<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 SEPTEMBER 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 November 7, 1997.
Class Outstanding
- ----------------------------- -----------------
Common Stock, $0.01 par value 18,265,375 shares
This report on Form 10-Q, including all exhibits, contains 20 pages. The exhibit
index is located on page 19 of this report.
<PAGE> 2
GRANITE CONSTRUCTION INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of September 30, 1997 and
December 31, 1996..............................................4
Condensed Consolidated Statements
of Income for the Three Months and Nine
Months Ended September 30, 1997 and 1996.......................5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended September 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............................................none
Item 5. Other Information..............................................none
Item 6. Exhibits and Reports on Form 8-K...............................17
Exhibit Index..................................................19
</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>
September 30, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 39,979 $ 38,663
Short-term investments 18,154 33,567
Accounts receivable 189,742 124,124
Costs and estimated earnings in excess of billings 21,834 29,494
Inventories 13,793 13,493
Deferred income taxes 13,060 13,060
Equity in joint ventures 20,164 5,371
Other current assets 10,735 6,033
--------- ---------
Total current assets 327,461 263,805
--------- ---------
Property and equipment 193,529 178,515
--------- ---------
Other assets 43,879 30,725
--------- ---------
$ 564,869 $ 473,045
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 11,176 $ 10,186
Accounts payable 75,816 64,058
Billings in excess of costs and estimated earnings 66,050 45,352
Accrued expenses and other current liabilities 65,396 51,667
--------- ---------
Total current liabilities 218,438 171,263
--------- ---------
Long-term debt 70,114 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 18,268,725 shares;
1996- issued 18,161,611 shares, outstanding
18,121,253 shares 184 182
Additional paid-in capital 39,829 36,901
Retained earnings 218,382 201,663
--------- ---------
258,395 238,746
Unearned compensation (6,653) (5,141)
--------- ---------
251,742 233,605
--------- ---------
$ 564,869 $ 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 328,988 $ 302,646 $ 718,385 $ 704,894
Cost of revenue 290,106 261,830 632,663 620,218
--------- --------- --------- ---------
Gross profit 38,882 40,816 85,722 84,676
--------- --------- --------- ---------
General and administrative expenses 19,517 17,221 54,633 49,486
--------- --------- --------- ---------
Operating profit 19,365 23,595 31,089 35,190
--------- --------- --------- ---------
Other income (expense)
Interest income 2,863 1,698 5,551 5,070
Interest expense (1,929) (1,156) (5,124) (2,934)
Gain on sales of property
and equipment 263 306 2,567 2,466
Other, net 1,106 (163) 1,157 (195)
--------- --------- --------- ---------
2,303 685 4,151 4,407
--------- --------- --------- ---------
Income before provision
for income taxes 21,668 24,280 35,240 39,597
Provision for income taxes 8,017 9,227 13,039 15,047
--------- --------- --------- ---------
Net income $ 13,651 $ 15,053 $ 22,201 $ 24,550
========= ========= ========= =========
Net income per share $ 0.74 $ 0.83 $ 1.21 $ 1.36
Weighted average shares
of common stock 18,347 18,069 18,291 18,033
Dividends per share $ 0.06 $ 0.06 $ 0.30 $ 0.31
========= ========= ========= =========
</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>
- ---------------------------------------------------------------------------------------
Nine Months Ended September 30, 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 22,201 $ 24,550
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 28,723 27,883
Gain on sales of property and equipment (2,567) (2,466)
Decrease in unearned compensation 1,729 1,475
Cash provided by (used in):
Accounts and notes receivable (66,973) (38,152)
Inventories (300) (3,658)
Equity in joint ventures and affiliates (3,559) (14,179)
Other assets 1,113 (1,920)
Accounts payable 11,758 12,848
Billings in excess of costs and estimated earnings, net 18,008 10,036
Accrued expenses 13,634 17,661
-------- --------
Net cash provided by operating activities 23,767 34,078
-------- --------
Investing Activities
Additions to property and equipment (44,337) (38,965)
Proceeds from sales of property and equipment 3,968 7,298
Additions to notes receivable (121) (639)
Repayments of notes receivable 947 535
Investment in TIC Holdings, Inc. (12,222) --
Additions to investments and other assets (7,816) (1,038)
Purchases of short-term investments (24,095) (30,439)
Maturities of short-term investments 39,508 52,649
-------- --------
Net cash used by investing activities (44,168) (10,599)
-------- --------
Financing Activities
Additions to long-term debt 32,969 7,000
Repayments of long-term debt (5,467) (9,058)
Employee stock options exercised 153 615
Stock purchased and redistributed (464) (526)
Dividends paid (5,474) (5,479)
-------- --------
Net cash provided (used) by financing activities 21,717 (7,448)
-------- --------
Increase in cash and cash equivalents 1,316 16,031
Cash and cash equivalents at beginning of period 38,663 22,410
-------- --------
Cash and cash equivalents at end of period $ 39,979 $ 38,441
======== ========
Supplementary Information
Cash paid during the period for:
Interest $ 5,124 $ 2,934
Income taxes 312 2,950
======== ========
</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 September 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 nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full
year.
