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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________
Commission file number 1-12911
GRANITE CONSTRUCTION INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 77-0239383
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
525 WEST BEACH STREET, WATSONVILLE, CALIFORNIA 95076
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 724-1011
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting and non-voting stock held by non-affiliates
of the registrant was approximately $571,121,912 as of March 20, 2000 based upon
the average of the high and low sales prices per share of the registrant's
Common Stock as reported on the New York Stock Exchange on such date. Shares of
Common Stock held by each executive officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
At March 20, 2000, 27,024,205 shares of Common Stock, par value $0.01 of the
registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held May 22, 2000, which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1999.
This report, including all exhibits and attachments, contains 161 pages. The
exhibit index is on pages 29-30.
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TABLE OF CONTENTS
Page
No.
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PART I...............................................................................3
Item 1. BUSINESS................................................................3
Item 2. PROPERTIES.............................................................10
Item 3. LEGAL PROCEEDINGS......................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................10
PART II.............................................................................12
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS....................................................12
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA...................................12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................14
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............22
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES..............................................24
PART III............................................................................25
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................25
Item 11. EXECUTIVE COMPENSATION.................................................25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................25
PART IV.............................................................................26
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........26
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING DISCLOSURE
This report contains forward-looking statements; such as
statements related to the impact of government regulations on the
Company's operations, the adequacy of the Company's aggregate reserves,
1999 backlog expected to be completed in 2000, the existence of bidding
opportunities and the impact of legislation, availability of highway
funds and economic conditions on the Company's future results.
Additionally, forward-looking statements include statements that can be
identified by the use of forward-looking terminology such as "outlook,"
"believes," "expects," "appears," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy.
All such forward looking statements are subject to risks and
uncertainties that could cause actual results of operations and
financial condition and other events to differ materially from those
expressed or implied in such forward-looking statements. Specific risk
factors include, without limitation, changes in the composition of
applicable federal and state legislation appropriation committees;
federal and state appropriation changes for infrastructure spending;
the general state of the economy; weather conditions; competition and
pricing pressures; and state referendums and initiatives.
Forward-looking statements related to the Company's aggregate reserves
and completion of backlog carry risk factors which include, without
limitation, changes in estimates of existing reserves and estimates of
the Company's need for those reserves and delays in the progress of
work in the 1999 backlog.
INTRODUCTION
Granite Construction Incorporated (the "Company" or "Granite") was
incorporated in Delaware in January 1990 as the holding company for Granite
Construction Company, which was incorporated in California in 1922. Therefore,
references herein to the "Company" or "Granite" in the context of operations
should be read to mean Granite Construction Company and Granite Construction
Incorporated's other subsidiaries.
The Company is one of the largest heavy civil construction contractors
in the United States and operates nationwide. Its focus is primarily in the
West, Southwest, and Southeast serving both public and private sector clients.
Within the public sector, the Company concentrates on infrastructure projects;
including the construction of roads, highways, bridges, dams, tunnels, canals,
mass transit facilities and airports. Within the private sector, the Company
performs site preparation services for buildings, plants, subdivisions and other
facilities. Granite's participation in both the public and private sectors and
its diverse mix of project types and sizes have contributed to the Company's
revenue growth and profitability in various economic environments.
The Company owns and leases substantial aggregate reserves and owns 93
construction materials processing plants. The Company also owns one of the
largest heavy construction contractor equipment fleets in the United States. The
Company believes that the ownership of these assets enables it to compete more
effectively by ensuring availability of these resources at a favorable cost.
OPERATING STRUCTURE
The principal operating company, Granite Construction Company, is
organized into two business segments, the Branch Division and the Heavy
Construction Division. The Branch Division is comprised of branch offices which
serve local markets, while the Heavy Construction Division pursues major
infrastructure projects throughout the nation. The Heavy Construction Division
("HCD") generally builds large heavy civil projects with contract amounts in
excess of $15 million and contract durations greater than two years, while the
Branch Division projects are typically smaller in size and shorter in duration.
The two divisions complement each other in a variety of ways. The Heavy
Construction Division is a major user of large construction equipment and
employs sophisticated techniques on complex projects. The branches draw on these
resources which are generally not available to smaller, local competitors.
Conversely, the Branch Division has greater knowledge of local markets and
provides the Heavy Construction Division with valuable information regarding
larger projects in the branches' areas. The two divisions sometimes jointly
perform projects when a project in a particular region exceeds the local
branch's capabilities.
As decentralized profit centers, the branch offices and the Heavy
Construction Division independently estimate, bid and complete contracts. Both
divisions are supported by centralized functions, including finance, accounting,
tax, human resources, labor
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relations, safety, legal, insurance, surety and management information services.
The Company believes that centralized support for decentralized profit centers
results in a more market responsive business with effective controls and reduced
overhead.
In addition to cost and profitability estimates, Granite considers the
availability of estimating and project building personnel as key factors when
determining whether to bid on a project. Other factors considered include the
client, the geographic location, Granite's competitive advantages and
disadvantages relative to likely competitors for the project, current and
projected workload, and the likelihood of follow-up work. Both operating
divisions use a proprietary computer-based project estimating system that
reflects Granite's significant accumulated experience. Granite believes that an
exhaustive, detailed approach to a project's estimate and bid is important in
order to best identify the project's risks and opportunities. The Company's
estimates are comprehensive in nature, sometimes totaling hundreds of pages of
analysis. Each project is broken into phases and line items, for which separate
labor, equipment and material estimates are made. Once a project begins, the
estimate provides Granite with a budget against which actual project cost is
regularly measured, enabling Granite to manage its projects more effectively.
Information about the Company's business segments for the years ended
December 31, 1999, 1998 and 1997 is incorporated in Note 14 of the "Notes to the
Consolidated Financial Statements," located on page F-20 of this Annual Report
on Form 10K.
The Branch Division. In 1999, Branch Division contract revenue and
sales of aggregate products were $976.5 million (73.5% of Company revenue) as
compared with $945.9 million (77.1% of Company revenue) in 1998. The Branch
Division has both public and private sector clients. Public sector activities
include both new construction and improvement of streets, roads, highways and
bridges. For example, the branches widen and re-pave roads and modify and
replace bridges. Major private sector contracts include site preparation for
housing, including excavation; grading and street paving; and installation of
curbs, gutters, sidewalks and underground utilities.
The Company currently has 11 branch offices with 15 satellite
operations. The Company's branch offices in California are located in
Bakersfield, Hanford (Central Valley), Monterey Bay Area, Palm Springs (Southern
California), Sacramento, San Jose, Santa Barbara and Stockton. The Company's
branch offices outside of California are located in Arizona, Nevada and Utah.
Each branch effectively operates as a local or regional construction company and
its management is encouraged to participate actively in the local community.
While individual branch revenues vary from year to year, in 1999 these revenues
ranged from $33 million to $211 million.
As part of the Company's strategy, many of Granite's branches mine
aggregates and operate plants which process aggregates into construction
materials for internal use and for sale to others. These activities provide both
a source of profits and a competitive advantage to the Company's construction
business. Close to half of the aggregate products produced in these branch
operations are used in the Company's construction projects. The remainder is
sold to unaffiliated parties and accounted for $159.0 million of revenue in
1999, representing 12.0% of the Company's total 1999 revenue. The Company has
significant aggregate reserves which it has acquired by ownership in fee or
through long-term leases.
Heavy Construction Division. In 1999, revenue from HCD was $352.3
million (26.5% of Company revenue) as compared with $280.2 million (22.9% of
Company revenue) in 1998. HCD projects are usually larger and more complex than
those performed by the Branch Division. The Division has completed projects
throughout the nation; including mass transit projects in the metropolitan areas
of Atlanta, Baltimore, Los Angeles, San Francisco and Washington, D.C., and
major dam and tunnel projects in twelve states.
HCD builds infrastructure projects; including major highways, large
dams, mass transit facilities, bridges, pipelines, canals, tunnels, waterway
locks and dams and airport runways, and has engaged in contract mine stripping
and reclamation and large site preparation. It also performs activities such as
demolition, clearing, excavation, de-watering, drainage, embankment fill,
structural concrete, concrete and asphalt paving, and tunneling.
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The Division markets, estimates, bids and provides management overview
of its projects from its Watsonville, California headquarters and satellite
estimating offices in Texas, Georgia, and Florida. Project staff located at job
sites have the managerial, technical, and clerical capacity to meet on-site
project management requirements. HCD has the ability, if appropriate, to process
locally sourced aggregates into construction materials using its own portable
crushing, concrete and asphalt processing plants.
HCD participates in joint ventures with other large construction
companies from time to time. Joint ventures are used for large, technically
complex projects, including design/build projects, where it is desirable to
share risk and resources. Joint ventures provide independently prepared
estimates, and shared financing, equipment and expertise.
Design/build projects have emerged as an expanding market for HCD.
Unlike traditional projects where owners first hire a design firm and then put
the plans out to bid to find a contractor, design/build projects provide the
owner with a single point of responsibility and a single contact. Past
design/build projects have included two projects in California - the SR-91
Tollway which was completed in 1995 and the San Joaquin Hills Transportation
Corridor which was completed in 1996. Ongoing projects include the I-15 rebuild
in Salt Lake City, Utah, the Atlantic City/Brigantine Connector in New Jersey,
the I-17 rebuild project in Phoenix, Arizona, and a tollway in Laredo, Texas.
Design/build projects have historically been bid with the Company as part of a
joint venture team. While design/build is being used considerably more in the
private sector, the public sector is expanding its use.
INVESTMENT IN T.I.C. HOLDINGS, INC.
The Company currently holds a 30% minority interest in T.I.C. Holdings,
Inc. ("TIC"). In February 2000, the Company reached an agreement in principle
with TIC to sell its minority interest back to TIC over a three and one
half-year period. Under the agreement in principle, TIC will have the
opportunity to repurchase shares sooner based on an agreed to formula. A
definitive agreement has not yet been finalized. This will allow TIC to retain
its independence while allowing both companies to maintain their strategic
alliance. The proposed agreement will also allow the Company to intensify its
focus on its core business in heavy civil construction.
INVESTMENT IN WILDER CONSTRUCTION COMPANY
In January 2000, the Company purchased 30% of the common stock of
Wilder Construction Company ("Wilder") for a purchase price of $13.1 million.
The purchase agreement provides for the Company to increase its ownership in
Wilder to between 51% and 60% in 2002 and to 75% in 2004. Founded in 1911,
Wilder is a heavy civil construction company with regional offices located in
Washington, Oregon and Alaska. Wilder has annual revenues of approximately $150
million and employs approximately 650 people throughout the Northwest and
Alaska.
BUSINESS STRATEGY
Granite's fundamental objective is to increase long-term shareholder
value by focusing on consistent profitability from managed revenue growth.
Shareholder value is measured by the appreciation of the value of Granite stock
over a period of years, and to some degree, a return from dividends. Further, it
is a specific measure of the Company's financial success to achieve a Return on
Net Assets ("RONA") greater than the cost of capital, creating "Granite Value
Added." To accomplish these objectives, Granite employs the following
strategies:
Heavy/Highway Construction Focus - Granite concentrates its core
competencies on this segment of the construction industry which
includes the building of roads, highways, bridges, dams and tunnels,
mass transit facilities, underground utilities and site preparation.
