1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 NUMBER 1-12911
GRANITE CONSTRUCTION INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0239383
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
585 WEST BEACH STREET, WATSONVILLE, CALIFORNIA 95076
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 724-1011
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 such 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting and non-voting stock held by
non-affiliates of the registrant was approximately $755,067,485 as of March 19,
2001 based upon the average of the high and low sales prices per share of the
registrant's Common Stock as reported on the New York Stock Exchange on such
date. Shares of Common Stock held by each executive officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
At March 19, 2001, 27,193,225 shares of Common Stock, par value $0.01, of
the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held May 21, 2001, which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
NO.
----
PART I................................................................. 3
Item 1. BUSINESS.................................................... 3
Item 2. PROPERTIES.................................................. 10
Item 3. LEGAL PROCEEDINGS........................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10
PART II................................................................ 12
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS......................................... 12
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA........................ 12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 14
Item QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
7A... RISK........................................................ 21
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.... 22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES................................... 22
PART III............................................................... 23
Item DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........
10. 23
Item EXECUTIVE COMPENSATION......................................
11. 23
Item SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
12. MANAGEMENT.................................................. 23
Item CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............
13. 23
PART IV................................................................ 24
Item EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
14. 8-K......................................................... 24
2
3
PART I
ITEM 1. BUSINESS
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
adequacy of the Company's aggregate reserves, 2000 backlog expected to be
completed in 2001, 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 "outlook," "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; the availability and pricing of fuel and
energy and state referendums and initiatives. Forward-looking statements related
to the Company's aggregate reserves and completion of backlog carry risk factors
which include, without limitation, changes in estimates of existing reserves and
estimates of the Company's need for those reserves and delays in the progress of
work in the 2000 backlog.
INTRODUCTION
Granite Construction Incorporated (the "Company" or "Granite") was
incorporated in Delaware in January 1990 as the holding company for Granite
Construction Company, which was incorporated in California in 1922. Therefore,
references herein to the "Company" or "Granite" in the context of operations
should be read to mean Granite Construction Company and Granite Construction
Incorporated's other subsidiaries.
The Company is one of the largest heavy civil construction contractors in
the United States and operates nationwide. Its focus is primarily in the West,
South and East and increasingly in the Midwest, serving both public and private
sector clients. Within the public sector, the Company concentrates on
infrastructure projects; including the construction of roads, highways, bridges,
dams, tunnels, canals, mass transit facilities and airports. Within the private
sector, the Company performs site preparation services for buildings, plants,
subdivisions and other facilities. Granite's participation in both the public
and private sectors and its diverse mix of project types and sizes have
contributed to the Company's revenue growth and profitability in various
economic environments.
The Company owns and leases substantial aggregate reserves and owns 100
construction materials processing plants. The Company also has one of the
largest contractor owned heavy construction equipment fleets in the United
States. The Company believes that the ownership of these assets enables it to
compete more effectively by ensuring availability of these resources at a
favorable cost.
OPERATING STRUCTURE
The principal operating company, Granite Construction Company, is organized
into two business segments, the Branch Division and the Heavy Construction
Division. The Branch Division is comprised of branch offices which serve local
markets, while the Heavy Construction Division pursues major infrastructure
projects throughout the nation. The Heavy Construction Division ("HCD")
generally builds 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.
The two divisions complement each other in a variety of ways. The Heavy
Construction Division is a major user of large construction equipment and
employs sophisticated techniques on complex projects. The
3
4
branches draw on these resources which are generally not available to smaller,
local competitors. Conversely, the Branch Division has greater knowledge of
local markets and provides the Heavy Construction Division with valuable
information regarding larger projects in the branches' areas. The two divisions
sometimes jointly perform projects when a project in a particular region exceeds
the local branch's capabilities.
As decentralized profit centers, the branch offices and the Heavy
Construction Division independently estimate, bid and complete contracts. Both
divisions are supported by centralized functions, including finance, accounting,
tax, human resources, labor relations, safety, legal, insurance, surety and
information technology. The Company believes that centralized support for
decentralized profit centers results in a more market responsive business with
effective controls and reduced overhead.
In addition to cost and profitability estimates, Granite considers the
availability of estimating and project building personnel as key factors when
determining whether to bid on a project. Other factors considered include the
client, the geographic location, Granite's competitive advantages and
disadvantages relative to likely competitors for the project, current and
projected workload, and the likelihood of follow-up work. Both operating
divisions use a proprietary computer-based project estimating system that
reflects Granite's significant accumulated experience. Granite believes that an
exhaustive, detailed approach to a project's estimate and bid is important in
order to best identify the project's risks and opportunities. The Company's
estimates are comprehensive in nature, sometimes totaling hundreds of pages of
analysis. Each project is broken into phases and line items, for which separate
labor, equipment and material estimates are made. Once a project begins, the
estimate provides Granite with a budget against which actual project cost is
regularly measured, enabling Granite to manage its projects more effectively.
Information about the Company's business segments for the years ended
December 31, 2000, 1999 and 1998 is incorporated in Note 15 of the "Notes to the
Consolidated Financial Statements," located on page F-18 of this Annual Report
on Form 10K.
The Branch Division. In 2000, Branch Division contract revenue and sales of
aggregate products were $1,010.9 million (75.0% of Company revenue) as compared
with $976.5 million (73.5% of Company revenue) in 1999. The Branch Division has
both public and private sector clients. Public sector activities include both
new construction and improvement of streets, roads, highways and bridges. For
example, the branches widen and re-pave roads and modify and replace bridges.
Major private sector contracts include site preparation for housing and
commercial development, including excavation; grading and street paving; and
installation of curbs, gutters, sidewalks and underground utilities.
The Company currently has 11 branch offices with 15 satellite operations.
The Company's branch offices in California are located in Bakersfield, Hanford
(Central Valley), Watsonville (Monterey Bay Area), Palm Springs (Southern
California), Sacramento, San Jose, Santa Barbara and Stockton. The Company's
branch offices outside of California are located in Arizona, Nevada and Utah.
Each branch effectively operates as a local or regional construction company and
its management is encouraged to participate actively in the local community.
While individual branch revenues vary from year to year, in 2000 these revenues
ranged from $35 million to $177 million per branch.
As part of the Company's strategy, substantially all of Granite's branches
mine aggregates and operate plants which process aggregates into construction
materials for internal use and for sale to others. These activities provide both
a source of profits and a competitive advantage to the Company's construction
business. Close to half of the aggregate products produced in these branch
operations are used in the Company's construction projects. The remainder is
sold to unaffiliated parties and accounted for $159.9 million of revenue in
2000, representing 11.9% of the Company's total 2000 revenue compared with
$159.0 million or 12.0% of the Company's total 1999 revenue. The Company has
significant aggregate reserves which it has acquired by ownership in fee or
through long-term leases.
Heavy Construction Division. In 2000, revenue from HCD was $337.4 million
(25.0% of Company revenue) as compared with $352.3 million (26.5% of Company
revenue) in 1999. HCD projects are usually larger and more complex than those
performed by the Branch Division. The Division has completed projects
4
5
throughout the nation; including mass transit projects in the metropolitan areas
of Atlanta, Baltimore, Los Angeles, San Francisco and Washington, D.C., and
major dam and tunnel projects in twelve states.
HCD builds infrastructure projects; including major highways, large dams,
mass transit facilities, bridges, pipelines, canals, tunnels, waterway locks and
dams and airport runways, and has engaged in contract mine stripping,
reclamation and large site preparation. It also performs activities such as
demolition, clearing, excavation, de-watering, drainage, embankment fill,
structural concrete, concrete and asphalt paving, and tunneling.
The division markets, estimates, bids and provides management overview of
its projects from its Watsonville, California headquarters and satellite
estimating offices in Texas, Georgia, and Florida. Project staff located at job
sites have the managerial, technical, and clerical capacity to meet on-site
project management requirements. HCD has the ability, if appropriate, to process
locally sourced aggregates into construction materials using its own portable
crushing, concrete and asphalt processing plants. Additionally, during 2000, HCD
acquired an asphalt processing capability and opened a regional office in
Lubbock, Texas. This new location will serve the west Texas market for
construction projects and materials, similar to a branch operation.
HCD participates in joint ventures with other large construction companies
from time to time. Joint ventures are used for large, technically complex
projects, including design/build projects, where it is desirable to share risk
and resources. Joint ventures provide independently prepared estimates, and
shared financing, equipment and expertise.
Design/build projects have emerged as an expanding market for HCD. Unlike
traditional projects where owners first hire a design firm and then put the
plans out to bid for construction, design/build projects provide the owner with
a single point of responsibility and a single contact for both design and
construction. Past design/build projects have included projects in California
such as the SR-91 Tollway which was completed in 1995 and the San Joaquin Hills
Transportation Corridor which was completed in 1996, as well as the I-17 rebuild
in Arizona and a tollway in Texas -- both of which were completed in 2000.
Ongoing projects include the I-15 Rebuild in Salt Lake City, Utah, the Atlantic
City/Brigantine Connector in New Jersey, the Hathaway Bridge Replacement in
Panama City, Florida, the Hiawatha Light Rail in Minnesota, and the Las Vegas
Monorail in Nevada. Design/build projects have historically been bid with the
Company as part of a joint venture team.
INVESTMENT IN T.I.C. HOLDINGS, INC.
The Company currently holds a 27% minority interest in T.I.C. Holdings,
Inc. ("TIC"). In April 2000, the Company finalized an agreement with TIC to 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. This will allow TIC to retain its independence while
allowing both companies to maintain their strategic alliance. The agreement will
also allow the Company to intensify its focus on its core business in heavy
civil construction.
INVESTMENT IN WILDER CONSTRUCTION COMPANY
During the year ended December 31, 2000 the Company made a total investment
of $14.8 million in the common stock of Wilder Construction Company ("Wilder").
Founded in 1911, Wilder is a heavy civil construction company with regional
offices located in Washington, Oregon and Alaska. 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. The Company held a 39% minority interest in
Wilder Construction Company ("Wilder") as of December 31, 2000 and increased its
interest to 45% in February 2001.
5
6
BUSINESS STRATEGY
Granite's fundamental objective is to increase long-term shareholder value
by focusing on consistent profitability from managed revenue growth. Shareholder
value is measured by the appreciation of the value of Granite stock over a
period of years, and to some degree, a return from dividends. Further, it is a
specific measure of the Company's financial success to achieve a Return on Net
Assets ("RONA") greater than the cost of capital, creating "Granite Value
Added." To accomplish these objectives, Granite employs the following
strategies:
Heavy/Highway Construction Focus -- Granite concentrates its core
competencies on this segment of the construction industry which includes
the building of roads, highways, bridges, dams and tunnels, mass transit
facilities, underground utilities and site preparation. This focus
emphasizes the Company's specialized strengths which include grading,
paving and concrete structures.
Vertical Integration of Aggregate Materials into Construction -- Granite
owns aggregate reserves and processing plants and thus, by ensuring
availability of these resources at favorable cost, it believes it has
significant bidding advantages in many of its markets.
Selective Bidding -- Once Granite selects a job that meets its bidding
criteria, the project is estimated using a highly detailed method with a
proprietary estimating system which details anticipated cost to construct
and margin to achieve the appropriate bid price for the risk assumed.
Diversification -- To mitigate the risks inherent in construction and
general economic factors, Granite pursues projects (i) in both the public
and private sectors; (ii) for a wide range of customers within each sector
(from the federal government to small municipalities and from large
corporations to individual homeowners); (iii) in diverse geographic
markets; and (iv) of various sizes, durations and complexity.
Decentralized Profit Centers -- Granite approaches each selected market
with a local focus through its decentralized structure. Each of Granite's
branches as well as the Heavy Construction Division is an individual profit
center.
Management Incentives -- The Company compensates its profit center managers
with lower-than-market fixed salaries coupled with a substantial variable
cash and restricted stock incentive element based on the annual profit
performance of their respective profit centers.
Ownership of Construction Equipment -- By owning and carefully maintaining
a large fleet of heavy construction equipment, Granite competes more
effectively by ensuring availability of these resources at favorable cost.
Controlled Expansion -- The Company intends to continue its expansion by
selectively adding branches in the western United States, pursuing major
infrastructure projects throughout the nation, expanding into other
construction market segments through acquisitions, and by leveraging its
financial capacity for projects that will utilize Granite for construction
work and provide an acceptable return on the Company's investment.
Accident Prevention -- Granite believes that the prevention of accidents is
both a moral obligation and good business. By identifying and concentrating
resources to address jobsite hazards the Company continues to significantly
reduce its incident rates and the costs associated with accidents.
Environmental Affairs -- Granite believes it benefits everyone to maintain
environmentally responsible operations. The Company is committed to
effective air quality control measures and reclamation at its plant sites
and to waste reduction and recycling of the potentially environmentally
sensitive products used in its operations.
Quality and High Ethical Standards -- Granite emphasizes the importance of
performing high quality work and maintaining high ethical standards through
an established code of conduct and an effective corporate compliance
program.
6
7
CUSTOMERS
The Company has customers in both the public and private sectors. The
Branch Division's principal customer is the California Department of
Transportation. In 2000, contracts with the California Department of
Transportation represented 12.9% of the Company's revenue. Other Branch Division
clients include county and city public works departments and developers and
owners of industrial, commercial and residential sites. The principal clients of
the Heavy Construction Division are in the public sector and currently include
the State Departments of Transportation in several states. (See Note 2 of Notes
to Consolidated Financial Statements).
