UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 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 November 9, 2001.
Class Outstanding
- ------------------------------- -----------------
Common Stock, $0.01 par value 41,110,410 shares
GRANITE CONSTRUCTION INCORPORATED
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of September 30, 2001 and
December 31, 2000.................................................4
Condensed Consolidated Statements
of Income for the Three Months and Nine Months Ended
September 30, 2001 and 2000.......................................5
Condensed Consolidated Statements
of Cash Flows for the Nine Months Ended
September 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.................................................12-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................22
Item 2. Changes in Securities............................................22
Item 3. Defaults upon Senior Securities..................................22
Item 4. Submission of Matters to a Vote
of Security Holders..............................................22
Item 5. Other Information................................................22
Item 6. Exhibits and Reports on Form 8-K.................................22
2
PART I. FINANCIAL INFORMATION
3
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
=============================================================================================
SEPTEMBER 30, December 31,
2001 2000
- ---------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 112,038 $ 57,759
Short-term investments 53,142 42,972
Accounts receivable 341,344 221,374
Costs and estimated earnings in excess of billings 53,810 19,473
Inventories 22,420 16,747
Deferred income taxes 16,138 15,857
Equity in construction joint ventures 25,191 25,151
Other current assets 7,993 12,295
---------------------------
Total current assets 632,076 411,628
- ---------------------------------------------------------------------------------------------
Property and equipment 270,720 249,077
- ---------------------------------------------------------------------------------------------
Investments in affiliates 55,364 40,052
- ---------------------------------------------------------------------------------------------
Other assets 23,216 10,385
- ---------------------------------------------------------------------------------------------
$ 981,376 $ 711,142
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 7,515 $ 1,130
Accounts payable 147,295 90,111
Billings in excess of costs and estimated earnings 113,957 57,412
Accrued expenses and other current liabilities 113,783 82,924
---------------------------
Total current liabilities 382,550 231,577
- ---------------------------------------------------------------------------------------------
Long-term debt 150,319 63,891
- ---------------------------------------------------------------------------------------------
Other long-term liabilities 9,779 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 41,110,272 shares in
2001 and 40,881,908 in 2000 411 409
Additional paid-in capital 61,601 56,381
Retained earnings 358,714 330,172
Accumulated other comprehensive loss (734) --
---------------------------
419,992 386,962
Unearned compensation (12,804) (9,198)
---------------------------
407,188 377,764
- ---------------------------------------------------------------------------------------------
$ 981,376 $ 711,142
=============================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
======================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------
Revenue
Construction $ 452,555 $ 391,014 $ 977,237 $ 885,637
Material sales 64,177 50,742 143,792 116,261
---------------------------- ----------------------------
Total revenue 516,732 441,756 1,121,029 1,001,898
---------------------------- ----------------------------
Cost of revenue
Construction 406,733 332,740 874,425 759,559
Material sales 48,213 41,538 116,151 98,813
---------------------------- ----------------------------
Total cost of revenue 454,946 374,278 990,576 858,372
---------------------------- ----------------------------
GROSS PROFIT 61,786 67,478 130,453 143,526
General and administrative expenses 31,926 29,304 83,213 79,088
---------------------------- ----------------------------
OPERATING INCOME 29,860 38,174 47,240 64,438
- ------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 3,949 2,775 8,712 8,438
Interest expense (2,549) (1,948) (6,452) (5,933)
Gain on sales of property
and equipment 3,456 218 8,380 2,596
Other, net 3,894 1,268 4,069 2,586
---------------------------- ----------------------------
8,750 2,313 14,709 7,687
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 38,610 40,487 61,949 72,125
Provision for income taxes 14,672 15,587 23,541 29,068
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 23,938 $ 24,900 $ 38,408 $ 43,057
======================================================================================================
Net income per share
Basic $ 0.60 $ 0.63 $ 0.97 $ 1.09
Diluted $ 0.59 $ 0.62 $ 0.94 $ 1.07
Weighted average shares
of common stock
Basic 39,828 39,522 39,788 39,434
Diluted 40,784 40,370 40,673 40,263
Dividends per share $ 0.08 $ 0.07 $ 0.24 $ 0.24
======================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
===========================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000
- -----------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 38,408 $ 43,057
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 35,797 33,124
Gain on sales of property and equipment (8,380) (2,596)
Gain on sale of investment -- (636)
Increase in deferred income tax (450) --
Amortization of unearned compensation 3,564 4,464
Common stock contributed to ESOP -- 632
Equity in gain of affiliates and other (3,600) (431)
Changes in assets and liabilities:
Accounts and notes receivable (77,099) (73,387)
Inventories (5,673) (2,779)
