<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File No. 1-12911
GRANITE CONSTRUCTION INCORPORATED
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<S> <C>
State of Incorporation: I.R.S. Employer Identification
Delaware Number: 77-0239383
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Corporate Administration:
525 West Beach Street
Watsonville, California 95076
(831) 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 9, 2000.
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<S> <C>
Class Outstanding
----------------------------- -----------------
Common Stock, $0.01 par value 27,288,629 shares
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<PAGE> 2
GRANITE CONSTRUCTION INCORPORATED
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of June 30, 2000 and
December 31, 1999.................................................4
Condensed Consolidated Statements
of Income for the Three Months and Six Months Ended
June 30, 2000 and 1999............................................5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 2000 and 1999......................................6
Notes to the Condensed Consolidated
Financial Statements...........................................7-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................12-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................21
Item 2. Changes in Securities............................................21
Item 3. Defaults upon Senior Securities..................................21
Item 4. Submission of Matters to a Vote
of Security Holders..............................................22
Item 5. Other Information................................................22
Item 6. Exhibits and Reports on Form 8-K.................................23
Exhibit Index....................................................25
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<PAGE> 3
PART I. FINANCIAL INFORMATION
3
<PAGE> 4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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=============================================================================================
JUNE 30, December 31,
2000 1999
---------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 35,498 $ 61,832
Short-term investments 28,575 46,245
Accounts receivable 217,272 211,609
Costs and estimated earnings in excess of billings 20,187 14,105
Inventories 17,505 12,823
Deferred income taxes 14,885 14,885
Equity in construction joint ventures 25,892 30,611
Other current assets 7,896 10,211
---------------------------
Total current assets 367,710 402,321
---------------------------------------------------------------------------------------------
Property and equipment 250,768 242,913
---------------------------------------------------------------------------------------------
Other assets 43,572 34,338
---------------------------------------------------------------------------------------------
$ 662,050 $ 679,572
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 865 $ 5,985
Accounts payable 95,296 95,662
Billings in excess of costs and estimated earnings 43,240 66,342
Accrued expenses and other current liabilities 88,984 90,675
---------------------------
Total current liabilities 228,385 258,664
---------------------------------------------------------------------------------------------
Long-term debt 64,238 64,853
---------------------------------------------------------------------------------------------
Deferred income taxes 28,323 28,323
---------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $0.01 par value, authorized
3,000,000 shares, none outstanding -- --
Common stock, $0.01 par value, authorized 100,000,000
shares; issued and outstanding 27,288,629 shares in
2000 and 26,995,506 in 1999 273 270
Additional paid-in capital 56,014 49,817
Retained earnings 296,895 285,832
---------------------------
353,182 335,919
Unearned compensation (12,078) (8,187)
---------------------------
341,104 327,732
---------------------------------------------------------------------------------------------
$ 662,050 $ 679,572
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
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==================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Construction $ 301,274 $ 285,643 $ 494,623 $ 473,615
Material sales 42,438 43,649 65,519 70,481
------------------------- -------------------------
Total revenue 343,712 329,292 560,142 544,096
------------------------- -------------------------
Cost of revenue:
Construction 258,371 246,823 426,819 415,161
Material sales 35,668 36,300 57,275 59,437
------------------------- -------------------------
Total cost of revenue 294,039 283,123 484,094 474,598
------------------------- -------------------------
GROSS PROFIT 49,673 46,169 76,048 69,498
General and administrative expenses 26,925 24,792 49,784 44,414
------------------------- -------------------------
OPERATING INCOME 22,748 21,377 26,264 25,084
--------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 2,486 1,041 5,663 3,820
Interest expense (2,273) (2,063) (3,985) (3,906)
Gain on sales of property
and equipment 1,397 3,509 2,378 3,808
Other, net 1,550 739 1,318 (138)
------------------------- -------------------------
3,160 3,226 5,374 3,584
--------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 25,908 24,603 31,638 28,668
Provision for income taxes 9,975 9,472 13,481 11,037
--------------------------------------------------------------------------------------------------