A breakdown of the Company's revenues for the last three years by
geographic area and market sector is as follows (in thousands):
2000 1999 1998
-------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
California........................... $ 627,616 46.5% $ 574,618 43.2% $ 585,983 47.8%
West (excluding California).......... 462,070 34.3 510,953 38.5 468,094 38.2
Midwest.............................. 3,923 0.3 -- -- -- --
South and East....................... 254,716 18.9 243,203 18.3 172,023 14.0
---------- ----- ---------- ----- ---------- -----
Total...................... $1,348,325 100.0% $1,328,774 100.0% $1,226,100 100.0%
========== ===== ========== ===== ========== =====
Contract revenues:
Federal agencies................... $ 56,595 4.2% $ 31,641 2.4% $ 44,844 3.7%
State agencies..................... 540,688 40.1 567,366 42.7 516,485 42.1
Local public agencies.............. 257,786 19.1 257,392 19.4 274,657 22.4
Private sector..................... 333,361 24.7 313,356 23.5 248,447 20.2
Construction materials sales......... 159,895 11.9 159,019 12.0 141,667 11.6
---------- ----- ---------- ----- ---------- -----
Total...................... $1,348,325 100.0% $1,328,774 100.0% $1,226,100 100.0%
========== ===== ========== ===== ========== =====
BACKLOG
The Company's backlog (anticipated revenue from uncompleted portions of
existing contracts) was $1,120.5 million at December 31, 2000, up from $793.3
million at December 31, 1999, and was $901.6 million at December 31, 1998.
Approximately $410 million of the December 31, 2000 backlog is expected to
remain at December 31, 2001. The Company includes a construction project in its
backlog at such time as a contract is awarded or a firm letter of commitment is
obtained, and funding is in place. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.") The Company believes its
backlog figures are firm, subject only to the cancellation and modification
provisions contained in various contracts. Substantially all of the contracts in
the backlog may be canceled or modified at the election of the client. However,
the Company has not been materially adversely affected by contract cancellations
or modifications in the past. (See "Business-Contract Provisions and
Subcontracting.") A sizeable percentage of the Company's anticipated revenue in
any year is not reflected in its backlog at the start of the year due to the
short duration of smaller Branch Division projects that are initiated and
completed during such year ("Turn Business").
EQUIPMENT
The Company purchases and maintains many pieces of equipment; including
cranes, bulldozers, scrapers, graders, loaders, trucks, pavers, rollers, and
construction materials processing plants. In 2000 and 1999, the Company spent
approximately $48.6 million and $53.0 million, respectively, for construction
equipment,
7
8
plants and vehicles. The breakdown of the Company's construction equipment,
plants and vehicles at December 31, 2000 is as follows:
Heavy construction equipment................................ 2,497 units
Trucks, truck-tractors and trailers and vehicles............ 3,259 units
Aggregate crushing plants................................... 34 plants
Asphalt concrete plants..................................... 35 plants
Portland cement concrete batch plants....................... 20 plants
Thermal soil remediation plants............................. 1 plant
Asphalt rubber plants....................................... 3 plants
Lime slurry plants.......................................... 7 plants
The Company believes that ownership of equipment is preferable to leasing
because ownership ensures the equipment is available as needed and normally
results in lower equipment costs. The Company attempts to keep its equipment as
fully utilized as possible by pooling equipment for use by both the Branch
Division and the Heavy Construction Division. The Company regularly leases or
rents equipment on a short-term basis to supplement existing equipment and
respond to construction activity peaks.
EMPLOYEES
On December 31, 2000, Granite employed 1,230 salaried employees, who work
in management, estimating and clerical capacities, and 3,316 hourly employees.
The total number of hourly personnel employed by the Company is subject to the
volume of construction in progress. During 2000, the number of hourly employees
ranged from 2,419 to 4,368 and averaged approximately 3,510. The Company's
wholly owned subsidiary, Granite Construction Company, is a party to craft
collective bargaining agreements in many areas in which it is working.
The Company believes its employees are its most valuable resource and that
its workforce possesses a strong dedication to and pride in the Company. Among
salaried and non-union hourly employees, this dedication is reinforced by 27.9%
equity ownership through the Employee Stock Ownership Plan ("ESOP"), the Profit
Sharing and 401k Plan and performance-based incentive compensation arrangements
at December 31, 2000. The Company's 446 managerial and supervisory personnel
have an average of 11 years of service with Granite.
COMPETITION
Factors influencing the Company's competitiveness are price, reputation for
quality, the availability of aggregate materials, machinery and equipment,
financial strength, knowledge of local markets and conditions, and estimating
abilities. The Company believes that it competes favorably on the basis of the
foregoing factors. Branch Division competitors range from small local
construction companies to large regional and national construction companies.
While the market areas of these competitors overlap with several of the markets
served by the Company's branches, few, if any, compete in all of the Company's
market areas. The Heavy Construction Division normally competes with large
regional and national construction companies. Although the construction business
is highly competitive, particularly for competitively bid projects in the public
sector, the Company believes it is well positioned to compete effectively.
CONTRACT PROVISIONS AND SUBCONTRACTING
The Company's revenue is substantially derived from contracts that are
"fixed unit price" contracts under which the Company is committed to provide
materials or services required by a project at fixed unit prices (for example,
dollars per cubic yard of concrete or cubic yards of earth excavated). While the
fixed unit price contract shifts the risk of estimating the quantity of units
required for a particular project to the customer; any increase in the Company's
unit cost over the unit price bid, whether due to inflation, inefficiency,
faulty estimates or other factors, is borne by the Company unless otherwise
provided in the contract. Design-build contracts are usually priced on a
lump-sum basis. The Company's contracts are obtained primarily through
8
9
competitive bidding in response to advertisements by federal, state and local
government agencies and private parties.
There are a number of factors that can create variability in contract
performance and results as compared to a project's original bid. The most
significant of these include, without limitation, site conditions that differ
from those assumed in the original bid, the availability and skill level of
workers in the geographic location of the project, the availability and
proximity of materials and inclement weather. Design-build projects carry other
risks such as design error risk, scope of work and quantities of materials. All
of these factors can impose inefficiencies on contract performance and therefore
have a direct impact on contract productivity (i.e. drive up contract costs)
which in turn can have a direct impact on contract results.
All federal government contracts and many of the Company's other contracts
provide for termination of the contract for the convenience of the party
contracting with the Company. In addition, many of the Company's contracts are
subject to certain completion schedule requirements with liquidated damages in
the event schedules are not met. The Company has not been materially adversely
affected by these provisions in the past.
The Company acts as prime contractor on most of the construction projects
it undertakes. The Company accomplishes the majority of its projects with its
own resources and subcontracts specialized activities such as electrical and
mechanical work. As prime contractor the Company is responsible for the
performance of the entire contract, including subcontract work. Thus, the
Company is subject to increased costs associated with the failure of one or more
subcontractors to perform as anticipated. The Company's subcontractors generally
furnish bonds if the Company believes it is necessary to provide an additional
measure of security of their performance. Disadvantaged business enterprise
regulations require the Company to use its best efforts to subcontract a
specified portion of contract work done for governmental agencies to certain
types of subcontractors. Some of these subcontractors may not be able to obtain
surety bonds. The Company has not incurred any material loss or liability on
work performed by subcontractors to date.
INSURANCE AND BONDING
The Company maintains general and excess liability, construction equipment,
and workers' compensation insurance; all in amounts consistent with industry
practices. Management believes its insurance programs are adequate.
In connection with its business, the Company generally is required to
provide various types of surety bonds which provide an additional measure of
security of its performance under certain public and private sector contracts.
The Company's ability to obtain surety bonds depends upon its capitalization,
working capital, past performance, management expertise and other factors.
Surety companies consider such factors in light of the amount of surety bonds
then outstanding for the Company and their current underwriting standards, which
may change from time to time. The Company has been bonded by the same surety for
more than 60 years and has never been refused a bond.
GOVERNMENT REGULATIONS
The Company's operations are subject to compliance with regulatory
requirements of federal, state, and municipal agencies and authorities;
including regulations concerning labor relations, affirmative action and the
protection of the environment. While compliance with applicable regulatory
requirements has not adversely affected the Company's operations in the past
relative to its competitive position within its industry sector, there can be no
assurance that these requirements will not change and that compliance will not
adversely affect the Company's operations. In addition, the aggregate materials
operations of the Company require operating permits granted by governmental
agencies. The Company believes that tighter regulations for the protection of
the environment and other factors will make it increasingly difficult to obtain
new permits and renewal of existing permits may be subject to more restrictive
conditions than currently exist.
9
10
ITEM 2. PROPERTIES
The Company owns and leases real property for use in its construction and
aggregate mining and processing activities. The Company owns approximately
409,423 square feet of office and shop space and leases, pursuant to leases
expiring between January 2001 and December 2005, an additional 78,636 square
feet of office and shop space. The Company owns approximately 11,194 acres of
land of which 1,500 acres are un-permitted reserves available for future use and
leases approximately 4,141 additional acres of land at sites in California,
Nevada, Arizona and Utah. A majority of the land owned or leased by the Company
is intended to serve as aggregate reserves. There are no significant
encumbrances against owned property. The Company's leases for aggregate reserves
generally limit the Company's interest in the reserves to the right to mine the
reserves. These leases range from month-to-month leases to leases with
expiration dates ranging from January 2001 to March 2016. The Company considers
its available and future aggregate reserves adequate to meet its expected
operating needs. The Company pursues a plan of acquiring new sources of
aggregate reserves to replenish those depleted and to assure future growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings. The Company
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the year ended December 31, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
AGE POSITION
--- --------
David H. Watts....................... 62 Chairman of the Board, President, Chief Executive
Officer and Director
William G. Dorey..................... 56 Executive Vice President and Chief Operating Officer
William E. Barton.................... 56 Senior Vice President and Chief Financial Officer
Patrick M. Costanzo.................. 62 Senior Vice President and Manager, Heavy Construction
Division
Mark E. Boitano...................... 52 Senior Vice President and Manager, Branch Division
Granite Construction Incorporated was incorporated in Delaware in January
1990 as the holding company for Granite Construction Company, which was
incorporated in California in 1922. All dates of service for the executive
officers of the registrant also include the periods in which they served for
Granite Construction Company.
Mr. Watts joined the Company in 1987 as President and Chief Executive
Officer and has served as a director since 1988, and Chairman of the Board since
1999. In May 1997, Mr. Watts became a director of TIC Holdings, Inc. and in
January 2000 he also became a director of Wilder Construction Company. From 1984
until 1987, Mr. Watts served as President, Chief Executive Officer and a
director of Ford, Bacon & Davis, Inc., an industrial engineering and
construction firm. From 1965 until 1984, Mr. Watts was employed by an underwater
services and construction firm in various capacities, including as President and
Chief Operating Officer. He received a B.A. degree in Economics from Cornell
University in 1960. Mr. Watts is the Immediate Past Chair of the California
Chamber of Commerce and serves as a Director of several other non-profit
organizations.
Mr. Dorey has been an employee of the Company since 1968 and has served in
various capacities, including Executive Vice President and Chief Operating
Officer since 1998, Senior Vice President and Manager, Branch Division from 1987
to 1998, and as Vice President and Assistant Manager, Branch Division
10
11
from 1983 to 1987. In 1997, Mr. Dorey became a director of TIC Holdings, Inc.
and in January 2000 he also became a director of Wilder Construction Company. He
received a B.S. degree in Construction Engineering from Arizona State University
in 1967.
Mr. Barton has been an employee of the Company since 1980 and has served in
various capacities, including Senior Vice President since 1999, Vice President
and Chief Financial Officer from 1990 to 1999, Controller in 1989, Treasurer in
1988 and Cash Manager from 1980 until 1988. In 1997, Mr. Barton became a
director of TIC Holdings, Inc. and in January 2000 he also became a director of
Wilder Construction Company. He received a B.S. degree in Accounting and Finance
from San Jose State University in 1967 and an M.B.A. degree from the University
of Santa Clara in 1973.
Mr. Costanzo has been an employee of the Company since 1970 and has served
in various capacities, including Senior Vice President and Manager, Heavy
Construction Division, since 1990, Vice President and Assistant Manager, Heavy
Construction Division, from 1988 to 1989, and an Area or Project Manager with
the Heavy Construction Division from 1971 to 1987. In 1997, Mr. Costanzo became
a director of TIC Holdings, Inc. He received a B.S. degree in civil engineering
from the University of Connecticut in 1960 and a M.S. degree in Civil
Engineering from Stanford University in 1961.
Mr. Boitano has been an employee of the Company since 1977 and has served
in various capacities, including Senior Vice President and Manager, Branch
Division since 1998, Assistant Branch Division Manager from 1987 to 1998, Branch
Manager, Arizona operations from 1983 to 1987, Assistant Manager, Arizona
operations from 1980 to 1983, Assistant Manager, Salinas Branch in 1980, and
Project Manager Estimator from 1977 to 1980. He received a B.S. degree in Civil
Engineering from Santa Clara University in 1971 and an M.B.A. degree from
California State University, Fresno in 1977.