This focus emphasizes the Company's specialized strengths which include
grading, paving and concrete structures.
Vertical Integration of Aggregate Materials into Construction - Granite
owns aggregate reserves and processing plants and thus, by ensuring
availability of these resources at favorable cost, it believes it has
significant bidding advantages in many of its markets.
Selective Bidding - Once Granite selects a job that meets its bidding
criteria, the project is estimated using a highly detailed method with
a proprietary estimating system which details anticipated cost to
construct and margin to achieve the appropriate bid price for the risk
assumed.
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Diversification - To mitigate the risks inherent in construction and
general economic factors, Granite pursues projects (i) in both the
public and private sectors; (ii) for a wide range of customers within
each sector (from the federal government to small municipalities and
from large corporations to individual homeowners); (iii) in diverse
geographic markets; and (iv) of various sizes, durations and
complexity.
Decentralized Profit Centers - Granite approaches each selected market
with a local focus through its decentralized structure. Each of
Granite's branches and the Heavy Construction Division are individual
profit centers.
Management Incentives - The Company compensates its profit center
managers with lower-than-market fixed salaries coupled with a
substantial variable cash and restricted stock incentive element based
on the annual profit performance of their respective profit centers.
Ownership of Construction Equipment - By owning and carefully
maintaining a large fleet of heavy construction equipment, Granite
competes more effectively by ensuring availability of these resources
at favorable cost.
Controlled Expansion - The Company intends to continue its expansion by
selectively adding branches in the western United States, pursuing
major infrastructure projects throughout the nation, expanding into
other construction market segments through acquisitions, and by
leveraging its financial capacity for projects that will utilize
Granite for construction work and provide an acceptable return on the
Company's investment.
Accident Prevention - Granite believes that the prevention of accidents
is both a moral obligation and good business. By identifying and
concentrating resources to address jobsite hazards the Company
continues to significantly reduce its incident rates and the costs
associated with accidents.
Environmental Affairs - Granite believes it benefits everyone to
maintain environmentally responsible operations. The Company is
committed to effective air quality control measures and reclamation at
its plant sites and to waste reduction and recycling of the potentially
environmentally sensitive products used in its operations.
Quality and High Ethical Standards - Granite emphasizes the importance
of performing high quality work and maintaining high ethical standards
through an established code of conduct and an effective corporate
compliance program.
CUSTOMERS
The Company has customers in both the public and private sectors. The
Branch Division's principal customers are State Departments of Transportation in
California, Nevada, Utah, and Arizona. In 1999, contracts with the California
Department of Transportation represented 10.2% of the Company's revenue. Other
Branch Division clients include county and city public works departments and
developers and owners of industrial, commercial and residential sites. The
principal clients of the Heavy Construction Division are in the public sector
and currently include the State Departments of Transportation in Texas, Utah,
Florida, New Jersey, and Arizona. (See Note 2 of Notes to Consolidated Financial
Statements).
A breakdown of the Company's revenues for the last three years by
geographic area and market sector is as follows (in thousands):
1999 1998 1997
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
California ........................ $ 574,618 43.2% $ 585,983 47.8% $ 505,768 49.2%
West (excluding California) ....... 510,953 38.5 468,094 38.2 388,715 37.8
South/East ........................ 243,203 18.3 172,023 14.0 133,722 13.0
---------- ------- ---------- ------- ---------- -------
Total ............................. $1,328,774 100.0% $1,226,100 100.0% $1,028,205 100.0%
========== ======= ========== ======= ========== =======
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1999 1998 1997
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
Contract revenues:
Federal agencies ............... $ 31,641 2.4% $ 44,844 3.7% $ 38,789 3.8%
State agencies ................. 567,366 42.7 516,485 42.1 449,727 43.6
Local public agencies .......... 257,392 19.4 274,657 22.4 238,141 23.2
Private sector ................. 313,356 23.5 248,447 20.2 174,479 17.0
Construction materials sales ...... 159,019 12.0 141,667 11.6 127,069 12.4
---------- ------- ---------- ------- ---------- -------
Total ............................. $1,328,774 100.0% $1,226,100 100.0% $1,028,205 100.0%
========== ======= ========== ======= ========== =======
BACKLOG
The Company's backlog (anticipated revenue from uncompleted portions of
existing contracts) was $793.3 million at December 31, 1999, down from $901.6
million at December 31, 1998, and was $909.8 million at December 31, 1997.
Approximately $120 million of the December 31, 1999 backlog is expected to
remain at December 31, 2000. The Company includes a construction project in its
backlog at such time as a contract is awarded or a firm letter of commitment is
obtained, and funding is in place. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.") The Company believes its
backlog figures are firm, subject only to the cancellation and modification
provisions contained in various contracts. Substantially all of the contracts in
the backlog may be canceled or modified at the election of the client. However,
the Company has not been materially adversely affected by contract cancellations
or modifications in the past. (See "Business-Contract Provisions and
Subcontracting.") A sizeable percentage of the Company's anticipated revenue in
any year is not reflected in its backlog at the start of the year due to the
short duration of smaller Branch Division projects that are initiated and
completed during such year ("Turn Business"). The following is a breakdown of
backlog as of December 31, 1999, 1998 and 1997 (in millions):
1999 1998 1997
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
By Geographic Area:
California ............................ $ 245.9 31.0% $ 192.1 21.3% $ 214.4 23.6%
West (excluding California) ........... 205.5 25.9 312.0 34.7 379.5 41.7
South/East ............................ 341.9 43.1 397.5 44.0 315.9 34.7
------- ------- ------- ------- ------- -------
$ 793.3 100.0% $ 901.6 100.0% $ 909.8 100.0%
======= ======= ======= ======= ======= =======
By Market Sector:
Federal agencies ...................... $ 18.1 2.3% $ 22.6 2.5% $ 29.7 3.3%
State agencies ........................ 469.0 59.1 635.8 70.5 674.9 74.2
Local public agencies ................. 124.3 15.7 133.1 14.8 144.9 15.9
Private sector ........................ 181.9 22.9 110.1 12.2 60.3 6.6
------- ------- ------- ------- ------- -------
$ 793.3 100.0% $ 901.6 100.0% $ 909.8 100.0%
======= ======= ======= ======= ======= =======
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EQUIPMENT
The Company purchases and maintains many pieces of equipment; including
cranes, bulldozers, scrapers, graders, loaders, trucks, pavers, rollers, and
construction materials processing plants. In 1999 and 1998, the Company spent
approximately $51.3 million and $35.7 million, respectively, for construction
equipment, plants and vehicles. The breakdown of the Company's construction
equipment, plants and vehicles at December 31, 1999 is as follows:
Heavy construction equipment............................. 2,135 units
Trucks, truck-tractors and trailers and vehicles......... 3,144 units
Aggregate crushing plants................................ 32 plants
Asphalt concrete plants.................................. 36 plants
Portland cement concrete batch plants.................... 14 plants
Thermal soil remediation plants.......................... 1 plants
Asphalt rubber plants.................................... 3 plants
Lime slurry plants....................................... 7 plants
The Company believes that ownership of equipment is preferable to
leasing because ownership ensures the equipment is available as needed and
normally results in lower equipment costs. The Company attempts to keep its
equipment as fully utilized as possible by pooling equipment for use by both the
Branch Division and the Heavy Construction Division. From time to time, the
Company leases or rents equipment on a short-term basis.
EMPLOYEES
On December 31, 1999, Granite employed 1,250 salaried employees, who
work in management, estimating and clerical capacities, and 2,848 hourly
employees. The total number of hourly personnel employed by the Company is
subject to the volume of construction in progress. During 1999, the number of
hourly employees ranged from 2,551 to 4,419 and averaged approximately 3,589.
The Company's wholly owned subsidiary, Granite Construction Company, is a party
to craft collective bargaining agreements in many areas in which it is working.
The Company believes its employees are its most valuable resource and
that its workforce possesses a strong dedication to and pride in the Company.
Among salaried and non-union hourly employees, this dedication is reinforced by
31.9% equity ownership through the Employee Stock Ownership Plan ("ESOP"), the
Profit Sharing and 401k Plan and performance-based incentive compensation
arrangements. The Company's 388 managerial and supervisory personnel have an
average of 11 years of service with Granite.
COMPETITION
Factors influencing the Company's competitiveness are price, reputation
for quality, the availability of aggregate materials, machinery and equipment,
financial strength, knowledge of local markets and conditions, and estimating
abilities. The Company believes that it competes favorably on the basis of the
foregoing factors. Branch Division competitors range from small local
construction companies to large regional and national construction companies.
While the market areas of these competitors overlap with several of the markets
served by the Company's branches, few, if any, compete in all of the Company's
market areas. The Heavy Construction Division normally competes with large
regional and national construction companies. Although the construction business
is highly competitive, particularly for competitively bid projects in the public
sector, the Company believes it is well positioned to compete effectively.
CONTRACT PROVISIONS AND SUBCONTRACTING
The Company's revenue is substantially derived from contracts that are
"fixed unit price" contracts under which the Company is committed to provide
materials or services required by a project at fixed unit prices (for example,
dollars per cubic yard of concrete or cubic yards of earth excavated). While the
fixed unit price contract shifts the risk of estimating the quantity of units
required for a particular project to the customer; any increase in the Company's
unit cost over the unit price bid, whether due to inflation, inefficiency,
faulty estimates or other factors, is borne by the Company unless otherwise
provided in the contract. The Company's contracts are obtained primarily through
competitive bidding in response to advertisements by federal, state and local
government agencies and private parties.
There are a number of factors that can create variability in contract
performance and results as compared to a project's original bid. The most
significant of these include, without limitation, site conditions that differ
from those assumed in the original
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bid, the availability and skill level of workers in the geographic location of
the project, the availability and proximity of materials, inclement weather and
timing and coordination issues inherent in design/build projects. All of these
factors can impose inefficiencies on contract performance and therefore have a
direct impact on contract productivity (i.e. drive up contract costs) which in
turn can have a direct impact on contract results.
All federal government contracts and many of the Company's other
contracts provide for termination of the contract for the convenience of the
party contracting with the Company. In addition, many of the Company's contracts
are subject to certain completion schedule requirements with liquidated damages
in the event schedules are not met. The Company has not been materially
adversely affected by these provisions in the past.
The Company acts as prime contractor on most of the construction
projects it undertakes. The Company accomplishes the majority of its projects
with its own resources and subcontracts specialized activities such as
electrical and mechanical work. As prime contractor the Company is responsible
for the performance of the entire contract, including subcontract work. Thus,
the Company is subject to increased costs associated with the failure of one or
more subcontractors to perform as anticipated. The Company's subcontractors
generally furnish bonds if the Company believes it is necessary to provide an
additional measure of security of their performance. Disadvantaged business
enterprise regulations require the Company to use its best efforts to
subcontract a specified portion of contract work done for governmental agencies
to certain types of subcontractors. Some of these subcontractors may not be able
to obtain surety bonds. The Company has not incurred any material loss or
liability on work performed by subcontractors to date.
