1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED JUNE 30, 2001
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________ to _____________
Commission File No. 1-12911
GRANITE CONSTRUCTION INCORPORATED
State of Incorporation: I.R.S. Employer Identification
Delaware Number: 77-0239383
Corporate Administration:
585 West Beach Street
Watsonville, California 95076
(831) 724-1011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 9, 2001.
Class Outstanding
----------------------------- -----------------
Common Stock, $0.01 par value 41,107,115 shares
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GRANITE CONSTRUCTION INCORPORATED
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of June 30, 2001 and
December 31, 2000...............................................................4
Condensed Consolidated Statements
of Income for the Three Months and Six Months Ended
June 30, 2001 and 2000..........................................................5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 2001 and 2000....................................................6
Notes to the Condensed Consolidated
Financial Statements.........................................................7-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...............................................................12-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................21
Item 2. Changes in Securities..........................................................21
Item 3. Defaults upon Senior Securities................................................21
Item 4. Submission of Matters to a Vote
of Security Holders............................................................22
Item 5. Other Information..............................................................23
Item 6. Exhibits and Reports on Form 8-K...............................................23
Exhibit Index..................................................................24
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PART I. FINANCIAL INFORMATION
3
4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, December 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 92,282 $ 57,759
Short-term investments 33,453 42,972
Accounts receivable 267,667 221,374
Costs and estimated earnings in excess of billings 25,154 19,473
Inventories 23,972 16,747
Deferred income taxes 15,881 15,857
Equity in construction joint ventures 32,541 25,151
Other current assets 15,998 12,295
--------- ---------
Total current assets 506,948 411,628
--------- ---------
Property and equipment 267,116 249,077
--------- ---------
Investments in affiliates 49,943 40,052
--------- ---------
Other assets 11,493 10,385
--------- ---------
$ 835,500 $ 711,142
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 745 $ 1,130
Accounts payable 100,816 90,111
Billings in excess of costs and estimated earnings 87,149 57,412
Accrued expenses and other current liabilities 81,311 82,924
--------- ---------
Total current liabilities 270,021 231,577
--------- ---------
Long-term debt 138,364 63,891
--------- ---------
Other long-term liabilities 9,607 6,370
--------- ---------
Deferred income taxes 31,540 31,540
--------- ---------
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 41,107,224 shares in
2001 and 40,881,908 in 2000 411 409
Additional paid-in capital 61,421 56,381
Retained earnings 338,066 330,172
Accumulated other comprehensive loss (112) --
--------- ---------
399,786 386,962
Unearned compensation (13,818) (9,198)
--------- ---------
385,968 377,764
--------- ---------
$ 835,500 $ 711,142
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenue
Construction $ 326,735 $ 301,274 $ 524,682 $ 494,623
Material sales 49,947 42,438 79,615 65,519
--------- --------- --------- ---------
Total revenue 376,682 343,712 604,297 560,142
--------- --------- --------- ---------
Cost of revenue
Construction 289,058 258,371 467,692 426,819
Material sales 41,213 35,668 67,938 57,275
--------- --------- --------- ---------
Total cost of revenue 330,271 294,039 535,630 484,094
--------- --------- --------- ---------
GROSS PROFIT 46,411 49,673 68,667 76,048
General and administrative expenses 26,843 26,925 51,287 49,784
--------- --------- --------- ---------
OPERATING INCOME 19,568 22,748 17,380 26,264
--------- --------- --------- ---------
Other income (expense)
Interest income 1,932 2,486 4,763 5,663
Interest expense (2,341) (2,273) (3,903) (3,985)
Gain on sales of property
and equipment 633 1,397 4,924 2,378
Other, net 1,019 1,550 175 1,318
--------- --------- --------- ---------
1,243 3,160 5,959 5,374
--------- --------- --------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES 20,811 25,908 23,339 31,638
Provision for income taxes 7,908 9,975 8,869 13,481
--------- --------- --------- ---------
NET INCOME $ 12,903 $ 15,933 $ 14,470 $ 18,157
========= ========= ========= =========
Net income per share
Basic $ 0.32 $ 0.40 $ 0.36 $ 0.46
Diluted $ 0.32 $ 0.39 $ 0.36 $ 0.45
Weighted average shares
of common stock
Basic 39,833 39,494 39,760 39,413
Diluted 40,766 40,377 40,611 40,233
Dividends per share $0.08 $0.07 $0.16 $0.17
========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2001 2000