11
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the New York Stock Exchange under the
ticker symbol GVA. See Quarterly Results in Item 7 for a two-year summary of
quarterly dividends and high and low sales prices of the Company's stock.
On February 21, 2001 the Board of Directors declared a three for two stock
split in the form of a 50% stock dividend payable April 13, 2001 to stockholders
of record as of March 31, 2001. The Company also expects to pay a quarterly cash
dividend of $0.12 per pre-split share of common stock to stockholders of record
as of March 31, 2001 payable on April 13, 2001 (See Note 16 of Notes to
Consolidated Financial Statements). Declaration and payment of dividends is
within the sole discretion of the Company's Board of Directors, subject to
limitations imposed by Delaware law, and will depend on the Company's earnings,
capital requirements, financial conditions and such other factors as the Board
of Directors deems relevant. As of March 19, 2001 there were 27,193,225 shares
of common stock outstanding held by approximately 491 stockholders of record.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated operations data for 2000, 1999 and 1998 and
consolidated balance sheet data as of December 31, 2000 and 1999 set forth below
have been derived from consolidated financial statements of the Company, and are
qualified by reference to our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants included herein. The
selected consolidated statement of income data for 1990 through 1997 and the
consolidated balance sheet data as of December 31, 1990 through 1998 have been
derived from our audited financial statements not included herein. These
historical results are not necessarily indicative of the results of operations
to be expected for any future period.
12
13
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -------- -------- -------- --------
OPERATING SUMMARY
Revenue........................... $1,348,325 $1,328,774 $1,226,100 $1,028,205 $928,799 $894,796 $693,388 $570,379
Gross profit...................... 190,618 179,201 153,092 111,730 110,655 111,963 89,988 50,743
As a percent of revenue........... 14.1% 13.5% 12.5% 10.9% 11.9% 12.5% 13.0% 8.9%
General and administrative
expenses........................ 105,043 94,939 83,834 73,593 71,587 69,610 62,795 47,107
As a percent of revenue........... 7.8% 7.1% 6.8% 7.2% 7.7% 7.8% 9.1% 8.3%
Income before cumulative effect of
change in accounting
principle*...................... 55,815 52,916 46,507 27,832 27,348 28,542 19,488 3,492
Net income........................ 55,815 52,916 46,507 27,832 27,348 28,542 19,488 4,492
As a percent of revenue........... 4.1% 4.0% 3.8% 2.7% 2.9% 3.2% 2.8% 0.8%
Income per share before cumulative
effect of change in accounting
principle:
Basic............................. $ 2.12 $ 2.03 $ 1.75 $ 1.05 $ 1.04 $ 1.10 $ 0.75 $ 0.13
Diluted........................... 2.07 1.96 1.70 1.03 1.02 1.08 0.74 0.13
Net income per share:
Basic............................. 2.12 $ 2.03 $ 1.75 $ 1.05 $ 1.04 $ 1.10 $ 0.75 $ 0.17
Diluted........................... 2.07 1.96 1.70 1.03 1.02 1.08 0.74 0.17
Weighted average shares of common
and common stock equivalents
outstanding:
Basic............................. 26,389 26,058 26,559 26,397 26,207 25,916 25,884 25,875
Diluted........................... 26,939 26,963 27,339 26,942 26,748 26,474 26,289 26,133
---------- ---------- ---------- ---------- -------- -------- -------- --------
Total assets.............. $ 711,142 $ 679,572 $ 626,571 $ 551,809 $473,045 $454,744 $349,098 $319,416
Cash, cash equivalents and
short-term investments.......... 100,731 108,077 121,424 72,769 72,230 66,992 48,638 48,810
Working capital................... 180,051 143,657 142,448 103,910 92,542 77,179 65,537 64,619
Current maturities of long-term
debt............................ 1,130 5,985 10,787 12,921 10,186 13,948 10,070 10,060
Long-term debt.................... 63,891 64,853 69,137 58,396 43,602 39,494 17,237 28,585
Stockholders' equity.............. 377,764 327,732 301,282 257,434 233,605 209,905 182,692 164,338
Book value per share.............. 13.86 12.14 10.90 9.40 8.59 7.82 6.91 6.25
Dividends per share............... $ 0.43 $ 0.40 $ 0.30 $ 0.24 $ 0.25 $ 0.19 $ 0.09 $ 0.09
Common shares outstanding......... 27,255 26,996 27,649 27,400 27,189 26,828 26,433 26,301
---------- ---------- ---------- ---------- -------- -------- -------- --------
Backlog........................... $1,120,481 $ 793,256 $ 901,592 $ 909,793 $597,876 $590,075 $550,166 $659,738
========== ========== ========== ========== ======== ======== ======== ========
YEARS ENDED DECEMBER 31
------------------------------
1992 1991 1990
-------- -------- --------
OPERATING SUMMARY
Revenue........................... $518,312 $564,060 $557,996
Gross profit...................... 50,578 69,502 70,646
As a percent of revenue........... 9.8% 12.3% 12.7%
General and administrative
expenses........................ 46,906 46,541 44,466
As a percent of revenue........... 9.0% 8.3% 8.0%
Income before cumulative effect of
change in accounting
principle*...................... 3,924 17,622 18,811
Net income........................ 3,924 17,622 18,811
As a percent of revenue........... 0.8% 3.1% 3.4%
Income per share before cumulative
effect of change in accounting
principle:
Basic............................. $ 0.15 $ 0.68 $ 0.76
Diluted........................... 0.15 0.67 0.75
Net income per share:
Basic............................. $ 0.15 $ 0.68 $ 0.76
Diluted........................... 0.15 0.67 0.75
Weighted average shares of common
and common stock equivalents
outstanding:
Basic............................. 25,875 25,875 24,863
Diluted........................... 26,114 26,123 24,933
-------- -------- --------
Total assets.............. $316,978 $277,426 $260,426
Cash, cash equivalents and
short-term investments.......... 54,139 54,973 50,451
Working capital................... 66,329 55,186 52,352
Current maturities of long-term
debt............................ 15,469 7,669 7,887
Long-term debt.................... 38,618 14,816 19,084
Stockholders' equity.............. 158,594 153,159 131,026
Book value per share.............. 6.05 5.87 5.06
Dividends per share............... $ 0.09 $ 0.09 $ 0.07
Common shares outstanding......... 26,216 26,078 25,875
-------- -------- --------
Backlog........................... $245,234 $292,017 $368,384
======== ======== ========
- ---------------
* Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
13
14
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Granite is one of the largest heavy civil contractors in the United States
and is engaged in the construction of highways, dams, airports, mass transit
facilities and other infrastructure-related projects. The Company has offices in
California, Texas, Georgia, Nevada, Arizona, Florida, and Utah.
The Company's contracts are obtained primarily through competitive bidding
in response to advertisements by federal, state and local agencies, and private
parties. The Company's bidding activity is affected by such factors as backlog,
current utilization of equipment and other resources, ability to obtain
necessary surety bonds and competitive considerations. Bidding activity, backlog
and revenue resulting from the award of new contracts to the Company may vary
significantly from period to period.
Revenue from construction contracts including construction joint ventures
is recognized using the percentage-of-completion method of accounting, based
upon costs incurred and projected costs. Revenue in an amount equal to cost
incurred is recognized prior to contracts reaching 25% completion. The related
earnings are not recognized until the period in which such percentage completion
is attained. Cost of revenue consists of direct costs on contracts; including
labor and materials, amounts payable to subcontractors, direct overhead costs,
equipment expense (primarily depreciation, fuel, maintenance and repairs) and
insurance costs. Depreciation is provided using accelerated methods for
construction equipment. Contracts frequently extend over a period of more than
one year and revisions in cost and profit estimates during construction are
reflected in the accounting period in which the facts that require the revision
become known. Losses on contracts, if any, are provided in total when
determined, regardless of the degree of project completion. Claims for
additional contract revenue are recognized in the period when it is probable
that the claim will result in additional revenue and the amount can be reliably
estimated. The foregoing as well as weather, stage of completion, and mix of
contracts at different margins may cause fluctuations in gross profit between
periods.
The Company's compensation strategy for selected management personnel is to
rely heavily on a variable cash and restricted stock performance-based incentive
element. Thus, the Company may experience an increase in general and
administrative expenses in a very profitable year and a decrease in less
profitable years. The Company's profit sharing and pension contribution in
excess of the 401K matching contributions is at the discretion of the Board of
Directors based on the Company reaching certain levels of profitability each
year.
CURRENT YEAR
INCREASE
2000 1999 (DECREASE) %
---------- ---------- ---------- ----
(IN THOUSANDS)
Revenue:
Branch Division....................... $1,010,912 $ 976,464 $ 34,448 3.5
Heavy Construction Division........... 337,413 352,310 (14,897) (4.2)
---------- ---------- -------- ----
$1,348,325 $1,328,774 $ 19,551 1.5
========== ========== ======== ====
Revenue and Backlog. Total revenue in 2000 increased to $1,348.3 million
from $1,328.8 in 1999 which reflects a modest increase in revenue from the
Branch Division partially offset by a decrease in HCD revenue. The HCD revenue
decrease resulted from a lack of new awards during the period from late 1999
through mid 2000. Although HCD did receive significant new awards in late 2000,
they were booked too late in the year to make a significant contribution to year
2000 revenue. On a market sector basis, revenue from private sector contracts
increased $20.0 million to $333.4 million or 24.7% of total revenue in 2000,
from $313.4 million or 23.5% of total revenue in 1999. The Company's private
sector work is primarily comprised of site preparation for both commercial and
residential developments and privately funded transportation projects. 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"). The Company's revenue from public sector contracts
decreased slightly to $855.1 million or 63.4% of total revenue in 2000 from
$856.4 million or
14
15
64.5% of total revenue in 1999. The level of funding for public sector projects
remained strong through 2000 in most of the Company's geographic markets.
The following is a breakdown of backlog as of December 31, 2000, 1999 and
1998 (in thousands):
2000 1999 1998
--------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- -------- ------- -------- -------
By Geographic Area:
California.................. $ 260,612 23.2% $245,861 31.0% $192,114 21.3%
West (excluding
California).............. 269,660 24.1 205,489 25.9 312,034 34.7
Midwest..................... 204,038 18.2 -- -- -- --
South and East.............. 386,171 34.5 341,906 43.1 397,444 44.0
---------- ----- -------- ----- -------- -----
$1,120,481 100.0% $793,256 100.0% $901,592 100.0%
========== ===== ======== ===== ======== =====
By Market Sector:
Federal agencies............ $ 75,907 6.8% $ 18,146 2.3% $ 22,550 2.5%
State agencies.............. 649,242 57.9 468,992 59.1 635,833 70.5
Local public agencies....... 313,467 28.0 124,251 15.7 133,138 14.8
Private sector.............. 81,865 7.3 181,867 22.9 110,071 12.2
---------- ----- -------- ----- -------- -----
$1,120,481 100.0% $793,256 100.0% $901,592 100.0%
========== ===== ======== ===== ======== =====
The Company's backlog at December 31, 2000 was $1,120.5 million, up $327.2
million, or 41.3% from 1999. The increase in backlog was due primarily to
multiple HCD awards in the latter part of 2000 which include the Las Vegas
Monorail project in Nevada, the Company's portion of the Hiawatha light rail
joint venture in Minnesota and a major bridge and interchange project in
Florida. Management believes that approximately 63% of the work in the backlog
at December 31, 2000 will be recognized as revenue during 2001. The Company
believes its bidding opportunities in its major marketplaces remain strong (see
"Outlook").
Gross Profit. For the year ended December 31, 2000, gross profit reached
$190.6 million, a $11.4 million increase from 1999. As a percentage of revenue,
gross profit increased in 2000 to 14.1% from 13.5% in 1999. The increased gross
profit margin reflected increases in both Branch Division and HCD and was a
result of the continued favorable market conditions in both the public and
private sectors and the overall successful execution of projects. Year to date
revenue recognized for projects less than 25% complete was approximately $31.5
million and $36.9 million at December 31, 2000 and 1999, respectively. As
described under "General" above, the Company recognizes revenue only to the
extent of cost incurred until a project reaches 25% complete. During 2000, the
Company's gross profit margins were not significantly impacted by changes in the
revenue from projects that were less than 25% complete.
Cost of revenue consists of direct costs on contracts; including labor and
materials, amounts payable to subcontractors, direct overhead costs and
equipment expense (primarily depreciation, fuel, maintenance and repairs).
Although the composition of costs varies with each contract, the Company's gross
profit margins were not significantly impacted by changes in any one of these
costs during 2000. 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 2000.
15
16
General and Administrative Expenses. For the years ended December 31, 2000
and 1999 general and administrative expenses comprised the following (in
thousands):
2000 1999
-------- -------
(IN THOUSANDS)
Salaries and related expenses............................... $ 46,897 $43,552
Incentive compensation, discretionary profit sharing and
pension................................................... 24,153 22,264
Other general and administrative expenses................... 33,993 29,123
-------- -------
Total............................................. $105,043 $94,939
-------- -------
Percent of revenue.......................................... 7.8% 7.1%
======== =======
Salaries and related expenses increased in 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 in 2000 over 1999 as a function of the Company's increased
profitability and the impact of certain members of Company management reaching
age 62, at which time all their restricted stock grants become fully vested.
