<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTER ENDED JUNE 30, 1997
Commission File No. 0-18350
GRANITE CONSTRUCTION INCORPORATED
State of Incorporation: I.R.S. Employer Identification
Delaware Number: 77-0239383
Corporate Administration:
585 West Beach Street
Watsonville, California 95076
(408) 724-1011
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 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of August 8, 1997.
Class Outstanding
----------------------------- -----------------
Common Stock, $0.01 par value 18,265,725 shares
This report on Form 10-Q, including all exhibits, contains 21 pages. The exhibit
index is located on page 20 of this report.
<PAGE> 2
GRANITE CONSTRUCTION INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of June 30, 1997 and
December 31, 1996.......................................4
Condensed Consolidated Statements
of Income for the Three Months and Six
Months Ended June 30, 1997 and 1996.....................5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 1997 and 1996............................6
Notes to the Condensed Consolidated
Financial Statements.................................7-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................................12-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................none
Item 2. Changes in Securities................................none
Item 3. Defaults upon Senior Securities......................none
Item 4. Submission of Matters to a Vote
of Security Holders....................................17
Item 5. Other Information....................................none
Item 6. Exhibits and Reports on Form 8-K.......................18
Exhibit Index..........................................20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
3
<PAGE> 4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
==========================================================================================================
JUNE 30, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 32,267 $ 38,663
Short-term investments 11,806 33,567
Accounts receivable 158,934 124,124
Costs and estimated earnings in excess of billings 24,455 29,494
Inventories 14,726 13,493
Deferred income taxes 13,060 13,060
Equity in joint ventures 21,521 5,371
Other current assets 4,945 6,033
-------------------------
Total current assets 281,714 263,805
- ---------------------------------------------------------------------------------------------------------
Property and equipment 196,810 178,515
- ---------------------------------------------------------------------------------------------------------
Other assets 47,488 30,725
- ---------------------------------------------------------------------------------------------------------
$ 526,012 $ 473,045
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 11,176 $ 10,186
Accounts payable 84,205 64,058
Billings in excess of costs and estimated earnings 48,915 45,352
Accrued expenses and other current liabilities 48,452 51,667
-------------------------
Total current liabilities 192,748 171,263
- ---------------------------------------------------------------------------------------------------------
Long-term debt 70,133 43,602
- ---------------------------------------------------------------------------------------------------------
Deferred income taxes 24,575 24,575
- ---------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $0.01 par value, authorized
3,000,000 shares, none outstanding -- --
Common stock, $0.01 par value, authorized 27,000,000
shares; 1997- issued and outstanding 18,268,048 shares;
1996- issued 18,166,011 shares, outstanding
18,125,653 shares 184 182
Additional paid-in capital 39,769 36,901
Retained earnings 205,826 201,663
-------------------------
245,779 238,746
Unearned compensation (7,223) (5,141)
-------------------------
238,556 233,605
- ---------------------------------------------------------------------------------------------------------
$ 526,012 $ 473,045
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
==============================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 242,576 $ 248,499 $ 389,397 $ 402,248
Cost of revenue 211,586 219,281 342,557 358,388
------------------------------------------------------
GROSS PROFIT 30,990 29,218 46,840 43,860
General and administrative expenses 18,473 16,780 35,116 32,265
------------------------------------------------------
OPERATING PROFIT 12,517 12,438 11,724 11,595
- ----------------------------------------------------------------------------------------------
Other income (expense)
Interest income 1,208 1,418 2,688 3,372
Interest expense (1,762) (837) (3,195) (1,778)
Gain on sales of property
and equipment 1,684 1,747 2,304 2,160
Other, net (460) (39) 51 (32)
------------------------------------------------------
670 2,289 1,848 3,722
- ----------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 13,187 14,727 13,572 15,317
Provision for income taxes 4,880 5,596 5,022 5,820
- ----------------------------------------------------------------------------------------------
NET INCOME $ 8,307 $ 9,131 $ 8,550 $ 9,497
==============================================================================================