-------- --------
Operating Activities
Net income $ 14,470 $ 18,157
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 23,169 21,894
Gain on sales of property and equipment (4,924) (2,378)
Gain on sale of investment -- (636)
Increase in deferred income tax (24) --
Amortization of unearned compensation 2,454 3,021
Equity in loss of affiliates and other 678 381
Changes in assets and liabilities:
Accounts and notes receivable (48,197) (5,774)
Inventories (7,225) (4,682)
Equity in construction joint ventures (7,390) 4,719
Other assets (210) 1,407
Accounts payable 10,705 (366)
Billings in excess of costs and estimated earnings, net 24,056 (29,184)
Accrued expenses 2,903 (2,530)
-------- --------
Net cash provided by operating activities 10,465 4,029
-------- --------
Investing Activities
Purchases of short-term investments (44,828) (32,610)
Maturities of short-term investments 54,235 50,280
Additions to property and equipment (46,757) (31,347)
Proceeds from sales of property and equipment 5,745 4,192
Proceeds from sale of investment -- 5,001
Investment in affiliates (9,952) (13,976)
Development and sale of land and other investing activities (343) 874
-------- --------
Net cash used by investing activities (41,900) (17,586)
-------- --------
Financing Activities
Additions of long-term debt 85,000 --
Repayments of long-term debt (10,912) (5,735)
Employee stock options exercised -- 406
Repurchase of common stock (2,118) (1,193)
Dividends paid (6,012) (6,255)
-------- --------
Net cash provided (used) by financing activities 65,958 (12,777)
-------- --------
Increase (decrease) in cash and cash equivalents 34,523 (26,334)
Cash and cash equivalents at beginning of period 57,759 61,832
-------- --------
Cash and cash equivalents at end of period $ 92,282 $ 35,498
======== ========
Supplementary Information
Cash paid during the period for:
Interest $ 1,943 $ 2,735
Income taxes 1,922 4,195
Noncash investing and financing activity:
Restricted stock issued for services $ 7,074 $ 6,912
Dividends accrued but not paid 3,289 2,729
Undisbursed escrow funds available 7,286 --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
1. BASIS OF PRESENTATION: The condensed consolidated financial statements
included herein have been prepared by Granite Construction Incorporated
(the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes the disclosures which
are made are adequate to make the information presented not misleading.
Further, the condensed consolidated financial statements reflect, in the
opinion of management, all normal recurring adjustments necessary to
present fairly the financial position at June 30, 2001 and the results of
operations and cash flows for the periods presented. The December 31, 2000
condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
Interim results are subject to significant seasonal variations and the
results of operations for the six months ended June 30, 2001 are not
necessarily indicative of the results to be expected for the full year.
2. INVENTORIES: Inventories consist primarily of quarry products valued at the
lower of average cost or market.
3. PROPERTY AND EQUIPMENT:
JUNE 30, December 31,
2001 2000
----------- ------------
(UNAUDITED)
Land $ 37,352 $ 38,113
Quarry property 45,104 45,080
Buildings and leasehold improvements 38,664 38,753
Equipment and vehicles 541,494 508,976
Office furniture and equipment 8,656 8,597
-------- --------
671,270 639,519
Less accumulated depreciation,
depletion and amortization 404,154 390,442
-------- --------
$267,116 $249,077
======== ========
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
4. EARNINGS PER SHARE:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
------- ------- ------- -------
NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE
Net income $12,903 $15,933 $14,470 $18,157
======= ======= ======= =======
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 41,106 40,934 40,974 40,746
Less restricted stock outstanding 1,273 1,440 1,214 1,333
------- ------- ------- -------
TOTAL 39,833 39,494 39,760 39,413
------- ------- ------- -------
Basic earnings per share $ 0.32 $ 0.40 $ 0.36 $ 0.46
======= ======= ======= =======
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 39,833 39,494 39,760 39,413
Effect of Dilutive Securities:
Common stock options 17 11 17 12
Warrants 213 154 201 142
Restricted stock 703 718 633 666
------- ------- ------- -------
TOTAL 40,766 40,377 40,611 40,233
------- ------- ------- -------
Diluted earnings per share $ 0.32 $ 0.39 $ 0.36 $ 0.45
======= ======= ======= =======
5. COMPREHENSIVE INCOME: The components of comprehensive income, net of tax,
are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, 2001
----------------------------
Net income $12,903 $ 14,470
Other comprehensive income (loss):
Changes in net unrealized losses on investments 46 (112)
------- --------
TOTAL COMPREHENSIVE INCOME $12,949 $ 14,358
------- --------
6. CONTINGENCIES AND CONTINGENCIES:
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 are material to the Company's
financial position. The Company's litigation typically involves claims
regarding public liability or contract related issues.
