<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 MARCH 31, 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 May 9, 1997.
Class Outstanding
----------------------------- -----------------
Common Stock, $0.01 par value 18,276,066 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 March 31, 1997 and
December 31, 1996......................................................4
Condensed Consolidated Statements
of Income for the Three Months
Ended March 31, 1997 and 1996..........................................5
Condensed Consolidated Statements
of Cash Flows for the Three Months
Ended March 31, 1997 and 1996..........................................6
Notes to the Condensed Consolidated
Financial Statements................................................7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................11-15
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>
MARCH 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 8,343 $ 38,663
Short-term investments 24,201 33,567
Accounts receivable 115,365 124,124
Costs and estimated earnings in excess of billings 26,370 29,494
Inventories 14,306 13,493
Deferred income taxes 13,060 13,060
Equity in joint ventures 20,841 5,371
Other current assets 3,805 6,033
--------------------------------------
Total current assets 226,291 263,805
- ---------------------------------------------------------------------------------------------------------------------------------
Property and equipment 190,789 178,515
- ---------------------------------------------------------------------------------------------------------------------------------
Other assets 32,279 30,725
- ---------------------------------------------------------------------------------------------------------------------------------
$ 449,359 $ 473,045
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 10,185 $ 10,186
Accounts payable 58,805 64,058
Billings in excess of costs and estimated earnings 41,198 45,352
Accrued expenses and other current liabilities 40,652 51,667
--------------------------------------
Total current liabilities 150,840 171,263
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 43,174 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 18,277,552 shares;
1996- issued 18,166,011 shares, outstanding
18,125,653 shares 184 182
Additional paid-in capital 40,026 36,901
Retained earnings 198,616 201,663
--------------------------------------
238,826 238,746
Unearned compensation (8,056) (5,141)
--------------------------------------
230,770 233,605
- -----------------------------------------------------------------------------------------------------------------------------------
$ 449,359 $ 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 MARCH 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 146,821 $ 153,749
Cost of revenue 130,971 139,107
-----------------------------------
GROSS PROFIT 15,850 14,642
General and administrative expenses 16,643 15,485
-----------------------------------
OPERATING LOSS (793) (843)
- --------------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 1,480 1,954
Interest expense (1,433) (941)
Gain on sales of property
and equipment 620 413
Other, net 511 7
-----------------------------------
1,178 1,433
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 385 590
Provision for income taxes 142 224
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 243 $ 366
==============================================================================================================
Net income per share $ 0.01 $ 0.02
Weighted average shares
of common stock 18,184 17,966
Dividends per share $ 0.18 $ 0.19
==============================================================================================================
</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>
THREE MONTHS ENDED MARCH 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C>
Net income $ 243 $ 366
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 9,386 8,947
Gain on sales of property and equipment (620) (413)
Decrease in unearned compensation 583 492
Cash provided by (used in):
Accounts and notes receivable 8,328 30,798
Inventories (813) (2,539)
Equity in joint ventures (15,470) (1,857)
Other assets 2,228 594
Accounts payable (5,253) (15,674)
Billings in excess of costs and estimated earnings, net (880) (16,975)
Accrued expenses (13,217) (10,815)
----------------------------------
Net cash used by operating activities (15,485) (7,076)
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (21,558) (18,004)
Proceeds from sales of property and equipment 740 645
Additions to notes receivable (92) (74)
Repayments of notes receivable 456 143
Additions to investments and other assets (1,859) (178)
Purchases of short-term investments (3,794) (9,382)
Maturities of short-term investments 13,160 28,042
----------------------------------
Net cash provided (used) by investing activities (12,947) 1,192
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities
Repayments of long-term debt (429) (648)
Employee stock options exercised 93 247
Stock purchased and redistributed (464) (526)
Dividends paid (1,088) (894)
----------------------------------
Net cash used by financing activities (1,888) (1,821)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (30,320) (7,705)
Cash and cash equivalents at beginning of period 38,663 22,410
----------------------------------
Cash and cash equivalents at end of period $ 8,343 $ 14,705
===========================================================================================================================
Supplementary Information
Cash paid during the period for:
Cash interest $ 1,435 $ 941
Income taxes 32 265
===========================================================================================================================
</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 March 31, 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 three months ended March 31, 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