NET INCOME $ 15,933 $ 15,131 $ 18,157 $ 17,631
==================================================================================================
Net income per share
Basic $ 0.61 $ 0.58 $ 0.69 $ 0.67
Diluted $ 0.59 $ 0.56 $ 0.68 $ 0.65
Weighted average shares
of common stock
Basic 26,329 26,046 26,275 26,255
Diluted 26,918 26,963 26,822 27,164
Dividends per share $ 0.10 $ 0.07 $ 0.26 $ 0.26
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
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==============================================================================================
SIX MONTHS ENDED JUNE 30, 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 18,157 $ 17,631
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 21,894 20,781
Gain on sales of property and equipment (2,378) (3,808)
Gain on sale of investment (636) --
Decrease in unearned compensation 3,021 2,212
Common stock contributed to ESOP -- 2,146
Equity in loss of affiliates and other 381 1,039
Changes in assets and liabilities:
Accounts and notes receivable (5,774) (21,322)
Inventories (4,682) (2,819)
Equity in construction joint ventures 4,719 (1,928)
Other assets 1,407 643
Accounts payable (366) (2,363)
Billings in excess of costs and estimated earnings, net (29,184) (8,206)
Accrued expenses (2,530) 4,661
-----------------------
Net cash provided by operating activities 4,029 8,667
----------------------------------------------------------------------------------------------
Investing Activities
Purchases of short-term investments (32,610) (36,711)
Maturities of short-term investments 50,280 71,199
Additions to property and equipment (31,347) (53,239)
Proceeds from sales of property and equipment 4,192 7,491
Proceeds from sale of investment 5,001 --
Investment in affiliates (13,976) --
Development and sale of land and other investing activities 874 1,794
-----------------------
Net cash used by investing activities (17,586) (9,466)
----------------------------------------------------------------------------------------------
Financing Activities
Repayments of long-term debt (5,735) (5,709)
Employee stock options exercised 406 51
Repurchase of common stock (1,193) (19,487)
Dividends paid (6,255) (6,842)
-----------------------
Net cash used by financing activities (12,777) (31,987)
==============================================================================================
Decrease in cash and cash equivalents (26,334) (32,786)
Cash and cash equivalents at beginning of period 61,832 62,470
-----------------------
Cash and cash equivalents at end of period $ 35,498 $ 29,684
==============================================================================================
Supplementary Information
Cash paid during the period for:
Interest $ 2,735 $ 2,607
Income taxes 4,195 3,653
Noncash investing and financing activity:
Restricted stock issued for services $ 6,912 $ 6,429
Dividends accrued but not paid 2,729 1,902
Financed acquisition of property and equipment -- 1,700
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except 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, 2000 and
the results of operations and cash flows for the periods presented. The
December 31, 1999 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, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. INVENTORIES: Inventories consist primarily of quarry products valued at
the lower of average cost or market.
3. PROPERTY AND EQUIPMENT:
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JUNE 30, December 31,
2000 1999
(UNAUDITED)
-------------------------------------------------------------------
<S> <C> <C>
Land $ 36,868 $ 36,485
Quarry property 47,150 46,891
Buildings and leasehold improvements 37,886 33,791
Equipment and vehicles 492,354 478,990
Office furniture and equipment 8,116 7,110
----------------------
622,374 603,267
Less accumulated depreciation,
depletion and amortization 371,606 360,354
-------------------------------------------------------------------
$250,768 $242,913
===================================================================
</TABLE>
7
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
4. EARNINGS PER SHARE:
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR - BASIC AND DILUTED EARNINGS PER
SHARE
Net income $15,933 $15,131 $18,157 $17,631
==============================================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 27,289 27,316 27,164 27,419
Less restricted stock outstanding 960 1,270 889 1,164
----------------------------------------------
TOTAL 26,329 26,046 26,275 26,255
----------------------------------------------
Basic earnings per share $ 0.61 $ 0.58 $ 0.69 $ 0.67
==============================================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 26,329 26,046 26,275 26,255
Effect of Dilutive Securities:
Common stock options 7 40 8 43
Warrants 103 218 95 229
Restricted stock 479 659 444 637
----------------------------------------------
TOTAL 26,918 26,963 26,822 27,164
----------------------------------------------
Diluted earnings per share $ 0.59 $ 0.56 $ 0.68 $ 0.65
==============================================================================================
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5. CONTINGENCIES:
DISCLOSURE OF SIGNIFICANT ESTIMATES - REVENUE RECOGNITION: As
outlined in the Summary of Significant Accounting Policies, the Company's
construction revenue is recognized on the percentage of completion basis.