7. RECLASSIFICATIONS: Certain prior year financial statement items have been
reclassified to conform to the current year's presentation.
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
8. STOCK SPLIT: On February 21, 2001, the Company announced a three for two
stock split in the form of a 50% stock dividend payable April 13, 2001. All
references in the financial statements to number of shares and per share
amounts of the Company's common stock have been retroactively restated to
reflect the increased number of shares outstanding.
9. INVESTMENT IN WILDER CONSTRUCTION: On February 23, 2001, the Company
purchased an additional 450,000 shares of Wilder Construction Company
("Wilder") common stock for a purchase price of approximately $4.6 million.
The Company currently holds a 48% minority interest in Wilder. At June 30,
2001 the Company held 1,949,746 shares of Wilder stock.
10. LONG-TERM DEBT: In May 2001 the Company issued long-term debt in the amount
of $75.0 million to a group of institutional holders. The notes are due in
nine equal annual installments beginning in 2005 and bear interest at 6.96%
per annum. Restrictive covenants under the agreement require the
maintenance of consolidated net worth (as defined) of approximately
$289,000. The funds will be used for general corporate purposes.
11. BUSINESS SEGMENT INFORMATION: The Company has two reportable segments: the
Branch Division and the Heavy Construction Division ("HCD"). The Branch
Division is comprised of branch offices that serve local markets, while HCD
pursues major infrastructure projects throughout the nation. HCD generally
has large heavy-civil projects with contract amounts in excess of $15
million and contract durations greater than two years, while the Branch
Division projects are typically smaller in size and shorter in duration.
HCD has been the primary participant in the Company's construction joint
ventures.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating profit or loss which does not include income
taxes, interest income, interest expense or other income (expense).
Information about Profit and Assets:
THREE MONTHS ENDED JUNE 30, HCD BRANCH TOTAL
--------- -------- --------
2001
Revenues from external customers $ 103,091 $273,591 $376,682
Intersegment revenue transfer (2,585) 2,585 --
--------- -------- --------
Net revenue 100,506 276,176 376,682
Depreciation and amortization 2,182 8,079 10,261
Operating profit 1,952 26,334 28,286
--------- -------- --------
2000
Revenues from external customers $ 95,058 $248,654 $343,712
Intersegment revenue transfer (4,269) 4,269 --
--------- -------- --------
Net revenue 90,789 252,923 343,712
Depreciation and amortization 1,814 8,062 9,876
Operating profit 8,130 23,430 31,560
--------- -------- --------
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
11. BUSINESS SEGMENT INFORMATION, CONTINUED:
Information about Profit and Assets, continued:
SIX MONTHS ENDED JUNE 30, HCD BRANCH TOTAL
--------- -------- --------
2001
Revenues from external customers $ 180,801 $423,496 $604,297
Intersegment revenue transfer (4,317) 4,317 --
--------- -------- --------
Net revenue 176,484 427,813 604,297
Depreciation and amortization 4,347 16,013 20,360
Operating profit 1,853 32,213 34,066
Property and equipment 38,140 208,336 246,476
--------- -------- --------
2000
Revenues from external customers $ 185,087 $375,055 $560,142
Intersegment revenue transfer (7,821) 7,821 --
--------- -------- --------
Net revenue 177,266 382,876 560,142
Depreciation and amortization 3,681 15,787 19,468
Operating profit 17,457 24,201 41,658
Property and equipment 26,006 200,003 226,009
--------- -------- --------
Reconciliation of Segment Profit to the Company's Consolidated Totals:
THREE MONTHS ENDED JUNE 30, 2001 2000
-------- --------
Profit:
Total profit for reportable segments $ 28,286 $ 31,560
Other income 1,243 3,160
Unallocated other corporate expenses (8,718) (8,812)
-------- --------
Income before provision for income taxes $ 20,811 $ 25,908
======== ========
SIX MONTHS ENDED JUNE 30, 2001 2000
-------- --------
Profit:
Total profit for reportable segments $ 34,066 $ 41,658
Other income 5,959 5,374
Unallocated other corporate expenses (16,686) (15,394)
-------- --------
Income before provision for income taxes $ 23,339 $ 31,638
======== ========
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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
12. RECENT ACCOUNTING PRONOUNCEMENTS: In July 2001, the Financial Accounting
and Standards Board ("FASB") issued Statements of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations," and No. 142 ("SFAS
142"), "Goodwill and Other Intangible Assets." SFAS 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under
a single method--the purchase method. Use of the pooling-of-interests
method is no longer permitted. SFAS 142 requires that goodwill no longer be
amortized to earnings, but instead be reviewed for impairment upon initial
adoption of the Statement and on an annual basis going forward. The
amortization of goodwill will cease upon adoption of SFAS 142. The
provisions of SFAS 142 will be effective for fiscal years beginning after
December 15, 2001. The Company is currently evaluating the impact, if any,
of adopting SFAS 141 and 142.