INSURANCE AND BONDING
The Company maintains general and excess liability, construction
equipment, and workers' compensation insurance; all in amounts consistent with
industry practices. Management believes its insurance programs are adequate.
In connection with its business, the Company generally is required to
provide various types of surety bonds which provide an additional measure of
security of its performance under certain public and private sector contracts.
The Company's ability to obtain surety bonds depends upon its capitalization,
working capital, past performance, management expertise and other factors.
Surety companies consider such factors in light of the amount of surety bonds
then outstanding for the Company and their current underwriting standards, which
may change from time to time. The Company has been bonded by the same surety for
more than 60 years and has never been refused a bond.
GOVERNMENT REGULATIONS
The Company's operations are subject to compliance with regulatory
requirements of federal, state, and municipal agencies and authorities;
including regulations concerning labor relations, affirmative action and the
protection of the environment. While compliance with applicable regulatory
requirements has not adversely affected the Company's operations in the past
relative to its competitive position within its industry sector, there can be no
assurance that these requirements will not change and that compliance will not
adversely affect the Company's operations. In addition, the aggregate materials
operations of the Company require operating permits granted by governmental
agencies. The Company believes that tighter regulations for the protection of
the environment and other factors will make it increasingly difficult to obtain
new permits and renewal of existing permits may be subject to more restrictive
conditions than currently exist.
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ITEM 2. PROPERTIES
The Company owns and leases real property for use in its construction
and aggregate mining and processing activities. The Company owns approximately
367,054 square feet of office and shop space and leases, pursuant to leases
expiring between January 2000 and April 2003, an additional 59,761 square feet
of office and shop space. The Company owns approximately 11,114 acres of land of
which 1,500 acres are un-permitted reserves available for future use and leases
approximately 4,302 additional acres of land at sites in California, Nevada,
Arizona and Utah. A majority of the land owned or leased by the Company is
intended to serve as aggregate reserves. There are no significant encumbrances
against owned property. The Company's leases for aggregate reserves generally
limit the Company's interest in the reserves to the right to mine the reserves.
These leases range from month-to-month leases to leases with expiration dates
ranging from January 2000 to June 2016. The Company considers its available and
future aggregate reserves adequate to meet its expected operating needs. The
Company pursues a plan of acquiring new sources of aggregate reserves to
replenish those depleted and to assure future growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings. The Company
believes that the nature and number of these proceedings are typical for a
construction firm of its size and scope and that none of these proceedings is
material to the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the year ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
Age Position
--- --------
David H. Watts 61 Chairman of the Board, President, Chief Executive Officer and Director
William G. Dorey 55 Executive Vice President and Chief Operating Officer
William E. Barton 55 Senior Vice President and Chief Financial Officer
Patrick M. Costanzo 61 Senior Vice President and Manager, Heavy Construction Division
Mark E. Boitano 51 Senior Vice President and Manager, Branch Division
Granite Construction Incorporated was incorporated in Delaware in
January 1990 as the holding company for Granite Construction Company, which was
incorporated in California in 1922. All dates of service for the executive
officers of the registrant also include the periods in which they served for
Granite Construction Company.
Mr. Watts joined the Company in 1987 as President and Chief Executive
Officer and has served as a director since 1988, and Chairman of the Board since
1999. In May 1997, Mr. Watts became a director of TIC Holdings, Inc. and in
January 2000 he also became a director of Wilder Construction Company in which
Granite Construction Incorporated owns a 30% interest. From 1984 until 1987, Mr.
Watts served as President, Chief Executive Officer and a director of Ford, Bacon
& Davis, Inc., an industrial engineering and construction firm. From 1965 until
1984, Mr. Watts was employed by an underwater services and construction firm in
various capacities, including as President and Chief Operating Officer. He
received a B.A. degree in Economics from Cornell University in 1960. Mr. Watts
is the current Chair of the California Chamber of Commerce.
10
11
Mr. Dorey has been an employee of the Company since 1968 and has served
in various capacities, including Executive Vice President and Chief Operating
Officer since 1998, Senior Vice President and Manager, Branch Division from 1987
to 1998, and as Vice President and Assistant Manager, Branch Division from 1983
to 1987. In 1997, Mr. Dorey became a director of TIC Holdings, Inc. and in
January 2000 he also became a director of Wilder Construction Company in which
Granite Construction Incorporated owns a 30% interest. He received a B.S. degree
in Construction Engineering from Arizona State University in 1967.
Mr. Barton has been an employee of the Company since 1980 and has
served in various capacities, including Senior Vice President since 1999, Vice
President and Chief Financial Officer from 1990 to 1999, Controller in 1989,
Treasurer in 1988 and Cash Manager from 1980 until 1988. In 1997, Mr. Barton
became a director of TIC Holdings, Inc. and in January 2000 he also became a
director of Wilder Construction Company in which Granite Construction
Incorporated owns a 30% interest. He received a B.S. degree in Accounting and
Finance from San Jose State University in 1967 and an M.B.A. degree from the
University of Santa Clara in 1973.
Mr. Costanzo has been an employee of the Company since 1970 and has
served in various capacities, including Senior Vice President and Manager, Heavy
Construction Division, since 1990, Vice President and Assistant Manager, Heavy
Construction Division, from 1988 to 1989, and an Area or Project Manager with
the Heavy Construction Division from 1971 to 1987. In 1997, Mr. Costanzo became
a director of TIC Holdings, Inc. He received a B.S. degree in civil engineering
from the University of Connecticut in 1960 and a M.S. degree in Civil
Engineering from Stanford University in 1961.
Mr. Boitano has been an employee of the Company since 1977 and has
served in various capacities, including Senior Vice President and Manager,
Branch Division since 1998, Assistant Branch Division Manager from 1987 to 1998,
Branch Manager, Arizona operations from 1983 to 1987, Assistant Manager, Arizona
operations from 1980 to 1983, Assistant Manager, Salinas Branch in 1980, and
Project Manager Estimator from 1977 to 1980. He received a B.S. degree in Civil
Engineering from Santa Clara University in 1971 and an M.B.A. degree from
California State University, Fresno in 1977.
11
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
On April 25, 1997, the Company commenced trading its common stock on
the New York Stock Exchange under the ticker symbol GVA. The Company's move from
NASDAQ Stock Market to the New York Stock Exchange was intended to improve
trading efficiencies and liquidity in an effort to promote enhanced shareholder
value. See Quarterly Results in Item 7 for a two-year summary of quarterly
dividends and high and low sales prices of the Company's stock.
The Company expects to pay a quarterly cash dividend of $0.10 plus a
special dividend of $0.06 per share of common stock to stockholders of record as
of March 31, 2000 payable on April 14, 2000 (See Note 15 of Notes to
Consolidated Financial Statements). Declaration and payment of dividends is
within the sole discretion of the Company's Board of Directors, subject to
limitations imposed by Delaware law, and will depend on the Company's earnings,
capital requirements, financial conditions and such other factors as the Board
of Directors deems relevant. As of March 20, 2000 there were 27,024,205 shares
of common stock outstanding held by approximately 367 stockholders of record.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated operations data for 1999, 1998 and 1997 and
consolidated balance sheet data as of December 31, 1999 and 1998 set forth below
have been derived from consolidated financial statements of the Company, and are
qualified by reference to our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants included herein. The
selected consolidated statement of income data for 1996 through 1989 and the
consolidated balance sheet data as of December 31, 1997 through 1989 have been
derived from our audited financial statements not included herein. These
historical results are not necessarily indicative of the results of operations
to be expected for any future period.
12
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SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING SUMMARY
Revenue $1,328,774 $1,226,100 $1,028,205 $ 928,799 $ 894,796 $ 693,388
Gross profit 179,201 153,092 111,730 110,655 111,963 89,988
As a percent of revenue 13.5% 12.5% 10.9% 11.9% 12.5% 13.0%
General and administrative expenses 94,939 83,834 73,593 71,587 69,610 62,795
As a percent of revenue 7.1% 6.8% 7.2% 7.7% 7.8% 9.1%
Income before cumulative effect of change
in accounting principle * 52,916 46,507 27,832 27,348 28,542 19,488
Net income 52,916 46,507 27,832 27,348 28,542 19,488
As a percent of revenue 4.0% 3.8% 2.7% 2.9% 3.2% 2.8%
Income per share before cumulative effect
of change in accounting principle:
Basic $ 2.03 $ 1.75 $ 1.05 $ 1.04 $ 1.10 $ 0.75
Diluted 1.96 1.70 1.03 1.02 1.08 0.74
Net income per share:
Basic 2.03 1.75 1.05 1.04 1.10 0.75
Diluted 1.96 1.70 1.03 1.02 1.08 0.74
Weighted average shares of common and
common stock equivalents outstanding:**
Basic 26,058 26,559 26,397 26,207 25,916 25,884
Diluted 26,963 27,339 26,942 26,748 26,474 26,289
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
Total assets $ 679,572 $ 626,571 $ 551,809 $ 473,045 $ 454,744 $ 349,098
Cash, cash equivalents and short-term
investments 108,077 121,424 72,769 72,230 66,992 48,638
Working capital 143,657 142,448 103,910 92,542 77,179 65,537
Current maturities of long-term debt 5,985 10,787 12,921 10,186 13,948 10,070
Long-term debt 64,853 69,137 58,396 43,602 39,494 17,237
Stockholders' equity 327,732 301,282 257,434 233,605 209,905 182,692
Book value per share 12.14 10.90 9.40 8.59 7.82 6.91
Dividends per share $ 0.40 $ 0.30 $ 0.24 $ 0.25 $ 0.19 $ 0.09
Common shares outstanding 26,996 27,649 27,400 27,189 26,828 26,433
- -----------------------------------------------------------------------------------------------------------------------------------
BACKLOG $ 793,256 $ 901,592 $ 909,793 $ 597,876 $ 590,075 $ 550,166
- -----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------
OPERATING SUMMARY
Revenue $ 570,379 $ 518,312 $ 564,060 $ 557,996 $ 504,084
Gross profit 50,743 50,578 69,502 70,646 60,837
As a percent of revenue 8.9% 9.8% 12.3% 12.7% 12.1%
General and administrative expenses 47,107 46,906 46,541 44,466 41,915
As a percent of revenue 8.3% 9.0% 8.3% 8.0% 8.3%
Income before cumulative effect of change
in accounting principle * 3,492 3,924 17,622 18,811 14,211
Net income 4,492 3,924 17,622 18,811 14,211
As a percent of revenue 0.8% 0.8% 3.1% 3.4% 2.8%
Income per share before cumulative effect
of change in accounting principle:
Basic $ 0.13 $ 0.15 $ 0.68 $ 0.76 $ 0.63
Diluted 0.13 0.15 0.67 0.75 0.63
Net income per share:
Basic 0.17 0.15 0.68 0.76 0.63
Diluted 0.17 0.15 0.67 0.75 0.63
Weighted average shares of common and
common stock equivalents outstanding:**
Basic 25,875 25,875 25,875 24,863 22,500
Diluted 26,133 26,114 26,123 24,933 22,500
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
Total assets $ 319,416 $ 316,978 $ 277,426 $ 260,426 $ 245,880
Cash, cash equivalents and short-term
investments 48,810 54,139 54,973 50,451 46,306
Working capital 64,619 66,329 55,186 52,352 34,902
Current maturities of long-term debt 10,060 15,469 7,669 7,887 14,228
Long-term debt 28,585 38,618 14,816 19,084 39,707
Stockholders' equity 164,338 158,594 153,159 131,026 86,552
Book value per share 6.25 6.05 5.87 5.06 3.85
Dividends per share $ 0.09 $ 0.09 $ 0.09 $ 0.07 $ --
Common shares outstanding 26,301 26,216 26,078 25,875 22,500
- ---------------------------------------------------------------------------------------------------------------------
BACKLOG $ 659,738 $ 245,234 $ 292,017 $ 368,384 $ 377,529
- ---------------------------------------------------------------------------------------------------------------------
* Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
13
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Granite is one of the largest heavy civil contractors in the United
States and is engaged in the construction of highways, dams, airports, mass
transit facilities and other infrastructure-related projects. The Company has
offices in California, Texas, Georgia, Nevada, Arizona, Florida, and Utah.