Net income per share $ 0.46 $ 0.51 $ 0.47 $ 0.53
Weighted average shares
of common stock 18,186 18,052 18,264 18,017
Dividends per share $ 0.06 $ 0.06 $ 0.24 $ 0.25
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
================================================================================================
SIX MONTHS ENDED JUNE 30, 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 8,550 $ 9,497
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 19,197 18,273
Gain on sales of property and equipment (2,304) (2,160)
Decrease in unearned compensation 1,159 984
Cash provided by (used in):
Accounts and notes receivable (35,577) (23,858)
Inventories (1,233) (3,110)
Equity in joint ventures (16,150) (6,970)
Other assets 1,088 226
Accounts payable 20,147 1,231
Billings in excess of costs and estimated earnings, net 8,871 (3,574)
Accrued expenses (3,223) 6,129
--------------------
Net cash provided (used) by operating activities 525 (3,332)
- ------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (37,762) (31,779)
Proceeds from sales of property and equipment 3,032 1,258
Additions to notes receivable (117) (114)
Repayments of notes receivable 772 226
Investment in TIC Holdings, Inc. (12,178) --
Additions to investments and other assets (5,200) (84)
Purchases of short-term investments (13,521) (16,871)
Maturities of short-term investments 35,282 47,661
--------------------
Net cash provided (used) by investing activities (29,692) 297
- ------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt 32,969 7,000
Repayments of long-term debt (5,448) (8,391)
Employee stock options exercised 93 598
Stock purchased and redistributed (464) (526)
Dividends paid (4,379) (4,392)
--------------------
Net cash provided (used) by financing activities 22,771 (5,711)
- ------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (6,396) (8,746)
Cash and cash equivalents at beginning of period 38,663 22,410
--------------------
Cash and cash equivalents at end of period $ 32,267 $ 13,664
================================================================================================
Supplementary Information
Cash paid during the period for:
Interest $ 3,195 $ 1,778
Income taxes 257 346
================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION: The condensed consolidated financial statements
included herein have been prepared by Granite Construction Incorporated
(the "Company"), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes the disclosures
which are made are adequate to make the information presented not
misleading. Further, the condensed consolidated financial statements
reflect, in the opinion of management, all normal recurring adjustments
necessary to present fairly the financial position at June 30, 1997 and
the results of operations and cash flows for the periods presented. The
December 31, 1996 condensed consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
Interim results are subject to significant seasonal variations and the
results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. SHORT-TERM INVESTMENTS:
<TABLE>
<CAPTION>
Held-To-Maturity Held-To-Maturity
June 30, 1997 December 31, 1996
(Unaudited)
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
- -------------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Agency
Obligations $ -- $-- $ -- $ -- $ 2,993 $ -- $ -- $ 2,993
Commercial Paper -- -- -- -- 3,977 -- -- 3,977
Municipal Bonds 2,000 -- -- 2,000 6,011 6 -- 6,017
Foreign Banker's Acceptances -- -- -- -- 7,420 1 -- 7,421
- --------------------------------------------------------------------------------------------------------------------------
2,000 -- -- 2,000 20,401 7 -- 20,408
========================================================================== =============================================
</TABLE>
<TABLE>
<CAPTION>
Available-For-Sale Available-For-Sale
June 30, 1997 December 31, 1996
(Unaudited)
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
- ------------------------------------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Agency
Obligations 5,039 -- -- 5,039 9,146 3 (14) 9,135
Municipal Bonds 3,970 12 -- 3,982 4,020 23 -- 4,043
Foreign Banker's Acceptances 797 -- (1) 796 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
9,806 12 (1) 9,817 13,166 26 (14) 13,178
==========================================================================================================================
Total Short-Term Investments $11,806 $ 12 $ (1) $11,817 $33,567 $ 33 $(14) $33,586
======================================================================== ==============================================
</TABLE>
7
<PAGE> 8
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
2. SHORT-TERM INVESTMENTS, CONTINUED:
There were no sales of investments classified as
available-for-sale for the six months ended June 30, 1997. At June 30,
1997, scheduled maturities of investments are as follows (unaudited):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Held-To- Available-
Maturity For-Sale Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Within one year $2,000 $5,767 $ 7,767
After one year through five years -- 4,039 4,039