13. SUBSEQUENT EVENT: On July 1, 2001 the Company acquired 100% of the common
stock of Halmar Builders of New York, Inc., a Mt. Vernon, New York
heavy-civil construction company ("Halmar") for a cash purchase price of
approximately $19.0 million, subject to final closing adjustments. The new
entity will operate under the name Granite Halmar Construction Company,
Inc. ("Granite Halmar") as a wholly owned subsidiary of Granite
Construction Incorporated. If Granite Halmar achieves certain predetermined
financial results over a two-year period, the Company will pay the former
Halmar shareholders up to an additional $2.0 million.
Halmar is one of the largest heavy-civil construction firms operating in
the metropolitan New York City area. In 2000, Halmar had revenues of
approximately $200 million. The acquisition will be accounted for using the
purchase method of accounting in accordance with SFAS 141. The Company is
currently in the process of preparing the purchase price allocation and
determining the useful lives of the assets acquired.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING DISCLOSURE:
This report contains forward-looking statements; such as
statements related to the impact of government regulations on the
Company's operations, the existence of bidding opportunities and the
impact of legislation, availability of highway funds and economic
conditions on the Company's future results. Additionally,
forward-looking statements include statements that can be identified by
the use of forward-looking terminology such as "believes," "expects,"
"appears," "may," "will," "should," or "anticipates" or the negative
thereof or comparable terminology, or by discussions of strategy.
All such forward-looking statements are subject to risks and
uncertainties that could cause actual results of operations and
financial condition and other events to differ materially from those
expressed or implied in such forward-looking statements. Specific risk
factors include, without limitation, changes in the composition of
applicable federal and state legislation appropriation committees;
federal and state appropriation changes for infrastructure spending; the
general state of the economy; weather conditions; competition and
pricing pressures; and state referendums and initiatives.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,
---------------------------------------------
REVENUE (IN MILLIONS) 2001 2000 VARIANCE %
------ ------ -------- ------
By Division
Branch Division $276.2 $252.9 $ 23.3 9.2%
Heavy Construction Division 100.5 90.8 9.7 10.7%
------ ------ ------ ------
376.7 343.7 33.0 9.6%
====== ====== ====== ======
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
REVENUE (IN MILLIONS) 2001 2000 VARIANCE %
------ ------ -------- ------
By Division
Branch Division $427.8 $382.8 $ 45.0 11.8%
Heavy Construction Division 176.4 177.3 (0.9) -0.5%
------ ------ ------ ------
604.2 560.1 44.1 7.9%
====== ====== ====== ======
Revenue: Revenue for the quarter ended June 30, 2001 increased in both
the Branch Division and the HCD over the corresponding quarter in 2000. The
Branch Division saw increased revenue from its public sector projects in both
the quarter and six month periods in 2001 reflecting increases in funding for
public infrastructure projects due primarily to the impact of TEA-21 funding.
Partially offsetting the increased public sector revenue in the Branch Division
was a decrease in private sector revenue of $18.1 million and $13.2 million for
the 2001 quarter and six month periods, respectively, from the same periods in
2000. As further discussed in the "Outlook" section, the Company believes there
has been some softening of the private sector market.