Other general and administrative expenses include various costs to support its
operations, none of which exceeds 10% of total general and administrative
expenses. The increase in other general and administrative expenses in 2000
primarily reflects the increases in facilities and other costs to support the
Company's growth.
Operating Income. The Heavy Construction Division's contribution to
operating income in 2000 decreased slightly over the 1999 contribution due to a
decreased volume of work performed as a result of HCD projects nearing
completion. These HCD projects have been replaced by several new awards in the
latter half of 2000, see "Revenue and Backlog" above. However, these significant
new projects were awarded too late in the year to have a significant impact on
revenue and operating income in 2000. The Branch Division's contribution to
operating income in 2000 increased compared to 1999 due primarily to increases
in construction revenue and gross margins as described in the "Gross Profit"
section above.
Other Income (Expenses). Other income increased $5.5 million to $7.3
million in 2000. The increase was primarily due to higher interest income
resulting from the combined factor of higher interest rates and higher invested
balances and the absence of the Company's share of a 1999 loss of approximately
$2.8 million experienced by TIC, in which the Company currently has a 27% equity
investment, partially offset by lower gains on the sale of property and
equipment.
Provision for Income Taxes. The Company's effective tax rate was 39.9% in
2000, an increase of 1.4% from 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
The Company experienced a sizeable increase in new awards for the year
ended December 31, 2000. This increase in new awards resulted in a 41.3%
improvement over the backlog at December 31, 1999. The Company believes this is
a quality backlog that will provide a firm foundation from which to grow its
business going forward.
The bulk of these new awards were derived from the Company's public sector
marketplace. As evidenced by the increase in new awards, the Company expects its
public sector business will remain very positive in the coming year. The annual
federal appropriations passed by Congress under TEA-21, and the matching state
gas tax revenues continue to yield sizeable sums of money that flow into
transportation programs across the country. Strong public sector markets
nationwide should provide the Company with the opportunity to be very selective
in its bidding, looking for those projects where it may have competitive
advantages in terms of resources or expertise.
However, it is still very early in the year to have a clear indication of
how successful the Company can be in growing its business in 2001. Many of the
larger projects the Company was awarded in 2000 were awarded in the later half
of the year. As a result, some of the projects, most notably, the Las Vegas
Monorail Project
16
17
and the Hiawatha Light Rail Project, may or may not reach the 25 percent
complete profit recognition threshold in 2001.
Moreover, as always, it is difficult to predict this early in the year what
our Branch Division's annual financial results will be. Unlike the Heavy
Construction Division, the Branch Division's work is not completely
backlog-driven as most of its contracts are short-term in duration. Weather,
competition, market demand and the short-term nature of the business are just a
few of the variables that significantly impact earnings visibility of the Branch
Division in any given year.
There is also general uncertainty nationwide regarding the health of the
economy. While we remain cautiously optimistic about our private sector
business, the economic slowdown may prompt a downturn in private sector
development and consequently decreased opportunities for the Company.
It is also unclear how the current power crisis in California will affect
the Company. To mitigate the Company's exposure, it is exploring alternative
energy sources at its facilities. While the current crisis is expected to
continue into the summer during our peak production periods, we hope to be in a
position to deliver when others cannot. However, the threat of rolling blackouts
during the peak summer construction season remains a risk to our business
productivity.
During January 2001, PG&E Corp., the parent company of Pacific Gas &
Electric Company failed to pay $7 million in commercial paper that was held by
the Company at December 31, 2000. On March 9, 2001 the full $7 million, plus
interest, was paid.
Looking at the prospects for the Company's Heavy Construction Division, it
is experiencing a market that is extremely active. Texas is expected to again
embark on a $2.5 billion annual construction program. Florida has a similar
program that was enhanced in 2000 with a funding package that adds $4 billion of
additional funds over the next 10 years. The design-build market continues to
grow rapidly, and HCD is currently targeting approximately $7 billion of
potential projects over the next 18 months.
From an external growth perspective, the Company has not been as successful
in 2000 as it had anticipated in growing the business through mergers and
acquisitions. While the Company has seen some excellent candidates, a strong
construction market has inflated valuations to levels that make it difficult to
achieve the type of return the Company is looking for. The Company has several
opportunities in the acquisition pipeline and will continue to be very assertive
in the mergers and acquisitions area, but will remain disciplined in its
approach.
In summary, the Company's outlook for the short-term, barring any
contributions from acquisitions, is for a year of modest growth, given the
uncertainties related to the timing of some of the larger projects, the
California energy crisis and general economic conditions. However, the Company's
long-term prospects are anticipated to be exceptional, given the continued
strength of the public sector marketplace.
PRIOR YEARS
1999 1998 INCREASE %
---------- ---------- -------- ----
(IN THOUSANDS)
Revenue:
Branch Division........................ $ 976,464 $ 945,912 $ 30,552 3.2
Heavy Construction Division............ 352,310 280,188 72,122 25.7
---------- ---------- -------- ----
$1,328,774 $1,226,100 $102,674 8.4
========== ========== ======== ====
Revenue and Backlog. The increased revenue in 1999 was primarily
attributable to increased revenue from private sector contracts which increased
$65.0 million to $313.4 million or 23.5% of total revenue in 1999, from $248.4
million or 20.2% of total revenue in 1998. The Company's private sector work is
primarily comprised of site preparation for both commercial and residential
developments and privately funded transportation projects. The private sector
revenue growth was significantly influenced by the continued strong growth in
residential and commercial building construction during 1999. In California, one
of the Company's largest markets, new building construction increased 13.0%
during 1999 to $42.6 billion from $37.7 billion in
17
18
1998, according to the Construction Industry Research Board. The Company's
revenue from public sector contracts increased to $856.4 million in 1999 from
$836.0 million in 1998 while decreasing to 64.5% of the Company's total revenue
in 1999 from 68.2% in 1998. Although the level of funding for public sector
projects remained strong in 1999 in most of the Company's markets, the increased
TEA-21 funding did not significantly impact the Company's revenue.
The increase in Branch Division revenue during the year resulted from
increases in revenue from federal sector and from private sector contracts,
partially offset by a decrease in local sector revenue. The increase in HCD
revenue was attributable to significantly drier weather conditions; particularly
in Texas and Florida, and included revenue from a larger number of both private
and public sector projects which included a private sector railroad project in
Texas which was awarded in mid 1998, a private sector design-build tollroad
project in Texas which was awarded in 1999 and a public sector design-build
highway project in Arizona which was awarded in late 1998.
The Company's backlog at December 31, 1999 was $793.3 million, down $108.3
million, or 12.0% from 1998. The decrease in backlog was due primarily to the
absence of HCD awards in the fourth quarter.
GROSS PROFIT. For the year ended December 31, 1999, gross profit reached
$179.2 million, a $26.1 million increase from 1998. As a percentage of revenue,
gross profit increased in 1999 to 13.5% from 12.5% in 1998. The increased gross
profit margin was a result of the continued favorable market conditions in both
the public and private sectors as described above, which tends to increase the
Company's ability to win competitively bid projects at higher margins.
Additionally, gross profit margin in 1999 was positively impacted by drier
weather conditions, which allowed for more efficient utilization of resources,
and the successful execution of several HCD projects that were added to backlog
in mid to late 1998. Project to date revenue recognized for projects less than
25% complete was approximately $36.9 million and $24.4 million at December 31,
1999 and 1998, respectively. As described under "General" above, the Company
recognizes revenue only to the extent of cost incurred until a project reaches
25% complete. During 1999, the Company's gross profit margins were not
significantly impacted by changes in the revenue from projects that were less
than 25% complete. 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. Although the composition of costs varies with each
contract, the Company's gross profit margins were not significantly impacted by
changes in any one of these costs during 1999.
General and Administrative Expenses. For the years ended December 31, 1999
and 1998 general and administrative expenses comprised the following (in
thousands):
1999 1998
------- -------
(IN THOUSANDS)
Salaries and related expenses............................ $43,552 $40,602
Incentive compensation, discretionary profit sharing and
pension................................................ 22,264 18,894
Other general and administrative expenses................ 29,123 24,338
------- -------
Total.......................................... $94,939 $83,834
------- -------
Percent of revenue....................................... 7.1% 6.8%
======= =======
Salaries and related expenses increased in 1999 over 1998 due primarily to
increased staffing to support the Company's current and expected growth.
Incentive compensation and discretionary profit sharing and pension costs
increased in 1999 over 1998 as a function of the Company's increased
profitability. Other general and administrative expenses include various costs
to support its operations, none of which exceeds 10% of total general and
administrative expenses. The increase in other general and administrative
expenses in 1999 primarily reflect the absence of the collection of a previously
written-off bad debt that was recognized in 1998 and increases in other costs to
support the Company's growth.
Operating Income. The Heavy Construction Division's contribution to
operating income in 1999 increased over the 1998 contribution due to increases
in both the volume of work and the profit margins the Division was able to
achieve. The Division's profit margins were positively impacted by the
successful
18
19
execution of new work that was added to backlog in mid to late 1998, including
two design-build projects, as well as drier weather conditions and improved
margins on projects nearing completion. The Branch Division's contribution to
operating income in 1999 decreased slightly compared to 1998 due primarily to
the absence of the collection of a previously written-off bad debt and increases
in other costs to support the Company's growth.
Other Income (Expenses). Other income decreased $4.0 million to $1.8
million in 1999. The decrease was due primarily to a loss experienced by TIC, in
which the Company had a 30% equity investment. The Company's share of TIC's loss
was approximately $2.8 million, a decrease of approximately $7.0 million from
the Company's share of TIC income in 1998. This decrease was partially offset by
a $2.8 million gain recorded on the sale of a depleted quarry property.
Provision for Income Taxes. The Company's effective tax rate was 38.5% in
1999, an increase of 0.5% from 1998. The increase was primarily due to a lower
impact of the Company's percentage depletion deduction due to higher pre-tax
earnings.
LIQUIDITY AND CAPITAL RESOURCES
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Cash and cash equivalents.......................... $ 57,759 $ 61,832 $ 62,470
Net cash provided (used) by:
Operating activities............................. 74,846 99,987 96,030
Investing activities............................. (58,966) (54,204) (87,194)
Financing activities............................. (19,953) (46,421) (725)
Capital expenditures............................. 52,454 82,035 52,462
Working Capital.................................. $180,051 $143,657 $142,448
During 2000 the Company generated cash and cash equivalents from operating
activities of $74.8 million which represented a decrease of $25.1 million over
1999. The decrease was primarily due to a reduced cash flow impact from accounts
and notes receivable reflecting more modest revenue growth in 2000 and a
reduction in the net billings in excess of cost. The impact of these changes
were partially offset by a reduction in the equity in construction joint
ventures resulting from the completion of two joint venture projects during the
year.
Cash used by investing activities in 2000 increased $4.8 million from 1999
primarily due to the investment in Wilder Construction in which the Company has
a 39% equity investment at December 31, 2000, offset by a decrease in property
and equipment purchases and the proceeds from the partial TIC divestiture.
Cash used by financing activities in 2000 decreased $26.5 million from 1999
due to the absence Company's share repurchases and decreased payments on its
debt obligations.
The Company has budgeted $58.3 million for capital expenditures in 2001,
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's consolidated working capital
position was $180.1 million at December 31, 2000 compared to $143.7 million at
December 31, 1999. 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 December 31, 2000. The Company plans to renew its
revolving credit facility in 2001.
Subsequent Events. On February 21, 2001, the Company announced a quarterly
cash dividend of $0.12 per pre split share of common stock to stockholders of
record as of March 31, 2001 payable on April 13, 2001.
19
20
In addition, the Company announced a three for two stock split in the form
of a 50% stock dividend payable April 13, 2001.
The following unaudited summary reflects the pro forma net income per share
restated for the three for two stock split (in thousands except per share data).
PRO FORMA WEIGHTED AVERAGE
SHARES OF COMMON AND
COMMON STOCK EQUIVALENTS PRO FORMA NET
OUTSTANDING INCOME PER SHARE
YEARS ENDED -------------------------- -----------------
DECEMBER 31, NET INCOME BASIC DILUTED BASIC DILUTED
- ------------ ---------- ----------- ------------ ------ --------
2000 $55,815 39,584 40,409 $1.41 $1.38
1999 $52,916 39,087 40,445 $1.35 $1.31
1998 $46,507 39,839 41,009 $1.17 $1.13
1997 $27,832 39,596 40,413 $0.70 $0.69
1996 $27,348 39,311 40,122 $0.70 $0.68
1995 $28,542 38,874 39,711 $0.73 $0.72
1994 $19,488 38,826 39,434 $0.50 $0.49
1993 $ 4,492 38,813 39,200 $0.12 $0.11
1992 $ 3,924 38,813 39,171 $0.10 $0.10
1991 $17,622 38,813 39,185 $0.45 $0.45
1990 $18,811 37,295 37,400 $0.50 $0.50
Additionally, on the effective date of the three for two stock split, the
Company will restate its shares outstanding at December 31, 2000 and 1999 to
40,882 and 40,493, respectively and will restate its common stock balance to
$409 and $405 at December 31, 2000 and 1999, respectively.
On February 23, 2001 the Company purchased an additional 450,000 shares of
Wilder Construction Company for a purchase price of approximately $4.6 million.