Equity in construction joint ventures (40) 3,253
Other assets 4,257 1,745
Accounts payable 13,121 19,076
Billings in excess of costs and estimated earnings, net 36,972 (5,540)
Accrued expenses 31,260 19,280
-------------------------
Net cash provided by operating activities 68,137 39,262
- -----------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of short-term investments (88,175) (61,994)
Maturities of short-term investments 77,271 66,780
Additions to property and equipment (57,947) (38,985)
Proceeds from sales of property and equipment 18,263 4,547
Proceeds from sale of investment -- 5,000
Investment in affiliates (11,712) (14,303)
Acquisition of Halmar Builders of New York Inc., net of cash acquired (11,394) --
Development and sale of land and other investing activities (2,065) 2,658
-------------------------
Net cash used by investing activities (75,759) (36,297)
- -----------------------------------------------------------------------------------------------------------
Financing Activities
Additions of long-term debt 103,000 --
Repayments of long-term debt (29,717) (5,776)
Employee stock options exercised -- 406
Repurchase of common stock (2,080) (1,834)
Dividends paid (9,302) (8,985)
-------------------------
Net cash provided (used) by financing activities 61,901 (16,189)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 54,279 (13,224)
Cash and cash equivalents at beginning of period 57,759 61,832
-------------------------
Cash and cash equivalents at end of period $ 112,038 $ 48,608
===========================================================================================================
Supplementary Information
Cash paid during the period for:
Interest $ 4,044 $ 4,966
Income taxes 3,147 10,441
Noncash investing and financing activity:
Restricted stock issued for services $ 7,170 $ 6,912
Dividends accrued but not paid 3,289 2,729
===========================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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 accounting principles generally accepted in the United
States have been condensed or omitted, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the condensed consolidated financial
statements reflect, in the opinion of management, all normal recurring
adjustments necessary to present fairly the financial position at
September 30, 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 nine months ended September 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:
- ----------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED)
- ----------------------------------------------------------------------------------
Land $ 37,934 $ 38,113
Quarry property 44,655 45,080
Buildings and leasehold improvements 42,871 38,753
Equipment and vehicles 549,588 508,976
Office furniture and equipment 9,180 8,597
---------------------------
684,228 639,519
Less accumulated depreciation,
depletion and amortization 413,508 390,442
- ----------------------------------------------------------------------------------
$270,720 $249,077
==================================================================================
7
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
4. EARNINGS PER SHARE:
- --------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------
NUMERATOR - BASIC AND DILUTED EARNINGS PER
SHARE
Net income $23,938 $24,900 $38,408 $43,057
============================================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 41,107 40,932 41,070 40,793
Less restricted stock outstanding 1,279 1,410 1,282 1,359
-------------------------------------------
TOTAL 39,828 39,522 39,788 39,434
-------------------------------------------
Basic earnings per share $ 0.60 $ 0.63 $ 0.97 $ 1.09
============================================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 39,828 39,522 39,788 39,434
Effect of Dilutive Securities:
Common stock options 17 12 17 14
Warrants 204 144 201 142
Restricted stock 735 692 667 673
-------------------------------------------
TOTAL 40,784 40,370 40,673 40,263
-------------------------------------------
Diluted earnings per share $ 0.59 $ 0.62 $ 0.94 $ 1.07
============================================================================================
5. COMPREHENSIVE INCOME: The components of comprehensive income, net of
tax, are as follows:
- ------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2001
- ------------------------------------------------------------------------------------------------------
Net income $ 23,938 $ 38,408
Other comprehensive loss:
Changes in net unrealized losses on investments (622) (734)
------------------------------------
TOTAL COMPREHENSIVE INCOME $ 23,316 $ 37,674
======================================================================================================
6. COMMITMENTS 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.
8
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 condensed consolidated 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 September 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. ACQUISITION OF HALMAR BUILDERS OF NEW YORK, INC.: 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 payment of approximately $13.0 million ($11.4
million net of cash acquired) on a total purchase price of approximately
$19.0 million, subject to final closing adjustments. The new entity
operates 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. The acquisition was
accounted for in accordance with Statements of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations." The results of
operations of Granite Halmar are included in these condensed
consolidated financial statements as of July 1, 2001. The current
purchase price allocation is considered preliminary, as certain
information needed for finalization is not yet available. The
Acquisition is not considered material. Therefore, certain disclosures
otherwise required have been omitted.
