<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 SEPTEMBER 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
State of Incorporation: I.R.S. Employer Identification
Delaware Number: 77-0239383
Corporate Administration:
585 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 November 9, 2000.
Class Outstanding
------------------------------ -----------------
Common Stock, $0.01 par value 27,288,713 shares
<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, 2000 and
December 31, 1999..............................................4
Condensed Consolidated Statements
of Income for the Three Months and Nine Months Ended
September 30, 2000 and 1999....................................5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended September 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...........................................21
Item 5. Other Information.............................................21
Item 6. Exhibits and Reports on Form 8-K..............................22
Exhibit Index.................................................24
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
3
<PAGE> 4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 48,608 $ 61,832
Short-term investments 41,459 46,245
Accounts receivable 282,545 211,609
Costs and estimated earnings in excess of billings 19,037 14,105
Inventories 15,602 12,823
Deferred income taxes 14,885 14,885
Equity in construction joint ventures 27,358 30,611
Other current assets 8,266 10,211
--------- ---------
Total current assets 457,760 402,321
------------------------------------------------------------------------------------------------
Property and equipment 247,147 242,913
------------------------------------------------------------------------------------------------
Other assets 44,492 34,338
------------------------------------------------------------------------------------------------
$ 749,399 $ 679,572
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,127 $ 5,985
Accounts payable 114,738 95,662
Billings in excess of costs and estimated earnings 65,734 66,342
Accrued expenses and other current liabilities 110,794 90,675
--------- ---------
Total current liabilities 292,393 258,664
------------------------------------------------------------------------------------------------
Long-term debt 63,935 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 27,288,265 shares in
2000 and 26,995,506 in 1999 269 270
Additional paid-in capital 56,049 49,817
Retained earnings 319,065 285,832
--------- ---------
375,383 335,919
Unearned compensation (10,635) (8,187)
--------- ---------
364,748 327,732
------------------------------------------------------------------------------------------------
$ 749,399 $ 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)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Construction $391,014 $368,091 $ 885,637 $841,706
Material sales 50,742 50,612 116,261 121,093
---------------------------- -------------------------------
Total revenue 441,756 418,703 1,001,898 962,799
---------------------------- -------------------------------
Cost of revenue:
Construction 332,740 317,257 759,559 732,419
Material sales 41,538 42,937 98,813 102,373
---------------------------- -----------------------------
Total cost of revenue 374,278 360,194 858,372 834,792
---------------------------- -----------------------------
GROSS PROFIT 67,478 58,509 143,526 128,007
General and administrative expenses 29,304 25,621 79,088 70,035
---------------------------- -----------------------------
OPERATING INCOME 38,174 32,888 64,438 57,972
------------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 2,775 1,920 8,438 5,740
Interest expense (1,948) (1,969) (5,933) (5,875)
Gain on sales of property
and equipment 218 446 2,596 4,254
Other, net 1,268 616 2,586 478
---------------------------- -----------------------------
2,313 1,013 7,687 4,597
------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 40,487 33,901 72,125 62,569
Provision for income taxes 15,587 13,052 29,068 24,089
------------------------------------------------------------------------------------------------------------
NET INCOME $ 24,900 $ 20,849 $ 43,057 $ 38,480
============================================================================================================
Net income per share
Basic $ 0.95 $ 0.80 $ 1.64 $ 1.47
Diluted $ 0.93 $ 0.77 $ 1.60 $ 1.42
Weighted average shares
of common stock
Basic 26,348 26,057 26,289 26,220
Diluted 26,913 27,007 26,842 27,143
Dividends per share $ 0.10 $ 0.07 $ 0.36 $ 0.33
=============================================================================================================
</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)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 43,057 $ 38,480
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 33,124 31,631
Gain on sales of property and equipment (2,596) (4,254)
Gain on sale of investment (636) -
Decrease in unearned compensation 4,464 3,218
Common stock contributed to ESOP 632 2,146
Equity in (gain) loss of affiliates and other (431) 1,303
Changes in assets and liabilities:
Accounts and notes receivable (73,387) (64,837)
Inventories (2,779) (1,678)
Equity in construction joint ventures 3,253 (6,505)
Other assets 1,745 682
Accounts payable 19,076 4,897
Billings in excess of costs and estimated earnings, net (5,540) 7,144
Accrued expenses 19,280 24,693
-------------------------
Net cash provided by operating activities 39,262 36,920
----------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of short-term investments (61,994) (63,421)
Maturities of short-term investments 66,780 87,204
Additions to property and equipment (38,985) (64,154)
Proceeds from sales of property and equipment 4,547 8,431
Proceeds from sale of investment 5,000 -
Investment in affiliates (14,303) -
Development and sale of land and other investing activities 2,658 4,819
-------------------------
Net cash used by investing activities (36,297) (27,121)