- ------------------------------------------------------------------------------------------
$2,000 $9,806 $11,806
==========================================================================================
</TABLE>
For the six months ended June 30, 1997 and 1996, purchases and
maturities of short-term investments were as follows:
<TABLE>
<CAPTION>
--------------------------------------- ---------------------------------------
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
(Unaudited) (Unaudited)
Held-To- Available Held-To- Available
Maturity For Sale Total Maturity For Sale Total
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases $3,098 $10,423 $ 13,521 $ 9,542 $ 7,329 $ 16,871
Maturities 27,535 7,747 35,282 36,300 11,361 47,661
--------------------------------------- ---------------------------------------
Net change $(24,437) $ 2,676 $(21,761) $ (26,758) $(4,032) $ (30,790)
======================================= ======================================
</TABLE>
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
----------------------------------
(UNAUDITED)
<S> <C> <C>
Construction contracts
Completed and in progress $ 91,417 $ 59,764
Retentions 42,851 47,956
----------------------------------
134,268 107,720
Construction material sales 20,742 12,651
Other 4,621 4,446
----------------------------------
159,631 124,817
Less allowance for doubtful accounts 697 693
----------------------------------
$158,934 $124,124
==================================
</TABLE>
8
<PAGE> 9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
4. INVENTORIES: Inventories consist primarily of quarry products valued at
the lower of average cost or market.
5. EQUITY IN JOINT VENTURES: The Company participates in various
construction joint venture partnerships. Generally, each construction
joint venture is formed to accomplish a specific project and is
dissolved upon completion of the project. The combined assets,
liabilities and net assets of these ventures are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JUNE 30, December 31,
1997 1996
- --------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Assets
Total $212,339 $96,760
Less other venturers' interest 157,530 69,175
- --------------------------------------------------------------------------------
Company's interest 54,809 27,585
- --------------------------------------------------------------------------------
Liabilities
Total 131,577 75,408
Less other venturers' interest 98,289 53,194
- --------------------------------------------------------------------------------
Company's interest 33,288 22,214
- --------------------------------------------------------------------------------
$ 21,521 $ 5,371
================================================================================
</TABLE>
6. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
-------------------------------------
(UNAUDITED)
<S> <C> <C>
Land $ 15,883 $ 15,328
Quarry property 35,650 34,408
Buildings and leasehold improvements 17,171 12,973
Equipment and vehicles 412,868 388,697
Office furniture and equipment 5,687 5,485
-------------------------------------
487,259 456,891
Less accumulated depreciation,
depletion and amortization 290,449 278,376
-------------------------------------
$196,810 $178,515
=====================================
</TABLE>
9
<PAGE> 10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
------------------------------
(UNAUDITED)
<S> <C> <C>
Payroll and related employee benefits $16,172 $21,627
Accrued insurance 17,905 19,997
Income taxes payable 5,022 -
Other 9,353 10,043
------------------------------
$48,452 $51,667
==============================
</TABLE>
8. STOCKHOLDERS' EQUITY: Under the terms of the Company's 1990 Omnibus
Stock and Incentive Plan, 166,178 shares of restricted common stock
were issued, 91,212 shares vested and 9,914 shares were forfeited
during the six months ended June 30, 1997. Unearned compensation is
amortized over the restriction periods. Compensation expense related to
restricted shares was $576 and $492 for the three months ended and was
$1,159 and $984 for the six months ended June 30, 1997 and 1996,
respectively. During 1997, the Company purchased in satisfaction of
certain officer's income tax liabilities related to the maturation of
restricted stock issues, 22,019 shares which were redistributed along
with the balance of treasury stock as new shares of restricted common
stock.
During the six months ended June 30, 1997, employee stock options for
8,150 shares at $11.33 per share were exercised.
9. INCOME TAXES: The provision for income taxes is computed using the
anticipated effective tax rate for the year.
10. NET INCOME PER SHARE: Income per share amounts are computed using the
weighted average number of common and common equivalent (dilutive stock
options) shares outstanding during each period. Common share
equivalents are included in the weighted average number of common
shares outstanding only when the effect is not antidilutive.
11. CONTINGENCIES: The Company is currently a party to various claims and
legal proceedings, none of which is considered by management to be
material to the Company's financial position.