12. 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.
9
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
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 SEPTEMBER 30, HCD BRANCH TOTAL
- --------------------------------------------------------------------------------
2001
Revenues from external customers $ 146,430 $ 370,302 $ 516,732
Intersegment revenue transfer (4,059) 4,059 --
--------------------------------------
Net revenue 142,371 374,361 516,732
Depreciation and amortization 2,553 8,320 10,873
Operating (loss) profit (7,462) 49,520 42,058
- --------------------------------------------------------------------------------
2000
Revenues from external customers $ 91,120 $ 350,636 $ 441,756
Intersegment revenue transfer (4,196) 4,196 --
--------------------------------------
Net revenue 86,924 354,832 441,756
Depreciation and amortization 1,735 7,982 9,717
Operating profit 10,015 39,609 49,624
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, HCD BRANCH TOTAL
- --------------------------------------------------------------------------------
2001
Revenues from external customers $ 327,231 $ 793,798 $1,121,029
Intersegment revenue transfer (8,376) 8,376 --
--------------------------------------
Net revenue 318,855 802,174 1,121,029
Depreciation and amortization 6,900 24,333 31,233
Operating (loss) profit (5,609) 81,733 76,124
Property and equipment 44,332 207,699 252,031
- --------------------------------------------------------------------------------
2000
Revenues from external customers $ 276,207 $ 725,691 $1,001,898
Intersegment revenue transfer (12,017) 12,017 --
--------------------------------------
Net revenue 264,190 737,708 1,001,898
Depreciation and amortization 5,416 23,769 29,185
Operating profit 27,472 63,810 91,282
Property and equipment 26,446 200,137 226,583
- --------------------------------------------------------------------------------
Reconciliation of Segment Profit to the Company's Consolidated Totals:
- --------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2001 2000
- --------------------------------------------------------------------------
Profit:
Total profit for reportable segments $42,058 $49,624
Other income 8,750 2,313
Unallocated other corporate expenses (12,198) (11,450)
- --------------------------------------------------------------------------
Income before provision for income taxes $38,610 $40,487
==========================================================================
10
Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
- ---------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000
- ---------------------------------------------------------------------------
Profit:
Total profit for reportable segments $ 76,124 $ 91,282
Other income 14,709 7,687
Unallocated other corporate expenses (28,884) (26,844)
- ---------------------------------------------------------------------------
Income before provision for income taxes $ 61,949 $ 72,125
===========================================================================
13. RECENT ACCOUNTING PRONOUNCEMENTS: In July 2001, the Financial Accounting
and Standards Board ("FASB") issued Statement 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 provisions of SFAS 142 will be effective for fiscal years beginning
after December 15, 2001.
In August 2001, FASB issued Statement No. 143 ("SFAS 143"), "Accounting
for Asset Retirement Obligations." SFAS 143 requires that obligations
associated with the retirement of a tangible long-lived asset be
recorded as a liability when those obligations are incurred, with the
amount of the liability initially measured at fair value. SFAS 143 will
be effective for financial statements for fiscal years beginning after
June 15, 2002.
In October 2001, FASB issued Statement No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 provides
guidance on the accounting for the impairment or disposal of long-lived
assets, supercedes SFAS 121, and is effective for financial statements
issued for fiscal years beginning after December 15, 2001.
The Company is currently evaluating the impact, if any, of adopting
SFAS 142, 143 and 144.
11
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 SEPTEMBER 30,
------------------------------------------
REVENUE (IN MILLIONS) 2001 2000 VARIANCE %
- ---------------------------------------------------------------------------
By Division
Branch Division $374.4 $354.9 $19.5 5.4%
Heavy Construction
Division 142.3 86.9 55.4 63.8%
--------------------------------------------
516.7 441.8 74.9 17.0%
===========================================================================
- ---------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
REVENUE (IN MILLIONS) 2001 2000 VARIANCE %
- ---------------------------------------------------------------------------
By Division
Branch Division $ 802.2 $ 737.7 $ 64.5 8.7%
Heavy Construction
Division 318.8 264.2 54.6 20.7%
------------------------------------------
1,121.0 1,001.9 119.1 11.9%
===========================================================================
Revenue: Revenue for the quarter ended September 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 three-month and nine-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 $8.7 million and $21.9
million for the 2001 three-month and nine-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 three months and nine months ended
September 30, 2001 over the corresponding periods in 2000 is a reflection of the
division's strong backlog of public sector projects. HCD's private sector
revenue decreased $10.6 million and $35.8 million in the three months and nine
months ended September 30, 2001 as compared to the corresponding periods in 2000
due to the
12
completion of two large private sector projects in 2000.