RECLASSIFICATION: Certain financial statement items have been
reclassified to conform to the current year's format.
2. SHORT-TERM INVESTMENTS:
<TABLE>
<CAPTION>
Held-To-Maturity Held-To-Maturity
September 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 $ 999 $ 1 $ -- $ 1,000 $ 2,993 $ -- $ -- $ 2,993
Commercial Paper -- -- -- -- 3,977 -- -- 3,977
Municipal Bonds 5,029 -- (3) 5,026 6,011 6 -- 6,017
Foreign Banker's Acceptances 1,982 -- -- 1,982 7,420 1 -- 7,421
------- ------- ------- ------- ------- ------- ------- -------
8,010 1 (3) 8,008 20,401 7 -- 20,408
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Available-For-Sale Available-For-Sale
September 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 6,432 -- (7) 6,425 9,146 3 (14) 9,135
Municipal Bonds 2,914 5 -- 2,919 4,020 23 -- 4,043
Foreign Banker's Acceptances 798 -- -- 798 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
10,144 5 (7) 10,142 13,166 26 (14) 13,178
------- ------- ------- ------- ------- ------- ------- -------
Total Short-Term Investments $ 18,154 $ 6 $ (10) $18,150 $ 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 nine months ended September 30, 1997. At
September 30, 1997, scheduled maturities of are as follows
(unaudited):
<TABLE>
<CAPTION>
Held-To- Available-
Maturity For-Sale Total
-------- ------- --------
<S> <C> <C> <C>
Within one year $8,010 $ 5,797 $ 13,807
After one year through five years - 4,347 4,347
-------- ------- --------
$8,010 $10,144 $ 18,154
======== ======= ========
</TABLE>
For the nine months ended September 30, 1997 and 1996,
purchases and maturities of short-term investments were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 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 $ 10,109 $ 13,986 $ 24,095 $ 21,122 $ 9,317 $ 30,439
Maturities 28,536 10,972 39,508 40,300 12,349 52,649
-------- -------- -------- -------- -------- --------
Net change $(18,427) $ 3,014 $(15,413) $(19,178) $ (3,032) $(22,210)
======== ======== ======== ======== ======== ========
</TABLE>
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Construction contracts
Completed and in progress $114,924 $ 59,764
Retentions 48,193 47,956
-------- --------
163,117 107,720
Construction material sales 23,527 12,651
Other 4,159 4,446
-------- --------
190,803 124,817
Less allowance for doubtful accounts 1,061 693
-------- --------
$189,742 $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>
September 30, December 31,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Assets
Total $295,148 $ 96,760
Less Other Venturers' Interest 221,671 69,175
-------- --------
Company's Interest 73,477 27,585
-------- --------
Liabilities
Total 217,662 75,408
Less Other Venturers' Interest 164,349 53,194
-------- --------
Company's Interest 53,313 22,214
-------- --------
$ 20,164 $ 5,371
======== ========
</TABLE>
6. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Land $ 18,718 $ 15,328
Quarry property 34,236 34,408
Buildings and leasehold improvements 17,175 12,973
Equipment and vehicles 415,025 388,697
Office furniture and equipment 5,704 5,485
-------- --------
490,858 456,891
Less accumulated depreciation,
depletion and amortization 297,329 278,376
-------- --------
$193,529 $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>
September 30, December 31,
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Payroll and related employee benefits $21,872 $21,627
Accrued insurance 20,944 19,997
Income taxes payable 13,092 --
Other 9,488 10,043
------- -------
$65,396 $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, 99,385 shares vested and 9,914 shares were forfeited during the
nine months ended September 30, 1997. Unearned compensation is amortized
over the restriction periods. Compensation expense related to restricted
shares was $570 and $491 for the three months ended and was $1,729 and
$1,475 for the nine months ended September 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, 24,342 shares which were redistributed along
with the balance of treasury stock as new shares of restricted common
stock.
During the nine months ended September 30, 1997, employee stock options
for 13,400 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. 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.
10
<PAGE> 11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. NEW ACCOUNTING PRINCIPLES, CONTINUED:
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 September 30, 1997 was $329.0 million, bringing
the nine month total to $718.4 million, an increase of $26.3 million, or 8.7%,
and $13.5 million, or 1.9%, respectively, over the same periods last year.
