14 of the "Notes to Consolidated Financial Statements" of this Annual Report on Form 10-K. Products. Aggregates. KMC produces and sells primarily 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. Aggregate products are used as highway construction materials, railroad ballast, decorative landscape rock, roofing aggregate and building stone. In 2001, KMC produced in excess of 29 million tons of construction materials and generated approximately $117 million of revenue from the sale of these materials. Approximately 36% of the aggregates produced in 2001 were used internally in the production of concrete and asphalt products. Ready-mix Concrete. KMC produces ready-mix concrete by combining aggregates, cement, water and additives. The additives allow KMC 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. In 2001, KMC produced in excess of 4 million cubic yards of ready-mix concrete and generated approximately $285 million of revenue from the sale of ready-mix concrete. Hot-mix Asphalt. KMC produces and sells hot-mix asphalt products. Hot-mix 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. In 2001, KMC produced in excess of 3 million tons of hot-mix asphalt and generated approximately $93 million of revenue from the sale of hot-mix asphalt. Customers. KMC markets to a wide variety of customers including highway contractors, commercial, industrial and residential contractors, public works contractors, wholesalers and retailers of decorative rock products, interstate railroads and manufacturers of concrete block products. 2 --------------------------------------------------------------------------- Produced material is used in both publicly and privately funded projects, although KMC generally does not directly contract with any public entity. No single customer accounted for more than 4% of sales in 2001. Competition. 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 KMC 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 KMC may have an advantage on price sensitive projects. Governmental and Environmental Regulation. KMC's facilities are subject to various evolving federal, state and local laws and regulations relating to the environment, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Certain environmental laws impose substantial penalties for non-compliance and others, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances. KMC continually evaluates whether it must take additional steps at its locations to ensure compliance with certain environmental laws. KMC 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 its business. KMC, as well as other companies in the aggregates industry, produce certain products containing varying amounts of crystalline silica. Excessive and prolonged inhalation of very small particles of crystalline silica has been associated with non-malignant lung disease. The carcinogenic potential of excessive exposure to crystalline silica has been evaluated for over a decade by a number of research groups including the International Agency for Research on Cancer, the National Institute for Occupational Safety and Health and the National Toxicology Program, a part of the Department of Health and Human Services. Results of various studies have ranged from classifying crystalline silica as a probable to a known carcinogen. Other studies concluded higher incidences of lung cancer in some operations were due to cigarette smoking, not silica. Governmental agencies, including the Occupational Safety and Health Administration and the Mine Safety Health Administration, coordinate to establish standards for controlling permissible limits on crystalline silica. KMC believes that 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. KMC 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. Employees. KMC employed approximately 2,100 people as of March 1, 2002. Of these, about 400 are officers, operations management, sales personnel, technical staff, administrative personnel and clerical staff. Approximately 1,400 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 over a number of years. These agreements call for specified wage rates, payments to pension plans or benefit trusts and require KMC to comply with various workplace rules. KMC considers relations with its employees to be good. Acquisitions. Since 1992, KMC has acquired sixteen materials companies, an aggregate reserve property in Arizona, and developed a new quarry site in Utah as part of the implementation of its four-part strategy. The purchase price payable in these acquisitions ranged from approximately $1 million to $47 million. Three of the sixteen acquisitions of materials companies were in excess of $40 million, one was in excess of $30 million and the remainder were between $1 million and $7 million. These acquisitions have allowed KMC to expand its presence in existing markets in Arizona and the 3 --------------------------------------------------------------------------- Vancouver, Washington and Portland, Oregon areas and enter new markets in Northern California and Nebraska. Revenues have increased from $40 million in 1992 to $509 million for 2001 and production tonnage has grown from 5.5 million tons in 1992, to in excess of 29 million tons in 2001. KMC intends to continue its disciplined investment approach to achieve profitable growth through acquisitions. While a general slowdown in the national economy during 2001 made it more difficult for KMC to find acquisition opportunities that met KMC's financial and strategic criteria, from January 1, 2001 through December 31, 2001, KMC expended approximately $16 million and completed two acquisitions of materials businesses and the acquisition of an aggregate reserve property in Arizona in connection with its growth strategy. Although as a part of KMC's growth strategy, KMC evaluates potential acquisitions from time to time, KMC is not currently a party to any agreements which would be material to its business, or which would require separate disclosure. Item 2. Properties. Operations and Properties. KMC is organized into four operating divisions: Arizona Operations, Pacific Northwest Operations, Northern California Operations and Quarries Operations. KMC 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. KMC is a vertically integrated provider of aggregates, ready- mix concrete and asphalt products. KMC operates 60 ready-mix batch plants and 16 asphalt plants at its locations in Arizona, California, Oregon and Washington. KMC's aggregates operations, consisting of 44 aggregate facilities and 4 rockeries, are located in Arizona, California, New Mexico, Nebraska, Utah, Washington and Wyoming. KMC 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 2001, KMC's combined operations produced and sold in excess of 29 million tons of aggregates consisting of construction materials, ballast, highway aggregates, roofing aggregates, concrete block aggregates and landscape rock products. Arizona Operations also manages a construction service business in the Yuma, Arizona area. KMC's executive management provides its four operating divisions with strategic planning, corporate development and acquisitions and operations oversight. KMC 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. KMC estimates that its total recoverable aggregates reserves are in excess of 810 million tons. Approximately 31 million tons of these reserves are located at dormant aggregate production facilities. 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. KMC's 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 the recoverable reserve estimate. The estimated recoverable aggregate reserve figures exclude one dredging permit located in the Pacific Northwest because it is unlikely the Company will produce from this site prior to the permit expiration date. KMC owns about 468 million tons of aggregates reserves and leases another 342 million tons of aggregates reserves. KMC's 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 83 years. Royalty payments range from $0.35 to $1.45 per ton. Most of KMC's long-term leases also provide an option for the lease to be renewed. 