----------------------------------------------------------------------------------------------------------
Financing Activities
Repayments of long-term debt (5,776) (5,747)
Employee stock options exercised 406 71
Repurchase of common stock (1,834) (19,930)
Dividends paid (8,985) (8,745)
-------------------------
Net cash used by financing activities (16,189) (34,351)
----------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (13,224) (24,552)
Cash and cash equivalents at beginning of period 61,832 62,470
-------------------------
Cash and cash equivalents at end of period $ 48,608 $ 37,918
=========================================================================================================
Supplementary Information
Cash paid during the period for:
Interest $ 4,966 $ 3,020
Income taxes 10,441 10,335
Noncash investing and financing activity:
Restricted stock issued for services $ 6,912 $ 6,429
Dividends accrued but not paid 2,729 1,901
Financed acquisition of property and equipment - 1,700
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE> 7
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 September 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 nine months ended September 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:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
SEPTEMBER 30, December 31,
2000 1999
(UNAUDITED)
----------------------------------------------------------------------------
<S> <C> <C>
Land $ 37,729 $ 36,485
Quarry property 47,000 46,891
Buildings and leasehold improvements 38,590 33,791
Equipment and vehicles 496,623 478,990
Office furniture and equipment 8,396 7,110
----------------- ---------------
628,338 603,267
Less accumulated depreciation,
depletion and amortization 381,191 360,354
----------------------------------------------------------------------------
$247,147 $ 242,913
============================================================================
</TABLE>
7
<PAGE> 8
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
4. EARNINGS PER SHARE:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR - BASIC AND DILUTED EARNINGS PER
SHARE
Net income $24,900 $20,849 $43,057 $38,480
====================================================================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 27,288 27,173 27,195 27,322
Less restricted stock outstanding 940 1,116 906 1,102
---------------------------------------------------------------
TOTAL 26,348 26,057 26,289 26,220
---------------------------------------------------------------
Basic earnings per share $ 0.95 $ 0.80 $ 1.64 $ 1.47
====================================================================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 26,348 26,057 26,289 26,220
Effect of Dilutive Securities:
Common stock options 8 40 9 42
Warrants 96 221 95 226
Restricted stock 461 689 449 655
---------------------------------------------------------------
TOTAL 26,913 27,007 26,842 27,143
---------------------------------------------------------------
Diluted earnings per share $ 0.93 $ 0.77 $ 1.60 $ 1.42
====================================================================================================================
</TABLE>
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 28%
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 September 30, 2000 the Company
held 2,093,248 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. On September 25, 2000 Granite
purchased an additional 15,817 shares of Wilder stock. At September 30,
2000 the Company held 1,349,746 shares of Wilder stock representing a
37% minority interest. 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. 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 is currently evaluating the effect, if
any, that the adoption of this pronouncement will have on the Company's
financial position and results of operations.
9
<PAGE> 10
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
10. 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).
Information about Profit and Assets:
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SEPTEMBER 30, HCD BRANCH TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
Revenues from external customers $91,120 $350,636 $441,756
Intersegment revenue transfer (4,196) 4,196 -
---------------------------------
Net revenue 86,924 354,832 441,756
Depreciation and amortization 1,735 7,982 9,717
Operating profit 10,015 39,609 49,624
------------------------------------------------------------------------------------
1999
Revenues from external customers $97,656 $321,047 $418,703
Intersegment revenue transfer (6,411) 6,411 -
---------------------------------
Net revenue 91,245 327,458 418,703
Depreciation and amortization 3,985 14,774 18,759
Operating profit 7,842 34,768 42,610
------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
10. BUSINESS SEGMENT INFORMATION, CONTINUED:
Information about Profit and Assets, continued:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, HCD BRANCH TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
Revenues from external customers $276,207 $725,691 $1,001,898
Intersegment revenue transfer (12,017) 12,017 -
--------------------------------
Net revenue 264,190 737,708 1,001,898
Depreciation and amortization 5,416 23,769 29,185
Operating profit 27,472 63,810 91,282
Property and equipment 26,446 200,137 226,583
-----------------------------------------------------------------------------------
1999
Revenues from external customers $278,110 $684,689 $962,799
Intersegment revenue transfer (17,061) 17,061 -
--------------------------------
Net revenue 261,049 701,750 962,799
Depreciation and amortization 6,045 22,450 28,495
Operating profit 22,546 60,442 82,988
Property and equipment 28,921 190,372 219,293
-----------------------------------------------------------------------------------
</TABLE>
Reconciliation of Segment Profit to the Company's Consolidated Totals:
<TABLE>
------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Profit:
Total profit for reportable segments $ 49,624 $ 42,610
Other income 2,313 1,013
Unallocated other corporate expenses (11,450) (9,722)
------------------------------------------------------------------------
Income before provision for income taxes $ 40,487 $ 33,901
========================================================================
------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
------------------------------------------------------------------------
Profit:
Total profit for reportable segments $ 91,282 $ 82,988
Other income 7,687 4,597
Unallocated other corporate expenses (26,844) (25,016)
------------------------------------------------------------------------
Income before provision for income taxes $ 72,125 $ 62,569
========================================================================
</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
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 1999 CHANGE %
--------------------------------- -------- -------- ------ ----
(In Millions)
<S> <C> <C> <C> <C>
Revenue:
Branch Division $ 354.9 $ 327.5 $ 27.4 8.4
Heavy Construction Division 86.9 91.2 (4.3) (4.7)
-------------------------------
$ 441.8 $ 418.7 $ 23.1 5.5
===============================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000 1999 CHANGE %
-------------------------------- -------- ------ ------ ----
(In Millions)
<S> <C> <C> <C> <C>
Revenue:
Branch Division $ 737.7 $701.8 $35.9 5.1
Heavy Construction Division 264.2 261.0 3.2 1.2
-------------------------------
$1,001.9 $962.8 $39.1 4.1
===============================
</TABLE>
Revenue and Backlog: Revenue for the third quarter 2000 increased 5.5%
to $441.8 million from the third 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 revenue
reflects the fact that a number of HCD projects are nearing completion and have
only recently been replaced by new awards. Branch Division revenue in the third
quarter 2000 reflects favorable market conditions in the West and a high level
of public infrastructure funding. Revenue for the nine months ended September
30, 2000 increased 4.1% to $1.0 billion from $962.8 million for the same period
in 1999, reflecting growth in both divisions.
12
<PAGE> 13
Revenue from private sector contracts increased to 24.3% of total
revenue in the third quarter of 2000 from 23.0% in the 1999 quarter and to 25.5%
of total revenue for the nine months ended September 30, 2000 from 22.7% 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 slowing growth in the private sector (see "Outlook").
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
BACKLOG BY MARKET SECTOR
(IN MILLIONS)
SEPTEMBER 30, SEPTEMBER 30, VARIANCE
2000 1999 AMOUNT PERCENT
------------------------- -------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
CONTRACTS
Federal $ 78.2 $ 21.7 $ 56.5 260.4
State 663.8 604.2 59.6 9.9
Local 309.8 179.0 130.8 73.1
--------------------------------
Total public sector 1,051.8 804.9 246.9 30.7
Private sector 114.1 166.3 (52.2) (31.4)
--------------------------------
$1,165.9 $971.2 $194.7 20.0
==============================================================
</TABLE>
The Company's backlog at September 30, 2000 was $1,165.9 million, up
$194.7 million, or 20.0% from September 30, 1999 and also increased $372.6
million, or 47.0% from December 31, 1999. New awards for the quarter totaled
$712.1 million and included a $154.0 million monorail project in Nevada and the
Company's $164.6 million portion of a light rail joint venture in Minnesota.
Gross Profit: Gross profit as a percent of revenue increased to 15.3% in
the third quarter 2000 from 14.0% in the third quarter 1999 and to 14.3% for the
nine months ended September 30, 2000 from 13.3% in the corresponding 1999
period. The gross profit margins for the quarter and the nine months reflect the
overall successful execution of projects in both the Branch Division and HCD. To
a lesser extent, the gross profit margin in the quarter and nine months ended
September 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. Revenue
recognized for projects less than 25% complete was approximately $23.2 million
and $43.2 million for the nine months ended September 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 upward pressure on costs associated
with labor markets and oil prices; however, the Company's gross profit margins
were not materially impacted by such changes during the first nine months of
2000.
13
<PAGE> 14
General and Administrative Expenses: General and administrative expenses
for the three and nine months ended September 30, 2000 and 1999, respectively,
comprised the following (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------------------------------
IN MILLIONS 2000 1999 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and related expenses $11.6 $11.0 $35.2 $32.3
Incentive compensation,
discretionary profit sharing and
pension 9.0 7.8 18.4 16.5
Other general and administrative
expenses 8.7 6.8 25.5 21.2
----------------------------------------------------------------------------------
Total $29.3 $25.6 $79.1 $70.0
----------------------------------------------------------------------------------
Percent of revenue 6.6% 6.1% 7.9% 7.3%
==================================================================================
</TABLE>
Salaries and related expenses increased for the three and nine months
ended September 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 primarily as a function
of the Company's increased gross profit margin and higher amortization of
restricted stock. 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 increased in the third quarter 2000 compared to the third
quarter 1999 due primarily to an increase in gross profits on projects nearing
completion. For the nine months ended September 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
third quarter 2000 over the comparable 1999 period, reflecting increases in
construction revenue and gross margins as described in the "Gross Profit"
section above.