Consequently, construction revenue and gross margin for each reporting
period is determined on a contract by contract basis by reference to
estimates by the Company's engineers of expected costs to be incurred to
complete each project. These estimates include provisions for known and
anticipated cost overruns, if any exist or are expected to occur. These
estimates may be subject to revision in the normal course of business.
DISCLOSURE OF SIGNIFICANT ESTIMATES - LITIGATION: The Company is a
party to a number of legal proceedings and believes that the nature and
number of these proceedings are typical for a construction firm of its
size and scope and that none of these proceedings is material to the
Company's financial position. The Company's litigation typically involves
claims regarding public liability or contract related issues.
6. RECLASSIFICATIONS: Certain prior year financial statement items have been
reclassified to conform to the current year's presentation.
8
<PAGE> 9
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
7. INVESTMENT IN T.I.C. HOLDINGS, INC.: The Company currently holds a 27%
minority interest in T.I.C. Holdings, Inc. ("TIC"). The Company and TIC
have reached an agreement under which the Company will sell its minority
interest back to TIC over a three and one half-year period. Under the
agreement TIC will have the opportunity to repurchase shares sooner based
on an agreed to formula. On June 5, 2000 TIC repurchased 478,012 shares
representing 6% of the TIC shares held by the Company. The Company
received $5 million in proceeds on the transaction and recognized a gain
of $0.6 million. At June 30, 2000 the Company held 2,093,258 shares of
TIC stock.
8. INVESTMENT IN WILDER CONSTRUCTION: In January 2000, the Company purchased
30% of the common stock of Wilder Construction Company ("Wilder") for a
purchase price of $13.1 million. The purchase agreement provides for the
Company to increase its ownership in Wilder to between 51% and 60% in
2002 and to 75% in 2004. Wilder is a heavy-civil construction company
with regional offices located in Washington, Oregon and Alaska. Wilder
has annual revenues of approximately $150 million and employs
approximately 650 people throughout the Northwest and Alaska.
9
<PAGE> 10
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
9. BUSINESS SEGMENT INFORMATION:
The Company has two reportable segments: the Branch Division and
the Heavy Construction Division (HCD). The Branch Division is comprised
of branch offices that serve local markets, while HCD pursues major
infrastructure projects throughout the nation. HCD generally has large
heavy-civil projects with contract amounts in excess of $15 million and
contract durations greater than two years, while the Branch Division
projects are typically smaller in size and shorter in duration. HCD has
been the primary participant in the Company's construction joint
ventures.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating profit or loss which does not
include income taxes, interest income, interest expense or other income
(expense).