The Company's contracts are obtained primarily through competitive
bidding in response to advertisements by federal, state and local agencies, and
private parties. The Company's bidding activity is affected by such factors as
backlog, current utilization of equipment and other resources, ability to obtain
necessary surety bonds and competitive considerations. Bidding activity, backlog
and revenue resulting from the award of new contracts to the Company may vary
significantly from period to period.
Revenue from construction contracts including construction joint
ventures is recognized using the percentage-of-completion method of accounting,
based upon costs incurred and projected costs. Revenue in an amount equal to
cost incurred is recognized prior to contracts reaching 25% completion. The
related earnings are not recognized until the period in which such percentage
completion is attained. Cost of revenue consists of direct costs on contracts;
including labor and materials, amounts payable to subcontractors, direct
overhead costs, equipment expense (primarily depreciation, maintenance and
repairs) and insurance costs. Depreciation is provided using accelerated methods
for construction equipment. Contracts frequently extend over a period of more
than one year and revisions in cost and profit estimates during construction are
reflected in the accounting period in which the facts that require the revision
become known. Losses on contracts, if any, are provided in total when
determined, regardless of the degree of project completion. Claims for
additional contract revenue are recognized in the period when it is probable
that the claim will result in additional revenue and the amount can be reliably
estimated. The foregoing as well as weather, stage of completion, and mix of
contracts at different margins may cause fluctuations in gross profit between
periods.
The Company's compensation strategy for selected management personnel
is to rely heavily on a variable cash and restricted stock performance-based
incentive element. Thus, the Company may experience an increase in general and
administrative expenses in a very profitable year and a decrease in less
profitable years. The Company's profit sharing and pension contribution in
excess of the 401K matching contributions is at the discretion of the Board of
Directors based on the Company reaching certain levels of profitability each
year.
CURRENT YEAR
- ---------------------------------------------------------------------------------------------
In Thousands 1999 1998 INCREASE %
- ---------------------------------------------------------------------------------------------
Revenue:
Branch Division ................... $ 976.5 $ 945.9 $ 30.6 3.2
Heavy Construction Division ....... 352.3 280.2 72.1 25.7
- ---------------------------------------------------------------------------------------------
$1,328.8 $1,226.1 $ 102.7 8.4
=============================================================================================
REVENUE AND BACKLOG. The increased revenue in 1999 was primarily
attributable to increased revenue from private sector contracts which increased
$65.0 million to $313.4 million or 23.5% of total revenue in 1999, from $248.4
million or 20.2% of total revenue in 1998. The Company's private sector work is
primarily comprised of site preparation for both commercial and residential
developments and privately funded transportation projects. The private sector
revenue growth has been significantly influenced by the continued strong growth
in residential and commercial building construction during 1999. In California,
one of the Company's largest markets, new building construction increased 13.0%
during 1999 to $42.6 billion from $37.7 billion in 1998, according to the
Construction Industry Research Board. The Company's revenue from public sector
contracts increased to $856.4 million in 1999 from $836.0 million in 1998 while
decreasing to 64.5% of the Company's total revenue in 1999 from 68.2% in 1998.
Although the level of funding for public sector projects remained strong in 1999
in most of the Company's markets, the increased TEA-21 funding has not yet
significantly impacted the Company's revenue (see "Outlook").
The increase in Branch Division revenue during the year resulted from
increases in revenue from private sector contracts and an increase in material
sales - both of which are strongly correlated to increases in private sector
construction and general economic conditions - partially offset by a slight
decrease in public sector revenue. The increase in HCD revenue is attributable
to significantly drier weather conditions; particularly in Texas and Florida,
and included revenue from a larger number of both private and public sector
projects which include a private sector railroad project in Texas which was
awarded in mid 1998, a private sector design-build
14
15
tollroad project in Texas which was awarded in 1999 and a public sector
design-build highway project in Arizona which was awarded in late 1998.
The Company's backlog at December 31, 1999 was $793.3 million, down
$108.3 million, or 12.0% from 1998. The decrease in backlog was due primarily to
the absence of HCD awards in the fourth quarter. Management believes that
approximately 85% of the work in the backlog at December 31, 1999 will be
recognized as revenue during 2000. The Company believes its bidding
opportunities in its major marketplaces remain strong (see "Outlook").
GROSS PROFIT. For the year ended December 31, 1999, gross profit
reached $179.2 million, a $26.1 million increase from 1998. As a percentage of
revenue, gross profit increased in 1999 to 13.5% from 12.5% in 1998. The
increased gross profit margin was a result of the continued favorable market
conditions in both the public and private sectors as described above, which
tends to increase the Company's ability to win competitively bid projects at
higher margins. Additionally, gross profit margin in 1999 was positively
impacted by drier weather conditions, which allowed for more efficient
utilization of resources, and the successful execution of several HCD projects
that were added to backlog in mid to late 1998. Project to date revenue
recognized for projects less than 25% complete was approximately $36.9 million
and $24.4 million at December 31, 1999 and 1998, respectively. As described
under "General" above, the Company recognizes revenue only to the extent of
cost incurred until a project reaches 25% complete. During 1999, the Company's
gross profit margins were not significantly impacted by changes in the revenue
from projects that were less than 25% complete. Cost of revenue consists of
direct costs on contracts; including labor and materials, amounts payable to
subcontractors, direct overhead costs, equipment expense (primarily
depreciation, maintenance and repairs) and insurance costs. Although the
composition of costs varies with each contract, the Company's gross profit
margins were not significantly impacted by changes in any one of these costs
during 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. For the years ended December 31,
1999 and 1998 general and administrative expenses comprised the following (in
thousands):
- -----------------------------------------------------------------------------
In Thousands 1999 1998
- -----------------------------------------------------------------------------
Salaries and related expenses $ 43,552 $ 40,602
Incentive compensation,
discretionary profit sharing and pension 22,264 18,894
Other general and administrative expenses 29,123 24,338
- -----------------------------------------------------------------------------
Total $ 94,939 $ 83,834
- -----------------------------------------------------------------------------
Percent of revenue 7.1% 6.8%
=============================================================================
Salaries and related expenses increased in 1999 over 1998 due primarily
to increased staffing to support the Company's current and expected growth.
Incentive compensation and discretionary profit sharing and pension costs
increased in 1999 over 1998 as a function of the Company's increased
profitability. Other general and administrative expenses include various costs
to support its operations, none of which exceeds 10% of total general and
administrative expenses. The increase in other general and administrative
expenses in 1999 primarily reflect the absence of the collection of a previously
written-off bad debt that was recognized in 1998 and increases in other costs to
support the Company's growth.
OPERATING INCOME. The Heavy Construction Division's contribution to
operating income in 1999 increased over the 1998 contribution due to increases
in both the volume of work and the profit margins the Division was able to
achieve. The Division's profit margins were positively impacted by the
successful execution of new work that was added to backlog in mid to late 1998,
including two design-build projects, as well as drier weather conditions and
improved margins on projects nearing completion. The Branch Division's
contribution to operating income in 1999 decreased slightly compared to 1998 due
primarily to the absence of the collection of a previously written-off bad debt
and increases in other costs to support the Company's growth.
OTHER INCOME (EXPENSES). Other income decreased $4.0 million to $1.8
million in 1999. The decrease was due primarily to a loss experienced by TIC, in
which the Company has a 30% equity investment. The Company's share of TIC's loss
was approximately $2.8 million, a decrease of approximately $7.0 million from
the Company's share of TIC income in 1998. This decrease was partially offset by
a $2.8 million gain recorded on the sale of a depleted quarry property.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 38.5%
in 1999, an increase of 0.5% from 1998. The increase was primarily due to a
lower impact of the Company's percentage depletion deduction due to higher
pre-tax earnings.
OUTLOOK. As Granite enters 2000 on the heels of a record-breaking year,
the outlook for the Company's financial performance going forward continues to
be very good. The drivers of our business, public sector funding of the
infrastructure and the overall economy, appear to be very strong. The U.S.
economy continues to grow, producing demand for residential and commercial
15
16
development and creating good overall demand for construction services
including materials in many of the Company's geographic regions. Public sector
funding has a very strong foundation supplied by the federal government, through
the 1998 Transportation Equity Act for the 21st Century ("TEA-21"), and state
and local governments have solid transportation capital and maintenance accounts
due to the collection of higher gas and other transportation taxes produced by
the strong economy. These drivers should provide the Company with increasing bid
opportunities during the coming year.
In October 1999, President Clinton signed into law legislation that
appropriated $28.8 billion for the federal-aid highway programs for the 2000
fiscal year. This marks a 6% increase from the $27.2 billion budgeted in 1999
and is in-line with the authorized amounts set by TEA-21. The recently proposed
2001 budget also requests a record $30.5 billion in Federal Highway
Administration obligations, up another 6% from 2000. These amounts reflect the
44% increase over TEA-21's predecessor, the Intermodal Surface Transportation
Efficiency Act (ISTEA), along with the nation's commitment to improve roads and
highways throughout the U.S.
As was the case with ISTEA, there is typically a lag before companies
like Granite feel the bill's effects on the bottom line. This lag is primarily a
result of the length of time that it takes federal money to progress from
planning to design to actual construction bids. It is also important to note
that Granite does not recognize profits on a job until it is 25% complete and
therefore does not anticipate any significant impact to earnings from the larger
TEA-21 funded projects until later in 2000 and beyond.
Our public sector business should also be bolstered from increased
airport construction spending. Legislators have approved a three-year
reauthorization of the Federal Aviation Administration and Airport Improvement
Program (AIP). The bill guarantees that Aviation Trust Fund revenues and
interest will be spent for capital improvements. AIP funding will be a minimum
of $3.2 billion to $3.4 billion for each of the next three years - more than 60%
increase over the $1.9 billion appropriated in 2000.