12. EQUITY INVESTMENT: On May 1, 1997, the Company purchased 20%, or
154,276 shares of the outstanding stock of TIC Holdings, Inc. ("TIC")
for $12,096,781. The acquisition gives the Company a total 30%
ownership of TIC. The transaction was financed under the Company's
revolving line of credit with interest at 6.275% payable quarterly and
principal payable semiannually over five years beginning December 1998.
The investment is accounted for using the equity method of accounting
from the date of acquiring the additional 20% ownership. Previously,
the investment in TIC was recorded at cost.
10
<PAGE> 11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
13. NEW ACCOUNTING PRINCIPLES: The FASB issued SFAS No. 128 Earnings Per
Share in February 1997 effective for periods ending after December 15,
1997. SFAS No. 128 was issued to simplify the computation of Earnings
Per Share (EPS) and to make the U.S. standard more compatible with the
EPS standards of other countries. Prior period EPS will be restated
after the effective date of this statement. The adoption of SFAS No.
128 should have no effect on earnings per share as the Company does not
have a complex capital structure.
In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive
Income. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general purpose financial statements. Comprehensive income is defined
as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
To date, the only potential impact of adopting SFAS No. 130, which is
effective for the Company in 1998, relates to reporting unrealized
holding gains and losses on available-for-sale securities. Such
unrealized gains and losses have historically been immaterial and have
not affected equity. Therefore, the Company anticipates no material
impact from adopting SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 requires
publicly-held companies to report financial and other information about
key revenue-producing segments of the entity for which such information
is available and is utilized by the chief operation decision maker.
Specific information to be reported for individual segments includes
profit or loss, certain revenue and expense items and total assets. A
reconciliation of segment financial information to amounts reported in
the financial statements would be provided. SFAS No. 131 is effective
for the Company in 1998 and the impact of adoption has not been
determined.
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section contains forward-looking statements which are
made in reliance on the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such forward-looking
statements involve risks and uncertainties, including, without limitation,
changes in the composition of applicable federal and state legislation
appropriation committees; federal and state appropriation changes for
infrastructure spending; the general state of the economy; competition and
pricing pressures; state referendums and initiatives; and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Revenue for the quarter ended June 30, 1997 was $242.6 million, bringing the six
month total to $389.4 million, a decrease of $5.9 million, or 2.4%, and $12.8
million, or 3.2%, respectively, over the same periods last year.
[REVENUE BY MARKET SECTOR PIE CHART]
REVENUE BY MARKET SECTOR
SIX MONTHS ENDED JUNE 30,
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996
$ % $ %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Public 264.5 67.9% 287.0 71.4%
Private 73.6 18.9% 73.6 18.3%
Materials 51.3 13.2% 41.6 10.3%
-----------------------------------------------------
389.4 100.0% 402.2 100.0%
=====================================================
</TABLE>
For the six months ended June 30, 1997, revenue from public sector contracts
decreased $22.5 million to $264.5 million, or 67.9% of total revenue, from
$287.0 million, or 71.4% of total revenue in 1996. Revenue from private sector
contracts of $73.6 million, or 18.9% of total revenue, was unchanged from the
six months ended June 30, 1996 level of $73.6 million, or 18.3% of total
revenue. Revenue in the Company's primary geographical area, California,
decreased to $206.8 million, or 53.1% of total revenue, from $216.6 million,
or 53.8% of total revenue, last year.
[AWARDS & BACKLOG GRAPH]
AWARDS AND BACKLOG
END OF PERIOD
(IN MILLIONS)
<TABLE>
<CAPTION>
AWARDS BACKLOG
------ -------
<S> <C> <C>
1993
- ----
Q1 $ 319.6 $ 487.3
Q2 157.4 501.9
Q3 325.2 643.4
Q4 182.7 659.7
1994
- ----
Q1 111.8 664.7
Q2 149.0 640.1
Q3 194.9 594.9
Q4 128.2 550.2
1995
- ----
Q1 199.5 644.4
Q2 302.9 720.6
Q3 143.1 557.2
Q4 289.2 590.1
1996
- ----
Q1 188.0 624.3
Q2 259.9 635.8
Q3 382.5 715.7
Q4 106.2 597.9
1997
- ----
Q1 483.0 934.1
Q2 317.7 1,009.2
</TABLE>
Backlog at June 30, 1997 was $1,009.2 million, a $373.4 million increase from
June 30, 1996 and a $411.3 million increase from December 31, 1996. New awards
for the quarter totaled $317.7 million and include a $27.9 million light rail
project in Utah, an $18.8 million interchange reconstruction project in Nevada
and a $17.4 million airport project in Sacramento, California. Awards for the
quarter do not include a $75.7 million Florida highway contract awarded in
August 1997.