The increased HCD revenue for the quarter ended June 30, 2001 over the
corresponding 2000 quarter is a reflection of the division's strong backlog of
public sector projects. HCD's private sector revenue decreased $13.9 million in
the second quarter of 2001 as compared to the second quarter of 2000 due to the
completion of two large private sector projects in 2000. For the six month
period ended
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June 30, 2001, HCD private sector revenue decreased $24.6 million compared to
the corresponding six month period in 2000 due to lower first quarter 2001
revenue which reflected the large percentage of contracts - particularly
design/build contracts - awarded in late 2000 that were in their start-up phase.
Design/build projects experience a longer lead time and therefore a slower start
than a typical bid/build project.
JUNE 30, MARCH 31, JUNE 30,
-------- --------- --------
BACKLOG (IN MILLIONS) 2001 2001 2000
-------- -------- --------
By Market Sector
Federal $ 56.4 $ 67.4 $ 88.3
State 956.0 1,049.3 531.0
Local 310.0 161.5 137.3
-------- -------- --------
Total public sector 1,322.4 1,278.2 756.6
Private sector 113.9 75.7 138.9
-------- -------- --------
$1,436.3 $1,353.9 $ 895.5
-------- -------- --------
By Geographic Area
California $ 442.7 $ 414.3 $ 290.4
West (excluding California) 395.0 272.6 217.0
Midwest 186.0 198.4 --
South/East 412.6 468.6 388.1
-------- -------- --------
$1,436.3 $1,353.9 $ 895.5
======== ======== ========
Backlog: The Company's backlog was $1,436.3 million at June 30, 2001, an
increase of $540.8 million from June 30, 2000 and an increase of $82.4 million
from March 31, 2001. New awards for the quarter included the Company's $119.8
million share of a design/build highway reconstruction project in Arizona and a
$15.4 million interstate reconstruction project in Utah.
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
GROSS PROFIT ------------------ -------------------
IN MILLIONS 2001 2000 2001 2000
------ ------ ------ -------
Total Gross Profit $46.4 $49.7 $68.7 $76.0
% of Revenue 12.3% 14.5% 11.4% 13.6%
===== ===== ===== =====
Gross Profit: Gross profit as a percent of revenue decreased to 12.3% in
the second quarter 2001 from 14.5% in the second quarter 2000 and to 11.4% for
the six months ended June 30, 2001 from 13.6% in the corresponding 2000 period.
The lower gross profit margin is primarily due to a higher amount of revenue
recognized from projects less than 25% complete, particularly in HCD. The
Company recognizes revenue only to the extent of cost incurred until a project
reaches 25% complete. The amount of revenue generated in the quarter by jobs
below the 25% completion threshold was approximately $58.0 million versus $20.0
million in the same period in 2000. The increase is primarily due to several HCD
projects that were awarded in late 2000 and early 2001 including three that are
not expected to reach 25% complete in 2001. The $153.0 million Las Vegas
Monorail Project, the $164.6 million Hiawatha Light Rail Project in Minneapolis
and the $65.9 million St. John's River Bridge in Florida are not expected to
reach 25% complete until the first half of 2002. In addition, HCD gross profit
margin in the second quarter 2001 was impacted by a reduction in the forecasted
profitability of a non-sponsored joint venture project on the East Coast. The
profit reduction reflects the acceleration of work to complete the project on
time to avoid paying liquidated damages. The Company recorded a pretax loss of
approximately $2.5 million for its portion of the expected reduced profitability
of the project.
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, maintenance and repairs). The Company
has experienced some upward pressure on costs associated with labor markets,
however, the Company's gross profit margins were not significantly impacted by
such changes during the first six months of 2001.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
GENERAL AND ADMINISTRATIVE EXPENSES --------------------- ---------------------
IN MILLIONS 2001 2000 2001 2000
------- ------- ------- -------
Salaries and related expenses $ 11.9 $ 11.8 $ 25.4 $ 23.6
Incentive compensation,
discretionary profit sharing and pension 4.3 6.5 6.8 9.4
Other general and administrative expenses 10.6 8.6 19.1 16.8
------- ------- ------- -------
Total $ 26.8 $ 26.9 $ 51.3 $ 49.8
------- ------- ------- -------
Percent of revenue 7.1% 7.8% 8.5% 8.9%
======= ======= ======= =======
General and Administrative Expenses: Salaries and related expenses
increased for the three and six months ended June 30, 2001 over the comparable
periods in 2000 due primarily to increased staffing to support the Company's
current and expected growth. Incentive compensation and discretionary profit
sharing and pension costs decreased as a function of the Company's lower
profitability in 2001. Increases in other general and administrative expenses
primarily result from costs associated with the pursuit of new business
opportunities and the support of the Company's continued growth, none of which
exceeds 10% of total general and administrative expenses.