March 31, 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 $ 4,003 $ - $ - $ 4,003 $ 2,993 $ - $ - $ 2,993
Commercial Paper - - - - 3,977 - - 3,977
Municipal Bonds 6,006 1 (1) 6,006 6,011 6 - 6,017
Foreign Banker's Acceptances 3,494 - - 3,494 7,420 1 - 7,421
Domestic Banker's Acceptances 2,944 - (3) 2,941 - - - -
------- ------- ----- -------- ------- ----- ------- --------
16,447 1 (4) 16,444 20,401 7 - 20,408
------- -------- ----- -------- ------- ----- ------- --------
Available-For-Sale Available-For-Sale
March 31, 1997 December 31, 1996
(Unaudited)
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
-------- ---------- ---------- -------- --------- ---------- ---------- -------
U.S. Government and Agency
Obligations 2,987 - (13) 2,974 9,146 3 (14) 9,135
Municipal Bonds 3,970 14 - 3,984 4,020 23 - 4,043
Foreign Banker's Acceptances 797 - (2) 795 - - - -
------- ------- ------- ------- --------- ------ --------- -------
7,754 14 (15) 7,753 13,166 26 (14) 13,178
------- ------- ------- ------- --------- ------ --------- -------
Total Short-Term Investments $24,201 $ 15 $ (19) $24,197 $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 quarter ended March 31, 1997. At March
31, 1997, scheduled maturities of investments are as follows
(unaudited):
<TABLE>
- -------------------------------------------------------------------------------------
Held-To- Available-
Maturity For-Sale Total
- -------------------------------------------- ---------- --------- --------
<S> <C> <C> <C>
Within one year $16,447 $6,747 $23,194
After one year through five years - 1,007 1,007
- -------------------------------------------- ---------- ------ -------
$16,447 $7,754 $24,201
====================================================================================
</TABLE>
For the three months ended March 31, 1997 and 1996, purchases and
maturities of short-term investments were as follows:
<TABLE>
<CAPTION>
--------------------------------------------- ----------------------------------------------
Three Months Ended Three Months Ended
March 31, 1997 March 31, 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 $ 1,010 $ 2,784 $ 3,794 $ 7,177 $ 2,205 $ 9,382
Maturities 11,000 2,160 13,160 23,000 5,042 28,042
-------- ------- -------- --------- -------- -----------
Net change $ (9,990) $ 624 $ (9,366) $ (15,823) $ (2,837) $ (18,660)
======== ======= ======== ========= ======== ===========
</TABLE>
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------------------------
Construction contracts (UNAUDITED)
<S> <C> <C>
Completed and in progress $ 57,077 $ 59,764
Retentions 43,038 47,956
-------- --------
100,115 107,720
Construction material sales 11,698 12,651
Other 4,244 4,446
-------- --------
116,057 124,817
Less allowance for doubtful accounts 692 693
-------- --------
$115,365 $124,124
======== ========
</TABLE>
8
<PAGE> 9
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>
- --------------------------------------------------------------------------------------------------------------------
MARCH 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
Assets
<S> <C> <C>
Total $167,256 $96,760
Less other venturers' interest 122,484 69,175
- --------------------------------------------------------------------------------------------------------------
Company's interest 44,772 27,585
- --------------------------------------------------------------------------------------------------------------
Liabilities
Total 89,929 75,408
Less other venturers' interest 65,998 53,194
- --------------------------------------------------------------------------------------------------------------
Company's interest 23,931 22,214
- --------------------------------------------------------------------------------------------------------------
$ 20,841 $ 5,371
==============================================================================================================
</TABLE>
6. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------------------
(UNAUDITED)
<S> <C> <C>
Land $ 15,918 $ 15,328
Quarry property 35,650 34,408
Buildings and leasehold improvements 12,973 12,973
Equipment and vehicles 405,570 388,697
Office furniture and equipment 5,604 5,485
--------- --------
475,715 456,891
Less accumulated depreciation,
depletion and amortization 284,926 278,376
--------- --------
$ 190,789 $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>
MARCH 31, December 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Payroll and related employee benefits $12,177 $21,627
Accrued insurance 17,064 19,997
Other 11,411 10,043
------- -------
$40,652 $51,667
======= =======
</TABLE>
8. STOCKHOLDERS' EQUITY: Under the terms of the Company's 1990 Omnibus
Stock and Incentive Plan, 165,768 shares of restricted common stock
were issued and 91,212 shares vested during the three months ended
March 31, 1997. Unearned compensation is amortized over the restriction
periods. Compensation expense related to restricted shares was $583 and
$492 for the three months ended March 31, 1997 and 1996, respectively.
The Company purchased, during the three months ended March 31, 1997, 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 three months ended March 31, 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. RECLASSIFICATIONS: Certain prior year financial statement items have
been reclassified to conform to the current year's presentation.
13. SUBSEQUENT EVENTS: On March 13, 1997, the Board of Directors declared a
cash dividend of $0.06 plus a one-time special cash dividend of $0.12
per share of common stock to stockholders of record as of March 31,
1997 payable on April 18, 1997.
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
will be accounted for using the equity method of accounting from the
date of acquiring the additional 20% of ownership. Previously, the
investment in TIC was recorded at cost.