12
<PAGE> 13
[BACKLOG BY MARKET SECTOR PIE GRAPH]
BACKLOG BY MARKET SECTOR
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
$ % $ %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Public 946.0 93.7% 526.5 88.1%
Private 63.2 6.3% 71.4 11.9%
-------------------------------------------------------
1,009.2 100.0% 597.9 100.0%
=======================================================
</TABLE>
The public sector backlog increased to 93.7% of total backlog from 88.1% at
December 31, 1996 and 84.4% at June 30, 1996 primarily reflecting the award
during the first quarter of 1997 to the Wasatch Constructors Joint Venture, of
which the Company has a 23% participation, for the I-15 Corridor Reconstruction
Project in Salt Lake City, Utah, which has contributed $305.5 million to the
Company's public sector backlog. Work on this contract began during the second
quarter of 1997 with 25% completion for profit recognition not anticipated until
the latter half of 1998. Private sector backlog decreased $8.2 million from
December 31, 1996 and $35.7 million from June 30, 1996.
Gross profit for the quarter ended June 30, 1997 was $31.0 million, or 12.8% of
revenue, as compared to $29.2 million, or 11.8% of revenue, for 1996. The six
month gross profit increased $2.9 million to $46.8 million, or 12.0% of revenue
versus $43.9 million or 10.9% in 1996. The change in gross profit reflects
overall strong margins in both operating divisions and the settlement of claims
for revenue on work completed in prior years offset by lower gross profits
due to the completion of the San Joaquin Hills Toll Road in late 1996 which
carried a higher than average gross profit margin and which has yet to be
replaced by gross profits on the new major projects in the Company's backlog.
General and administrative expenses for the three months ended June 30, 1997
increased $1.7 million to $18.5 million, or 7.6% of revenue, as compared to 6.8%
of revenue for the same quarter of 1996. For the six months, general and
administrative expenses increased $2.8 million to $35.1 million and as a percent
of revenue to 9.0% versus 8.0% last year. The increases reflect an increased
level of business development and estimating activities with new offices in
Florida, Maryland and Nevada opening during the quarter and a change in the
timing of bad debt collections versus write-offs.
Other income decreased $1.6 million for the quarter and $1.9 million for the six
months ended June 30, 1997 primarily reflecting the Company's equity in the
interest expense of a partnership that began expensing interest in the fourth
quarter of 1996.
Net income for the quarter ended June 30, 1997 was $8.3 million, or $0.46 per
share, a decrease of $0.8 million or $0.05 per share from the quarter ended June
30, 1996 net income of $9.1 million, or $0.51 per share. For the six months, net
income was $8.6 million, or $0.47 per share, a $0.9 million, or $0.06 per share
decrease from the prior year net income of $9.5 million, or $0.53 per share.