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Information about Profit and Assets:
---------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, HCD BRANCH TOTAL
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
Revenues from external customers $ 95,058 $ 248,654 $ 343,712
Intersegment revenue transfer (4,269) 4,269 --
------------------------------------------------
Net revenue 90,789 252,923 343,712
Depreciation and amortization 1,814 8,062 9,876
Operating profit 8,130 23,430 31,560
---------------------------------------------------------------------------------------------------
1999
Revenues from external customers $ 101,731 $ 227,561 $ 329,292
Intersegment revenue transfer (5,909) 5,909 --
------------------------------------------------
Net revenue 95,822 233,470 329,292
Depreciation and amortization 2,060 7,676 9,736
Operating profit 12,638 17,859 30,497
---------------------------------------------------------------------------------------------------
</TABLE>
10
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
9. BUSINESS SEGMENT INFORMATION, CONTINUED:
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<CAPTION>
Information about Profit and Assets, continued:
------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, HCD BRANCH TOTAL
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
Revenues from external customers $ 185,087 $ 375,055 $ 560,142
Intersegment revenue transfer (7,821) 7,821 --
------------------------------------------------
Net revenue 177,266 382,876 560,142
Depreciation and amortization 3,681 15,787 19,468
Operating profit 17,457 24,201 41,658
Property and equipment 26,006 200,003 226,009
------------------------------------------------------------------------------------------
1999
Revenues from external customers $ 180,454 $ 363,642 $ 544,096
Intersegment revenue transfer (10,650) 10,650 --
------------------------------------------------
Net revenue 169,804 374,292 544,096
Depreciation and amortization 4,007 14,781 18,788
Operating profit 14,704 25,674 40,378
Property and equipment 29,342 191,546 220,888
------------------------------------------------------------------------------------------
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<CAPTION>
Reconciliation of Segment Profit to the Company's Consolidated Totals:
------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Profit:
Total profit for reportable segments $ 31,560 $ 30,497
Other income 3,160 3,226
Unallocated other corporate expenses (8,812) (9,120)
------------------------------------------------------------------------------
Income before provision for income taxes $ 25,908 $ 24,603
==============================================================================
</TABLE>
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<CAPTION>
------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Profit:
Total profit for reportable segments $ 41,658 $ 40,378
Other income 5,374 3,584
Unallocated other corporate expenses (15,394) (15,294)
------------------------------------------------------------------------------
Income before provision for income taxes $ 31,638 $ 28,668
==============================================================================
</TABLE>
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING DISCLOSURE:
This report contains forward-looking statements; such as
statements related to the impact of government regulations on the
Company's operations, the existence of bidding opportunities and the
impact of legislation, availability of highway funds and economic
conditions on the Company's future results. Additionally, forward-looking
statements include statements that can be identified by the use of
forward-looking terminology such as "believes," "expects," "appears, "
"may," "will," "should," or "anticipates" or the negative thereof or
comparable terminology, or by discussions of strategy.
All such forward-looking statements are subject to risks and
uncertainties that could cause actual results of operations and financial
condition and other events to differ materially from those expressed or
implied in such forward-looking statements. Specific risk factors
include, 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; weather conditions; competition and pricing pressures; and
state referendums and initiatives.
RESULTS OF OPERATIONS
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<CAPTION>
Three Months Ended June 30,
---------------------------
(In Millions) 2000 1999 CHANGE %
------------- ---- ---- ------ -
<S> <C> <C> <C> <C>
Revenue:
Branch Division $ 252.9 $ 233.5 $ 19.4 8.3
Heavy Construction Division 90.8 95.8 (5.0) (5.2)
-----------------------------------------
$ 343.7 $ 329.3 $ 14.4 4.4
=========================================
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<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(In Millions) 2000 1999 CHANGE %
------------- ---- ---- ------ -
<S> <C> <C> <C> <C>
Revenue:
Branch Division $ 382.8 $ 374.3 $ 8.5 2.3
Heavy Construction Division 177.3 169.8 7.5 4.4
-----------------------------------------
$ 560.1 $ 544.1 $ 16.0 2.9
=========================================
</TABLE>
Revenue and Backlog: Revenue for the second quarter 2000 increased 4.4%
to $343.7 million from the second quarter 1999. The increased revenue reflects
strong Branch Division volume partially offset by decreased volume in the
Company's Heavy Construction Division ("HCD"). The decreased HCD volume reflects
the fact that a number of HCD projects are nearing completion and have only
recently been replaced by new awards. Branch Division volume in the second
quarter 2000 was reflective of a strong backlog of work coming off of a first
quarter that had more typical rainfall levels compared to the unusually dry
first quarter of 1999. Revenue for the six months ended June 30, 2000 increased
2.9% to $560.1 million from $544.1 million for the same period in 1999,
reflecting growth in both divisions.