- --------------------------------------------------------------------------------
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
----------------------------------------------
BACKLOG (IN MILLIONS) 2001 2001 2000
- --------------------------------------------------------------------------------
By Market Sector
Federal $ 56.2 $ 56.4 $ 78.2
State 829.7 956.0 663.8
Local 528.1 310.0 309.8
----------------------------------------------
Total public sector 1,414.0 1,322.4 1,051.8
Private sector 179.1 113.9 114.1
----------------------------------------------
$1,593.1 $1,436.3 $1,165.9
- --------------------------------------------------------------------------------
By Geographic Area
California $ 363.7 $ 442.7 $ 289.3
West (excluding California) 337.7 395.0 326.8
Midwest 169.6 186.0 207.3
South/East 722.1 412.6 342.5
----------------------------------------------
$1,593.1 $1,436.3 $1,165.9
================================================================================
Backlog: Including approximately $200.0 million from the Halmar
acquisition, the Company's backlog was $1,593.1 million at September 30, 2001,
an increase of $427.2 million from September 30, 2000 and an increase of $156.8
million from June 30, 2001. New awards for the quarter included the Company's
$113.9 million share of a subway reconstruction project in New York and the
Company's $69.5 million share of design/build rail reconstruction project in
Florida.
- ---------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
GROSS PROFIT SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------------------------------------------------
IN MILLIONS 2001 2000 2001 2000
- ---------------------------------------------------------------------------------
Total Gross Profit $61.8 $67.5 $130.5 $143.5
- ---------------------------------------------------------------------------------
% of Revenue 12.0% 15.3% 11.6% 14.3%
=================================================================================
Gross Profit: Gross profit as a percent of revenue decreased to 12.0%
for the third quarter 2001 from 15.3% for the third quarter 2000 and to 11.6%
for the nine months ended September 30, 2001 from 14.3% in the corresponding
2000 period. The lower gross profit margin is partially 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 first three
quarters of 2001 by jobs below the 25% completion threshold was approximately
$113.3 million versus $23.2 million in the same period in 2000. The increase is
primarily due to several large HCD projects that were awarded in late 2000 and
early 2001 including three that are not expected to reach 25% complete in 2001.
Also contributing to the decreased profit margins was a reduction in the
forecasted profitability of a non-sponsored joint venture project on the East
Coast. The profit reduction primarily reflects the acceleration of work to
complete the project on time to avoid paying liquidated damages. The Company
recorded a pretax loss of approximately $5.2 million and $7.6 million for its
portion of the expected reduced profitability of the project in the three-month
and the nine-month periods ending September 30, 2001, respectively.
13
The reductions in gross profit described above were partially offset by
strong gross margins in the Branch Division. In particular, gross profit as a
percent of material sales revenue increased to 24.9% for the third quarter 2001
from 18.1% for the third quarter 2000 and to 19.2% for the nine months ended
September 30, 2001 from 15.0% in the corresponding 2000 period.
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 was not significantly impacted by such
changes during the first nine months of 2001.
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
GENERAL AND ADMINISTRATIVE EXPENSES SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
IN MILLIONS 2001 2000 2001 2000
- --------------------------------------------------------------------------------
Salaries and related expenses $13.9 $11.6 $39.3 $35.2
Incentive compensation,
discretionary profit sharing and pension 9.4 9.0 16.2 18.4
Other general and administrative expenses 8.6 8.7 27.7 25.5
- --------------------------------------------------------------------------------
Total $31.9 $29.3 $83.2 $79.1
- --------------------------------------------------------------------------------
Percent of revenue 6.2% 6.6% 7.4% 7.9%
================================================================================
General and Administrative Expenses: Salaries and related expenses
increased for the three and nine months ended September 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 in the nine month period in 2001 as a
function of the Company's lower profitability in the same period. Increases in
other general and administrative expenses for the nine-month period in 2001
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.