[SEASONALITY OF BUSINESS GRAPH]
SEASONALITY OF BUSINESS
REVENUE AND NET INCOME BY QUARTER
(IN MILLIONS)
<TABLE>
<CAPTION>
NET
REVENUE INCOME
------ -------
<S> <C> <C>
1993
- ----
Q1 $ 77.5 $ (4.2)
Q2 142.9 --
Q3 183.6 5.8
Q4 166.4 2.9
1994
- ----
Q1 106.7 (2.1)
Q2 173.6 4.6
Q3 204.2 13.6
Q4 172.9 3.3
1995
- ----
Q1 105.3 1.2
Q2 226.7 8.3
Q3 306.6 13.2
Q4 256.2 5.8
1996
- ----
Q1 153.7 0.4
Q2 248.5 9.1
Q3 302.7 15.1
Q4 223.9 2.7
1997
- ----
Q1 146.8 0.2
Q2 242.6 8.3
</TABLE>
13
<PAGE> 14
OUTLOOK
This "Outlook" section contains forward-looking statements which are made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including, without limitation, changes in the
composition of applicable federal and state legislation appropriation
committees; federal and state appropriation changes for infrastructure spending;
the general state of the economy; competition and pricing pressures; state
referendums and initiatives; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
President Clinton and the G.O.P. controlled Congress have completed their budget
agreement by appropriating approximately $23 billion for highway spending for
the 1998 fiscal year. It was signed into law August 5, 1997. This amount is $3
billion higher than the previous year. Also on a positive note, the 4.3 cents
gas tax used for the general fund has been transferred to the Highway Trust
Fund. However, that money will not be spent, but will increase the fund surplus
and, we believe, put pressure on Congress to appropriate transportation funds at
higher levels. As said in previous filings, the balance in the Highway Trust
Fund, would continue to grow annually to offset spending in other areas of the
budget, thus masking the true size of the federal deficit and allowing for
achievement of a balanced budget, at least on paper. In our opinion, the $3
billion increase is a step in the right direction but the federal highway
program funding is inadequate to resolve equity issues between donee and donor
states as well as address the critical need for repair and replacement of the
national highway system, which should be considered a national economic
priority.
Looking forward, Representative Schuster, Chairman of the House Transportation
and Infrastructure Committee, is planning to introduce into the House a bill to
authorize highway spending over the next three years starting at the $23 billion
level and escalating to $32 billion in the third year or to an amount that fully
utilizes the Highway Trust Fund. If that doesn't work, he will break the
proposal down into one year increments. In the Senate, Senator John Warner is
planning to introduce a similar transportation bill that would cover a six year
period and funded "at an appropriate level."
The state funding picture is also starting to become clearer as the California's
legislative leaders and Governor Wilson reached agreement on a $2.54 billion
plan to build a new eastern span on the San Francisco-Oakland Bay Bridge and
perform seismic upgrades on other state toll bridges. The agreement found a
balance by increasing tolls $1 to a total of $2 on five Bay Area bridges for a
minimum of eight years and providing $875 million in state transportation funds
plus $650 million from a bond measure approved by state voters in March 1996.
The good news is that the state transportation funds have not been decimated and
will be available to fund these and other needed transportation projects.
Granite anticipates bidding some of these retrofit projects in joint venture
beginning in the fall.
Although not translated into increased private sector backlog, the strong
economy both nationally and in the West which includes California, our largest
marketplace, has provided substantial opportunities in the private market
sector. We believe part of the success of our Branch Division in the public
sector is due to the reduced participation in the public sector bidding process
by those mostly smaller contractors that work predominately in the private
sector. Additionally, in California, which generated 50% of Granite's second
quarter revenue, economists believe that the economy ($1 trillion in value) will
continue to achieve Gross State Products in excess of the national average into
the next century, supporting our optimism in this important region.
14
<PAGE> 15
Bidding activity within both divisions continues to be very strong and the size
and scope of some of these projects, particularly for the Heavy Construction
Division, are substantial. Granite has been able to translate the bidding
opportunities into a record backlog just breaking the $1 billion level. With the
prospects available on our bid list, we have the chance to increase backlog
significantly and when combined with our "turn" business (work started and
completed during the year), it will provide the opportunity for revenue growth
and Granite's expected associated profitability.
Based on our success to date in capturing new work, the large number of
prospects both public and private, and our geographic diversity throughout the
continental U.S., we believe our near-term business has significant
opportunities to allow the Company to prosper.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Six Months Ended June 30, 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents, June 30 $ 32,267 $ 13,664
Net cash provided (used) by:
Operating activities 525 (3,332)
Investing activities (29,692) 297
Financing activities 22,771 (5,711)
Capital expenditures 37,762 31,779
Working capital 88,966 69,048
- ----------------------------------------------------------------------------
</TABLE>
Cash provided by operating activities during the six months ended June 30, 1997,
of $0.5 million represents a $3.9 million increase from the 1996 amount for the
same period. The change relates to an increase in accounts payable, net of the
increase to accounts receivable, of $7.2 million, and an increase in cash
provided from the performance of contracts of $12.4 million, offset primarily by
an increase in the undistributed earnings of construction joint ventures of $9.2
million. Changes in cash provided by operating activities primarily reflect
normal seasonal variations in the cash flow on contracts and payables.