12
<PAGE> 13
Revenue from private sector contracts increased to 26.7% of total revenue
in the second quarter of 2000 from 22.2% in the 1999 quarter and to 26.4% of
total revenue for the six months ended June 30, 2000 from 22.5% of total revenue
in the same period in 1999. Although the private construction market remains
strong in many of the areas that the Company works, there have been some signs
of a leveling off of growth in the private sector (see "Outlook").
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BACKLOG BY MARKET SECTOR
(IN MILLIONS)
JUNE 30, JUNE 30, VARIANCE
2000 1999 AMOUNT PERCENT
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS
Federal $ 88.3 $ 24.2 $ 64.1 264.9
State 531.0 592.0 (61.0) (10.3)
Local 137.3 173.5 (36.2) (20.8)
---------------------------------------
Total public sector 756.6 789.7 (33.1) (4.2)
Private sector 138.9 179.7 (40.8) (22.7)
-------------------------------------------------------------------
$895.5 $969.4 $(73.9) (7.6)
===================================================================
</TABLE>
The Company's backlog at June 30, 2000 was $895.5 million, down $73.9
million, or 7.6% from June 30, 1999 and an increase of $102.2 million, or 12.9%
from December 31, 1999. New awards for the quarter totaled $461.2 million and
included a $81.5 million bridge contract in Florida, a $43.4 million dam
contract in Missouri and a $34.2 million highway contract in Texas.
Gross Profit: Gross profit as a percent of revenue increased to
14.5% in the second quarter 2000 from 14.0% in the second quarter 1999 and to
13.6% for the six months ended June 30, 2000 from 12.8% in the corresponding
1999 period. The gross profit margins for the quarter and the six months reflect
the overall successful execution of projects in both the Branch Division and
HCD. The gross profit margin in the quarter and six months ended June 30, 2000
was also positively impacted by a lower level of revenue from projects that did
not meet the Company's 25% completion threshold for profit recognition compared
to the 1999 periods. The Company recognizes revenue only to the extent of cost
incurred until a project reaches 25% complete. Project to date revenue
recognized for projects less than 25% complete was approximately $24.7 million
and $32.3 million at June 30, 2000 and 1999, respectively.
Cost of revenue consists of direct costs on contracts; including labor
and materials, amounts payable to subcontractors, direct overhead costs,
equipment expense (primarily depreciation, maintenance and repairs) and
insurance costs. The Company has experienced some upward pressure on costs
associated with labor markets and oil prices, however, the Company's gross
profit margins were not significantly impacted by such changes during the first
six months of 2000 (See "Outlook").
13
<PAGE> 14
General and Administrative Expenses: General and administrative expenses
for the three and six months ended June 30, 2000 and 1999, respectively,
comprised the following (in millions):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------------------------------------------------------------
IN MILLIONS 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and related expenses $11.8 $10.4 $23.6 $21.3
Incentive compensation,
discretionary profit sharing and
pension 6.5 6.4 9.4 8.8
Other general and administrative
expenses 8.6 8.0 16.8 14.3
--------------------------------------------------------------------------------------------------
Total $26.9 $24.8 $49.8 $44.4
--------------------------------------------------------------------------------------------------
Percent of revenue 7.8% 7.5% 8.9% 8.2%
==================================================================================================
</TABLE>
Salaries and related expenses increased for the three and six months
ended June 30, 2000 over 1999 due primarily to increased staffing to support the
Company's current and expected growth. Incentive compensation and discretionary
profit sharing and pension costs increased slightly as a function of the
Company's increased gross profit margin. Other general and administrative
expenses include various costs to support the Company's operations, none of
which exceeds 10% of total general and administrative expenses. The increase in
other general and administrative expenses in 2000 primarily reflects increases
in costs to support the Company's growth.
Operating Income: The Heavy Construction Division's contribution to
operating income decreased in the second quarter 2000 compared to the second
quarter 1999 due primarily to the decrease in revenue described in "Revenue and
Backlog" above. Additionally, the 1999 quarter reflected benefits from several
HCD projects that reached the 25% completion threshold for profit recognition.