4 --------------------------------------------------------------------------- The following table summarizes KMC's principal aggregate production facilities and estimated reserves at March 1, 2002: Annual Years Production Until Type of (in thousands Nature Reserve Product Facility of tons) of Interest Depletion ------- -------- ------------ ----------- --------- Portland Oregon/ Vancouver Production Washington Sand and and Average of Area (9 sites) Gravel(7) Distribution 4,170 5 Leased 21 years Gray Basalt(2) 4 Owned Yolo County, Sand and Production California Gravel and Distribution 1,000 Owned 25 years Milford, Utah Quartz Production Latite and Distribution 485 Leased 21 years Little Lake, Scoria Production California and Distribution 90 Leased 15 years Granite Canyon, Granite Production Wyoming and Distribution 2,735 Leased 32 years Des Moines, Scoria Production New Mexico (2 and sites) Distribution 125 Leased 28 years Guernsey, Wyoming Dolomite, Production (3 sites) Limestone and Average of and Distribution 350 1 Leased over 100 Quartz 2 Owned years Phoenix, Arizona Sand and Production Area (12 sites) Gravel and Average of Distribution 8,750 9 Leased 24 years 3 Owned Tucson, Arizona Sand and Production Area (2 sites) Gravel and 1,310 Owned Average of Distribution 30 years Nogales, Arizona Sand and Production Gravel and Distribution 160 Leased 8 years Sierra Vista, Sand and Production Arizona Gravel and Distribution 225 Leased 9 years Flagstaff,Arizona Sand and Production (2 sites) Gravel and Average of Distribution 515 Leased 27 years Casa Grande, Sand and Production Arizona Gravel and Distribution 760 Leased 17 years Winkelman,Arizona Gypsum Production 85 Owned Over 100 years Campe Verde, Sand and Production Arizona Gravel and Distribution 435 Owned 5 years Globe, Arizona Sand and Production Gravel and Distribution 170 Owned 18 years Yuma, Arizona Sand and Production (2 sites) Gravel and Average of Distribution 670 Leased 19 years Bullhead City, Sand and Production Arizona (2 Gravel and Average of sites) Distribution 290 Leased 28 years Mammoth, Arizona Sand and Production Gravel and Distribution 40 Leased 93 years Prescott, Arizona Sand and Production Average of (2 sites) Gravel and over 100 Distribution 60 Leased years Fort Calhoun, Limestone Production Nebraska (2 and Average of sites) Distribution 1,700 1 Owned 86 years 1 Leased

Estimated reserves are the probable total recoverable reserves that are at each quarry site. The reserve figures include only saleable tonnage and thus exclude waste material that is generated in the crushing and processing phases of the operation. "Annual Production" is the Company's estimate of future yearly production occurring at each site based on management's judgment given historical trends, mining plans and demand estimates. Overall reserve estimates are determined by using a combination of drill holes, quarry mining plans and historical averages. Sites may have leases that expire prior to the exhaustion of estimated reserves. The reserve life anticipates that some leases will be renewed to allow sufficient time to fully recover this material. The reserve estimate numbers for the property in Yolo County, California and for a dredging permit in the Pacific Northwest assume that the sites will be limited to the current permits and that the permits will not be extended past their expiration dates. The figures used in the reserve data and remaining life may require revisions due to changes in customer requirements and unknown geological occurrences. The years until reserve depletion is calculated as total saleable reserves at a location divided by annual production. Reserves from dormant facilities are included in determining Years Until Reserve Depletion as the Company expects to activate these facilities as other currently active sites become depleted. Actual useful lives will be subject to, among other things, fluctuations in customer demand, customer specifications, geological conditions and changes in mining plans. For areas with multiple sites, the Years Until Reserve Depletion figure equals total reserves in that area divided by Annual Production. Consequently, the life of any specific site in a city or area with multiple sites may be exhausted prior to or extend beyond the average life for the sites in that city or area. Item 3. Legal Proceedings. From time to time, the Company has been involved in various legal proceedings relating to its operations and properties, all of which the Company 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, the Company believes, based on its examination of such matters, that none of these proceedings, if determined adversely, would have a material adverse effect on the Company's business, financial position, results of operations or cash flows. 5 --------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of KMC's shareholders during the three months ended December 31, 2001. Executive Officers of the Registrant. The table below shows information as of March 1, 2002, about each executive officer of the Company, including his business experience during the past five years. The Company's executive officers are elected annually to serve until their successors are elected and qualified or until their death, resignation or removal. Name Business Experience Age ---- ------------------- --- Christopher J. Murphy Mr. Murphy has been a director and the 47 Chief Executive Officer of KMC since January 1, 2000. Mr. Murphy has been the President of KMC since February 2, 1999. Mr. Murphy was the President of Kiewit Mining Group Inc., a PKS subsidiary, from July 1996 through September 2000 and was Vice President of Kiewit Mining Group from October 1995 to July 1996. Mr. Murphy has been the President of United Metro Materials Inc., a subsidiary of KMC, 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 KMC. Donald E. Bowman Mr. Bowman has been Vice President and Chief 53 Financial Officer of KMC since April 24, 2000. Mr. Bowman was President, Eastern Region, Construction Materials of Lafarge Corporation from January 1998 to March 1999. Mr. Bowman was President and Chief Executive Officer of Redland Genstar, Inc., from January 1996 to January 1998 and was Executive Vice President of Redland Genstar from January 1995 to January 1996. Mark E. Belmont Mr. Belmont has been General Counsel and Secretary 48 of KMC since January 1, 2000 and a Vice President of KMC since February 2, 1999. Mr. Belmont was Senior Corporate Counsel of PKS for more than five years prior to January 1, 2000. John J. Shaffer Mr. Shaffer has been a Vice President of KMC since 51 January 1, 2000. Mr. Shaffer has been Vice President of Pacific Rock Products, L.L.C., a subsidiary of KMC, since February 1, 1996. Mr. Shaffer was Vice President of Pacific Rock Products, Inc. for more than five years prior to February 1, 1996. Daniel W. Speck Mr. Speck has been a Vice President of KMC since 46 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. Rick W. Thomas Mr. Thomas has been a Vice President of KMC since 45 October 20, 2000. Mr. Thomas was Director of Business Development of KMC from January 1999 to October 2000. From 1997 to 1998, Mr. Thomas held a senior operations position with Kiewit Mining Group. 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. Todd A. Freyer Mr. Freyer has been Controller of KMC since 41 April 1, 2000 and Treasurer since February 2, 1999. Mr. Freyer was Accounting Manager of Kiewit Mining Group from April 1999 through September 2000 and was Accounting Supervisor of Kiewit Mining Group for more than five years prior to April 1999.