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
OPERATING INCOME --------------------- ---------------------
IN MILLIONS 2001 2000 2001 2000
------- ------- ------- -------
Branch Division $ 26.3 $ 23.4 $ 32.2 $ 24.2
Heavy Construction Division 2.0 8.1 1.9 17.5
Unallocated corporate expenses (8.7) (8.8) (16.7) (15.4)
------- ------- ------- -------
Total $ 19.6 $ 22.7 $ 17.4 $ 26.3
======= ======= ======= =======
Operating Income: The Heavy Construction Division's contribution to
operating income decreased in the second quarter 2001 compared to the second
quarter 2000 due primarily to the decreased gross profit margin described in
"Gross Profit" above. The Branch Division's contribution to operating income
increased in both the three months and six months ended June 30, 2001 due
primarily to the increases in revenue described in "Revenue and Backlog" above.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
OTHER INCOME (EXPENSE) --------------------- ---------------------
IN MILLIONS 2001 2000 2001 2000
------- ------- ------- -------
Interest income $ 1.9 $ 2.5 $ 4.8 $ 5.7
Interest expense (2.3) (2.3) (3.9) (4.0)
Gain on sales of property and equipment 0.6 1.4 4.9 2.4
Other, net 1.0 1.6 0.2 1.3
------- ------- ------- -------
Total $ 1.2 $ 3.2 $ 6.0 $ 5.4
======= ======= ======= =======
Other Income (Expense): Other income increased $0.6 million to $6.0
million for the six months ended June 30, 2001 over the same period in 2000. The
increase was due primarily to a $2.2 million gain from the sale of developed
property in Texas in the first quarter 2001, partially offset by lower interest
income due primarily to reduced interest rates and the absence of a $0.6 million
gain recorded in the second quarter 2000 from the repurchase by T.I.C. Holdings,
Inc. ("TIC") of certain TIC shares held by the Company.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
PROVISION FOR INCOME TAXES ---------------------- ----------------------
IN MILLIONS 2001 2000 2001 2000
------- ------- ------- -------
Provision for income taxes $ 7.9 $ 10.0 $ 8.9 $ 13.5
------- ------- ------- -------
Effective tax rate 38.0% 38.5% 38.0% 42.6%
======= ======= ======= =======
Provision for Income Taxes: The Company's effective tax rate decreased
to 38.0% for the three months ended June 30, 2001 from 38.5% in the same period
in 2000. The decrease relates primarily to the expected changes in the
relationship of permanent differences such as the percentage depletion deduction
to pretax earnings for the year. Additionally, the decrease in the effective tax
rate for the six months ended June 30, 2001 reflects the absence of additional
tax expense recognized in the first quarter of 2000 related to the Company
reaching an agreement with TIC to divest its investment over a three and
one-half year period.
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OUTLOOK
The Company continues to experience a sizeable increase in new awards.
New awards for the second quarter ended June 30, 2001 totaled $459.1 million,
leading to a record backlog at June 30, 2001 of $1.44 billion, an increase of
60.4 percent over the backlog at June 30, 2000. The second quarter 2001 backlog
does not include the approximately $200.0 million backlog the Company assumed
with the acquisition of Halmar Builders of New York Inc., which closed July 1,
2001. The Company believes its backlog is a quality backlog that will provide a
springboard for revenue and earnings growth in 2002 and beyond.
As the Company pointed out in a press release dated July 24, 2001,
earnings expectations for 2001 will be lower than previously expected. The
primary reason for this is that it now anticipates that three large HCD projects
will not reach 25 percent complete this year. The $153.0 million Las Vegas
Monorail Project, the $164.6 million Hiawatha Light Rail Project in Minnesota
and the $65.9 million St. John's River Bridge in Florida are not expected to
reach 25 percent complete until the first half of 2002.
Even though the Company has reduced its earnings expectations for the
year, the fundamentals of its public sector business are still extremely strong.
The bulk of the Company's new awards continue to come from its public
marketplace. Fueled by record level expenditures from federal, state and local
sources, the Company expects that the public sector market will remain strong as
the year continues to unfold. As it has noted in the past, the public
marketplace that the Company is currently experiencing allows it to be very
selective in its bidding, looking at those projects where it may have
competitive advantages in terms of resources or expertise.