Momentum in the private sector construction markets also appears to be
carrying over into 2000. According to the U.S. Department of Commerce,
construction spending in January 2000 has surged to an all-time high monthly
level, led in part by spending on housing, commercial buildings and government
projects. Despite rising interest rates, spending on residential projects rose
2.5% while spending on new single-family homes grew by 2.1%. Granite has
witnessed the growth in the private sector market as illustrated by the 29%
compounded average growth rate in its private sector revenue since 1994.
In association with the strong economy, the Company has witnessed some
upward pressure on costs associated with rising oil prices and tight labor
markets. However, there has not been any significant impact on the Company in
1999. Due to the nature of Granite's turn business, we are able to adjust prices
fairly quickly allowing a level of protection against these fluctuating, or
currently rising, costs. In addition, certain costs such as diesel and asphalt
oil are indexed in contracts for state funded projects in Nevada. Similarly in
California, asphalt oil is indexed in contracts for the California Department of
Transportation (Caltrans). However, there is no assurance that the Company will
be able to mitigate 100% of the impact.
The Heavy Construction Division (HCD) also has some excellent near-term
bidding opportunities to add to its quality backlog. Many of the projects will
be let as design/build contracts - a more innovative form of project delivery
for which Granite has emerged as an industry leader. The current list of
targeted projects includes various highway and transit/rail projects exceeding
$3.5 billion. This list includes the Las Vegas Monorail project, the Legacy
highway project in Utah, the $1.4 billion I-25 SE Corridor project in Colorado,
light rail projects in Florida and California and several other large highway
projects in Arizona, Texas, California, Utah, Florida and Massachusetts.
In Florida, Governor Bush proposed his $4 billion Mobility 2000
Initiative. This plan would accelerate top-priority projects on the Florida
Intrastate Highway System with no increase in taxes. Under Mobility 2000,
projects that were originally planned over the next 20 years would be built
within the next ten years or sooner. Funding for the Governor's plan would come
from transportation-related revenues, TEA-21 and short-term bonds. The program
is expected to speed up improvements to Interstates 4, 275 and 75.
The Company's Branch Division also anticipates a healthy bidding
environment and strong demand for its construction services including aggregate
material products as a result of robust public and private sector markets.
According to a press release by the Nevada Department of Transportation (DOT),
state highway expenditures in their state are expected to reach a record $855.5
million in fiscal year 2000. In Texas and Florida, DOT officials report that
lettings in 2000 will be approximately $3.0 billion and $1.3 billion
respectively. Although Caltrans' advertising schedule for 2000 totals over $2.0
billion, officials estimate that it will let out to bid approximately $1.8
billion worth of work this year - in line with the approximate $1.8 billion let
in 1999.
On the political front, we will be heavily involved in supporting the
contracting out initiative on the November 2000 ballot in California. Sponsored
by the Consulting Engineers and Land Surveyors of California (CELSOC), the
initiative, if passed, would change the constitution to give state and local
entities more freedom to contract with private entities for engineering and
architectural services on public works projects. It is our belief that current
restrictions on these public agencies have created a significant bottleneck
within the project pipeline thereby causing considerable delays on many
projects, for which there is strong need and funding available.
16
17
Further in California, SCA 3 - a constitutional amendment which would
have renewed expiring county half-cent sales taxes for transportation purposes
with a simple majority - will not be placed on the ballot by the legislature in
the near-term. A long-term fix for county and statewide transportation funding
in California is very fluid at this point in time, with a number of proposals
currently being debated in Sacramento. The attention on this issue by state
politicians reflects the public's demand that solutions should be put in place
to deal with state's traffic problems. The Company will have more to say on this
issue once a definitive plan has been formulated.
Going forward, we are very pleased with the success of our current
operations and the substantial bidding opportunities ahead. We will continue to
proactively work the M & A process in our industry to find those acquisition
candidates that offer good value by which to grow the Company externally. At the
same time, we will follow our strategic initiatives to create continued internal
organic growth. We have set out aggressive growth goals for the 3 to 5 year
period ahead because we believe that our strategic plans and favorable external
market factors will provide better than normal opportunities in the continued
effort to improve upon what has been a record financial performance in both
divisions.
PRIOR YEARS
- ------------------------------------------------------------------------------------------------------------
In Thousands 1998 1997 INCREASE %
- ------------------------------------------------------------------------------------------------------------
Revenue:
Branch Division .................................... $ 945.9 $ 831.9 $ 114.0 13.7
Heavy Construction Division ........................ 280.2 196.3 83.9 42.7
- ------------------------------------------------------------------------------------------------------------
$1,226.1 $1,028.2 $ 197.9 19.2
============================================================================================================
REVENUE AND BACKLOG. Revenue from private sector contracts increased
$73.9 million to $248.4 million or 20.2% of total revenue in 1998, from $174.5
million or 17.0% of total revenue in 1997. The majority of the growth in revenue
from private sector contracts occurred in the Branch Division, where growth in
residential and commercial construction created strong demand for site
preparation projects. In California, one of the Company's largest markets, new
building construction increased 23.6% during 1998 to $37.7 billion from $30.5
billion in 1997, according to the Construction Industry Research Board. This
trend also had a positive impact on material sales which increased 11.5% during
1998. The Branch Division revenue was also positively impacted by contributions
made from flood related emergency work caused by severe winter weather
conditions. The Company's revenue from public sector contracts increased to
$836.0 million in 1998 from $726.6 million in 1997 while decreasing to 68.2% of
the Company's total revenue in 1998 from 70.6% in 1997. The growth in HCD
revenue was primarily in the public sector and reflected increased revenue from
HCD's portion of the Company's Interstate - 15 rebuild project in Utah and
various projects added to backlog in 1998.
The Company's backlog at December 31, 1998 was $901.6 million, down
$8.2 million, or 0.9% from 1997. The relatively flat backlog in 1998 reflected
new awards which offset a reduction due to a full year's work on the Company's
23% share of the I-15 Corridor Reconstruction project in Salt Lake City, Utah
which was awarded in the first quarter of 1997. Work on our $313.0 million
portion of the contract began during the second quarter of 1997 and was
approximately 48% complete at the end of 1998.
GROSS PROFIT. For the year ended December 31, 1998, gross profit
reached $153.1 million, a $41.4 million increase from 1997. As a percentage of
revenue, gross profit increased in 1998 to 12.5% from 10.9% in 1997. The
increased gross profit margin was attributable to the continued favorable market
conditions, particularly in the private sector as described above, which tends
to increase the Company's ability to win competitively bid projects at higher
margins. Project to date revenue recognized for projects less than 25% complete
was approximately $24.4 million and $56.7 million at December 31, 1998 and 1997,
respectively. As described under "General" above, the Company recognizes revenue
only to the extent of cost incurred until a project reaches 25% complete. During
1998, the Company's gross profit margins were positively impacted by the I-15
Corridor Reconstruction project which reached the 25% completion threshold in
the second quarter. Cost of revenue consists of direct costs on contracts;
including labor and materials, amounts payable to subcontractors, direct
overhead costs, equipment expense (primarily depreciation, maintenance and
repairs) and insurance costs. Although the composition of costs varies with
each contract, the Company's gross profit margins were not significantly
impacted by changes in any one of these costs during 1998.
17
18
GENERAL AND ADMINISTRATIVE EXPENSES. For the years ended December 31,
1998 and 1997 general and administrative expenses comprised the following (in
thousands):
----------------------------------------------------------------------------
In Thousands 1998 1997
----------------------------------------------------------------------------
Salaries and related expenses $ 40,602 $ 35,834
Incentive compensation,
discretionary profit sharing and pension 18,894 13,223
Other general and administrative expenses 24,338 24,536
----------------------------------------------------------------------------
Total $ 83,834 $ 73,593
----------------------------------------------------------------------------
Percent of revenue 6.8% 7.2%
----------------------------------------------------------------------------
Salaries and related expenses increased in 1999 over 1998 due primarily
to increased staffing to support the Company's current and expected growth .
Incentive compensation and discretionary profit sharing and pension costs
increased in 1999 over 1998 as a function of the Company's increased
profitability. Other general and administrative expenses include various costs
to support its operations, none of which exceeds 10% of total general and
administrative expenses. The decrease in other general and administrative
expenses in 1998 primarily reflected increases in other costs to support the
Company's growth offset by the collection of a previously written-off bad debt.
The decrease as a percent of revenue is due to the fixed nature of certain
expenses and higher revenue from non-sponsored joint venture contracts which do
not create a corresponding level of administrative expense.
OPERATING INCOME. The Branch Division's contribution to operating
income in 1998 increased over the 1997 contribution due primarily to improved
market conditions which increased both the volume of work and the profit margins
the Division was able to achieve. The Heavy Construction Division's contribution
to operating income also increased in 1998, primarily due to the impact of the
I-15 project reaching the 25% completion threshold for profit recognition as
described above.
OTHER INCOME (EXPENSES). Other income decreased $0.2 million to $5.8
million in 1998. The decrease was due to an increase in interest expense
resulting from additional borrowings under long-term debt agreements and lower
gain on sale of property and equipment which was partially offset by higher
interest income due to higher short-term investments and cash and cash
equivalents.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 38.0%
in 1998, an increase of 1.0% from 1997. The increase was primarily due to a
lower impact of the Company's percentage depletion deduction due to higher
pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------------------------------------
In Thousands 1999 1998 1997
- ---------------------------------------------------------------------------------
Cash and cash equivalents $ 61,832 $ 62,470 $ 54,359
Net cash provided (used) by:
Operating activities 99,987 96,030 63,798
Investing activities (54,204) (87,194) (49,207)
Financing activities (46,421) (725) 1,105
Capital expenditures 82,035 52,462 48,448
Working Capital $ 143,657 $ 142,448 $ 103,910
- ---------------------------------------------------------------------------------
During 1999 the Company generated cash and cash equivalents from
operating activities of $100.0 million which represented an increase of $4.0
million over 1998. This increase was due primarily to the Company's increase in
net income of $6.4 million or 13.8%, as well as increases in noncash adjustments
- - primarily depreciation and amortization and the adjustment to net income from
the Company's equity in loss of affiliates. The increased depreciation and
amortization is due to increases in property and equipment balances and the
equity in loss of affiliates relates primarily to the Company's equity in TIC's
loss. These increases were partially offset by a higher level of accounts
receivable at December 31, 1999 which related to increased revenue, particularly
in the fourth quarter.
18
19
Cash used by investing activities in 1999 decreased $33.0 million from
1998 due primarily to a net decrease in short-term investments which was
partially offset by increased additions to property and equipment to support the
Company's current and expected growth.
Cash used by financing activities in 1999 increased $45.7 million from
1998 due to the lack of additions to long-term debt as well as the Company's
repurchase of its shares and increased dividend payments.
On March 17, 1999, the Board of Directors authorized the Company to
repurchase, at management's discretion, up to $35 million of its common stock on
the open market, exclusive of repurchases related to employee benefit plans.
This authorization amends an authorization previously made in March of 1997.