Also, subsequent to year end, the Company adopted a Dividend Reinvestment
and Stock Purchase Plan (the "Plan") of which 3,000,000 shares of common stock
are authorized for purchase. The Plan offers participation to record holders of
common stock or other interested investors. Under the Plan, participants may buy
additional shares of common stock by automatically reinvesting all or a portion
of the cash dividends paid on their shares of common stock or by making optional
cash investments.
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 adopted this pronouncement in
the first quarter of 2001 and it did not have a material impact on the Company's
financial position and results of operations.
20
21
QUARTERLY RESULTS
The following table sets forth selected unaudited financial information for
the Company for the eight quarters in the period ended December 31, 2000. This
information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, contains all adjustments necessary
for a fair presentation thereof.
QUARTERLY FINANCIAL DATA
(UNAUDITED -- IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2000 QUARTERS ENDED
---------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
Revenue..................................... $346,427 $441,756 $343,712 $216,430
Gross profit................................ 47,092 67,478 49,673 26,375
As a percent of revenue................... 13.6% 15.3% 14.5% 12.2%
Net income.................................. 12,758 24,900 15,933 2,224
As a percent of revenue................... 3.7% 5.6% 4.6% 1.0%
Net income per share:
Basic..................................... $ 0.48 $ 0.95 $ 0.61 $ 0.08
Diluted................................... $ 0.47 $ 0.93 $ 0.59 $ 0.08
Dividends per share......................... $ 0.10 $ 0.10 $ 0.10 $ 0.16
Market price
High...................................... $ 30.94 $ 27.13 $ 28.50 $ 27.50
Low....................................... $ 21.56 $ 21.00 $ 22.88 $ 17.44
1999 QUARTERS ENDED
---------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
Revenue..................................... $365,975 $418,703 $329,292 $214,804
Gross profit................................ 51,194 58,509 46,169 23,329
As a percent of revenue................... 14.0% 14.0% 14.0% 10.9%
Net income.................................. 14,436 20,849 15,131 2,500
As a percent of revenue................... 3.9% 5.0% 4.6% 1.2%
Net income per share:
Basic..................................... $ 0.55 $ 0.80 $ 0.58 $ 0.09
Diluted................................... $ 0.54 $ 0.77 $ 0.56 $ 0.09
Dividends per share......................... $ 0.07 $ 0.07 $ 0.07 $ 0.19
Market price
High...................................... $ 26.50 $ 29.81 $ 29.88 $ 37.75
Low....................................... $ 16.88 $ 22.69 $ 21.88 $ 19.63
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks due primarily to changes
in interest rates which it manages primarily by managing the maturities in its
investment portfolio. The Company does not use derivatives to alter the interest
characteristics of its investment securities or its debt instruments. The
Company has no holdings of derivative or commodity instruments and does not
transact business in foreign currencies.
21
22
The fair value of the Company's investment portfolio or related income
would not be significantly impacted by changes in interest rates since the
investment maturities are short and the interest rates are primarily fixed. The
Company's senior notes payable of $60.0 million at December 31, 2000 carry a
fixed interest rate of 6.54% per annum with principal payments due in nine equal
annual installments beginning in 2002.
The table below presents principal amounts and related weighted average
interest rates by year for the Company's cash and cash equivalents, short-term
investments and significant debt obligations:
2001 2002 2003 2004 2005 THEREAFTER TOTAL
------- ------ ------ ------ ------ ---------- --------
(IN THOUSANDS)
ASSETS
Cash, cash equivalents and short-term investments........ $97,735 $ -- $1,998 $ 998 $ -- $ -- $100,731
Weighted average interest rate........................... 6.5% -- 5.9% 6.2% -- --
LIABILITIES
Fixed rate debt
Senior notes payable..................................... $ -- $6,667 $6,667 $6,667 $6,667 $33,332 $ 60,000
Weighted average interest rate......................... -- 6.54% 6.54% 6.54% 6.54% 6.54% 6.54%
The estimated fair value of the Company's cash, cash equivalents and
short-term investments approximate the principal amounts reflected above based
on the short maturities of these financial instruments. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt. Based on the borrowing rates
currently available to the Company for bank loans with similar terms and average
maturities, the fair value of long-term debt was approximately $57.3 million as
of December 31, 2000 and $51.6 million as of December 31, 1999.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and
auditor's report are included in Item 8 and appear following Item 14:
Report of Independent Accountants
Consolidated Balance Sheets -- At December 31, 2000 and 1999
Consolidated Statements of Income -- Years Ended December 31, 2000, 1999
and 1998
Consolidated Statements of Stockholders' Equity -- Years Ended December
31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows -- Years Ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
Additionally, a two-year Summary of Quarterly Results is included in Item 7
under "Quarterly Results."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
22
23
PART III
Certain information required by Part III is omitted from this Report in
that the Company will file its definitive proxy statement for the Annual Meeting
of Stockholders to be held on May 21, 2001 (the "Proxy Statement") pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report, and certain information included therein is incorporated herein
by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company is set forth under the
caption "Information about Granite -- Management, Directors" in the Proxy
Statement. Such information is incorporated herein by reference. Information
relating to the executive officers of the Company is set forth in Part I of this
report under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under the
caption "Information about Granite -- Compensation of Directors and Executive
Officers" in the Proxy Statement. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of equity securities of the Company by
certain beneficial owners and Management is set forth under the caption
"Information about Granite -- Stock Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is
set forth under the caption "Information about Granite -- Management, Certain
Transactions with Management" in the Proxy Statement. Such information is
incorporated herein by reference.
23
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(a) 1. FINANCIAL STATEMENTS. The following consolidated financial
statements are filed as part of this Report:
FORM 10-K
PAGES
--------------
Report of Independent Accountants....................... F-1
Consolidated Balance Sheets at December 31, 2000 and
1999.................................................. F-2
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998...................... F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998.......... F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998................ F-5
Notes to the Consolidated Financial Statements.......... F-6 to F-20
2. FINANCIAL STATEMENT SCHEDULE. The following financial statement
schedule of Granite Construction Incorporated for the years ended
December 31, 2000, 1999 and 1998 is filed as part of this Report and
should be read in conjunction with the consolidated financial statements
of Granite Construction Incorporated.
FORM 10-K
SCHEDULE PAGES
-------- ---------
Schedule II -- Schedule of Valuation and Qualifying
Accounts.................................................. S-1
Schedules not listed above have been omitted because the required
information is not applicable or is shown in the financial statements or
notes.
3. EXHIBITS. The Exhibits listed in the accompanying Exhibit Index
are filed or incorporated by reference as part of this Report.
(b) REPORTS ON FORM 8-K. The registrant was not required to file any
reports on Form 8-K during the fourth quarter of fiscal 2000.
24
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the stockholders
of Granite Construction, Incorporated:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 24 present fairly, in all material
respects, the financial position of Granite Construction, Incorporated and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) on page 24 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
February 16, 2001, except for Note 16,
as to which the date is February 23, 2001
F-1
26
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
DECEMBER 31,
--------------------
2000 1999
-------- --------
Current assets
Cash and cash equivalents................................. $ 57,759 $ 61,832
Short-term investments.................................... 42,972 46,245
Accounts receivable....................................... 221,374 211,609
Costs and estimated earnings in excess of billings........ 19,473 14,105
Inventories............................................... 16,747 12,823
Deferred income taxes..................................... 15,857 14,885
Equity in construction joint ventures..................... 25,151 30,611
Other current assets...................................... 12,295 10,211
-------- --------
Total current assets.............................. 411,628 402,321
Property and equipment...................................... 249,077 242,913
Investments in affiliates................................... 40,052 23,139
Other assets................................................ 10,385 11,199
-------- --------
$711,142 $679,572
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 1,130 $ 5,985
Accounts payable.......................................... 90,111 95,662
Billings in excess of costs and estimated earnings........ 57,412 66,342
Accrued expenses and other current liabilities............ 82,924 90,675
-------- --------
Total current liabilities......................... 231,577 258,664
Long-term debt.............................................. 63,891 64,853
Other long-term liabilities................................. 6,370 -
Deferred income taxes....................................... 31,540 28,323
Commitments and contingencies
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 27,254,605 shares in
2000 and 26,995,506 in 1999............................ 272 270
Additional paid-in capital................................ 56,518 49,817
Retained earnings......................................... 330,172 285,832
-------- --------
386,962 335,919
Unearned compensation..................................... (9,198) (8,187)
-------- --------
377,764 327,732
-------- --------
$711,142 $679,572
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
27
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Revenue
Construction............................................. $1,188,430 $1,169,755 $1,084,433
Material sales........................................... 159,895 159,019 141,667
---------- ---------- ----------
Total revenue.................................... 1,348,325 1,328,774 1,226,100
---------- ---------- ----------
Cost of revenue
Construction............................................. 1,020,317 1,015,041 955,213
Material sales........................................... 137,390 134,532 117,795
---------- ---------- ----------
Total cost of revenue............................ 1,157,707 1,149,573 1,073,008
---------- ---------- ----------
Gross profit............................................. 190,618 179,201 153,092
General and administrative expenses........................ 105,043 94,939 83,834
---------- ---------- ----------
Operating income......................................... 85,575 84,262 69,258
---------- ---------- ----------
Other income (expense)
Interest income.......................................... 11,646 8,682 9,856
Interest expense......................................... (8,954) (8,791) (9,551)
Gain on sales of property and equipment.................. 2,584 4,544 1,819
Other, net............................................... 2,019 (2,654) 3,629
---------- ---------- ----------
7,295 1,781 5,753
---------- ---------- ----------
Income before provision for income taxes................. 92,870 86,043 75,011
Provision for income taxes................................. 37,055 33,127 28,504
---------- ---------- ----------
Net income............................................... $ 55,815 $ 52,916 $ 46,507
========== ========== ==========
Net income per share
Basic.................................................... $ 2.12 $ 2.03 $ 1.75
Diluted.................................................. $ 2.07 $ 1.96 $ 1.70
Weighted average shares of common and common stock
equivalents outstanding
Basic.................................................... 26,389 26,058 26,559
Diluted.................................................. 26,939 26,963 27,339
Dividends per share........................................ $ 0.43 $ 0.40 $ 0.30
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
28
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL
COMMON PAID-IN RETAINED UNEARNED
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 STOCK CAPITAL EARNINGS COMPENSATION TOTAL
-------------------------------------------- ------ ---------- -------- ------------ --------
BALANCES, DECEMBER 31, 1997....................... $274 $39,745 $223,498 $(6,083) $257,434
Net income........................................ -- -- 46,507 -- 46,507
Restricted stock issued -- 213,926 shares, net.... 2 3,793 -- (3,795) --
Amortized restricted stock........................ -- -- -- 3,286 3,286
Employee stock options exercised and related tax
benefit -- 81,405 shares........................ 1 1,402 -- -- 1,403
Repurchase of common stock -- 107,733 shares...... -- (2,440) -- -- (2,440)
Common stock contributed to ESOP -- 61,800
shares.......................................... -- 1,580 -- -- 1,580
Cash dividends on common stock and other.......... -- 1,000 (7,488) -- (6,488)
---- ------- -------- ------- --------
BALANCES, DECEMBER 31, 1998....................... 277 45,080 262,517 (6,592) 301,282
Net income........................................ -- -- 52,916 -- 52,916
Restricted stock issued -- 236,578 shares, net.... 2 6,427 -- (6,429) --
Amortized restricted stock........................ -- -- -- 4,834 4,834
Stock options and warrants exercised and related
tax benefit -- 130,940 shares................... 1 1,419 -- -- 1,420
Repurchase of common stock -- 1,112,073 shares.... (10) (5,255) (19,764) -- (25,029)
Common stock contributed to ESOP -- 91,100
shares.......................................... -- 2,146 -- -- 2,146
Cash dividends on common stock and other.......... -- -- (9,837) -- (9,837)
---- ------- -------- ------- --------
BALANCES, DECEMBER 31, 1999....................... 270 49,817 285,832 (8,187) 327,732
Net income........................................ -- -- 55,815 -- 55,815
Restricted stock issued -- 276,685 shares, net.... 3 6,909 -- (6,912) --
Amortized restricted stock........................ -- -- -- 5,901 5,901
Stock options exercised and related tax
benefit -- 56,103 shares........................ -- 2,013 -- -- 2,013
Repurchase of common stock -- 103,689 shares...... (1) (2,853) -- -- (2,854)
Common stock contributed to ESOP -- 30,000
shares.......................................... -- 632 -- -- 632
Cash dividends on common stock and other.......... -- -- (11,475) -- (11,475)
---- ------- -------- ------- --------
BALANCES, DECEMBER 31, 2000....................... $272 $56,518 $330,172 $(9,198) $377,764
==== ======= ======== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
29
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Operating Activities
Net income................................................ $ 55,815 $ 52,916 $ 46,507
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization................ 44,624 42,363 38,124
Gain on sales of property and equipment................. (2,584) (4,544) (1,819)
Deferred income taxes................................... 2,245 1,043 154
Gain on sale of investment.............................. (636) -- --
Amortization of unearned compensation................... 5,901 4,834 3,286
Common stock contributed to ESOP........................ 632 2,146 1,580
Equity in (gain) loss of affiliates..................... (57) 5,292 (2,728)