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
OPERATING INCOME (LOSS) SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
IN MILLIONS 2001 2000 2001 2000
- --------------------------------------------------------------------------------
Branch Division $ 49.5 $ 39.6 $ 81.7 $ 63.8
Heavy Construction Division (7.5) 10.0 (5.6) 27.5
Unallocated corporate expenses (12.2) (11.4) (28.9) (26.8)
- --------------------------------------------------------------------------------
Total $ 29.8 $ 38.2 $ 47.2 $ 64.5
================================================================================
Operating Income: The Heavy Construction Division's contribution to
operating income decreased in the third quarter 2001 compared to the third
quarter 2000 due primarily to the decreased gross profit margin described in
"Gross Profit" above and higher general and administrative cost attributable to
the division's revenue growth. The Branch Division's contribution to operating
income increased in both the three months and nine months ended September 30,
2001 due primarily to the increases in revenue described in "Revenue and
Backlog" and gross margins described in "Gross Profit" above.
14
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
OTHER INCOME (EXPENSE) SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
IN MILLIONS 2001 2000 2001 2000
- --------------------------------------------------------------------------------
Interest income $ 3.9 $ 2.8 $ 8.7 $ 8.4
Interest expense (2.5) (1.9) (6.5) (5.9)
Gain on sales of property and equipment 3.5 .2 8.4 2.6
Other, net 3.9 1.2 4.1 2.6
- --------------------------------------------------------------------------------
Total $ 8.8 $ 2.3 $14.7 $ 7.7
================================================================================
Other Income (Expense): Interest income increased by $1.1 million and
$0.3 million for the three-month and nine-month periods ended September 30,
2001, respectively, when compared to the same periods ended September 30, 2000
due to the increased level of short-term investments and interest-bearing cash
equivalents. Interest expense increased by $0.6 million for the three-month and
nine-month periods ended September 30, 2001 when compared to the same periods
ended September 30, 2000 due primarily to the issuance of $75 million in private
placement debt in May 2001. Gains on sales of property and equipment in 2001
reflect gains recognized on sale of excess and developed property of
approximately $2.9 million in the third quarter 2001 and $2.2 million in the
first quarter 2001. Other, net increased over the prior periods due primarily to
higher income reported by the Company's equity method investments in the quarter
ended September 30, 2001 when compared to the same period in 2000.
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
PROVISION FOR INCOME TAXES SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
IN MILLIONS 2001 2000 2001 2000
- --------------------------------------------------------------------------------
Provision for income taxes $14.7 $15.6 $23.5 $29.1
Effective tax rate 38.0% 38.5% 38.0% 40.3%
================================================================================
Provision for Income Taxes: The Company's effective tax rate decreased
to 38.0% for the three months ended September 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 nine months ended September 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.
15
OUTLOOK
The outlook for our business going forward continues to be very positive. The
Company entered the fourth quarter with a record-level backlog of $1,593.1
million. This figure includes the $200.0 million in backlog assumed with the
acquisition of Halmar Builders of New York, Inc.
The Heavy Construction Division (HCD) is targeting a number of design/build
projects throughout the country as states increasingly choose this form of
project delivery over the traditional form of design/bid/build. Looking at the
project bid schedule over the next few months, HCD has a full plate of
opportunities in which to bid, including a number of large design/build projects
in Nevada, Arizona and Texas. It is our opinion that Granite's technical
expertise, experience and financial strength in the design/build area provides
us with a competitive advantage for these types of projects. Currently,
design/build projects make up approximately 50% of HCD's total backlog. A
combination of record levels of public funding, healthy bid lists and the
anticipation that three large HCD projects will reach the 25% complete stage in
2002 lead us to believe that next year will be a very strong year for HCD.
Also contributing to HCD's positive outlook is our recent acquisition of Halmar.
Granite Halmar is well-positioned to take advantage of the New York area
heavy-civil construction marketplace - estimated to yield about $6.0 billion a
year in bidding opportunities. Granite Halmar's major clients include the New
York State/New York City Departments of Transportation, New York Port Authority
and the Metropolitan Transit Authority.
Our Branch Division has had a tremendous year to date. We are unclear, however,
as to how much this division will be impacted by any economic slow down. As we
have previously indicated, we could see a slow down in the Branch business as a
result of softening in the private sector market, particularly in California,
where the bulk of the Branch's private sector business is derived. As we have
seen historically with a slowdown in the private sector, the Branch Division has
started to see increased competition in a couple of its markets for public jobs,
as contractors who primarily bid on private sector work begin to move into the
public sector marketplace. Although this is not likely to impact our year-end
2001 results, gross profit margins in the Branch Division could be affected in
2002 if the economic downturn continues.
At the state and local level, the Associated General Contractors of America
(AGC) is reporting that in the aftermath of September 11th, many state and local
governments are "feeling the pinch of lower tax revenues and higher expenses for
relief, security and other spending." At this point in time, Granite has not
observed any project delays and continues to see a sizeable amount of projects
coming out to bid from all of the states in which we operate.