The visibility of the Company's private sector business, however, is
less clear at this point in time. The Company has witnessed some softening in
this marketplace, particularly in California, where the bulk of its private
sector business is derived. Granite believes that this is due primarily to a
weaker economy, which has prompted private developers to delay planned
commercial and residential projects. The potential effect on Granite's business
is a decrease in private sector bidding opportunities and the probability of
increased competition in the public sector. The Company, however, is unable at
this time to identify how much increased public sector opportunities might
offset diminished opportunities in the private sector and what, if any impact
this will have on full year 2001 results.
As previously mentioned, the Company closed its acquisition of Halmar
Builders of New York, Inc. on July 1, 2001. The Mt. Vernon, New York-based heavy
civil contractor campaigns the New York Metropolitan area, focusing primarily on
transportation-related projects such as airports, highways and mass transit
facilities. Halmar, in 2000, had revenues of approximately $200.0 million. The
New York area heavy-civil construction marketplace is estimated to yield about
$6.0 billion per year in bidding opportunities. Granite believes Halmar's
contribution to its 2001 earnings will be neutral to slightly accretive.
In the Outlook section of the Company's Form 10-Q for the quarter ended
March 31, 2001, the Company discussed the potential impact on Granite's business
and markets from the electricity crisis in California. To date, milder than
normal temperatures and substantial conservation measures
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on the part of California electric users have mitigated the need for rolling
blackouts or the necessity to borrow more money from various internal accounts,
including the highway account, to purchase power. As of this writing, the state
has not borrowed any money from the highway account. Under the confines of
Proposition 2, any money borrowed from the highway account by law has to be paid
back within one year, with interest.
California took a large step forward last month in formulating a
solution to its long-term transportation-funding problem. As part of the state's
budget negotiations, the legislature agreed to place a constitutional amendment
on the March, 2002 ballot to permanently divert the sales tax on gasoline from
the state's general fund to the transportation fund, starting in 2003. If passed
by the voters, this would earmark an additional $1.0 to $1.5 billion per year
for highway and mass transit projects in California, according to the California
Franchise Tax Board.
At the federal level, the Senate earlier this month approved its version
of FY2002 transportation appropriations bill. The measure would provide
approximately $60.0 billion for federal transportation programs, including $31.9
billion for the core federal highway program and $6.8 billion for the federal
transit program. Both investment levels exceed the Bush Administration's budget
request and the amounts guaranteed by TEA-21. The bill would also provide $3.3
billion for federal airport construction activities as required by AIR-21. The
House has passed its own version of the transportation appropriations bill with
similar funding levels and is expected to reconcile any differences with the
Senate version in a conference committee in the near future.
In summary, the Company's outlook for the short-term is for a reduction
in profitability in 2001 compared to the year 2000, but an increase in both
earnings and revenue in 2002, based on a large, quality backlog and strong
public sector funding going forward.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30,
-------------------------
(IN MILLIONS) 2001 2000
----- -----
Cash and cash equivalents $92.3 $35.5
Net cash provided (used) by:
Operating activities 10.5 4.0
Investing activities (41.9) (17.6)
Financing activities 66.0 (12.8)
Capital expenditures $46.8 $31.3
Cash provided by operating activities of $10.5 million for the six
months ended June 30, 2001 represents a $6.5 million increase over the same
period in 2000. Changes in cash from operating activities primarily reflects
seasonal variations based on the amount and progress of work being performed.
Accounts Receivable at June 30, 2001 increased over the balance at December 31,
2000 due primarily to the Company's revenue growth in the latter half of the
second quarter of 2001 over the latter half of the fourth quarter of 2000.
Billings in excess of costs and estimated earnings at June 30, 2001 increased
over the balance at December 31, 2000 due to cash timing differences on several
large projects in the early stages of construction.
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Cash used by investing activities for the six month period in 2001
increased $24.3 million over the corresponding 2000 period due primarily to
higher purchases of property and equipment and greater amounts invested in
short-term investments versus cash equivalents as well as the absence of the
$5.0 million proceeds from the second quarter 2000 TIC divestiture.