10
<PAGE> 11
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 March 31, 1997 was $146.8 million, a decrease of
$6.9 million, or 4.5%, from last year. The decrease is primarily attributable to
the completion of the San Joaquin Hills Toll Road in late 1996 and unusually wet
weather in Texas.
For the three months ended March 31, 1997, revenue from public sector contracts
decreased $6.8 million to $102.8 million, or 70.0% of total revenue, from $109.6
million, or 71.3% of total revenue in 1996. Revenue in the Company's primary
geographical area, California, increased to $84.2 million, or 57.4% of total
revenue, from $79.8 million, or 51.9% of total revenue as compared to the same
period last year.
REVENUE BY MARKET SECTOR
THREE MONTHS ENDED MARCH 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996
$ % $ %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Public 102.8 70.0% 109.6 71.3%
Private 26.0 17.7% 28.6 18.6%
Materials 18.0 12.3% 15.5 10.1%
---------------------------------------
146.8 100.0% 153.7 100.0%
=======================================
</TABLE>
Backlog at March 31, 1997 was $934.1 million, a $309.8 million increase over
March 31, 1996 and a $336.5 million increase from December 31, 1996. Major
awards for the quarter include Granite's $303.1 million portion of the I-15
rebuild joint venture in Utah, a $16.8 million interchange in Arizona and an
$11.0 million highway contract in Salt Lake City, Utah. The backlog at March 31,
1997 does not include three contracts awarded in April and May of 1997: a $27.9
million light rail project in Utah, an $18.8 million interchange in Nevada and
an $11.8 million interchange project in California.
11
<PAGE> 12
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
</TABLE>
<PAGE> 13
The public sector backlog increased to 92.6% of total backlog from 88.1% at
December 31, 1996 and 84.8% at March 31, 1996 reflecting the award during the
first quarter of 1997 of the joint venture for the I-15 Corridor Reconstruction
Project in Salt Lake City, Utah, for which the Company booked its 23% share, or
$303.1 million. Work on this contract is expected to begin in late spring of
1997 with 25% completion for profit recognition not anticipated until the
latter half of 1998.
BACKLOG BY MARKET SECTOR
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
$ % $ %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Public 864.6 92.6% 526.5 88.1%
Private 69.5 7.4% 71.4 11.9%
---------------------------------------
934.1 100.0% 597.9 100.0%
=======================================
</TABLE>
Gross profit for the quarter ended March 31, 1997 was $15.9 million, or 10.8% of
revenue, as compared to $14.6 million, or 9.5% of revenue, for the first quarter
of 1996. Gross profit in the quarter was positively impacted by Branch Division
profits on flood-related work and other new and continuing projects during the
quarter, offsetting a decline in 1997 gross profit of the Heavy Construction
Division resulting from the completion of the San Joaquin Hills Toll Road, which
carried a higher than average gross profit margin, in late 1996.
General and administrative expenses for the three months ended March 31, 1997
were $16.6 million, or 11.3% of revenue, an increase of $1.2 million, or 7.5%,
over the same period last year and an increase as a percent of revenue from
10.1% last year. Expenses for the first quarter of 1997 were impacted by the
shifting of some operating costs to general and administrative costs as the
Company has increased activity in estimating and bidding new work.
The net income for the quarter ended March 31, 1997, was $0.2 million, or $0.01
per share, a decrease of $0.2 million or $0.01 per share from the net income of
$0.4 million, or $0.2 per share for the same period in 1996.
12
<PAGE> 14
SEASONALITY OF BUSINESS
REVENUE AND NET INCOME BY QUARTER
(IN MILLIONS)
<TABLE>
<CAPTION>
NET
REVENUES 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 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
</TABLE>
<PAGE> 15
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 Republican congressional leadership have thrown
transportation industry participants a curve ball with respect to the recently
announced budget agreement. The agreement announced in early May would limit
highway spending to no more than $22 billion per year over the next five years.
This amount is significantly below the $26 billion level that can be supported
by the Highway Trust Fund or even the amount of gas tax revenue that annually is
deposited into the Highway Trust Fund. This funding level is also lower than the
$26 to $27 billion funding levels that 59 senators and more than 230 members of
the House of Representatives are on record supporting in the various highway
program reauthorization bills proposed to date.
Furthermore, under this budget proposal, the balance in the Highway Trust Fund
would be allowed 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
apparent $2 billion per year increase in 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 at the state funding picture, the debate continues in California over
how to pay for the unanticipated increase in cost to retrofit the San
Francisco-Oakland Bay Bridge. Granite anticipates bidding these retrofit
projects in joint venture but at the same time is supporting efforts to keep
money from being siphoned out of the highway account for funding the retrofit
effort.