On the federal level, guaranteed funding levels continue to provide the Company
with many opportunities in each of the states in which we operate. On July 12,
the Senate Appropriations Committee approved a 2002 transportation bill that
included $33.2 billion in federal aid for highways. This amount is in line with
the guaranteed funding amounts under the Transportation Act for the 21st Century
(TEA-21).
16
The Company is also keeping a close eye on the much talked about economic
stimulus legislative package. According to an October 4, 2001 article in the
Washington Post, the Bush Administration is attempting to put together a
stimulus package as large as $75 billion that could include a plan to spend $15
billion on highways, roads, bridges and transit.
In California, the Company's largest market, there are two ballot measures that,
if passed, could have a significant impact on Granite. On the March 2002 ballot
in California is Proposition 42, a proposed constitutional amendment that would
redirect the sales tax on gasoline from the state's general fund to
transportation funds, including highways and mass transit. It would generate
more than $1 billion per year for transportation, according to the California
Department of Finance, and that sum will grow with inflation. This is the most
important infrastructure funding measure since Proposition 111, which raised the
state gasoline tax $0.09 per gallon, starting in 1990. If passed, Prop 42 would
take effect in 2003. Early polling by the Yes on Prop 42 campaign indicates
fairly strong support for the measure. This would be a very important new
long-term source of transportation funding for the state, and would have a
positive impact on the Company's business in California. In addition, industry
leaders are working to place a measure on the March 2002 ballot which would
allow the state to sell $5 to $10 billion in bonds to help speed up construction
projects and stimulate it's economy.
In early November, Texas voters approved Proposition 15, a constitutional
amendment that will allow the state to issue bonds to pay for new highways.
Historically, approximately 10% of the Company's revenues are generated from
Texas and it is one of HCD's larger markets. Funds from the bonds will be used
to finance construction and expansion of state highways, and help pay for toll
roads and other transportation projects, including light rail projects.
In summary, the Company is faring extremely well in a difficult economic
environment. Our healthy backlog and an outstanding list of projects on which to
bid provide us with a positive outlook going forward.
17
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
- --------------------------------------------------------------------------------
(IN MILLIONS) 2001 2000
- --------------------------------------------------------------------------------
Cash and cash equivalents $112.0 $ 48.6
Net cash provided (used) by:
Operating activities 68.1 39.3
Investing activities (75.8) (36.3)
Financing activities 61.9 (16.2)
Capital expenditures $57.9 $ 39.0
================================================================================
Cash provided by operating activities of $68.1 million for the nine
months ended September 30, 2001 represents a $28.8 million increase over the
same period in 2000. Changes in cash from operating activities primarily reflect
variations based on the amount and progress of work being performed. In
particular, billings in excess of costs and estimated earnings, net, as of
September 30, 2001 increased over December 31, 2000 due to cash timing
differences on several large projects in the early stages of construction.
Cash used by investing activities for the nine month period in 2001
increased $39.5 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, partially
offset by higher proceeds from sales of property and equipment.
The Company generated cash from financing activities in the nine months
ended September 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 $30.4 million was available at September 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
18
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 provisions of SFAS 142 will be effective for fiscal years beginning
after December 15, 2001.
In August 2001, FASB issued Statement No. 143 ("SFAS 143"), "Accounting for
Asset Retirement Obligations." SFAS 143 requires that obligations associated
with the retirement of a tangible long-lived asset be recorded as a liability
when those obligations are incurred, with the amount of the liability initially
measured at fair value. SFAS 143 will be effective for financial statements for
fiscal years beginning after June 15, 2002.
In October 2001, FASB issued Statement No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 provides guidance on the
accounting for the impairment or disposal of long-lived assets, supercedes SFAS
121, and is effective for financial statements issued for fiscal years beginning
after December 15, 2001.
The Company is currently evaluating the impact, if any, of adopting SFAS 142,
143 and 144.
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.
20
PART II. OTHER INFORMATION
21
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
On July 16, 2001, the Company filed a report on Form
8-K which announced the Company's acquisition of Halmar
Builders of New York, Inc. A Copy of the Company's
press release announcing the acquisition was attached
and incorporated by reference therein.
22
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: September 14, 2001 By: /s/ William E. Barton
-------------------- --------------------------------------
William E. Barton
Senior Vice President and Chief
Financial Officer
23