Other................................................... 150 (424) --
Changes in assets and liabilities:
Accounts and notes receivable........................... (11,287) (34,106) (10,715)
Inventories............................................. (2,624) (50) (522)
Equity in construction joint ventures................... 5,460 (10,591) (7,069)
Other assets............................................ (1,933) 1,327 189
Accounts payable........................................ (5,551) 7,468 7,385
Billings in excess of costs and estimated earnings,
net.................................................... (15,598) 18,285 6,954
Accrued expenses........................................ 289 14,028 14,704
-------- -------- --------
Net cash provided by operating activities.......... 74,846 99,987 96,030
-------- -------- --------
Investing Activities
Purchases of short-term investments....................... (84,671) (98,082) (91,090)
Maturities of short-term investments...................... 87,944 110,791 50,546
Additions to property and equipment....................... (52,454) (82,035) (52,462)
Proceeds from sales of property and equipment............. 4,691 9,130 5,357
Proceeds from sale of investment.......................... 5,000 -- --
Investment in affiliates.................................. (21,220) 1,083 (385)
Development and sale of land and other investing
activities.............................................. 1,744 4,909 840
-------- -------- --------
Net cash used by investing activities.............. (58,966) (54,204) (87,194)
-------- -------- --------
Financing Activities
Additions to long-term debt............................... -- -- 60,000
Repayments of long-term debt.............................. (5,817) (10,786) (51,392)
Employee stock options exercised.......................... 431 39 832
Repurchase of common stock................................ (2,854) (25,029) (2,440)
Dividends paid............................................ (11,713) (10,645) (7,725)
-------- -------- --------
Net cash used by financing activities.............. (19,953) (46,421) (725)
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (4,073) (638) 8,111
Cash and cash equivalents at beginning of year.............. 61,832 62,470 54,359
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 57,759 $ 61,832 $ 62,470
======== ======== ========
Supplementary Information
Cash paid during the year for:
Interest................................................ $ 6,387 $ 5,926 $ 4,857
Income taxes............................................ 28,060 24,210 22,294
Noncash financing and investing activity:
Restricted stock issued for services.................... $ 6,912 $ 6,429 $ 3,795
Dividends accrued but not paid.......................... 2,725 1,890 1,659
Financed acquisition of property and equipment.......... -- 1,700 --
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
30
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company is a heavy civil contractor engaged in
the construction of highways, dams, airports, mass transit facilities, real
estate site development and other infrastructure related projects. The Company
has offices in California, Texas, Georgia, Nevada, Arizona, Utah, and Florida.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All intercompany
transactions and accounts have been eliminated. The Company uses the equity
method of accounting for affiliated companies where its ownership is between 20%
and 50%. Additionally, the Company participates in joint ventures with other
construction companies. The Company accounts for its share of the operations of
these jointly controlled ventures on a pro rata basis in the consolidated
statements of income and as a single line item in the consolidated balance
sheets.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition: Earnings on construction contracts including
construction joint ventures are recognized on the percentage of completion
method in the ratio of costs incurred to estimated final costs. Revenue in an
amount equal to cost incurred is recognized prior to contracts reaching 25%
completion. The related earnings are not recognized until the period in which
such percentage completion is attained. It is the Company's judgment that until
a project reaches 25% completion, there is insufficient information to determine
with a reasonable level of comfort what the estimated profit on the project will
be. Factors that can contribute to changes in estimates of contract
profitability include, without limitation, site conditions that differ from
those assumed in the original bid, the availability and skill level of workers
in the geographic location of the project, the availability and proximity of
materials, inclement weather and timing and coordination issues inherent in
design/build projects. Contract cost is recorded as incurred and revisions in
contract revenue and cost estimates are reflected in the accounting period when
known. The 25% threshold is applied to all percentage of completion projects
without exception unless and until the Company projects a loss on the project,
in which case the estimated loss is immediately recognized. Claims for
additional contract revenue are recognized if it is probable that the claim will
result in additional revenue and the amount can be reliably estimated. Revenue
from contract change orders is recognized when the owner has agreed to the
change order. Revenue from the sale of materials is recognized when delivery and
risk of ownership passes to the customer.
The Company's revenue is substantially derived from contracts that are
"fixed unit price" under which the Company is committed to provide materials or
services required by a project at fixed unit prices (for example, dollars per
cubic yard of concrete or cubic yards of earth excavated). The Company's
contracts are obtained primarily through competitive bidding in response to
advertisements by federal, state and local government agencies and private
parties. All federal government contracts and many of the Company's other
contracts provide for termination of the contract for the convenience of the
party contracting with the Company.
Balance Sheet Classifications: The Company includes in current assets and
liabilities amounts receivable and payable under construction contracts which
may extend beyond one year. A one-year time period is used as the basis for
classifying all other current assets and liabilities.
Cash and Cash Equivalents: Cash equivalents are securities held for cash
management purposes having original maturities of three months or less from the
date of purchase.
F-6
31
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Short-Term Investments: Short-term investments that are deemed by
management to be held-to-maturity are reported at amortized cost. Short-term
investments that are considered available-for-sale are carried at fair value.
Unrealized gains and losses, if material, are reported net of tax as a separate
component of stockholders' equity until realized. Realized gains and losses, if
any, are determined using the specific identification method.
Financial Instruments: The carrying value of short-term investments
approximates their fair value as determined by market quotes. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt. The carrying value of
receivables and other amounts arising out of normal contract activities,
including retentions, which may be settled beyond one year, is estimated to
approximate fair value.
Inventories: Inventories consist primarily of quarry products valued at the
lower of average cost or market.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided using accelerated methods over lives ranging from three
to ten years for construction equipment and the straight-line method over lives
from three to twenty years for the remaining depreciable assets. The Company
believes that accelerated methods best approximate the service provided by the
construction equipment. Depletion of quarry property is based on the usage of
depletable reserves. The cost and accumulated depreciation or depletion of
property sold or retired is removed from the accounts and gains or losses, if
any, are reflected in earnings for the period. The Company capitalized interest
costs related to certain self-constructed assets which reduced total interest
expense of $9,463 by $509 in 2000 and reduced total interest expense of $9,368
by $577 in 1999.
Long-Lived Assets: Long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. There have been no
significant events or changes in circumstances to date.
The Company holds for development and sale certain property acquired in
foreclosure proceedings. Such assets are held in long-term other assets until
such time as they are available to be sold and expected to be sold within a
year, at which time they are carried in other current assets. Additionally, the
Company frequently sells property and equipment that has reached the end of its
useful life or no longer meets the Company's needs, including depleted quarry
property. Such property is held in property and equipment until sold. During
2000, 1999 and 1998 there were no losses resulting from changes in the carrying
amounts of these assets.
Intangible Assets: Intangible assets consist primarily of covenants not to
compete amortized on a straight-line basis over five years.
Income Taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Computation of Earnings Per Share: Basic earnings per share is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding, excluding restricted common stock. Diluted
earnings per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period. Dilutive potential common shares
consist of the incremental common shares issuable upon the exercise of stock
options, warrants and upon the vesting of restricted common stock.
F-7
32
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Reclassifications: Certain financial statement items have been reclassified
to conform to the current year's format. These reclassifications had no impact
on previously reported net income.
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 adopted this pronouncement in
the first quarter of 2001 and it did not have a material impact on the Company's
financial position and results of operations.
2. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES
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.
Concentrations: The Company maintains the majority of cash balances and all
of its short-term investments with several financial institutions. The Company
invests with high credit quality financial institutions, and, by policy, limits
the amount of credit exposure to any financial institution. A significant
portion of the Company's labor force is subject to collective bargaining
agreements. Collective bargaining agreements covering approximately 5% of the
Company's unionized labor force at December 31, 2000 will expire during 2001.
Revenue received from federal, state and local government agencies amounted
to $855,069 (63.4%) in 2000, $856,399 (64.5%) in 1999, and $835,986 (68.2%) in
1998. California Department of Transportation represented $174,560 (12.9%) in
2000, $135,265 (10.2%) in 1999, and $142,008 (11.6%) in 1998 of total revenue.
At December 31, 2000 and 1999, the Company had significant amounts receivable
from these agencies. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral, although the law provides
the Company the ability to file mechanics liens on real property improved for
private customers in the event of non-payment by such customers. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. The Company has no foreign operations.
F-8
33
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. SHORT-TERM INVESTMENTS
The carrying and market values of short-term investments are as follows at
December 31, 2000 and 1999:
HELD-TO-MATURITY HELD-TO-MATURITY
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------------------------------- -----------------------------------------------
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ------- -------- ---------- ---------- -------
U.S. Government and Agency
Obligations............. $11,922 $7 $-- $11,929 $20,222 $ 4 $-- $20,226
Commercial Paper.......... 16,865 1 -- 16,866 12,917 16 -- 12,933
Municipal Bonds........... -- -- -- -- -- -- -- --
Domestic Banker's
Acceptance.............. 7,180 1 -- 7,181 7,079 22 -- 7,101
------- -- -- ------- ------- --- -- -------
35,967 9 -- 35,976 40,218 42 -- 40,260
------- -- -- ------- ------- --- -- -------
AVAILABLE-FOR-SALE AVAILABLE-FOR-SALE
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------------------------------- -----------------------------------------------
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ------- -------- ---------- ---------- -------
U.S. Government and Agency
Obligations............. 4,492 -- (6) 4,486 2,999 -- (82) 2,917
Municipal Bonds........... 2,513 1 -- 2,514 3,028 -- (18) 3,010
------- --- --- ------- ------- --- ----- -------
7,005 1 (6) 7,000 6,027 -- (100) 5,927
------- --- --- ------- ------- --- ----- -------
Total Short-Term
Investments............. $42,972 $10 $(6) $42,976 $46,245 $42 $(100) $46,187
======= === === ======= ======= === ===== =======
There were no sales of investments classified as available-for-sale for the
years ended December 31, 2000 and 1999. Unrealized gains and losses were
considered immaterial for both 2000 and 1999 and, thus, not recorded.
At December 31, 2000, scheduled maturities of investments are as follows:
HELD-TO- AVAILABLE-
MATURITY FOR-SALE TOTAL
-------- ---------- -------
Within one year............................................. $35,967 $4,009 $39,976
After one year through five years........................... -- 2,996 2,996
------- ------ -------
$35,967 $7,005 $42,972
======= ====== =======
For the years ended December 31, 2000 and 1999, purchases and maturities
were as follows:
DECEMBER 31, 1999
DECEMBER 31, 2000 ----------------------------------
--------------------------------- HELD-
HELD-TO- AVAILABLE- TO- AVAILABLE-
MATURITY FOR-SALE TOTAL MATURITY FOR-SALE TOTAL
-------- ---------- ------- -------- ---------- --------
Purchases..................................... $81,640 $3,031 $84,671 $ 92,870 $5,212 $ 98,082
Maturities.................................... 85,891 2,053 87,944 107,587 3,204 110,791
------- ------ ------- -------- ------ --------
Net change.................................... $(4,251) $ 978 $(3,273) $(14,717) $2,008 $(12,709)
======= ====== ======= ======== ====== ========
F-9
34
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. ACCOUNTS RECEIVABLE
DECEMBER 31,
--------------------
2000 1999
-------- --------
Construction Contracts
Completed and in progress............................ $122,935 $127,544
Retentions........................................... 72,883 61,055
-------- --------
195,818 188,599
Construction material sales............................ 22,874 19,421
Other.................................................. 4,463 4,813
-------- --------
223,155 212,833
Less allowance for doubtful accounts................... 1,781 1,224
-------- --------
$221,374 $211,609
======== ========
Accounts receivable includes amounts billed and billable for public and
private contracts. The balances billed but not paid by customers pursuant to
retainage provisions in construction contracts generally become due upon
completion of the contracts and acceptance by the owners. Retainage amounts at
December 31, 2000 are expected to be collected as follows: $67,909 in 2001;
$3,182 in 2002, $1,595 in 2003 and $197 in 2004.
5. EQUITY IN CONSTRUCTION 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 joint
venture agreements typically provide that the interests of the Company in any
profits and assets, and its respective shares in any losses and liabilities that
may result from the performance of the contract are limited to the Company's
stated percentage interest in the project. Although the venture's contract with
the project owner typically requires joint and several liability, the Company's
agreements with its joint venture partners provide that each party will assume
and pay its full proportionate share of any losses resulting from a project. The
Company has no significant commitments beyond completion of the contract. The
Company's share of equity in these ventures ranges from 15% -- 57% the most
significant of which include a 23% share of the I-15 Corridor reconstruction
project in Salt Lake City, Utah, a 40% share of a highway and tunnel project in
Atlantic City, New Jersey and a 57% share of a light rail project in
Minneapolis, Minnesota.