6 --------------------------------------------------------------------------- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Market Information. As of December 31, 2001, shares of KMC's common stock ("Common Stock") are not listed on any national securities exchange or quoted on the NASDAQ National Market and there is no established public trading market for the Common Stock. Transfer Restrictions. Holders of Common Stock are prohibited from transferring the Common Stock in any manner except in a sale to KMC and, with prior approval by the KMC 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 KMC stockholder, the shares of 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 Common Stock that may be owned by any individual or entity. Holders of Common Stock are permitted to pledge the Common Stock for loans in connection with the ownership of the Common Stock. In the event that the KMC Board of Directors decides to conduct an initial public offering of the Common Stock, officers and directors of KMC and stockholders owning one percent or more of the 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, KMC estimates that there may be up to eight additional stockholders who may own 1% or more of Common Stock and thus be subject to this transfer restriction. All transfer restrictions on the Common Stock may be terminated by the KMC Board of Directors at any time. Company Repurchase Obligation. Pursuant to the terms of the Company's Restated Certificate of Incorporation ("Certificate"), the Company is generally required to repurchase shares of Common Stock at a formula price upon demand. Common Stock can be sold only to the Company at a formula price based on the year-end book value of the Company. The Company is generally required to repurchase Common Stock for cash upon stockholder demand. Formula Price. The formula price of the Common Stock is determined by dividing the sum of total redeemable common stock plus the face amount of convertible debentures by the total number of issued and outstanding shares of Common Stock plus the total number of shares reserved for the conversion of outstanding convertible debentures at the end of the previous year and deducting from the quotient the amount of declared dividends during the current year. At December 31, 2001, the formula price of the Common Stock was $8.77 per share. At December 31, 2000, the formula price of the Common Stock was $7.86 per share. At September 30, 2000, the formula price of the Common Stock was $7.14 per share. Stockholders. On March 27, 2002 the Company had the following numbers of stockholders and outstanding shares: Class of Stock Stockholders Outstanding Shares -------------- ------------ ------------------ Common Stock 1,491 36,077,833 Dividends and Prices. The Company does not currently intend to pay cash dividends on the Common Stock. 7 --------------------------------------------------------------------------- Item 6. Selected Financial Data. The following table presents selected historical financial data of the Company as of and for the fiscal years ended 1997 through 2001, and is derived from the Company's historical consolidated financial statements and the notes to those financial statements. The Company was a subsidiary of PKS prior to September 30, 2000. Fiscal Year Ended 2001 2000 1999 1998 1997 --------------------------------------------------------------------------- (in thousands, except per share data) Results of Operations: Revenue $ 508,819 $ 488,509 $ 437,458 $ 333,060 $ 277,309 Net earnings $ 35,085 $ 27,052 $ 25,828 $ 15,378 $ 16,542 Per Common Share: Net earnings Basic $ .97 $ .74 $ .71 $ .42 $ .46 Diluted $ .94 $ .74 $ .71 $ .42 $ .46 Dividends $ - $ - $ - $ - $ .11 Formula price (1) $ 8.77 $ 7.86 Book value $ 8.86 $ 7.90 $ 5.77 $ 3.83 $ 3.35 Financial Position: Total assets $ 415,649 $ 376,243 $ 277,991 $ 207,054 $ 181,699 Current portion of long-term debt $ 1,127 $ 1,112 $ 562 $ 740 $ 387 Long-term debt, net of current portion $ 2,534 $ 3,779 $ 3,753 $ 761 $ 1,492 Redeemable Common Stock (2) $ 320,964 $ 288,011 $ 209,733 $ 139,287 $ 121,631 ------------------------------------------------------------------- (1) Pursuant to the Certificate, the formula price calculation is computed annually at the end of the fiscal year as described previously in Item 5. All share transactions commencing during the subsequent year are valued at the previous fiscal year end formula price. There was not a separate calculation of formula price for the Company while it was wholly owned by PKS. On September 30, 2000, the formula price of the Common Stock was $7.14 per share. (2) Holders of Common Stock are prohibited from transferring the Common Stock in any manner except in a sale to the Company and to certain authorized transferees of the holders. The Company is generally required to purchase all Common Stock at the formula price. The aggregate redemption value of Common Stock at December 31, 2001 and December 31, 2000 was $317,622 and $286,603, respectively. 8 --------------------------------------------------------------------------- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - 2001 vs. 2000 Revenue. Revenue increased $20 million in 2001 to $509 million as compared to $489 million in 2000. Revenue from Arizona Operations increased $16 million due to higher average selling prices for hot-mix asphalt and ready-mix concrete products. Revenues for the operating division also benefited from a 5% increase in unit sales of hot-mix asphalt products. These increases were partially offset by a 3% decrease in ready-mix concrete sales in 2001 when compared to 2000. Revenue from the Pacific Northwest Operations declined $7 million between the two periods resulting from a 9% decline in aggregate unit volumes, an 11% decline in hot-mix asphalt product sales, and a 7% decline in ready-mix concrete sales. Average selling prices for aggregate also declined for 2001 when compared to 2000. The decrease in revenue was mitigated by slightly higher average selling prices for hot-mix asphalt and ready-mix concrete products. Other Operations experienced an $11 million increase as revenue from 2000 acquisitions compensated for a 29% decline in unit volumes from operations owned prior to 2000. Gross Profit. Gross profit margins increased to 15% in 2001 as compared to 14% in 2000. Gross profits for Arizona Operations increased largely due to improved hot-mix asphalt margins as a result of higher average selling prices. Gross profit margins for the Pacific Northwest Operations declined as a result of lower unit volumes and lower average selling prices for aggregate products. Gross profit margins for Other Operations improved as the higher overall margins generated from 2000 acquisitions offset slightly lower margins achieved by operations owned prior to 2000. General and Administrative. General and administrative expenses increased $1 million in 2001 when compared to 2000. Arizona Operations was unchanged for the two periods as cost efficiency measures offset the additional costs necessary to support higher asphalt unit volumes. Pacific Northwest Operations experienced a slight decrease due to the reduction in activities necessary to support the lower unit volumes. Other Operations expenses increased to support an expanded operating area as a result of an acquisition in the second half of 2000. Corporate Operations increased due to ongoing costs related to becoming an independent company in September 2000. Gain on Sale of Property, Plant and Equipment. Gains from the sale of property, plant and equipment increased $3 million in 2001 when compared to 2000, due to gains recognized on the sale of land in the Arizona and Pacific Northwest Operations. Other Income and Expense. Other income decreased $1 million in 2001 when compared to 2000. The decrease is attributable to the recognition of operating results from a 2001 acquisition of a non-materials related operation, the write-off of a gain contingent upon the successful outcome of a court appeal and an overall decrease in interest rates earned on investments. Income Tax Expense. Income taxes differ from the federal statutory rate primarily because of state income taxes and percentage depletion. The effective tax rates were 36.5% for 2001 and 40.8% for 2000. Results of Operations - 2000 vs. 1999 The Board of Directors of PKS decided to separate its construction and materials businesses into two separate, independent companies in a spin-off that was intended to be tax-free for U.S. federal income tax purposes. To effectuate the transaction, the Board of Directors of PKS declared a dividend payable to the holders of record of PKS common stock as of September 15, 2000, based upon a ratio of one share of Common Stock for every share of PKS common stock owned on the record date. Effective September 30, 2000, all of the outstanding shares of Common Stock were distributed to PKS stockholders. Following