Through March 20, 2000 the Company has repurchased 984,150 shares for a total
purchase price of $21.7 million. The remaining amount authorized of $13.3
million equates to 491,500 shares using the closing market price of $27.06 on
March 20, 2000.
The Company has budgeted $58.0 million for capital expenditures in
2000, which includes amounts for construction equipment, aggregate and asphalt
plants, buildings, leasehold improvements and the purchase of land and aggregate
reserves. The Company anticipates that cash generated internally and amounts
available under its existing credit facilities will be sufficient to meet its
capital and other requirements, including contributions to employee benefit
plans, for the foreseeable future.
The Company believes it has adequate capital resources to fund its
operations at least through 2000. The Company's consolidated working capital
position was $143.7 million at December 31, 1999 compared to $142.4 million at
December 31, 1998. The Company currently has access to funds under its revolving
credit agreement which allow it to borrow up to $75.0 million, of which $62.4
million was available at December 31, 1999.
SUBSEQUENT EVENTS. On January 24, 2000, the Board of Directors declared
a special dividend of $0.06 per share of common stock in addition to a $0.10 per
share quarterly dividend, payable on April 14, 2000 to stockholders of record as
of March 31, 2000. The quarterly dividend represents a $0.03 per share increase
over the dividends paid in 1999 of $0.07 per share.
In January 2000, the Company purchased 30% of the common stock of
Wilder Construction Company ("Wilder") for a purchase price of $13.1 million.
The purchase agreement provides for the Company to increase its ownership in
Wilder to between 51% and 60% in 2002 and to 75% in 2004. Founded in 1911,
Wilder is a heavy-civil construction company with regional offices located in
Washington, Oregon and Alaska. Wilder has annual revenues of approximately $150
million and employs approximately 650 people throughout the Northwest and
Alaska.
The Company currently holds a 30% minority interest in T.I.C. Holdings,
Inc. ("TIC"). In February 2000, the Company reached an agreement in principle
with TIC to sell its minority interest back to TIC over a three and one
half-year period. Under the agreement in principle, TIC will have the
opportunity to repurchase shares sooner based on an agreed to formula. A
definitive agreement has not yet been finalized. This will allow TIC to retain
its independence while allowing both companies to maintain their strategic
alliance. The proposed agreement will also allow the Company to intensify its
focus on its core business in heavy civil construction.
IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. The issue arises if date-sensitive software recognizes a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
During 1999 the Company completed its process which addressed year 2000
readiness of its systems and completed its process of identifying and making
inquiries of its significant suppliers and large public and private sector
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to solve their own Year 2000 issues.
The Company has not experienced any significant interruption in work or
cash flow related to the date change to the year 2000, either from its own
information systems or those of significant third parties with whom the Company
does business. The Company believes that the risk of significant business
interruption due to unanticipated problems with its own systems or the systems
of significant third parties is low based on our experience to date. In the
unlikely event that unforeseen Year 2000 related internal disruptions occur, the
Company believes that its existing disaster recovery program, which includes the
manual processing of certain key transactions, would significantly mitigate the
impact.
The Company's costs to address the Year 2000 issue were approximately
$865,000, all of which were incurred during 1999. These costs included
consulting fees and costs to remediate or replace hardware and software as well
as non-incremental costs
19
20
resulting from redeployment of internal resources. The Company's Year 2000
efforts did not have a significant impact on other information technology
projects.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "SFAS 133", Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes methods of accounting and reporting for
derivative instruments and hedging activities related to those instruments as
well as other hedging activities, and is effective for fiscal quarters of fiscal
years beginning after June 15, 2000, as amended by SFAS 137. The Company
believes that adoption of this pronouncement will have no material impact on the
Company's financial position and results of operations.
20
21
QUARTERLY RESULTS
The following table sets forth selected unaudited financial information
for the Company for the eight quarters in the period ended December 31, 1999
This information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, contains all adjustments necessary
for a fair presentation thereof.
QUARTERLY FINANCIAL DATA
(Unaudited - In Thousands, Except for Per Share Data)
- ------------------------------------------------------------------------------------------------------------
1999 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- ------------------------------------------------------------------------------------------------------------
Revenue $ 365,975 $ 418,703 $ 329,292 $ 214,804
Gross profit 51,194 58,509 46,169 23,329
As a percent of revenue 14.0% 14.0% 14.0% 10.9%
Net income 14,436 20,849 15,131 2,500
As a percent of revenue 3.9% 5.0% 4.6% 1.2%
Net income per share:
Basic $ 0.55 $ 0.80 $ 0.58 $ 0.09
Diluted $ 0.54 $ 0.77 $ 0.56 $ 0.09
- ------------------------------------------------------------------------------------------------------------
Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.19
Market price
High $ 26.50 $ 29.81 $ 29.88 $ 37.75
Low $ 16.88 $ 22.69 $ 21.88 $ 19.63
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
1998 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- ------------------------------------------------------------------------------------------------------------
Revenue $ 338,000 $ 411,986 $ 292,792 $ 183,322
Gross profit 37,335 54,203 42,380 19,174
As a percent of revenue 11.1% 13.2% 14.5% 10.5%
Net income 10,059 20,521 14,545 1,382
As a percent of revenue 3.0% 5.0% 5.0% 0.8%
Net income per share:
Basic $ 0.38 $ 0.77 $ 0.55 $ 0.05
Diluted $ 0.36 $ 0.75 $ 0.54 $ 0.05
- ------------------------------------------------------------------------------------------------------------
Dividends per share $ 0.06 $ 0.06 $ 0.05 $ 0.13
Market price
High $ 34.38 $ 33.50 $ 20.59 $ 19.68
Low $ 25.13 $ 19.68 $ 17.38 $ 14.26
- ------------------------------------------------------------------------------------------------------------
21
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks due primarily to
changes in interest rates which it manages primarily by managing the maturities
in its investment portfolio. The Company does not use derivatives to alter the
interest characteristics of its investment securities or its debt instruments.
The Company has no holdings of derivative or commodity instruments and does not
transact business in foreign currencies.
The fair value of the Company's investment portfolio or related income
would not be significantly impacted by changes in interest rates since the
investment maturities are short and the interest rates are primarily fixed. The
Company's senior notes payable of $60.0 million at December 31, 1999 carry a
fixed interest rate of 6.54% per annum with principle payments due in nine equal
annual installments beginning in 2002. The Company's notes payable to bank of
$5.0 million carry a variable interest rate at the IBOR rate plus margin (6.19%
and 1.0%, respectively at December 31, 1999) with principal payable semiannually
through June 2000.
The table below presents principal amounts and related weighted average
interest rates by year for the Company's cash and cash equivalents, short-term
investments and significant debt obligations:
- -------------------------------------------------------------------------------------------------------------------------------
In Thousands 2000 2001 2002 2003 2004 Thereafter Total
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Cash, cash equivalents and
short-term investments .................... $ 107,049 $ 1,028 $ -- $ -- $ -- $ -- $ 108,077
Weighted average interest rate ............ 5.5% 5.0% -- -- -- --
Liabilities
Fixed rate debt
Senior notes payable ................. $ -- $ -- $ 6,667 $ 6,667 $ 6,667 $ 39,999 $ 60,000
Weighted average interest rate ....... -- -- 6.54% 6.54% 6.54% 6.54% 6.54%
Variable rate debt (IBOR plus margin)
Notes payable to bank ................. $ 5,000 $ -- $ -- $ -- $ -- $ -- $ 5,000
- -------------------------------------------------------------------------------------------------------------------------------
The estimated fair value of the Company's cash, cash equivalents and
short-term investments approximate the principal amounts reflected above based
on the short maturities of these financial instruments. The estimated fair value
of the Company's debt obligations approximates the principal amounts reflected
above based on rates currently available for debt with similar terms and
remaining maturities.
22
23
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and
auditor's report are included in Item 8 and appear following Item 14:
Report of Independent Accountants
Consolidated Balance Sheets - At December 31, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Additionally, a two-year Summary of Quarterly Results is included in
Item 7 under "Quarterly Results."
23
24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
24
25
PART III
Certain information required by Part III is omitted from this Report in
that the Company will file its definitive proxy statement for the Annual Meeting
of Stockholders to be held on May 22, 2000 (the "Proxy Statement") pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report, and certain information included therein is incorporated herein
by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company is set forth under
the caption "Information about Granite - Management, Directors" in the Proxy
Statement. Such information is incorporated herein by reference. Information
relating to the executive officers of the Company is set forth in Part I of this
report under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under the
caption "Information about Granite - Compensation of Directors and Executive
Officers" in the Proxy Statement. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of equity securities of the Company
by certain beneficial owners and Management is set forth under the caption
"Information about Granite - Stock Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions
is set forth under the caption "Information about Granite - Management, Certain
Transactions with Management" in the Proxy Statement. Such information is
incorporated herein by reference.
25
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(a) 1. FINANCIAL STATEMENTS. The following consolidated financial
statements are filed as part of this Report:
Form 10-K
Pages
------------
Report of Independent Accountants................................................ F-1
Consolidated Balance Sheets at December 31, 1999 and 1998........................ F-2
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.............................................. F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.................................. F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.............................................. F-5
Notes to the Consolidated Financial Statements................................... F-6 to F-21
2. FINANCIAL STATEMENT SCHEDULE. The following financial
statement schedule of Granite Construction Incorporated for
the years ended December 31, 1999, 1998 and 1997 is filed
as part of this Report and should be read in conjunction
with the consolidated financial statements of Granite
Construction Incorporated.
Form 10-K
Pages
------------
Schedule
Schedule II - Schedule of Valuation and Qualifying Accounts.................. S-1
Schedules not listed above have been omitted because the
required information is not applicable or is shown in the
financial statements or notes.
3. EXHIBITS. The Exhibits listed in the accompanying Exhibit
Index are filed or incorporated by reference as part of
this Report.
(b) REPORTS ON FORM 8-K. The registrant was not required to file any
reports on Form 8-K during the fourth quarter of fiscal 1999.