The combined assets, liabilities and net assets of these ventures are as
follows:
DECEMBER 31,
--------------------
2000 1999
-------- --------
Assets
Total..................................................... $165,361 $260,275
Less other venturers' interest............................ 116,988 188,803
-------- --------
Company's interest........................................ 48,373 71,472
-------- --------
Liabilities
Total..................................................... 80,788 149,453
Less other venturers' interest............................ 57,566 108,592
-------- --------
Company's interest........................................ 23,222 40,861
-------- --------
Company's interest in net assets............................ $ 25,151 $ 30,611
======== ========
F-10
35
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The revenue and costs of revenue of construction joint ventures are as
follows:
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Revenue
Total................................................ $463,634 $646,277 $649,042
Less other venturers' interest....................... 328,612 469,350 497,407
-------- -------- --------
Company's interest................................... 135,022 176,927 151,635
-------- -------- --------
Cost of Revenue
Total................................................ 413,512 575,432 578,608
Less other venturers' interest....................... 294,304 418,628 443,123
-------- -------- --------
Company's interest................................... 119,208 156,804 135,485
-------- -------- --------
$ 15,814 $ 20,123 $ 16,150
======== ======== ========
6. INVESTMENTS IN AFFILIATES
The Company has investments in affiliates that are accounted for on the
equity method. The most significant of these investments is a 39% interest in
Wilder Construction Company, a 27% interest in T.I.C. Holdings, Incorporated and
a 22.2% limited partnership interest in a partnership which constructed and
operates a private toll road. At December 31, 2000 the Company had a commitment
supported by a letter of credit of $3,300 related to its limited partnership
interest.
During the year ended December 31, 2000 the Company made a total investment
of $14,841 in the common stock of Wilder Construction Company ("Wilder").
Founded in 1911, Wilder is a heavy civil construction company with regional
offices located in Washington, Oregon and Alaska. 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.
In April 2000, the Company finalized an agreement with TIC to 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 TIC common shares
held by the Company. The Company received $5.0 million in proceeds from the
transaction and recognized a gain of $0.6 million. At December 31, 2000 the
Company held 2,093,248 shares of TIC common stock.
F-11
36
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Differences between the carrying amount of the Company's investments and
the underlying equity in net assets, which approximate $8,000 at December 31,
2000, are being amortized over an estimated useful life of 10 years. The
summarized financial information below represents an aggregation of the
Company's nonsubsidiary affiliates:
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- -------- --------
Balance sheet data
Assets.......................................... $ 470,239 $347,721 $328,496
Liabilities..................................... 399,199 305,542 267,397
Net assets...................................... 71,040 42,179 61,099
---------- -------- --------
Company's equity investment in affiliates......... 40,052 23,139 29,515
---------- -------- --------
Earnings data
Revenue......................................... 1,173,716 767,754 561,568
Gross profit.................................... 77,874 33,628 50,452
Earnings (loss) before taxes and continuing
operations................................... 10,110 (12,426) 7,510
Net income (loss)............................... 1,214 (18,655) 7,510
---------- -------- --------
Company's equity in earnings (loss)............... $ 57 $ (5,292) $ 2,728
---------- -------- --------
7. PROPERTY AND EQUIPMENT
DECEMBER 31,
--------------------
2000 1999
-------- --------
Land................................................... $ 38,113 $ 36,485
Quarry property........................................ 45,080 46,891
Buildings and leasehold improvements................... 38,753 33,791
Equipment and vehicles................................. 508,976 478,990
Office furniture and equipment......................... 8,597 7,110
-------- --------
639,519 603,267
Less accumulated depreciation, depletion and
amortization......................................... 390,442 360,354
-------- --------
$249,077 $242,913
======== ========
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
DECEMBER 31,
--------------------
2000 1999
-------- --------
Payroll and related employee benefits.................. $ 41,069 $ 40,375
Accrued insurance...................................... 24,200 30,425
Income taxes........................................... -- 3,696
Other.................................................. 17,655 16,179
-------- --------
$ 82,924 $ 90,675
======== ========
F-12
37
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
DECEMBER 31,
--------------------
2000 1999
-------- --------
Senior notes payable................................... $ 60,000 $ 60,000
Notes payable to bank.................................. -- 5,000
Other notes payable.................................... 5,021 5,838
-------- --------
65,021 70,838
Less current maturities................................ 1,130 5,985
-------- --------
$ 63,891 $ 64,853
======== ========
- ---------------
The aggregate minimum principal maturities of long-term debt for each of
the five years following December 31, 2000 are as follows: 2001 -- $1,130;
2002 -- $9,433; 2003 -- $6,863; 2004 -- $6,876; 2005 -- $6,901; and beyond
2005 -- $33,818.
The Company has a bank revolving line of credit of $75,000 which allows for
unsecured borrowings for up to five years through June 29, 2001, with interest
rate options. Outstanding borrowings under the revolving line of credit are at
the IBOR interest rate plus margin (6.2% and 1.0%, respectively at December 31,
2000) with principal payable semiannually beginning December 2001 through June
2006 and interest payable quarterly. There were no amounts outstanding at
December 31, 2000.
The Company has standby letters of credit totaling approximately $15,087
outstanding at December 31, 2000 of which $11,787 reduces the amount available
under the revolving line of credit and $3,300 supports the commitment by the
Company related to its investment in a limited partnership. The unused and
available portion of the line of credit at December 31, 2000 was approximately
$63,213.
Senior Notes Payable in the amount of $60 million are due to a group of
institutional holders. The notes are due in nine equal annual installments
beginning in 2002 and bear interest at 6.54% per annum.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt was approximately $57,300 as of December 31, 2000 and $51,600 as of
December 31, 1999.
Notes payable to bank are unsecured with principal payable semiannually and
interest payable quarterly and were paid in full in 2000.
Restrictive covenants under the terms of debt agreements include the
maintenance of certain levels of working capital and cash flow. Other covenants
prohibit capital expenditures in excess of specified limits and require the
maintenance of tangible net worth (as defined) of approximately $266,000.
Other notes payable are comprised primarily of notes incurred in connection
with the purchase of property and equipment, and other assets. These notes are
collateralized by the assets purchased and bear interest at 6.5% to 8.8% per
annum with principal and interest payable in installments through 2007.
10. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan: The Company's Employee Stock Ownership Plan
("ESOP") covers all employees not included in collective bargaining agreements.
As of December 31, 2000, the ESOP owned 6,578,519 shares of the Company's common
stock. Dividends on shares held by the ESOP are charged to retained earnings and
all shares held by the ESOP are treated as outstanding in computing the
Company's earnings per share.
F-13
38
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Contributions to the ESOP are at the discretion of the Board of Directors
and comprise shares of the Company's stock that were purchased on the market and
immediately contributed to the plan. Compensation cost is measured as the cost
to purchase the shares (market value on the date of purchase and contribution).
Contributions for the years ended December 31, 2000, 1999 and 1998 were
approximately $632, $1,769 and $1,957, respectively.
Profit Sharing and 401k Plan: The plan is a defined contribution plan
covering all employees not included in collective bargaining agreements. Each
employee can elect to have up to 10% of gross pay contributed to the 401K plan
on a before-tax basis. The plan allows for Company matching and additional
contributions at the discretion of the Board of Directors.
Company contributions to the Profit Sharing and 401k Plan for the years
ended December 31, 2000, 1999 and 1998 were $5,021, $3,414 and $8,402,
respectively. Included in the contributions were 401k matching contributions of
$2,990, $2,762 and $1,990, respectively.
Other: The Company's wholly owned subsidiary, Granite Construction Company,
also contributes to various multi-employer pension plans on behalf of union
employees. Contributions to these plans for the years ended December 31, 2000,
1999 and 1998 were approximately $14,532, $14,435 and $13,498, respectively.
11. STOCKHOLDERS' EQUITY
1999 Equity Incentive Plan: On May 24, 1999, the Company's stockholders
approved the 1999 Equity Incentive Plan (the "Plan"), which replaces the
Company's 1990 Omnibus Stock and Incentive Plan (the "1990 Plan"). The Plan
provides for the grant of restricted common stock, incentive and nonqualified
stock options, performance units and performance shares to employees and awards
to the Company's board of directors in the form of stock units or stock options
("Director Options"). A total of 2,500,000 shares of the Company's common stock
have been reserved for issuance under the Plan. The exercise price for incentive
and nonqualified stock options granted under the Plan may not be less than 100%
and 85%, respectively, of the fair market value at the date of the grant.
Options granted will be exercisable at such times and be subject to such
restrictions and conditions as determined by the compensation committee, but no
option shall be exercisable later than ten years from the date of grant.
Restricted common stock is issued for services to be rendered and may not be
sold, transferred or pledged for such period as determined by the compensation
committee.
Restricted shares outstanding at December 31, 2000 were 807,637 shares.
Restricted stock compensation cost is measured at the stock's fair value on the
date of grant. The compensation cost is recognized ratably over the vesting
period -- generally five years. Restricted shares generally become fully vested
when a holder reaches age 62. An employee may not sell or otherwise transfer
unvested shares and, in the event that an employee terminates his or her
employment prior to the end of the vesting period, any unvested shares are
surrendered to the Company. The Company has no obligation to repurchase
restricted stock. Compensation expense related to restricted shares for the
years ended December 31, 2000, 1999 and 1998 was $5,901, $4,834 and $3,286,
respectively.
F-14
39
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Stock options granted under the 1990 Plan, all of which were granted in
1990 expired in 2000. All options were granted, cancelled and exercised at $7.56
per share. Stock option transactions under the 1990 Plan during 2000, 1999 and
1998 are summarized as follows:
DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Options outstanding, beginning of year................ 53,375 70,625 157,125
Options exercised..................................... (53,375) (17,250) (81,405)
Options forfeited..................................... -- -- (5,095)
------- ------- -------
Options outstanding, end of year...................... -- 53,375 70,625
======= ======= =======
The Company granted Director Options under the Plan to purchase shares of
the Company's stock under the Plan for the years ended December 31, 2000 and
1999 at a weighted average exercise price of $12.81 in 2000 and $10.35 in 1999.
The options are immediately exercisable and 16,292 shares remain outstanding at
December 31, 2000. Director's option transactions are summarized as follows:
DECEMBER 31,
---------------
2000 1999
------ -----
Options outstanding, beginning of year...................... 7,367 --
Options granted............................................. 11,653 7,367
Options exercised........................................... (2,728) --
------ -----
Options outstanding, end of year............................ 16,292 7,367
====== =====
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). Accordingly, the compensation cost for the options
granted in 1999 and 2000 was recognized to the extent the fair market value
exceeded the exercise price, as all of the options were granted at prices less
than fair market value.
The fair value of each option grant was estimated at the grant date using a
Black-Scholes option pricing model with the following assumptions:
2000 1999
------------- -------------
ASSUMPTIONS
Dividend yield.............................................. 1.59% - 1.90% 1.53% - 2.17%
Volatility.................................................. 39.0% 33.8%
Risk free interest rates.................................... 5.1% - 6.2% 5.9% - 6.45%
Expected life............................................... 10 years 10 years
Based on these assumptions, the aggregate fair value and weighted average
fair value per share of options granted in 2000 was $185 and $15.90,
respectively. The aggregate fair value and weighted average fair value per share
of options granted in 1999 was $90 and $12.28, respectively. The Company
recognized $150 and $78 of compensation expense related to grants of stock
options in 2000 and 1999, respectively. Had compensation expense been determined
based upon fair values at the grant date in accordance with SFAS 123, the
Company's net earnings would have been reduced to the pro forma amount indicated
below, however the Company's earnings per share would be unchanged.
2000 1999
------- -------
PRO FORMA NET INCOME
Net Income as Reported................................... $55,815 $52,916
Pro forma Net Income..................................... $55,780 $52,904
F-15
40
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The options outstanding and exercisable by exercise price for the Plan at
December 31, 2000 are as follows:
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING REMAINING
AND CONTRACTUAL
EXERCISE PRICES EXERCISABLE LIFE (YEARS)
--------------- ----------- ------------
$ 8.99............................... 3,473 8.75
$11.26............................... 3,198 9.75
$12.80............................... 2,704 9.50
$12.90............................... 2,005 9.00
$13.42............................... 2,516 9.25
$14.41............................... 2,396 10.00
------ -----
16,292 9.36
====== =====
Other: The Company has issued warrants to purchase 450,000 shares of its
common stock at an exercise price of $13.37 per share. The warrants expire on
July 25, 2002. As of December 31, 2000 there were 215,300 warrants outstanding.