the Spin-off, the Company began operations as an independent company. Prior to September 30, 2000, the financial statements reflect the results of operations, financial position and cash flows of the businesses transferred to the Company from PKS as they operated within PKS. As a result, the financial statements of the Company prior to September 30, 2000 have been carved out from the financial statements of PKS using the historical results of operations and historical basis of the assets and liabilities of such businesses. The Company's statements of earnings prior to September 30, 2000, include all of the related costs of doing business, including charges for the use of facilities and for employee benefits, and include an allocation of certain general corporate expenses of PKS which were not directly related to 9 --------------------------------------------------------------------------- these businesses, including costs for information technology, finance, legal and corporate executive. Management believes these allocations were made on a reasonable basis. The financial information for periods prior to September 30, 2000 included herein, however, may not necessarily be indicative of the results of operations, financial position and cash flows of the Company in the future or what the results of operations, financial position and cash flows would have been had the Company been a separate, independent company during the periods presented. Revenue. Revenues increased $52 million in 2000 to $489 million as compared to $437 million for the same period in 1999. Revenue from Arizona Operations increased $25 million as this operating division experienced higher unit sales of aggregates and ready-mix concrete. This increase was offset by a 20% decline in unit sales of hot-mix asphalt as the operating division became more selective in supplying the market in an effort to improve gross profit margins for hot-mix asphalt. Revenue from operations located in the Pacific Northwest increased $5 million in 2000 compared to 1999. However, had the Company owned 100% of Pacific Rock Products, L.L.C. and Pacific Rock Products Trucking L.L.C. (formerly River City Machinery L.L.C.) (collectively "Pacific Rock") for all of 1999, revenue from Pacific Northwest Operations would have shown a $2 million decrease. This decline was attributable to 23% lower unit sales of aggregates as the demand for those products softened in 2000. Partially offsetting the aggregate revenue decline was an increase in hot-mix asphalt sales resulting from an additional plant. Other Operations revenue increased $22 million primarily from revenue produced by acquisitions occurring in 2000. Gross Profit. Gross profit margins for the Company remained consistent at approximately 14% for the two periods. Gross profits for Arizona Operations improved slightly as the operating division became more selective in supplying hot-mix asphalt products to the market. Gross profit for Pacific Northwest Operations declined 50% in 2000 compared to 1999. The decrease in sales of aggregates, higher asphalt oil costs and higher fuel expenses were responsible for this decrease. Gross profit margins from Other Operations also improved primarily from the acquisitions occurring in 2000. General and Administrative Expenses. General and administrative expenses increased $2 million in 2000 when compared to the same period of 1999. Arizona Operations expenses decreased by approximately $1 million due to the implementation of cost efficiency measures. Pacific Northwest Operations remained relatively constant during this period. Other Operations expenses increased $1.5 million due to the acquisition of Solano Concrete Co., Inc. Corporate Operations increased approximately $1.5 million due to additional ongoing costs related to becoming an independent company. Other Income and Expense. Other income increased $.5 million to $3.7 million in 2000 from $3.2 million in the same period of 1999. The increase was primarily attributable to an increase in interest income due to higher overall interest rates. Income Tax Expense. Income taxes differ from the federal statutory rate primarily because of state income taxes and percentage depletion. The effective tax rates were 40.8% for 2000 and 37.7% for 1999. The increase in the provision for taxes in 2000 was largely due to state and local income taxes. Liquidity and Financial Condition - December 31, 2001 Cash and cash equivalents increased $49 million to $117 million at December 31, 2001 from $68 million at December 31, 2000. The increase reflects net cash provided by operations of $69 million and by financing activities of $3 million offset by net cash used in investing activities of $23 million. Net cash provided by operations amounted to $69 million compared to $45 million for the same period in 2000. The $24 million increase was mainly due to higher net income of $8 million and a decrease in accounts receivable of $28 million. These sources of cash were partially offset by a decrease in accounts payable due to timing of vendor payments and by changes in other working capital. Net cash used in investing activities in 2001 decreased by $84 million to $23 million as compared to 2000. A $62 million decrease in investments and acquisitions, $16 million decrease in capital expenditures and an increase in proceeds from sales of property, plant and equipment of $6 million comprised the decreases in cash used in investing activities. 10 --------------------------------------------------------------------------- Net cash provided by financing activities decreased by $55 million to $3 million as compared to 2000. The decrease was mainly due to the receipt of a final capital contribution from former parent of $50 million in 2000, repurchases of common stock of $3 million and additional payments on long-term debt of $2 million. 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 December 31, 2001, the Company had $19 million of notes and convertible debentures payable. Further, the Company does not currently intend to pay any cash dividends. The Company intends to pursue a business plan to grow through acquisitions that 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 hand at the time of the Spin-off, 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 significant accounting policies are discussed in Note 3 of Notes to Consolidated Financial Statements. 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 Company's 11 --------------------------------------------------------------------------- revenue recognition policy is discussed in Note 3 of Notes to Consolidated Financial Statements. 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. Estimates related to the recognition of revenue include the allowance for doubtful accounts. The amount is determined based on management's judgments of the ability to collect outstanding receivables considering market conditions at each operating segment throughout the year. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company does not believe that its business is subject to significant market risks arising from interest rates, foreign exchange rates or equity prices. 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")as discussed in Note 18 of Notes to Consolidated Financial Statements. 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 principle 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 --------------------------------------------------------------------------- Item 8. Financial Statements and Supplementary Data. Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Kiewit Materials Company: We have audited the accompanying consolidated balance sheet of Kiewit Materials Company and subsidiaries as of December 31, 2001, and the related consolidated statements of earnings, changes in redeemable stock and comprehensive income (loss), and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we also audited the financial statement schedule listed in the Index at Item 14(a) as of December 31, 2001, and for the year then ended. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, the 2001 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kiewit Materials Company and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP /s/ KPMG LLP --------------- Omaha, Nebraska March 8, 2002 13 --------------------------------------------------------------------------- Report of Independent Accountants --------------------------------- The Board of Directors and Stockholders Kiewit Materials Company 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 financial position of Kiewit Materials Company and subsidiaries at December 31, 2000, and the consolidated results of their operations and their cash flows for each of the two fiscal years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion. /s/PricewaterhouseCoopers LLP ----------------------------- Omaha, Nebraska March 5, 2001 14 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2001 and December 31, 2000 (in thousands) 2001 2000 --------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 117,218 $ 68,468 Receivables, less allowance of $1,083 and $1,187 51,534 67,793 Inventories 13,829 14,126 Deferred income taxes 3,622 3,625 Current income taxes 435 - Other 5,265 4,068 ----------- ---------- Total current assets 191,903 158,080 ----------- ---------- Property, plant and equipment, at cost 272,825 250,987 Less accumulated depreciation and depletion (126,942) (111,982) ----------- ---------- Net property, plant and equipment 145,883 139,005 ----------- ---------- Goodwill, net of accumulated amortization of $10,008 and $7,413 57,476 58,924 ----------- ---------- Intangible, net of accumulated amortization of $2,053 and $1,363 and other assets 20,387 20,234 ----------- ---------- Total assets $ 415,649 $ 376,243 =========== ========== ------------------------------------------------------------------------ See accompanying notes to consolidated financial statements. 15 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2001 and December 31, 2000 (in thousands, except share data) 2001 2000 --------------------------------------------------------------------------- Liabilities and Redeemable Common Stock Current liabilities: Accounts payable $ 37,101 $ 41,540 Current portion of long-term debt 1,127 1,112 Accrued payroll and payroll taxes 8,770 7,716 Accrued insurance costs 6,103 5,293 Current income taxes - 1,964 Other 4,449 4,349 --------- --------- Total current liabilities 57,550 61,974 Long-term debt, less current portion 2,534 3,779 Convertible debentures 15,762 8,075 Deferred income taxes 16,495 12,528 Other liabilities 1,111 789 Minority interest 1,233 1,087 --------- --------- Total liabilities 94,685 88,232 --------- --------- Preferred stock, par $.01; 10 million shares authorized, no shares issued - - Redeemable common stock ($317,622 and $286,603 aggregate redemption value): Common stock, $.01 par value, 100 million shares authorized 36,216,902 and 36,463,482 issued and outstanding 362 365 Additional paid-in capital 175,555 177,490 Accumulated other comprehensive loss (194) - Retained earnings 145,241 110,156 --------- --------- Total redeemable common stock 320,964 288,011 --------- --------- Total liabilities and redeemable common stock $ 415,649 $ 376,243 ========= ========= --------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 16 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Statements of Earnings For the three fiscal years ended December 31, 2001 (in thousands, except per share data) 2001 2000 1999 ------------------------------------------------------------------- -------- Revenue $ 508,819 $ 473,458 $ 427,046 Revenue from affiliates - 15,051 10,412 --------- --------- --------- Total revenue 508,819 488,509 437,458 Cost of revenue (408,070) (398,855) (358,444) Depreciation, depletion and amortization (23,367) (21,819) (16,970) --------- --------- --------- Gross profit 77,382 67,835 62,044 General and administrative expenses (27,968) (26,642) (24,669) Gain on sale of property, plant and equipment 3,555 960 899 --------- --------- --------- Operating earnings 52,969 42,153 38,274 --------- --------- --------- Other income (expense): Investment income 4,496 4,785 4,585 Equity earnings - - 266 Interest expense (1,142) (1,509) (1,853) Other, net (844) 361 157 --------- --------- --------- Total other income 2,510 3,637 3,155 --------- --------- --------- Earnings before income taxes and minority interest 55,479 45,790 41,429 Minority interest in net earnings of subsidiaries, net of tax (153) (58) 92 Provision for income taxes (20,241) (18,680) (15,693) --------- --------- --------- Net earnings $ 35,085 $ 27,052 $ 25,828 ========= ========= ========= Net earnings per share: Basic $ .97 $ .74 $ .71 ========= ========= ========= Diluted $ .94 $ .74 $ .71 ========= ========= ========= --------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 17 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Statements of Changes in Redeemable Common Stock and Comprehensive Income (Loss) For the three fiscal years ended December 31, 2001

------------------------------------------------------------ See accompanying notes to consolidated financial statements. 18 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows For the three fiscal years ended December 31, 2001 (in thousands) 2001 2000 1999 ---------------------------------------------------------------------------- Cash flows from operations: Net earnings $ 35,085 $ 27,052 $ 25,828 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation, depletion and amortization 23,367 21,819 16,970 Gain on sale of property, plant and equipment (3,555) (960) (899) Equity loss, net - - 129 Minority interest 153 58 92 Deferred income taxes 3,988 4,388 748 Change in working capital items: Receivables 15,979 (11,997) (2,168) Inventories 852 (242) (2,004) Other current assets (1,831) (1,077) 931 Accounts payable (4,488) 16,857 (14,883) Accrued payroll and payroll taxes 614 52 985 Accrued insurance 811 (1,484) 1,150 Income taxes payable (2,399) (9,852) 6,257 Other liabilities 494 707 (1,910) --------- -------- -------- Net cash provided by operations 69,070 45,321 31,226 --------- -------- -------- Cash flows from investing activities: Proceeds from sales and maturities of marketable securities - 2,500 - Additions to notes receivable - (2,400) - Proceeds from sale of property, plant and equipment 7,762 1,947 2,676 Capital expenditures (14,595) (30,710) (19,458) Investments and acquisitions, net of cash acquired (16,188) (78,675) (36,152) --------- -------- -------- Net cash used in investing activities (23,021) (107,338) (52,934) --------- -------- -------- Cash flows from financing activities: Payments on long-term debt (3,103) (1,186) (15,759) Issuances of convertible debentures 7,798 8,075 - Redemptions of convertible debentures (56) - - Issuances of common stock 1,318 1,137 - Repurchases of common stock (3,256) (283) - Contributions from former parent - 50,374 44,161 --------- -------- -------- Net cash provided by financing activities 2,701 58,117 28,402 --------- -------- -------- Net increase (decrease) in cash and cash equivalents 48,750 (3,900) 6,694 Cash and cash equivalents at beginning of year 68,468 72,368 65,674 --------- -------- -------- Cash and cash equivalents at end of year $ 117,218 $ 68,468 $ 72,368 ========= ======== ======== Supplemental disclosures of cash flow information: Taxes paid $ 18,103 $ 23,243 $ 7,466 ========= ======== ======== Interest paid $ 870 $ 1,403 $ 1,849 ========= ======== ======== ------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements. 19 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED 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 financial statements include 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, that were combined (the "Combination") on March 1, 1999 through a series of non-monetary contributions from PKS. The Combination has been accounted for at historical cost in a manner similar to a pooling of interests. On September 30, 2000, KMC became an independent company when PKS spun off its materials businesses in a tax free transaction (the "Spin- off"). One share of the Company's Common Stock was issued for every share of PKS common stock outstanding to the stockholders of record on September 15, 2000. 2. Basis of Presentation: Subsequent to the Spin-off, the consolidated 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 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 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. 3. Significant Accounting Policies: Principles of Consolidation: Commencing with the Spin-off, the consolidated financial statements include the accounts of KMC and its wholly-owned subsidiaries. Prior to the Spin-off, the consolidated financial statements include the accounts of the Company as described in Note 2. All significant intercompany transactions and balances have been eliminated. General: The Company has adopted a calendar fiscal year starting with December 31, 2000. In previous periods, the Company had a 52-53 week fiscal year which ended on the last Saturday in December. 20 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 3. Summary of Significant Accounting Policies, Continued: General, Continued: 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, hot-mix asphalt, sand, gravel, crushed stone and railroad ballast. 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 Pacific 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the 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, trade allowances and product returns is recognized at the time the products are delivered. Joint Ventures: The Company accounts for its share of the operations of joint ventures on a pro rata basis in the Consolidated Statements of Earnings. 