26
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the stockholders
of Granite Construction, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on Page 26 present fairly, in all material
respects, the financial position of Granite Construction, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on Page 26 presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
F-1
28
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- ---------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ---------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 61,832 $ 62,470
Short-term investments 46,245 58,954
Accounts receivable 211,609 174,748
Costs and estimated earnings in excess of billings 14,105 14,677
Inventories 12,823 12,773
Deferred income taxes 14,885 15,397
Equity in construction joint ventures 30,611 20,020
Other current assets 10,211 11,769
------------------------
Total current assets 402,321 370,808
- ---------------------------------------------------------------------------------------------
Property and equipment 242,913 205,737
- ---------------------------------------------------------------------------------------------
Other assets 34,338 50,026
- ---------------------------------------------------------------------------------------------
$ 679,572 $ 626,571
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 5,985 $ 10,787
Accounts payable 95,662 88,194
Billings in excess of costs and estimated earnings 66,342 50,619
Accrued expenses and other current liabilities 90,675 78,760
------------------------
Total current liabilities 258,664 228,360
- ---------------------------------------------------------------------------------------------
Long-term debt 64,853 69,137
- ---------------------------------------------------------------------------------------------
Deferred income taxes 28,323 27,792
- ---------------------------------------------------------------------------------------------
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 50,000,000
shares; issued and outstanding 26,995,506 shares in
1999 and 27,648,961 in 1998 270 277
Additional paid-in capital 49,817 45,080
Retained earnings 285,832 262,517
------------------------
335,919 307,874
Unearned compensation (8,187) (6,592)
------------------------
327,732 301,282
- ---------------------------------------------------------------------------------------------
$ 679,572 $ 626,571
=============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
29
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
Revenue:
Construction $ 1,169,755 $ 1,084,433 $ 901,136
Material sales 159,019 141,667 127,069
- ---------------------------------------------------------------------------------------------------
Total revenue 1,328,774 1,226,100 1,028,205
- ---------------------------------------------------------------------------------------------------
Cost of revenue:
Construction 1,015,041 955,213 806,280
Material sales 134,532 117,795 110,195
- ---------------------------------------------------------------------------------------------------
Total cost of revenue 1,149,573 1,073,008 916,475
- ---------------------------------------------------------------------------------------------------
GROSS PROFIT 179,201 153,092 111,730
- ---------------------------------------------------------------------------------------------------
General and administrative expenses 94,939 83,834 73,593
- ---------------------------------------------------------------------------------------------------
OPERATING INCOME 84,262 69,258 38,137
- ---------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 8,682 9,856 7,941
Interest expense (8,791) (9,551) (7,515)
Gain on sales of property and equipment 4,544 1,819 2,463
Other, net (2,654) 3,629 3,152
- ---------------------------------------------------------------------------------------------------
1,781 5,753 6,041
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 86,043 75,011 44,178
Provision for income taxes 33,127 28,504 16,346
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 52,916 $ 46,507 $ 27,832
===================================================================================================
Net income per share
Basic $ 2.03 $ 1.75 $ 1.05
Diluted $ 1.96 $ 1.70 $ 1.03
Weighted average shares of common and
common stock equivalents outstanding
Basic 26,058 26,559 26,397
Diluted 26,963 27,339 26,942
Dividends per share $ 0.40 $ 0.30 $ 0.24
===================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
30
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED UNEARNED
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 STOCK CAPITAL EARNINGS COMPENSATION TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 $ 273 $ 36,810 $ 201,663 $ (5,141) $ 233,605
Net income -- -- 27,832 -- 27,832
Restricted stock issued - 234,396 shares, net 1 3,240 -- (3,241) --
Amortized restricted stock -- -- -- 2,299 2,299
Employee stock options exercised and
related tax benefit- 32,850 shares -- 350 -- -- 350
Repurchase of common stock - 251,163 shares -- (3,011) (126) -- (3,137)
Common stock contributed to ESOP - 195,000 shares -- 2,356 -- -- 2,356
Cash dividends on common stock -- -- (6,578) -- (6,578)
Tax benefit from ESOP dividends -- -- 707 -- 707
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 274 39,745 223,498 (6,083) 257,434
Net income -- -- 46,507 -- 46,507
Restricted stock issued - 213,926 shares, net 2 3,793 -- (3,795) --
Amortized restricted stock -- -- -- 3,286 3,286
Employee stock options exercised and
related tax benefit- 81,405 shares 1 1,402 -- -- 1,403
Repurchase of common stock - 107,733 shares -- (2,440) -- -- (2,440)
Common stock contributed to ESOP - 61,800 shares -- 1,580 -- -- 1,580
Cash dividends on common stock -- -- (8,288) -- (8,288)
Tax benefit from ESOP dividends and other -- 1,000 800 -- 1,800
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 277 45,080 262,517 (6,592) 301,282
Net income -- -- 52,916 -- 52,916
Restricted stock issued - 236,578 shares, net 2 6,427 -- (6,429) --
Amortized restricted stock -- -- -- 4,834 4,834
Stock options and warrants exercised and
related tax benefit- 130,940 shares 1 1,419 -- -- 1,420
Repurchase of common stock - 1,112,073 shares (10) (5,255) (19,764) -- (25,029)
Common stock contributed to ESOP - 91,100 shares -- 2,146 -- -- 2,146
Cash dividends on common stock -- -- (10,876) -- (10,876)
Tax benefit from ESOP dividends and other -- -- 1,039 -- 1,039
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 $ 270 $ 49,817 $ 285,832 $ (8,187) $ 327,732
===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
31
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 52,916 $ 46,507 $ 27,832
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 42,363 38,124 38,219
Gain on sales of property and equipment (4,544) (1,819) (2,463)
Deferred income taxes 1,043 154 726
Decrease in unearned compensation 4,834 3,286 2,299
Common stock contributed to ESOP 2,146 1,580 2,356
Equity in (gain) loss of affiliates 5,292 (2,728) (733)
Other (424) -- --
Changes in assets and liabilities:
Accounts and notes receivable (34,106) (10,715) (43,072)
Inventories (50) (522) 1,242
Equity in construction joint ventures (10,591) (7,069) (7,580)
Other assets 1,327 189 864
Accounts payable 7,468 7,385 16,751
Billings in excess of costs and estimated earnings, net 18,285 6,954 13,130
Accrued expenses 14,028 14,704 14,227
---------------------------------------
Net cash provided by operating activities 99,987 96,030 63,798
- ---------------------------------------------------------------------------------------------------------------
Investing Activities
Purchases of short-term investments (98,082) (91,090) (27,351)
Maturities of short-term investments 110,791 50,546 42,508
Additions to property and equipment (82,035) (52,462) (48,448)
Proceeds from sales of property and equipment 9,130 5,357 4,688
Investment in affiliates 1,083 (385) (13,689)
Development and sale of land and other investing activities 4,909 840 (6,915)
---------------------------------------
Net cash used by investing activities (54,204) (87,194) (49,207)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt -- 60,000 27,046
Repayments of long-term debt (10,786) (51,392) (16,480)
Employee stock options exercised 39 832 246
Repurchase of common stock (25,029) (2,440) (3,137)
Dividends paid (10,645) (7,725) (6,570)
---------------------------------------
Net cash provided (used) by financing activities (46,421) (725) 1,105
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (638) 8,111 15,696
Cash and cash equivalents at beginning of year 62,470 54,359 38,663
---------------------------------------
Cash and cash equivalents at end of year $ 61,832 $ 62,470 $ 54,359
===============================================================================================================
Supplementary Information
Cash paid during the year for:
Interest $ 5,926 $ 4,857 $ 5,180
Income taxes 24,210 22,294 10,172
Noncash financing and investing activity:
Restricted stock issued for services $ 6,429 $ 3,795 $ 3,241
Dividends accrued but not paid 1,890 1,659 1,096
Financed acquisition of property and equipment 1,700 -- 6,963
===============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
32
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: The Company is a heavy civil
contractor engaged in the construction of highways, dams, airports,
mass transit facilities, real estate site development and other
infrastructure related projects. The Company has offices in California,
Texas, Georgia, Nevada, Arizona, Utah, and Florida.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany transactions and accounts have been
eliminated. The Company uses the equity method of accounting for
affiliated companies where its ownership is between 20% and 50%.
Additionally, the Company participates in joint ventures with other
construction companies. The Company accounts for its share of the
operations of these jointly controlled ventures on a pro rata basis in
the consolidated statements of income and as a single line item in the
consolidated balance sheets.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION: Earnings on construction contracts
including construction joint ventures are recognized on the percentage
of completion method in the ratio of costs incurred to estimated final
costs. Revenue in an amount equal to cost incurred is recognized prior
to contracts reaching 25% completion. The related earnings are not
recognized until the period in which such percentage completion is
attained. It is the Company's judgment that until a project reaches 25%
completion, there is insufficient information to determine with a
reasonable level of comfort what the estimated profit on the project
will be. Factors that can contribute to changes in estimates of
contract profitability include, without limitation, site conditions
that differ from those assumed in the original bid, the availability
and skill level of workers in the geographic location of the project,
the availability and proximity of materials, inclement weather and
timing and coordination issues inherent in design/build projects.
Contract cost is recorded as incurred and revisions in contract revenue
and cost estimates are reflected in the accounting period when known.
The 25% threshold is applied to all percentage of completion projects
without exception unless and until the Company projects a loss on the
project, in which case the estimated loss is immediately recognized.
Claims for additional contract revenue are recognized if it is probable
that the claim will result in additional revenue and the amount can be
reliably estimated. Revenue from contract change orders is recognized
when the owner has agreed to the change order. Revenue from the sale of
materials is recognized upon delivery.
The Company's revenue is substantially derived from contracts
that are "fixed unit price" contracts under which the Company is
committed to provide materials or services required by a project at
fixed unit prices (for example, dollars per cubic yard of concrete or
cubic yards of earth excavated). The Company's contracts are obtained
primarily through competitive bidding in response to advertisements by
federal, state and local government agencies and private parties. All
federal government contracts and many of the Company's other contracts
provide for termination of the contract for the convenience of the
party contracting with the Company.
BALANCE SHEET CLASSIFICATIONS: The Company includes in current
assets and liabilities amounts receivable and payable under
construction contracts which may extend beyond one year. A one-year
time period is used as the basis for classifying all other current
assets and liabilities.
CASH AND CASH EQUIVALENTS: Cash equivalents are securities
held for cash management purposes having original maturities of three
months or less from the date of purchase.
SHORT-TERM INVESTMENTS: Short-term investments that are deemed
by management to be held-to-maturity are reported at amortized cost.
Short-term investments that are considered available-for-sale are
carried at fair value. Unrealized gains and losses, if material, are
reported net of tax as a separate component of stockholders' equity
until realized. Realized gains and losses, if any, are determined using
the specific identification method.
F-6
33
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FINANCIAL INSTRUMENTS: The carrying value of short-term
investments approximates their fair value as determined by market
quotes. All significant debt obligations carry variable interest rates
or interest rates that approximate market and their carrying value is
considered to approximate fair value. The carrying value of receivables
and other amounts arising out of normal contract activities, including
retentions, which may be settled beyond one year, is estimated to
approximate fair value.
INVENTORIES: Inventories consist primarily of quarry products
valued at the lower of average cost or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at
cost. Depreciation is provided using accelerated methods over lives
ranging from three to ten years for construction equipment and the
straight-line method over lives from three to twenty years for the
remaining depreciable assets. The Company believes that accelerated
methods best approximate the service provided by the construction
equipment. Depletion of quarry property is based on the usage of
depletable reserves. The cost and accumulated depreciation or depletion
of property sold or retired is removed from the accounts and gains or
losses, if any, are reflected in earnings for the period. During the
year ended December 31, 1999 the Company capitalized interest costs
related to certain self-constructed assets which reduced total interest
expense of $9,368 by $577.
LONG-LIVED ASSETS: Long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. There have been no such events or changes in circumstances
to date.
The Company holds for development and sale certain property
acquired in foreclosure proceedings. Such assets are held in long-term
other assets until such time as they are available to be sold and
expected to be sold within a year, at which time they are carried in
other current assets. Additionally, the Company frequently sells
property and equipment that has reached the end of its useful life or
no longer meets the Company's needs, including depleted quarry
property. Such property is held in property and equipment until sold.