The Company generated cash from financing activities in the six months
ended June 30, 2001 due to additions to long-term debt which includes $75.0
million received in May 2001 under a new senior credit facility with a group of
institutional holders. The borrowing is due in nine equal annual installments
beginning in 2005 and bears interest at 6.96% per annum. The funds from this
borrowing will be used for general corporate purposes.
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 currently has access to funds
under its revolving credit agreement which allow it to borrow up to $60.0
million, of which $48.4 million was available at June 30, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting and Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets." SFAS 141 requires that all business combinations initiated
after June 30, 2001 be accounted for under a single method--the purchase method.
Use of the pooling-of-interests method is no longer permitted. SFAS 142 requires
that goodwill no longer be amortized to earnings, but instead be reviewed for
impairment upon initial adoption of the Statement and on an annual basis going
forward. The amortization of goodwill will cease upon adoption of SFAS 142. The
provisions of SFAS 142 will be effective for fiscal years beginning after
December 15, 2001. The Company is currently evaluating the impact, if any, of
adopting SFAS 141 and 142.
SUBSEQUENT EVENT
On July 1, 2001 the Company acquired 100% of the common stock of Halmar
Builders of New York, Inc., a Mt. Vernon, New York heavy-civil construction
company ("Halmar") for a cash purchase price of approximately $19.0 million,
subject to final closing adjustments. The new entity will operate under the name
Granite Halmar Construction Company, Inc. ("Granite Halmar") as a wholly owned
subsidiary of Granite Construction Incorporated. If Granite Halmar achieves
certain predetermined financial results over a two-year period, the Company will
pay the former Halmar shareholders up to an additional $2.0 million.
Halmar is one of the largest heavy-civil construction firms operating in
the metropolitan New York City area. In 2000, Halmar had revenues of
approximately $200 million. The acquisition will be accounted for using the
purchase method of accounting in accordance with the newly issued SFAS 141. The
Company is currently in the process of preparing the purchase price allocation
and determining the useful lives of the assets acquired.
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19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk since
December 31, 2000.
19
20
PART II. OTHER INFORMATION
20
21
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
21
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on May 21, 2001, the
following members were elected to the Board of Directors:
VOTES WITHHELD
AFFIRMATIVE NEGATIVE --------------------------
VOTES VOTES ABSTAINED NONVOTE
----------- -------- --------- -------
Brian C. Kelly 38,228,882 -- 1,110,863 --
Rebecca A. McDonald 38,153,255 -- 1,186,490 --
George B. Searle 38,001,140 -- 1,338,605 --
The following proposals were approved at the Company's Annual Meeting:
VOTES WITHHELD
AFFIRMATIVE NEGATIVE -----------------------
VOTES VOTES ABSTAINED NONVOTE
----------- --------- --------- ---------
To amend the Certificate of
Incorporation of the Company 35,227,716 1,607,003 106,928 2,398,098
To ratify the appointment of
PricewaterhouseCoopers LLP as the
independent accountants of the
Company for the fiscal year ending
December 31, 2001. 39,137,618 129,228 72,899 --
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Amendment of Certificate of Incorporation of
Granite Construction Incorporated filed May 25, 2001
3.1.a Certificate of Incorporation of Granite Construction
Incorporated, as Amended
10.1 Credit Agreement dated and effective June 29, 2001
10.2 Continuing Guaranty Agreement from the Subsidiaries of Granite
Construction Incorporated as Guarantors of financial
accommodations pursuant to the terms of the Credit Agreement
dated June 29, 2001
10.3 Note Purchase Agreement between Granite
Construction Incorporated and certain
purchasers dated May 1, 2001
10.4 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 May 1, 2001
b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRANITE CONSTRUCTION INCORPORATED
Date: August 14, 2001 By: /s/ William E. Barton
---------------------------------
William E. Barton
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
3.1 Certificate of Amendment of Certificate of Incorporation of Granite Construction
Incorporated filed May 25, 2001........................................................... --
3.1.a Certificate of Incorporation of Granite Construction Incorporated, as Amended............. --
10.1 Credit Agreement dated and effective June 29, 2001........................................ --
10.2 Continuing Guaranty Agreement from the Subsidiaries of Granite
Construction Incorporated as Guarantors of financial
accommodations pursuant to the terms of the Credit Agreement
dated June 29, 2001....................................................................... --
10.3 Note Purchase Agreement between Granite Construction Incorporated and certain purchasers
dated May 1, 2001......................................................................... --
10.4 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 May 1, 2001............................................................. --
25