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. 21 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 3. Summary of Significant Accounting Policies, Continued: 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 and other identifiable intangible assets associated with acquisitions. These assets are amortized on a straight-line basis over the expected period of benefit, which ranges from 20 - 40 years. Goodwill: Goodwill represents the excess of cost over fair market value of net assets acquired. Management continually reviews the carrying value of goodwill for recoverability based on anticipated undiscounted cash flows of the assets to which it relates. The Company considers operating results, trends and prospects of the Company, as well as competitive comparisons. The Company also takes into consideration competition within the materials industry and any other events or circumstances which might indicate potential impairment. When goodwill is determined not to be recoverable, an impairment is recognized as a charge to operations. Such impairment is based upon a discounted cash flow approach. 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 was included in the consolidated income tax returns of PKS prior to the Spin-off. Since the Spin-off, the Company is responsible for filing its own income tax returns. For all periods presented, the provision for income taxes has been computed on the separate results of operations of the Company as if it had filed its own income tax returns. 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. 22 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 3. Summary of Significant Accounting Policies, Continued: Income Taxes, Continued: A valuation allowance would be recognized if it were anticipated that some or all of a deferred tax asset would not be realized. Accrued Insurance Costs: 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. General and Administrative Costs: Subsequent to the Spin-off, the consolidated financial statements include general and administrative costs incurred by 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 (Note 18). In 2001 and 2000, the Company incurred $1,591 and $2,438, respectively, of general and administrative costs in connection with these agreements. Prior to the Spin-off, the Company's Consolidated Statements of Earnings include general and administrative costs, including an allocation of certain general corporate expenses of PKS, which were not directly related to the Company, including costs for information technologies, finance, legal and corporate executives. These allocations were based on a variety of factors including, for example, personnel, office space, time and effort, and sales volume. Management believes these allocations were made on a reasonable basis. 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. 23 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 3. Summary of Significant Accounting Policies, Continued: Earnings Per Share, Continued: Earnings per share, as presented in the Consolidated Statements of Earnings was calculated as if the 36,344 common shares issued in connection with the Spin-off were outstanding for all periods prior to the Spin-off. 2001 2000 1999 ---- ---- ---- Net earnings available to common stockholders $ 35,085 $ 27,052 $ 25,828 Interest expense, net of tax effect, associated with convertible debentures 492 42 - ---------- --------- -------- Net earnings for diluted shares $ 35,577 $ 27,094 $ 25,828 ========== ========= ======== Total number of weighted average shares outstanding used to compute basic earnings per share 36,267 36,352 36,344 Additional dilutive shares assuming conversion of convertible debentures 1,563 437 - ---------- --------- -------- Total number of shares used to compute diluted earnings per share 37,830 36,789 36,344 ========== ========= ======== Net earnings per share Basic $ .97 $ .74 $ .71 ========== ========= ======== Diluted $ .94 $ .74 $ .71 ========== ========= ======== Recent Pronouncements: In September 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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 September 15, 2000. Adoption of this statement did not materially affect the Company's financial statements as the Company has no derivative instruments or hedging activities. 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 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. The Company does not anticipate the adoption of SFAS 141 and 142 to have a material effect on its consolidated financial position or results of operations. 24 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 3. Summary of Significant Accounting Policies, Continued: Recent Pronouncements, Continued: 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 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 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. Management does not expect the adoption of SFAS 144 to have a material effect on the consolidated financial position or results of operations. Reclassifications: When appropriate, items within the consolidated financial statements have been reclassified in the previous periods to conform to current year presentation. 4. Acquisitions: 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 recorded 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. 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.) (collectively "Pacific Rock"), a materials operation operating in the Vancouver, Washington and Portland, Oregon areas, for $40,000. 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 was recognized as goodwill and is being amortized over 20 years. The operating results of Pacific Rock are included in the Consolidated Statements of Earnings from the date of acquisition. Prior to the acquisition, the Company used the equity method to account for Pacific Rock. 25 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 4. Acquisitions, Continued: The following unaudited pro forma financial information assumes the aforementioned acquisitions occurred at the beginning of the year preceding their acquisition. 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 the year preceding their acquisition, or the results which may occur in the future: 2000 1999 --------- --------- Revenue $ 493,879 $ 474,111 Net earnings $ 28,228 $ 31,486 Net earnings per share: Basic $ .78 $ .87 ========= ========= Diluted $ .77 $ .87 ========= ========= During 2001, 2000, and 1999, the Company acquired the assets of various materials operations and invested in land and mineral property other than those described above. All of these were accounted for by the purchase method and, accordingly, results of operations for the acquired businesses have been included in the Consolidated Statements of Earnings from their respective dates of acquisition. Pro forma financial information is not presented for these acquisitions because the impact is not material to the results of operations. The aggregate purchase prices were $16,188, $7,803, and $4,270 during 2001, 2000 and 1999, respectively. 5. 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 financial institutions. 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. At December 25, 1999, the amortized cost, estimated fair value and unrealized holding gains of the Company's U.S. debt securities were $2,532, $2,534, and $2, respectively. 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. 26 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 6. Inventories: Inventories consist of the following: 2001 2000 --------- --------- Raw materials $ 11,749 $ 12,147 Other 2,080 1,979 --------- --------- Total inventories $ 13,829 $ 14,126 ========= ========= 7. Property, Plant and Equipment: Property, plant and equipment consists of the following: 2001 2000 --------- --------- Land and mineral properties $ 52,531 $ 38,790 Buildings and improvements 8,716 8,356 Equipment and other 211,578 203,841 --------- --------- Total property, plant and equipment $ 272,825 $ 250,987 ========= ========= 8. Intangible and Other Assets: Intangible and other assets consists of the following: 2001 2000 --------- --------- Other intangible assets, net of accumulated amortization of $2,053 and $1,363 $ 15,063 $ 15,454 Land option 2,000 2,000 Notes receivable 2,400 2,403 Other 924 377 --------- --------- $ 20,387 $ 20,234 ========= ========= 9. 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. In 2001, the Company no longer had employees covered under a profit sharing plan. 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. 