Revenue by Market Sector
Nine Months Ended September 30,
(In Millions)
<TABLE>
<CAPTION>
1997 1996
$ % $ %
<S> <C> <C> <C> <C>
Public 499.4 69.6% 503.6 71.5%
Private 124.6 17.3% 132.7 18.8%
Materials 94.4 13.1% 68.6 9.7%
----- ----- ----- ------
718.4 100.0% 704.9 100.0%
===== ===== ===== ======
</TABLE>
For the nine months ended September 30, 1997, revenue from public sector
contracts decreased $4.2 million to $499.4 million, or 69.6% of total revenue,
from $503.6 million, or 71.5% of total revenue in 1996. Revenue from private
sector contracts of $124.5 million, or 17.3% of total revenue, decreased 6.2%
from the nine months ended September 30, 1996 level of $132.7 million, or 18.8%
of total revenue. Revenue in the Company's primary geographical area,
California, decreased to $371.6 million, or 51.7% of total revenue, from $375.6
million, or 53.3% of total revenue, last year.
Backlog at September 30, 1997 was $1,050.0 million, a $334.3 million increase
from September 30, 1996 and a $452.1 million increase from December 31, 1996.
New awards for the quarter totaled $369.7 million and include a $75.7 million
interchange near Tampa, Florida and Granite's $72.4 million portion of a joint
venture to construct a highway and tunnel project in Atlantic City, New Jersey.
Awards and Backlog
End of Period
(In Millions)
<TABLE>
<CAPTION>
Awards Backlog
------ -------
1993
----
<S> <C> <C>
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 148.9 640.1
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 106.1 597.9
1997
Q1 483.0 934.1
Q2 317.7 1,009.2
Q3 369.7 1,050.0
</TABLE>
12
<PAGE> 13
The public sector backlog increased to 93.3% of total backlog from 88.1% at
December 31, 1996 and 88.7% at September 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. Work on this contract began during the second
quarter of 1997 with 25% completion for profit recognition not anticipated until
the last quarter of 1998. Private sector backlog decreased $1.3 million from
December 31, 1996 and $10.9 million from September 30, 1996.
<TABLE>
<CAPTION>
Backlog by Market Sector
(In Millions)
September 30, 1997 December 31, 1996
$ % $ %
<S> <C> <C> <C> <C>
Public 979.9 93.3% 526.5 88.1%
Private 70.1 6.7% 71.4 11.9%
------- ------ ----- ------
1,050.0 100.0% 597.9 100.0%
======= ====== ===== ======
</TABLE>
Gross profit for the quarter ended September 30, 1997 was $38.9 million, or
11.8% of revenue, as compared to $40.8 million, or 13.5% of revenue, for 1996.
The nine month gross profit increased $1.0 million to $85.7 million, or 11.9% of
revenue versus $84.7 million or 12.0% in 1996. The increase in the nine month
gross profit reflects similar margins on higher revenue and the settlement of
claims for revenue on work completed in prior years. The level of profit for
both the quarter and the nine months as compared to 1996 reflects the absence of
the San Joaquin Hills Toll Road Project completed in late 1996 which carried a
higher than average gross profit margin.
General and administrative expenses for the three months ended September 30,
1997 increased $2.3 million to $19.5 million, or 5.9% of revenue, as compared to
5.7% of revenue for the same quarter of 1996. For the nine months, general and
administrative expenses increased $5.1 million to $54.6 million and as a percent
of revenue to 7.6% versus 7.0% last year. The increases reflect an increased
level of business development and estimating activities with new offices in
Florida, Maryland and Nevada and a change in the timing of bad debt collections
versus write-offs.
Other income increased $1.6 million for the quarter and decreased $0.3 million
for the nine months ended September 30, 1997. The increase for the quarter
primarily reflects the Company's equity in joint ventures and affiliates.
Net income for the quarter ended September 30, 1997 was $13.7 million, or $0.74
per share, a decrease of $1.4 million or $0.09 per share from the quarter ended
September 30, 1996 net income of $15.1 million, or $0.83 per share. For the nine
months, net income was $22.2 million, or $1.21 per share, a $2.4 million, or
$0.15 per share decrease from the prior year net income of $24.6 million, or
$1.36 per share.
Seasonality of Business
Revenue and Net Income by Quarter
(In Millions)
<TABLE>
<CAPTION>
Net
Revenue Income
------- ------
1993
----
<S> <C> <C>
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 240.2 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
Q3 329.0 13.7
</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.
A stopgap measure toward reauthorization of the Intermodal Surface
Transportation Efficiency Act of 1991 (ISTEA) was achieved recently when
Congress passed a six-month extension of ISTEA. The President is expected to
sign the bill, which makes $9.8 billion available to be spent on federal
transportation programs until May 1, 1998. The bill also provides $5.5 billion
in new funding to be distributed to states in accordance with each state's
share of the 1997 obligation limitation. States would receive funding equal to
50%, but no more than 75%, of what they spent in fiscal year 1997. Congress will
still have to pass a long-term federal transportation bill, but the near-term
risk of states withholding projects from bidding because of funding concerns has
been abated for the moment.