We continue to see the evidence of an upturn in the private marketplace in
California. We believe part of the early success of our Branch Division in the
public sector is due to the reduced participation in the bidding process by
those mostly smaller contractors that work predominately in the private sector.
Moreover, we are encouraged by the nature and level of inquiries by private
developers to discuss opportunities for the Company to perform site development
work in California and the west. As of yet, however, it has not translated into
increased backlog in our private market sector.
As we discussed recently in our Form 10-K, we are somewhat concerned by the
potential shortage of skilled labor, particularly in areas like Salt Lake City,
Utah, which we are addressing with increased investment in craft and technical
training. Also, there is some concern that the Federal Reserve Board is
contemplating additional increases in the discount rate, which would lead to
higher interest rates and possibly put a damper on residential site development
projects.
13
<PAGE> 16
At the same time, the level of bidding activity within both divisions is very
high and the size and scope of some of these projects, particularly for the
Heavy Construction Division, are quite large. Examples include a $140 million
lock and dam in Arkansas, a $235 million tunnel project in New Jersey, a $100
million sewage treatment project in Atlanta and a $252 million cut and cover
highway in Boston. We are pursuing all of these projects in joint venture, as
well as the $1 billion Foothill Corridor Toll Road in Orange County, California.
As we have stated most recently in the 10-K, the impact of these projects, if we
are successful, would not impact Granite's earnings until 1998 and beyond due to
their size and the time it takes to reach the 25% threshold of completion for
profit recognition.
We have completed our 30% investment in TIC Holdings, Inc., effective May 1,
1997, with a tender offer for 20% of outstanding stock of employee shareholders
and will include our 30% portion of TIC earnings under the equity method of
accounting beginning the second quarter of 1997.
Meanwhile, we are off to a very good start for the year, booking record new
awards in the first quarter, leading to a record backlog, which gives us a more
than ample springboard to grow our business going forward.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents, March 31 $ 8,343 $ 14,705
Net cash provided (used) by:
Operating activities (15,485) (7,076)
Investing activities (12,947) 1,192
Financing activities (1,888) (1,821)
Capital expenditures 21,558 18,004
Working capital 75,451 63,796
- ------------------------------------------------------------------------------------------------------
</TABLE>
Cash used by operating activities of $15.5 million for the three months ended
March 31, 1997 represents an $8.4 million decrease from the 1996 amount for the
same period. The decrease primarily reflects the undistributed earnings of
construction joint ventures. Changes in cash provided from operations reflect
seasonal variations based on the amount and progress of work being performed.
Cash provided by investing activities in 1997 decreased $14.1 million primarily
reflecting a $3.6 million increase in cash used to purchase property and
equipment and a $9.3 million decrease in net maturities of short-term
investments.
Cash used in financing activities for the three months ended March 31, 1997
remained consistent with the same period in 1996.
On May 1, 1997, the Company purchased 20%, or 154,276 shares, of the
outstanding stock of TIC Holdings, Inc. 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 will be 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.
The Company's current borrowing capacity under its revolving line of credit is
$50 million of which $25.9 million was available on March 31, 1997. The Company
believes that its current cash balances combined with cash flows from operations
and cash available under its revolving credit agreements, as renegotiated during
1997, will be sufficient to meet its operating needs, anticipated capital
expenditure plans and other financial commitments at least through 1997.
15
<PAGE> 18
PART II. OTHER INFORMATION
16
<PAGE> 19
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> 20
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: May 12, 1997 William E. Barton
Vice President and Chief Financial Officer
18
<PAGE> 21
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 MARCH 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average common shares outstanding 18,129 17,897
Computation of incremental outstanding shares:
Net effect of dilutive stock options based
on treasury stock method 55 69
- ---------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding,
as adjusted 18,184 17,966
=========================================================================================================
Net income $ 243 $ 366
=========================================================================================================
Net income per common and common
equivalent share $ 0.01 $ 0.02
=========================================================================================================
</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, MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,343
<SECURITIES> 24,201
<RECEIVABLES> 116,057
<ALLOWANCES> 692
<INVENTORY> 14,306
<CURRENT-ASSETS> 226,291
<PP&E> 475,715
<DEPRECIATION> 284,926
<TOTAL-ASSETS> 449,359
<CURRENT-LIABILITIES> 150,840
<BONDS> 43,174
0
0
<COMMON> 184
<OTHER-SE> 230,586
<TOTAL-LIABILITY-AND-EQUITY> 449,359
<SALES> 146,821
<TOTAL-REVENUES> 146,821
<CGS> 130,971
<TOTAL-COSTS> 147,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,433
<INCOME-PRETAX> 385
<INCOME-TAX> 142
<INCOME-CONTINUING> 243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