For the six months ended June 30, 2000 HCD's contribution to operating income
increased over the corresponding period in 1999 due to both increases in the
volume of work and the profit margins the Division was able to achieve on the
strong backlog of work carried forward from 1999.
The Branch Division's contribution to operating income increased in the
second quarter 2000 over the comparable 1999 period, reflecting increases in
construction revenue and gross margins as described above, partially offset by
increases in salaries and other costs to support expected growth and slightly
lower revenue from material sales.
Other Income (Expenses): Other income increased $1.8 million to $5.4
million for the six months ended June 30, 2000 over the same period in 1999. The
increase was due primarily to higher interest income resulting from the combined
factors of higher interest rates and higher invested balances, partially offset
by lower gains on the sale of property and equipment. In the second quarter 1999
the Company recognized a $2.8 million gain on the sale of a depleted quarry
property.
14
<PAGE> 15
Provision for Income Taxes: The Company's effective tax rate remained
flat at 38.5% for the three months ended June 30, 2000 compared to the same
period last year. The Company's effective tax rate was 42.6% for the six months
ended June 30, 2000 compared to 38.5% in 1999. The increase reflects additional
tax expense recognized in the first quarter 2000 related to the Company reaching
an agreement with TIC to divest its 30% investment over a three and one-half
year period.
OUTLOOK
Overall, we are very pleased with our financial performance through the
first six months of 2000. Many of our geographic marketplaces continue to
experience healthy economic conditions, providing on-going opportunities for
both our Branch and Heavy Construction Divisions (HCD).
In an attempt to predict how the rest of the year will unfold, weather is
always the biggest unknown. In 1999, the Company experienced an unusually dry
fourth quarter, leading to an extended work season and ultimately to record
revenues and earnings. Although we anticipate a strong year in 2000, based on a
quality backlog, it is the length of the building season that strongly
determines year in and year out how much work we can perform and consequently
what our final results may be at year-end.
Bidding activity in both divisions continues to be very strong and the
size and scope of some of these projects, particularly for HCD, are substantial.
After experiencing a nearly 8-month drought on new awards, HCD had a very
successful second quarter. While adding to our backlog, these new projects are
not expected to impact our profitability until 2001, when most if not all reach
25% complete. The Division will continue to maintain a disciplined bidding
philosophy as it seeks to continue the success it has achieved in recent months.
Many of HCD's new projects and a host of those on the current bid schedule are
the products of TEA-21, the Transportation Equity Act for the 21st Century. We
are very optimistic the increased funding from TEA-21 coupled with our
geographic diversity throughout the U.S., will provide significant bidding
opportunities that should lead to strong revenue and earnings growth going
forward.
Looking at the schedule over the next few months, both divisions have a
full plate of opportunities in which to bid. HCD is targeting a number of large
design-build opportunities in Texas, Florida, Arizona, Minnesota, Colorado and
Nevada. While the Branch Division got off to a late start this year due to
weather, the business is building momentum as the year progresses and continues
to experience a strong public sector market throughout California, Nevada,
Arizona and Utah. In terms of the private sector, the decrease in private sector
backlog and the steady increase in interest rates provide us the indication that
this sector is leveling off as we head into the second half of the year.
15
<PAGE> 16
As we have discussed previously, the Company has continued to experience
upward pressure on costs associated with higher oil prices that affect both
asphalt oil and diesel fuel costs. In the second quarter of 2000, the impact was
felt primarily on our smaller jobs and private contracts, which are typically
not indexed to oil prices. It is important to note that many of our larger
projects in California and Nevada are indexed and are sometimes able to take
advantage of both sides of the pricing cycle.
Politically, the Company is very involved in supporting California's
Proposition 35 on the upcoming November ballot. If passed, Proposition 35 would
amend the state Constitution to give state and local entities more freedom to
contract with private entities for engineering and architectural services on
public works projects. Currently there is a $3 billion backlog of funded and
approved projects that cannot get designed because the California Department of
Transportation is precluded from contracting out to private sector companies for
design services. Passage of Proposition 35 could break that logjam, and give the
Company a substantial increase in bidding opportunities in California.