Investing activities in 1997 used $30.0 million more cash than during the six
months ended June 30, 1996. Purchases of property, plants and equipment
increased $6.0 million from 1996. The Company also used cash to purchase a $12.2
million additional investment in TIC Holdings, Inc., bringing the total
investment to 30% (see Note 12, Equity Investment, of Notes to the Condensed
Consolidated Financial Statements). Other investing activities include a
decrease in net maturities of short-term investments of $9.0 million.
Financing activities in 1997 provided $28.5 million of cash in excess of the
1996 activity primarily reflecting an increase of $26.0 million in additions to
long-term debt. Debt was used to pay for the $12.2 million investment in TIC
Holdings, Inc. and to fund operations.
The Company renegotiated its revolving credit agreement during the quarter ended
June 30, 1997. At June 30, 1997, the Company's borrowing capacity under its
revolving line of credit is $75 million of which $26.4 million is available. The
Company anticipates the cash generated internally and amounts available under
its existing credit facilities will be sufficient to meet its operating needs,
anticipated capital expenditure plans and other financial commitments at least
through 1997.
15
<PAGE> 16
PART II. OTHER INFORMATION
16
<PAGE> 17
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on May 19, 1997,
the following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES WITHHELD
VOTES VOTES ABSTAINED NONVOTE
----------- ------- --------- --------------
<S> <C> <C> <C> <C>
Richard M. Brooks 13,686,640 -- 215,568 4,353,524
Raymond E. Miles 13,686,640 -- 215,568 4,353,524
</TABLE>
The following proposal was approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES WITHHELD
VOTES VOTES ABSTAINED NONVOTE
----------- ------- --------- --------------
<S> <C> <C> <C> <C>
To ratify the appointment of
Coopers & Lybrand, L.L.P. as
the independent accountants of
the Company for the fiscal year
ending December 31, 1997
13,686,640 215,568 -- 4,353,524
</TABLE>
17
<PAGE> 18
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Net Income per
Common and Common Equivalent Share
b) Reports on Form 8-K
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRANITE CONSTRUCTION INCORPORATED
By: /s/ William E. Barton
Date: August 12, 1997 ---------------------------------------
William E. Barton
Vice President and Chief Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
11 Computation of Net Income per
Common and Common Equivalent
Share..................................................21
</TABLE>
20
<PAGE> 1
EXHIBIT 11
GRANITE CONSTRUCTION INCORPORATED
COMPUTATION OF NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 18,134 17,985 18,210 17,941
Computation of incremental outstanding shares:
Net effect of dilutive stock options based
on treasury stock method 52 67 54 76
- -----------------------------------------------------------------------------------------------
Weighted average common shares outstanding,
as adjusted 18,186 18,052 18,264 18,017
==============================================================================================
Net income $ 8,307 $ 9,131 $ 8,550 $ 9,497
==============================================================================================
Net income per common and common
equivalent share $ 0.46 $ 0.51 $ 0.47 $ 0.53
==============================================================================================
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF INCOME, AND
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q, JUNE 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,267
<SECURITIES> 11,806
<RECEIVABLES> 159,631
<ALLOWANCES> 697
<INVENTORY> 14,726
<CURRENT-ASSETS> 281,714
<PP&E> 487,259
<DEPRECIATION> 290,449
<TOTAL-ASSETS> 526,012
<CURRENT-LIABILITIES> 192,748
<BONDS> 70,133
0
0
<COMMON> 184
<OTHER-SE> 238,372
<TOTAL-LIABILITY-AND-EQUITY> 526,012
<SALES> 389,397
<TOTAL-REVENUES> 389,397
<CGS> 342,557
<TOTAL-COSTS> 377,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,195
<INCOME-PRETAX> 13,572
<INCOME-TAX> 5,022
<INCOME-CONTINUING> 8,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,550
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