27 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 9. Employee Benefit Plans, Continued: 2001 2000 -------- -------- Change in benefit obligation: Benefit obligation at beginning of year $ 6,324 $ 4,854 Service cost 1,254 995 Interest cost 535 401 Actuarial loss 424 206 Benefits paid (165) (132) -------- -------- Benefit obligation at end of year 8,372 6,324 -------- -------- Change in plan assets: Fair value of plan assets at beginning of year 6,647 4,766 Actual return on plan assets (644) (540) Employer contribution 2,095 2,552 Benefits paid (165) (132) -------- -------- Fair value of plan assets at end of year 7,933 6,646 -------- -------- Funded status (439) 322 Unrecognized net actuarial loss 2,078 431 Unrecognized prior service cost 116 139 -------- -------- Prepaid benefit cost $ 1,755 $ 892 ======== ======== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $ 1,755 $ 892 Accrued benefit liability (439) - Intangible asset 116 - Deferred tax benefit 129 - Accumulated other comprehensive loss 194 - -------- -------- Net amount recognized $ 1,755 $ 892 ======== ======== 2001 2000 1999 --------- ------- --------- Weighted-average assumptions as of year end: Discount rate 8.0% 8.0% 8.0% Expected return on plan assets 8.0% 8.0% 8.0% Components of net periodic benefit cost: Service cost $ 1,254 $ 995 $ 1,138 Interest cost 535 401 310 Expected return on plan assets 584 540 (314) Amortization of prior service cost 22 22 22 Recognized net actuarial (gain) loss 15 (4) 24 Asset loss (1,178) (983) - --------- ------- --------- Net periodic benefit cost $ 1,232 $ 971 $ 1,180 ========= ======= ========= 28 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 10. Redeemable Common Stock Shares Issued and Outstanding: The Company is generally committed to purchase all stock at the amount computed pursuant to its Restated Certificate of Incorporation. Issuances and repurchases of Common Stock, including conversions, since the Spin-off were as follows: Balance at September 30, 2000 36,344 Shares issued in 2000 159 Shares repurchased in 2000 (40) ------ Balance at December 31, 2000 36,463 Shares issued in 2001 168 Shares repurchased in 2001 (414) ------ Balance at December 31, 2001 36,217 ====== 11. Long-Term Debt: Long-term debt consisted of the following: 2001 2000 ----- ---- 6.5% note payable monthly to 2006 $ 498 $ - 4.42% note payable in 2003 740 - 8% note payable monthly to 2009 - 1,343 7.629% note payable monthly to 2016 - 755 6.42% note payable due in 2002 586 586 9% note payable monthly to 2016 562 579 6.42% note payable due in 2003 551 551 7% note payable quarterly to 2003 211 276 9.5% note payable monthly to 2002 40 93 Other 473 708 ------- ------ 3,661 4,891 Less current portion 1,127 1,112 ------- ------ $ 2,534 $ 3,779 ======= ======= Long-term debt repayments are due as follows: 2002 $ 1,127 2003 1,655 2004 142 2005 152 2006 133 2007 and thereafter 452 ------- $ 3,661 ======= 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 4.42% and 6.5% notes were issued in 2001 to purchase land and are collateralized by a deed of trust. 29 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 11. Long-Term Debt, Continued: The 6.42% notes payable due in 2002 is not collateralized and was issued to purchase equipment as part of a 2000 acquisition. The 6.42% notes payable due in 2003 is collateralized by a deed of trust and was issued to purchase equipment as part of a 2000 acquisition. 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. All remaining items of debt are collateralized by equipment. 12. Convertible Debentures: The face amount of convertible debentures amounted to $15,446 and $7,894 at December 31, 2001 and December 31, 2000, respectively. The convertible debenture bond premiums amounted to $316 and $181 at December 31, 2001 and December 31, 2000, respectively. The convertible debentures bear interest of 6.60% - 8.25% and are due in 2010 and 2011. Each series of debentures is convertible as follows: 2000A during October 2002; 2000B during October 2003; 2000C during October 2004; 2000D during November 2005; and 2001 during August 2006. Each annual series may be redeemed in its entirety prior to the due date except during the conversion period. At December 31, 2001 and December 31, 2000, 2,119 and 1,158 shares of stock were reserved for future conversions. 13. Income Taxes: An analysis of the provision for income taxes relating to earnings before income taxes and minority interest for the three fiscal years ended December 31, 2001 follows: Federal State Total ------- ----- ----- 2001: Current $ 13,756 $ 2,497 $ 16,253 Deferred 3,069 919 3,988 ---------- --------- ---------- $ 16,825 $ 3,416 $ 20,241 ========== ========= ========== 2000: Current $ 10,636 $ 3,656 $ 14,292 Deferred 3,238 1,150 4,388 ---------- --------- ---------- $ 13,874 $ 4,806 $ 18,680 ========== ========= ========== 1999: Current $ 11,692 $ 3,253 $ 14,945 Deferred 559 189 748 ---------- --------- ---------- $ 12,251 $ 3,442 $ 15,693 ========== ========= ========== 30 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 13. Income Taxes, Continued: 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 income taxes and minority interest as follows: 2001 2000 1999 ---- ---- ---- Federal income tax expense at statutory rate $ 19,418 $ 16,027 $ 14,554 State income tax, net of Federal tax benefit 2,849 2,946 2,307 Percentage depletion (1,700) (1,559) (1,161) Prior year adjustment (703) 1,209 (367) Other 377 57 360 -------- -------- -------- $ 20,241 $ 18,680 $ 15,693 ======== ========= ======== The components of the net deferred tax liabilities for the fiscal years ended December 31, 2001 and December 31, 2000 were as follows: 2001 2000 Non Non Current Current Current Current ---------------------------------------- Deferred tax assets: Insurance claims $ 2,340 $ - $ 1,993 $ - Compensation / retirement benefits 496 129 940 - Other 836 448 692 482 ---------------------------------------- Total deferred tax assets 3,672 577 3,625 482 ---------------------------------------- Deferred tax (liabilities): Asset bases / accumulated Depreciation - (14,218) - (11,144) LLC / joint venture investments - (1,562) - (1,303) Other (50) (1,292) - (563) ---------------------------------------- Total deferred tax (liabilities) (50) (17,072) - (13,010) ---------------------------------------- Net deferred tax assets (liabilities) $ 3,622 $(16,495) $ 3,625 $(12,528) ======================================== 14. 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 the 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 and deferred tax assets. 31 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 14. 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 a non-materials related operations and income taxes. Due to geographic locations, no intersegment sales or transfers are made between the segments.

----------------------------------------------------------------------------- The Company's external revenues by product for the three fiscal years ended December 31, 2001 are as follows: 2001 2000 1999 ------ ------ ------ Aggregates (sand, gravel, crushed stone and railroad ballast) $ 116,788 $ 112,998 $ 99,376 Hot-mix asphalt 93,160 79,422 78,443 Ready mix concrete 284,914 282,902 250,874 Other 13,957 13,187 8,765 --------- --------- --------- Total revenue $ 508,819 $ 488,509 $ 437,458 ========= ========= ========= All operations and long-lived assets are in the United States. 32 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 15. Other Comprehensive Income (Loss): Other comprehensive income (loss) consisted of the following: Tax (Expenses) Before Tax Or Benefit After Tax ---------- ---------- --------- 2001: Unrealized holding losses arising during the period $ - $ - $ - Minimum pension liability adjustment (323) 129 (194) ---------- ---------- --------- Other comprehensive loss $ (323) $ 129 $ (194) =========== =========== ========== 2000: Unrealized holding losses arising during the period $ (2) $ 1 $ (1) Minimum pension liability adjustment - - - ---------- ---------- --------- Other comprehensive loss $ (2) $ 1 $ (1) =========== =========== ========== 1999: Unrealized holding losses arising during the period $ (40) $ 15 $ (25) Minimum pension liability adjustment 742 (260) 482 ---------- ---------- --------- Other comprehensive income $ 702 $ ( 245) $ 457 =========== =========== ========== Accumulated other comprehensive income (loss) consisted of the following: Current Beginning Year Ending Balance Change Balance -------- -------- ------- 2001: Unrealized holding gain on securities $ - $ - $ - Minimum pension liability adjustment - (194) (194) -------- -------- ------- Accumulated other comprehensive income (loss) $ - $ (194) $ (194) ========= ========= ======= 2000: Unrealized holding gain on securities $ 1 $ (1) $ - Minimum pension liability adjustment - - - -------- -------- ------- Accumulated other comprehensive income (loss) $ 1 $ (1) $ - ========= ========= ======= 1999: Unrealized holding gain on securities $ 26 $ (25) $ 1 Minimum pension liability adjustment (482) 482 - -------- -------- ------- Accumulated other comprehensive income (loss) $ (456) $ 457 $ 1 ========= ========= ======= 33 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 16. Operating Leases: The Company leases mineral properties, buildings and certain equipment under non-cancelable operating lease agreements. Total rent expense was $8,449, $10,383, and $12,292 in 2001, 2000, and 1999, respectively. Future minimum lease commitments are as follows: 2002 $ 9,987 2003 8,968 2004 6,900 2005 5,704 2006 5,574 Thereafter 21,810 ---------- $ 58,943 ========== 17. Selected Quarterly Financial Information (unaudited) First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 2001 Revenues $ 113,069 $ 137,832 $ 137,047 $ 120,871 Operating income $ 8,768 $ 16,441 $ 17,607 $ 10,153 Net income $ 5,834 $ 10,481 $ 10,901 $ 7,869 Basic earnings per share $ .16 $ .29 $ .30 $ .22 Diluted earnings per share $ .16 $ .28 $ .29 $ .21 2000 Revenues $ 98,533 $ 126,786 $ 134,840 $ 128,350 Operating income $ 4,361 $ 11,381 $ 13,311 $ 13,100 Net income $ 3,032 $ 7,350 $ 8,601 $ 8,069 Basic and diluted earnings per share $ 0.08 $ 0.20 $ 0.24 $ 0.22 18. 