We are very excited that transportation was a primary focus of California
Governor Davis this year. The result was the Governor's Traffic Congestion
Relief Program, passed this summer as part of California's 2000 budget. The
six-year, $7 billion plan includes $2 billion this year from the general fund,
part of the multi-billion-surplus that the state enjoys this year, and a
diversion of $500 million from the sales tax on gasoline that previously went
into the general fund. In the five subsequent years, all general fund sales
taxes on gasoline and diesel fuel (about $1 billion per year) will be diverted
for this purpose.
In summary, we are very pleased with the success of our current
operations and look forward to the opportunities ahead to build our backlog as
we go into 2001. As always, adverse weather and the seasonality of our business
must remain a key factor in determining how well we can perform for the
remainder of the year.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
------------------------------------------------------------
(IN MILLIONS)
SIX MONTHS ENDED JUNE 30, 2000 1999
------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $35.5 $29.7
Net cash provided (used) by:
Operating activities 4.0 8.7
Investing activities (17.6) (9.5)
Financing activities (12.8) (32.0)
Capital expenditures 31.3 53.2
------------------------------------------------------------
</TABLE>
Cash provided by operating activities of $4.0 million for the six months
ended June 30, 2000 represents a $4.7 million decrease from the 1999 amount for
the same period. Changes in cash from operating activities primarily reflects
seasonal variations based on the amount and progress of work being performed.
Cash used by investing activities for the six month period in 2000
increased $8.1 million over the corresponding 1999 period due primarily to the
investment in Wilder Construction in which the Company has a 30% equity
investment and a lower level of short-term investment maturities offset by a
decrease in property and equipment purchases, and proceeds from the TIC
divestiture (Note 7).
Cash used by financing activities in 2000 decreased $19.2 million from
1999 because of the absence of the Company's share repurchases which took place
in 1999.
The Company has budgeted $58.0 million for capital expenditures in 2000,
which includes amounts for construction equipment, aggregate and asphalt plants,
buildings, leasehold improvements and the purchase of land and aggregate
reserves. The Company anticipates that cash generated internally and amounts
available under its existing credit facilities will be sufficient to meet its
capital and other requirements, including contributions to employee benefit
plans, for the foreseeable future. The Company currently has access to funds
under its revolving credit agreement which allow it to borrow up to $75.0
million, of which $63.2 million was available at June 30, 2000.
IMPACT OF YEAR 2000 ISSUE
The Company has not incurred material costs in the six months ended June
30, 2000 associated with its efforts to become year 2000 compliant. Furthermore,
based on our assessment to date, we believe that any future costs associated
with our year 2000 compliance efforts will not be material.
17
<PAGE> 18
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "SFAS 133", Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes methods of accounting
and reporting for derivative instruments and hedging activities related to those
instruments as well as other hedging activities, and is effective for fiscal
quarters of fiscal years beginning after June 15, 2000, as amended by SFAS 137.
The Company believes that adoption of this pronouncement will have no material
impact on the Company's financial position and results of operations.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk since
December 31, 1999.
19
<PAGE> 20
PART II. OTHER INFORMATION
20
<PAGE> 21
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
21
<PAGE> 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on May 22, 2000, 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 23,430,886 -- 346,547 --
Raymond E. Miles 23,433,214 -- 344,219 --
Linda Griego 23,429,062 -- 348,371 --
</TABLE>
The following proposals were 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 directorship of
J. Fernando Niebla 23,448,424 329,009 -- --
To amend the Certificate of
Incorporation of the Company
so as to increase the
authorized Common Stock to
100,000,000 19,500,202 4,227,214 50,017 --
To ratify the appointment of
PricewaterhouseCoopers
LLP as the independent
accountants of the Company
for the fiscal year ending
December 31, 2000. 23,558,827 159,315 59,291 --
</TABLE>
ITEM 5. OTHER INFORMATION
None
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
23
<PAGE> 24
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
Date: August 14, 2000 By: /s/ William E. Barton
----------------- -------------------------------------------------
William E. Barton
Senior Vice President and Chief Financial Officer
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
25