Our most immediate concern now shifts to California and the Professional
Engineers in California Government, a public employee union that is advocating
the so-called Competitive Bidding Initiative. Specifically, this initiative
would make it nearly impossible for Caltrans and local public agencies to
"contract out" design work to private sector engineering firms. Putting
virtually all design and engineering project development work in the hands of
state employees will create a significant bottleneck, affecting between $4
billion and $6 billion of public projects annually and prompting state and
local projects to be delayed by at least 18 months, according to the Taxpayers
Fed Up With More State Bureaucracy, a coalition of business, engineers,
architects and taxpayers. The measure will be on the June, 1998 ballot in
California, and the Company will be working vigorously to defeat it.
We believe given the level of backlog and the health of our "turn" business that
we are on track to provide the opportunity to meet our expectations for revenue
and earnings growth next year. One very large project, the I-15 rebuild, is
expected to reach the 25% complete threshold in the fourth quarter of 1998,
giving us further comfort in reaching our financial goals for next year.
Given the continued strength of the private sector and strong levels of public
sector work, our Branch Division anticipates market conditions next year will be
similar to 1997. Our Heavy Construction Division has some very exciting bidding
opportunities upcoming in 1998, including the Bay Area toll bridge retrofit
projects, the Alameda Corridor project in the Los Angeles Basin and numerous
highway projects across the country.
14
<PAGE> 15
Granite's 30% investment (completed in May 1997) and strategic alliance with TIC
Holdings, Inc. ("TIC") has gotten off to a good start, symbolized by the award
of a $108 million sewage treatment plant in Atlanta to a joint venture
comprised of Western Summit (a wholly-owned subsidiary of TIC), TIC and Granite
Construction Company (15% participation). This project has successfully
combined each partner's individual skills and financial resources. Granite and
TIC continue to work together identifying, marketing and bidding projects of
common interest.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
Nine Months Ended September 30, 1997 1996
--------- --------
<S> <C> <C> <C>
Cash and cash equivalents, September 30 $ 39,979 $ 38,441
Net cash provided (used) by:
Operating activities 23,767 34,078
Investing activities (44,168) (10,599)
Financing activities 21,717 (7,448)
Capital expenditures 44,337 38,965
Working capital 109,023 89,044
--------- ---------
</TABLE>
Cash provided by operating activities during the nine months ended September 30,
1997, of $23.8 million represents an $10.3 million decrease from the 1996 amount
for the same period. The change relates to an increase in accounts receivable
and accounts payable, of $29.9 million, offset primarily by a decrease in equity
in construction joint ventures and affiliates of $10.6 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 $33.6 million more cash than during the nine
months ended September 30, 1996. Purchases of property, plants and equipment
increased $5.4 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%. Other investing activities include a decrease in net
maturities of short-term investments of $6.8 million.
Financing activities in 1997 provided $29.2 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.
At September 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
None
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
17
<PAGE> 18
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: November 11, 1997 William E. Barton
----------------- Vice President and Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
11 Computation of Net Income per
Common and Common Equivalent
Share...........................................................20
</TABLE>
19
<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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 18,292 18,008 18,238 17,962
Computation of incremental outstanding shares:
Net effect of dilutive stock options based
on treasury stock method 55 61 53 71
------- ------- ------- -------
Weighted average common shares outstanding,
as adjusted 18,347 18,069 18,291 18,033
======= ======= ======= =======
Net income $13,651 $15,053 $22,201 $24,550
======= ======= ======= =======
Net income per common and common
equivalent share $ 0.74 $ 0.83 $ 1.21 $ 1.36
======= ======= ======= =======
</TABLE>
20
<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, SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,979
<SECURITIES> 18,154
<RECEIVABLES> 190,803
<ALLOWANCES> 1,061
<INVENTORY> 13,793
<CURRENT-ASSETS> 327,461
<PP&E> 490,858
<DEPRECIATION> 297,329
<TOTAL-ASSETS> 564,869
<CURRENT-LIABILITIES> 218,438
<BONDS> 70,114
0
0
<COMMON> 184
<OTHER-SE> 251,558
<TOTAL-LIABILITY-AND-EQUITY> 564,869
<SALES> 718,385
<TOTAL-REVENUES> 718,385
<CGS> 632,663
<TOTAL-COSTS> 687,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,124
<INCOME-PRETAX> 35,240
<INCOME-TAX> 13,039
<INCOME-CONTINUING> 22,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,201
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