Other Income (Expenses): Other income increased $3.1 million to $7.7
million for the nine months ended September 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.
14
<PAGE> 15
Provision for Income Taxes: The Company's effective tax rate remained
flat at 38.5% for the three months ended September 30, 2000 compared to the same
period last year. The Company's effective tax rate was 40.3% for the nine months
ended September 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
As we disclosed in our third quarter press release, our Branch
operations were impacted in October by wet weather in California. As a result,
the Branch business is not expected to be as strong as October 1999, when
weather had little, if any, impact on operations. The total impact on the
Company's fourth quarter is impossible to discern at this writing, having
completed only one month in the quarter. Although we anticipate excellent
results for the year, it is the length of the building season that will largely
determine how much work we can perform between now and year-end and ultimately
what our financial results for the quarter will be.
Looking ahead to 2001, the Company's fundamental business outlook
remains very favorable, based on the combination of strong public funding,
healthy economic conditions and a quality backlog which is expected to provide
the Company with ample opportunity to grow earnings and revenues next year.
Moreover, we are very pleased with the size and quality of our backlog.
On the federal funding front, President Clinton recently signed an FY
2001 transportation appropriations bill that included a record $33.42 billion
outlay for the federal highway program, an increase of $4.62 billion or 16% over
this year's level. Next year, Congress is expected to start work on a bill to
replace TEA-21, which is up for reauthorization in 2003. The chairman of the
Senate Environment and Public Works Committee, Bob Smith (R-N.H.), recently
announced that he intends to draft a $300 billion federal surface transportation
program reauthorization bill. The total funding authorization contained in
TEA-21 is $218 billion.
At the state level, the voters approved Proposition 35, the contracting
out initiative on the California ballot, on November 7th. Proposition 35 will
give the California Department of Transportation, the Company's largest
customer, the flexibility to contract out design services to private engineering
companies. We are unsure at this point in time as to what degree the passage of
Proposition 35 will impact the level of bidding activity on state public works
projects and when this will occur. However, it will probably not occur until
late 2001 or 2002.
In Arizona, voters rejected an initiative put on the ballot by the
Sierra Club to restrict growth. Proposition 202 was soundly defeated by a margin
of 30% in favor to 70% opposed. Passage of this measure could have severely
limited private sector development in the state.
Looking ahead at the private side of our business, the California
economy appears to be growing at a slower rate. According to the University of
California at Los Angeles Anderson
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Forecast, job growth is predicted to hover around 2.6% next year. That is down
from the 3.8% gain projected for 2000, but on a par with the 2.5% average job
growth rate the state showed during the 1980s. Furthermore, a new forecast from
the Continuing Study of the California Economy predicts continued economic
growth in California through at least next year based on three short-term
strengths: 1) A surge in export demand based on worldwide economic growth and
the competitiveness of California products and services; 2) spectacular levels
of venture capital funding, which will span a multitude of new successful
companies in California; and 3) a large backlog of construction demand in
housing and infrastructure.
Our Heavy Construction Division is targeting several large design-build
projects across the country, including the $1.3 billion Southeast Corridor
Project in Colorado, the $200 million U.S. 60 Project in Arizona, the $500
million Legacy Highway Project in Utah and the $120 million Peace River Bridge
in Florida.
Our Branch Division, buoyed by a significant amount of new awards in the
third quarter, should take a strong backlog into 2001 and is expected to benefit
from the increased levels of public works spending that are expected in
California, Nevada, Utah and Arizona. Despite strong public sector spending, the
ultimate success of the Branch Division, as always, will hinge on the strength
of the private sector, particularly in California.
In summary, the Company is well positioned to capitalize on the
opportunities presented by the very strong marketplace it finds itself in today.
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LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
-----------------------------------------------------------
(IN MILLIONS)
NINE MONTHS ENDED 2000 1999
SEPTEMBER 30,
-----------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 48.6 $ 37.9
Net cash provided (used) by:
Operating activities 39.3 36.9
Investing activities (36.3) (27.1)
Financing activities (16.2) (34.4)
Capital expenditures 39.0 64.2
-----------------------------------------------------------
</TABLE>
Cash provided by operating activities of $39.3 million for the nine
months ended September 30, 2000 represents a $2.4 million increase 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 nine month period in 2000
increased $9.2 million over the corresponding 1999 period due primarily to the
investment in Wilder Construction in which the Company has a 37% 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 $18.2 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 September 30, 2000.
17
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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 is currently evaluating the effect, if any, that the adoption of
this pronouncement will have on the Company's financial position and results of
operations.
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<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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
22
<PAGE> 23
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: November 14, 2000 By: /s/ William E. Barton
------------------ -------------------------------------------------
William E. Barton
Senior Vice President and Chief Financial Officer
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 25
</TABLE>
24