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. Separation Agreement The Separation Agreement generally defines the relationship between KMC and PKS after the Spin-off, including the allocation of certain risks and responsibilities between KMC and PKS after the Spin-off, and contains short-term arrangements relating to the provision of certain administrative services and the lease of office space by PKS to KMC. 34 --------------------------------------------------------------------------- KIEWIT MATERIALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) 18. Other Matters, Continued: The Separation Agreement provides that each of KMC and PKS will indemnify the other with respect to breaches of the Separation Agreement and with respect to the activities of each of their subsidiary business groups, except as specifically provided under the Tax Sharing Agreement described below. The cross-indemnities are intended to allocate financial responsibility for liability arising out of the historical and future business of the construction business to PKS, and financial responsibility for liabilities arising out of the historical and future business of the materials business to KMC. Tax Sharing Agreement The Tax Sharing Agreement defines the rights and obligations of KMC and PKS with respect to deficiencies and refunds of federal, state and other taxes relating to their respective operations for tax years ending on or before (or tax years including) the Spin-off and with respect to certain tax attributes of KMC and PKS both before and 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 is subsequently determined not to qualify, in whole or in part, as a tax-free transaction for U.S. federal income tax purposes. In general, under the Tax Sharing Agreement, KMC and PKS will be responsible for paying the taxes that are allocable to their respective operations. Letters of Credit 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. As of December 31, 2001, the Company has one outstanding letter of credit of $1,315. Subsequent Event On February 1, 2002, the Company invested $25 million in a private investment fund limited partnership. A KMC director, is the managing member of the limited liability company, which is the general partner of the limited partnership. The Company accounts for this investment using the equity method. 35 --------------------------------------------------------------------------- Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Change in accountants, effective October 24, 2001 (Incorporated by reference to Form 8-K, filed with the Securities and Exchange Commission on October 25, 2001). PART III The information required by Part III is incorporated by reference to the Company's definitive proxy statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2002. However, certain information is set forth in Item 4 "Executive Officers of the Registrant" above. Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. 36 --------------------------------------------------------------------------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements as of December 31, 2001 and December 31, 2000 and for the three fiscal years ended December 31, 2001. Independent Auditors' Report dated March 8, 2002 of KPMG LLP Report of Independent Accountants dated March 5, 2001 of PricewaterhouseCoopers LLP Consolidated Balance Sheets Consolidated Statements of Earnings Consolidated Statements of Changes in Redeemable Common Stock and Comprehensive Income Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. Financial Statement Schedules for the three fiscal years ended December 31, 2001: II - Valuation and Qualifying Accounts and Reserves Schedules not indicated above have been omitted because of the absence of the conditions under which they are required or because the information called for is shown in the consolidated financial statements or the notes thereto. 3. 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). 37 --------------------------------------------------------------------------- 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). 21 List of Subsidiaries of the Company. (b) A Form 8-K was filed by the Company during the three-months ended December 31, 2001. The Form 8-K, dated October 25, 2001, was filed to discuss the Company's change in accountants. 38 --------------------------------------------------------------------------- Report of Independent Accountants --------------------------------- The Board of Directors and Stockholders Kiewit Materials Company Our audits of the consolidated financial statements referred to in our report dated March 5, 2001 appearing on page 14 of this Form 10-K also included an audit of the financial statement schedules as of December 31, 2000 and for each of the two fiscal years in the period ended December 31, 2000, listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedules presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/PricewaterhouseCoopers LLP ----------------------------- Omaha, Nebraska March 5, 2001 39 --------------------------------------------------------------------------- Schedule II Valuation and Qualifying Accounts and Reserves Addition Amounts Balance Charged to Charged Balance Beginning Costs and to End of (dollars in thousands) Of Period Expenses Reserves Other Period ---------------------------------------------------------------------------- Year ended December 31, 2001 ---------------------------- Allowance for doubtful trade accounts $ 1,187 $ 510 $ (614) $ - $ 1,083 Reserves: Insurance claims $ 5,293 $ 1,955 $ (1,145) $ - $ 6,103 Year ended December 31, 2000 ---------------------------- Allowance for doubtful trade accounts $ 757 $ 739 $ (309) $ - $ 1,187 Reserves: Insurance claims $ 6,777 $ (641) $ (843) $ - $ 5,293 Year ended December 25, 1999 ---------------------------- Allowance for doubtful trade accounts $ 543 $ 447 $ (233) $ - $ 757 Reserves: Insurance claims $ 5,626 $ 2,370 $ (1,219) $ - $ 6,777 40 --------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 27, 2002. KIEWIT MATERIALS COMPANY By: /s/ Donald E. Bowman ------------------------ Donald E. Bowman Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Name Title Date ---- ----- ---- /s/ Christopher J. Murphy -------------------------- President, Chief Executive March 27, 2002 Christopher J. Murphy Officer and Director (Principal Executive Officer) /s/ Donald E. Bowman -------------------------- Vice President and Chief March 27, 2002 Donald E. Bowman Financial Officer (Principal Executive Officer) /s/ Todd A. Freyer -------------------------- Controller March 27, 2002 Todd A. Freyer (Principal Executive Officer) /s/ Richard W. Colf -------------------------- Director March 27, 2002 Richard W. Colf /s/ Bruce E. Grewcock -------------------------- Director March 27, 2002 /s/ William L. Grewcock -------------------------- Director March 27, 2002 William L. Grewcock /s/ Richard Geary -------------------------- Director March 27, 2002 Richard Geary /s/ James Goodwin -------------------------- Director March 27, 2002 James Goodwin /s/ Walter Scott, Jr. -------------------------- Director March 27, 2002 Walter Scott, Jr. /s/ Kenneth E. Stinson -------------------------- Chairman of the Board of March 27, 2002 Kenneth E. Stinson Directors 41 --------------------------------------------------------------------------- Exhibit 21. List of Subsidiaries of the Company. Subsidiary State of Organization ---------- --------------------- Fort Calhoun Stone Company DE Guernsey Stone Company WY Kiewit Materials Leasing L.L.C. DE Marana Golf Inc. DE Northwest Materials Holding Company DE Pacific Rock Products, L.L.C. WA Pacific Rock Products Trucking, L.L.C. WA Quality Ready Mix, Inc. AZ Solano Concrete Co., Inc. CA Tanner Companies (Yuma) Inc. DE Twin Mountain Rock Company NM United Metro Materials Inc. AZ Western Equipment Co. AZ 42 ---------------------------------------------------------------------------

KIEWIT MATERIALS CO 10-K