12. EARNINGS PER SHARE
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted earnings
per share is provided as follows (in thousands, except per share data):
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
NUMERATOR -- BASIC AND DILUTED EARNINGS PER SHARE
Net income.......................................... $55,815 $52,916 $46,507
======= ======= =======
DENOMINATOR -- BASIC EARNINGS PER SHARE
Common stock outstanding............................ 27,288 27,159 27,570
Less restricted stock outstanding................... 899 1,101 1,011
------- ------- -------
Total....................................... 26,389 26,058 26,559
------- ------- -------
Basic earnings per share.............................. $ 2.12 $ 2.03 $ 1.75
======= ======= =======
DENOMINATOR -- DILUTED EARNINGS PER SHARE
Denominator -- Basic Earnings per Share............. 26,389 26,058 26,559
------- ------- -------
Effect of Dilutive Securities:
Warrants......................................... 98 190 175
Common stock options............................. 8 41 64
Restricted stock................................. 444 674 541
------- ------- -------
Total....................................... 26,939 26,963 27,339
------- ------- -------
Diluted earnings per share............................ $ 2.07 $ 1.96 $ 1.70
======= ======= =======
F-16
41
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. INCOME TAXES
Provision for income taxes:
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Federal
Current..................................... $28,998 $26,823 $23,592
Deferred.................................... 1,989 905 138
------- ------- -------
30,987 27,728 23,730
------- ------- -------
State
Current..................................... 5,812 5,260 4,758
Deferred.................................... 256 139 16
------- ------- -------
6,068 5,399 4,774
------- ------- -------
$37,055 $33,127 $28,504
======= ======= =======
Reconciliation of statutory to effective tax rate:
YEARS ENDED DECEMBER 31,
------------------------
2000 1999 1998
---- ---- ----
Federal statutory tax rate......................... 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit............ 4.2 4.1 4.1
Percentage depletion deduction..................... (1.7) (1.5) (1.1)
Other.............................................. 2.4 0.9 --
---- ---- ----
39.9% 38.5% 38.0%
==== ==== ====
Deferred tax assets and liabilities:
DECEMBER 31,
----------------------
2000 1999
-------- --------
Deferred Tax Assets:
Accounts receivable................................ $ 1,606 $ 1,222
Inventory.......................................... 2,149 1,349
Property and equipment............................. 2,243 2,374
Insurance accruals................................. 8,674 10,185
Deferred compensation.............................. 2,699 2,385
Other accrued liabilities.......................... 5,517 5,715
Other.............................................. 172 329
-------- --------
23,060 23,559
-------- --------
Deferred Tax Liabilities:
Property and equipment............................. 30,957 29,155
Contract recognition............................... 2,348 3,867
TIC basis difference............................... 4,107 2,694
Other.............................................. 1,331 1,281
-------- --------
38,743 36,997
-------- --------
$(15,683) $(13,438)
======== ========
F-17
42
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The deferred tax asset for insurance accruals relates primarily to the self
funded portion of the Company's workers compensation and public liability
insurance which is deductible in future periods. The deferred tax asset for
other accrued liabilities relates to various items including accrued vacation
and accrued reclamation costs which are deductible in future periods. The
deferred tax liability for the TIC basis difference represents the undistributed
earnings of TIC for which income and the related tax provision have been
recognized on the Company's records.
14. LEASES
Minimum rental commitments under all noncancellable operating leases,
primarily quarry property and construction equipment, in effect at December 31,
2000 were:
Years Ending December 31,
2001............................................. $ 4,453
2002............................................. 3,241
2003............................................. 2,631
2004............................................. 1,799
2005............................................. 1,499
Later years (through 2016)....................... 3,259
-------
Total minimum rental commitment.......... $16,882
=======
Operating lease rental expense was $5,455 in 2000, $4,726 in 1999, and
$4,628 in 1998.
15. 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. Substantially all of the revenue from these joint
ventures is included in HCD's revenues from external customers (Note 5).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (Note 1). The Company evaluates
performance based on operating profit or loss which does not include income
taxes, interest income, interest expense or other income (expense).
F-18
43
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INFORMATION ABOUT PROFIT AND ASSETS
HCD BRANCH TOTAL
-------- ---------- ----------
2000
Revenues from external customers.............. $352,825 $ 995,500 $1,348,325
Intersegment revenue transfer................. (15,412) 15,412 --
-------- ---------- ----------
Net revenue................................... 337,413 1,010,912 1,348,325
Depreciation and amortization................. 7,670 31,885 39,555
Operating income.............................. 33,775 87,769 121,544
Property and equipment........................ 33,830 194,810 228,640
1999
Revenues from external customers.............. $373,876 $ 954,898 $1,328,774
Intersegment revenue transfer................. (21,566) 21,566 --
-------- ---------- ----------
Net revenue................................... 352,310 976,464 1,328,774
Depreciation and amortization................. 8,068 30,080 38,148
Operating income.............................. 34,176 83,878 118,054
Property and equipment........................ 28,759 194,919 223,678
1998
Revenues from external customers.............. $305,856 $ 920,244 $1,226,100
Intersegment revenue transfer................. (25,668) 25,668 --
-------- ---------- ----------
Net revenue................................... 280,188 945,912 1,226,100
Depreciation and amortization................. 7,396 27,292 34,688
Operating income.............................. 12,139 86,688 98,827
Property and equipment........................ 26,618 167,540 194,158
RECONCILIATION OF SEGMENT PROFIT AND ASSETS TO THE COMPANY'S CONSOLIDATED
TOTALS:
2000 1999 1998
-------- -------- --------
Profit or Loss:
Total profit or loss for reportable segments............. $121,544 $118,054 $ 98,827
Other income............................................. 7,295 1,781 5,753
Unallocated other corporate expenses..................... (35,969) (33,792) (29,569)
-------- -------- --------
Income before provision for income taxes.............. $ 92,870 $ 86,043 $ 75,011
======== ======== ========
Assets:
Total assets for reportable segments..................... $228,640 $223,678
Assets not allocated to segments:
Cash and cash equivalents............................. 57,759 61,832
Short-term investments................................ 42,972 46,245
Deferred income taxes................................. 15,857 14,885
Other current assets.................................. 295,040 279,359
Property and equipment................................ 20,437 19,235
Other assets.......................................... 50,437 34,338
-------- --------
Consolidated Total....................................... $711,142 $679,572
======== ========
F-19
44
GRANITE CONSTRUCTION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
16. SUBSEQUENT EVENTS
On February 21, 2001, the Company announced a quarterly cash dividend of
$0.12 per pre split share of common stock to stockholders of record as of March
31, 2001 payable on April 13, 2001.
In addition, the Company announced a three for two stock split in the form
of a 50% stock dividend payable April 13, 2001.
The following unaudited summary reflects the pro forma net income per share
restated for the three for two stock split (in thousands except per share data).
PRO FORMA WEIGHTED
AVERAGE SHARES OF
COMMON AND COMMON
YEARS ENDED STOCK EQUIVALENTS PRO FORMA NET
DECEMBER 31, NET INCOME OUTSTANDING INCOME PER SHARE
- ----------------------------- ---------- ------------------- ------------------
BASIC DILUTED BASIC DILUTED
------ ------- ----- -------
2000....................... $55,815 39,584 40,409 $1.41 $1.38
1999....................... $52,916 39,087 40,445 $1.35 $1.31
1998....................... $46,507 39,839 41,009 $1.17 $1.13
Additionally, on the effective date of the three for two stock split, the
Company will restate its shares outstanding at December 31, 2000 and 1999 to
40,882 and 40,493, respectively and will reclassify $137 and $135 from
additional paid-in capital to common stock at December 31, 2000 and 1999,
respectively.
On February 23, 2001 the Company purchased an additional 450,000 shares of
Wilder Construction Company for a purchase price of approximately $4.6 million.
Also, subsequent to year end, the Company adopted a Dividend Reinvestment
and Stock Purchase Plan (the "Plan") of which 3,000,000 shares of common stock
are authorized for purchase. The Plan offers participation to record holders of
common stock or other interested investors. Under the Plan, participants may buy
additional shares of common stock by automatically reinvesting all or a portion
of the cash dividends paid on their shares of common stock or by making optional
cash investments.
F-20
45
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-36482 and 33-36485) and Form S-3 (File No.
333-43422) of Granite Construction Incorporated of our report dated February 16,
2001, except for Note 16, as to which the date is February 23, 2001, relating to
the financial statements and financial statement schedule, which appears in this
Annual Report on Form 10-K. We also consent to the reference to us under the
heading "Selected Consolidated Financial Data" in such Annual Report.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 30, 2001
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 2, 2001 GRANITE CONSTRUCTION INCORPORATED
By: /s/ WILLIAM E. BARTON
------------------------------------
[William E. Barton
Senior Vice President and
Chief Financial Officer]
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on April 2, 2001, by the following persons in the
capacities indicated.
/s/ DAVID H. WATTS Chairman of the Board,
- -------------------------------------------------------- President, Chief Executive Officer,
[David H. Watts] and Director
/s/ WILLIAM E. BARTON Senior Vice President and
- -------------------------------------------------------- Chief Financial Officer
[William E. Barton] Principal Accounting and Financial Officer
/s/ JOSEPH J. BARCLAY Director
- --------------------------------------------------------
[Joseph J. Barclay]
/s/ RICHARD M. BROOKS Director
- --------------------------------------------------------
[Richard M. Brooks]
/s/ LINDA GRIEGO Director
- --------------------------------------------------------
[Linda Griego]
/s/ BRIAN C. KELLY Director
- --------------------------------------------------------
[Brian C. Kelly]
/s/ REBECCA A. MCDONALD Director
- --------------------------------------------------------
[Rebecca A. McDonald]
/s/ RAYMOND E. MILES Director
- --------------------------------------------------------
[Raymond E. Miles]
/s/ J. FERNANDO NIEBLA Director
- --------------------------------------------------------
[J. Fernando Niebla]
/s/ GEORGE B. SEARLE Director
- --------------------------------------------------------
[George B. Searle]
47
INDEX TO FORM 10-K EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
3.1 Certificate of Incorporation of Granite Construction
Incorporated [a]
3.1.a Amendment to the Certificate of Incorporation of Granite
Construction Incorporated [f]
3.1.b Amendment to Certificate of Incorporation of Granite
Construction Incorporated
3.1.c Certificate of Correction of Certificate of Incorporation of
Granite Construction Incorporated (Effective January 31,
2001)
3.1.d Certificate of Correction of Certificate of Amendment of
Granite Construction Incorporated filed May 22, 1998
(Effective January 31, 2001)
3.1.e Certificate of Correction of Certificate of Incorporation of
Granite Construction Incorporated filed May 23, 2000
(Effective January 31, 2001)
3.1.f Certificate of Incorporation of Granite Construction
Incorporated as Amended (Effective January 31, 2001)
3.2 Bylaws of Granite Construction Incorporated (as amended and
restated effective February 27, 1991) [b]
10.1 Amendment to and Restatement of the Granite Construction
Incorporated Employee Stock Ownership Plan adopted November
16, 1998 and effective January 1, 1998 [f]
10.1.a Granite Construction Incorporated Employee Stock Ownership
Trust Agreement [b]
10.1.b Amendment 1 to the Granite Construction Incorporated
Employee Stock Ownership Plan Trust Agreement adopted
December 19, 1995, effective January 1, 1996 [c]
10.2 Granite Construction Profit Sharing and 401(k) Plan as
Amended and Restated Effective January 1, 1999 [g]
10.3 Credit Agreement dated and effective June 30, 1997 [e]
10.3.a First Amendment to the Credit Agreement entered into January
16, 1998 [e]
10.3.b Second Amendment to the Credit Agreement entered into June
30, 1998 [f]
10.3.c Third Amendment to the Credit Agreement entered into June
30, 1999 [g]
10.4 Form of Director and Officer Indemnification Agreement [a]
10.5 Form of Executive Officer Employment Agreement [a]
10.6 Amendment to and Restatement of the Granite Construction
Incorporated Key Management Deferred Compensation Plan
adopted and effective January 1, 1998 [f]
10.6.a Amendment 1 to Granite Construction Incorporated Key
Management Deferred Compensation Plan dated April 23, 1999 [g]
10.7 Amendment to and Restatement of the Granite Construction
Incorporated Key Management Deferred Incentive Compensation
Plan adopted and effective January 1, 1998 [f]
10.7.a Amendment 1 to Granite Construction Incorporated Key
Management Deferred Incentive Compensation Plan dated April
23, 1999 [g]
10.8 Note Purchase Agreement between Granite Construction
Incorporated and certain purchasers dated March 1, 1998 [f]
27
48
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
10.9 Subsidiary Guaranty Agreement from the Subsidiaries of
Granite Construction Incorporated as Guarantors of the
Guaranty of Notes and Note Agreement and the Guaranty of
Payment and performance dated March 1, 1998 [f]
10.10 Granite Construction Incorporated 1999 Equity Incentive Plan [g]
21.1 List of Subsidiaries of Granite Construction Incorporated [d]
24.1 Consent of PricewaterhouseCoopers, LLP is contained on page
25 of this Report
- ---------------
[a] Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (No. 33-33795).
[b] Incorporated by reference to the exhibits filed with the Company's Form
10-K for the year ended December 31, 1991.
[c] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1995.
[d] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1996.
[e] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1997.
[f] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1998.
[g] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1999.
49
SCHEDULE II
GRANITE CONSTRUCTION INCORPORATED
------------------------
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT ----------------------- ADJUSTMENTS BALANCE AT
BEGINNING BAD DEBT AND END OF
DESCRIPTION OF YEAR EXPENSE COLLECTIONS DEDUCTIONS(1) YEAR
----------- ---------- -------- ----------- ------------- ----------
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful
accounts...................... $1,224 $ 1,165 $1,617 $(2,225) $1,781
====== ======= ====== ======= ======
Allowance for notes receivable... $ 68 $ -- $ -- $ -- $ 68
====== ======= ====== ======= ======
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful
accounts...................... $ 699 $ 997 $1,516 $(1,988) $1,224
====== ======= ====== ======= ======
Allowance for notes receivable... $ 68 $ -- $ -- $ -- $ 68
====== ======= ====== ======= ======
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts...................... $ 691 $(2,628) $3,538 $ (902) $ 699
====== ======= ====== ======= ======
Allowance for notes receivable... $ 68 $ -- $ -- $ -- $ 68
====== ======= ====== ======= ======
- ---------------
(1) Accounts deemed to be uncollectible
S-1