During 1999, 1998 and 1997 there were no losses resulting from changes
in the carrying amounts of these assets.
INTANGIBLE ASSETS: Intangible assets consist primarily of
covenants not to compete amortized on a straight-line basis over five
years.
INCOME TAXES: Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
COMPUTATION OF EARNINGS PER SHARE: Basic earnings per share is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding, excluding
restricted common stock. Diluted earnings per share is computed giving
effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of the
incremental common shares issuable upon the exercise of stock options,
warrants and upon the vesting of restricted common stock.
RECLASSIFICATIONS: Certain financial statement items have been
reclassified to conform to the current year's format. These
reclassifications had no impact on previously reported net income.
F-7
34
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, "SFAS 133", Accounting for Derivative Instruments
and Hedging Activities. SFAS 133 establishes methods of accounting and
reporting for derivative instruments and hedging activities related to
those instruments as well as other hedging activities, and is effective
for fiscal quarters of fiscal years beginning after June 15, 2000, as
amended by SFAS 137. The Company believes that adoption of this
pronouncement will have no material impact on the Company's financial
position and results of operations.
2. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES
DISCLOSURE OF SIGNIFICANT ESTIMATES - REVENUE RECOGNITION: As
outlined in the Summary of Significant Accounting Policies, the
Company's construction revenue is recognized on the percentage of
completion basis. Consequently, construction revenue and gross margin
for each reporting period is determined on a contract by contract basis
by reference to estimates by the Company's engineers of expected costs
to be incurred to complete each project. These estimates include
provisions for known and anticipated cost overruns, if any exist or are
expected to occur. These estimates may be subject to revision in the
normal course of business.
DISCLOSURE OF SIGNIFICANT ESTIMATES - LITIGATION: The Company
is a party to a number of legal proceedings and believes that the
nature and number of these proceedings are typical for a construction
firm of its size and scope and that none of these proceedings is
material to the Company's financial position. The Company's litigation
typically involves claims regarding public liability or contract
related issues.
CONCENTRATIONS: The Company maintains the majority of cash
balances and all of its short-term investments with several financial
institutions. The Company invests with high credit quality financial
institutions, and, by policy, limits the amount of credit exposure to
any financial institution. A significant portion of the Company's labor
force is subject to collective bargaining agreements. Collective
bargaining agreements covering 28.4% of the Company's unionized labor
force at December 31, 1999 will expire during 2000.
Revenue received from federal, state and local government
agencies amounted to $856,399 (64.5%) in 1999, $835,986 (68.2%) in
1998, and $726,657 (70.6%) in 1997. California Department of
Transportation represented $135,265 (10.2%) in 1999, $142,008 (11.6%)
in 1998, and $139,300 (13.5%) in 1997 of total revenue. The Company
performs ongoing credit evaluations of its customers and generally does
not require collateral, although the law provides the Company the
ability to file mechanics liens on real property improved for private
customers in the event of non-payment by such customers. The Company
maintains reserves for potential credit losses and such losses have
been within management's expectations. The Company has no foreign
operations.
F-8
35
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. SHORT-TERM INVESTMENTS
The carrying and market values of short-term investments are as follows
at December 31, 1999 and 1998:
Held-To-Maturity Held-To-Maturity
December 31, 1999 December 31, 1998
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
---------------------------------------------- ----------------------------------------------
U.S. Government and Agency
Obligations $ 20,222 $ 4 $ -- $ 20,226 $ 19,271 $ 10 $ -- $ 19,281
Commercial Paper 12,917 16 -- 12,933 25,721 2 (4) 25,719
Municipal Bonds -- -- -- -- 5,022 12 -- 5,034
Domestic Banker's Acceptance 7,079 22 -- 7,101 4,921 -- (3) 4,918
---------------------------------------------- ----------------------------------------------
40,218 42 -- 40,260 54,935 24 (7) 54,952
---------------------------------------------- ----------------------------------------------
Available-For-Sale Available-For-Sale
December 31, 1999 December 31, 1998
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
---------------------------------------------- ----------------------------------------------
U.S. Government and Agency
Obligations 2,999 -- (82) 2,917 2,991 7 -- 2,998
Municipal Bonds 3,028 -- (18) 3,010 1,028 4 -- 1,032
---------------------------------------------- ----------------------------------------------
6,027 -- (100) 5,927 4,019 11 -- 4,030
---------------------------------------------- ----------------------------------------------
Total Short-Term Investments $ 46,245 $ 42 $ (100) $ 46,187 $ 58,954 $ 35 $ (7) $ 58,982
============================================== ==============================================
There were no sales of investments classified as
available-for-sale for the years ended December 31, 1999 and 1998.
Unrealized gains and losses were considered immaterial for both 1999
and 1998 and, thus, not recorded as a separate item in stockholders'
equity. At December 31, 1999, scheduled maturities of investments are
as follows:
- ----------------------------------------------------------------------------
Held-To- Available-
Maturity For-Sale Total
- ----------------------------------------------------------------------------
Within one year $ 40,218 $ 4,999 $ 45,217
After one year through five years -- 1,028 1,028
- ----------------------------------------------------------------------------
$ 40,218 $ 6,027 $ 46,245
============================================================================
For the years ended December 31, 1999 and 1998, purchases and
maturities were as follows:
---------------------------------------- ----------------------------------------
December 31, 1999 December 31, 1998
Held-To- Available- Held-To- Available-
Maturity For-Sale Total Maturity For-Sale Total
---------------------------------------- ----------------------------------------
Purchases $ 92,870 $ 5,212 $ 98,082 $ 83,968 $ 7,122 $ 91,090
Maturities 107,587 3,204 110,791 39,500 11,046 50,546
---------------------------------------- ----------------------------------------
Net change $ (14,717) $ 2,008 $ (12,709) $ 44,468 $ (3,924) $ 40,544
======================================== ========================================
F-9
36
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. ACCOUNTS RECEIVABLE
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Construction Contracts
Completed and in progress $127,544 $ 96,895
Retentions 61,055 56,774
- --------------------------------------------------------------------------------
188,599 153,669
Construction material sales 19,421 19,554
Other 4,813 2,224
- --------------------------------------------------------------------------------
212,833 175,447
Less allowance for doubtful accounts 1,224 699
- --------------------------------------------------------------------------------
$211,609 $174,748
================================================================================
Accounts receivable includes amounts billed and billable for public and
private contracts. The balances billed but not paid by customers
pursuant to retainage provisions in construction contracts generally
become due upon completion of the contracts and acceptance by the
owners. Retainage amounts at December 31, 1999 are expected to be
collected as follows: $56,457 in 2000; $1,015 in 2001, $3,353 in 2002
and $230 in 2003.
5. EQUITY METHOD INVESTMENTS
The Company participates in various construction joint venture
partnerships. Generally, each construction joint venture is formed to
accomplish a specific project and is dissolved upon completion of the
project. The joint venture agreements typically provide that the
interests of the Company in any profits and assets, and its respective
shares in any losses and liabilities that may result from the
performance of the contract are limited to the Company's stated
percentage interest in the project. Although the venture's contract
with the project owner typically requires joint and several liability,
the Company's agreements with its joint venture partners provide that
each party will assume and pay its full proportionate share of any
losses resulting from a project. The Company has no significant
commitments beyond completion of the contract. The Company's share of
these ventures ranges from 15% - 55% the most significant of which
include a 23% share of the I-15 Corridor reconstruction project in Salt
Lake City, Utah, a 40% share of a highway and tunnel project in
Atlantic City, New Jersey, a 25% share of a major dam project near
Hemet, California, and a 55% share of an I-17 design build project in
Maricopa County, Arizona.
F-10
37
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. EQUITY METHOD INVESTMENTS, CONTINUED
The combined assets, liabilities and net assets of these ventures are
as follows:
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Assets
Total $260,275 $245,071
Less other venturers' interest 188,803 183,701
- --------------------------------------------------------------------------------
Company's interest 71,472 61,370
- --------------------------------------------------------------------------------
Liabilities
Total 149,453 162,476
Less other venturers' interest 108,592 121,126
- --------------------------------------------------------------------------------
Company's interest 40,861 41,350
- --------------------------------------------------------------------------------
Company's interest in net assets $ 30,611 $ 20,020
================================================================================
The revenue and costs of revenue of construction joint ventures are as
follows:
- ---------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------
Revenue
Total $646,277 $649,042 $326,895
Less other venturers' interest 469,350 497,407 248,028
- ---------------------------------------------------------------------------------------
Company's interest 176,927 151,635 78,867
- ---------------------------------------------------------------------------------------
Cost of Revenue
Total 575,432 578,608 287,705
Less other venturers' interest 418,628 443,123 220,497
- ---------------------------------------------------------------------------------------
Company's interest 156,804 135,485 67,208
- ---------------------------------------------------------------------------------------
$ 20,123 $ 16,150 $ 11,659
=======================================================================================
F-11
38
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. EQUITY METHOD INVESTMENTS, CONTINUED
Additionally, the Company has investments in affiliates that
are accounted for on the equity method. The most significant of these
investments is a 30% interest in T.I.C. Holdings, Inc. and a 22.2%
limited partnership interest in a partnership which constructed and
operates a private toll road. At December 31, 1999 the Company had a
commitment supported by a letter of credit of $2,044 related to its
limited partnership interest. Differences between the carrying amount
of the Company's investments and the underlying equity in net assets,
which approximate $5,000 at December 31, 1999, are being amortized over
an estimated useful life of 10 years. The summarized financial
information below represents an aggregation of the Company's
nonsubsidiary affiliates:
--------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------------
Balance sheet data
Assets $ 347,721 $ 328,496 $ 275,685
Liabilities 305,542 267,397 216,512
Net assets 42,179 61,099 59,173
--------------------------------------------------------------------------------------
Company's equity investment in affiliates 23,139 29,515 25,008
--------------------------------------------------------------------------------------
Earnings data
Revenue 767,754 561,568 434,389
Gross profit 33,628 50,452 41,137
Earnings (loss) before taxes and
Continuing operations (12,426) 7,510 1,891
Earnings (loss) before taxes (18,655) 7,510 1,891
--------------------------------------------------------------------------------------
Company's equity in earnings (loss) $ (5,292) $ 2,728 $ 733
--------------------------------------------------------------------------------------
The Company's equity investment in affiliates in 1998
reflected above includes an investment of $1,394 made in a prior
period.
F-12
39
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. PROPERTY AND EQUIPMENT
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Land $ 36,485 $ 33,742
Quarry property 46,891 38,390
Buildings and leasehold improvements 33,791 22,843
Equipment and vehicles 478,990 434,737
Office furniture and equipment 7,110 4,870
- --------------------------------------------------------------------------------
603,267 534,582
Less accumulated depreciation,
depletion and amortization 360,354 328,845
- --------------------------------------------------------------------------------
$242,913 $205,737
================================================================================
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Payroll and related employee benefits $ 40,375 $ 34,829
Accrued insurance 30,425 26,487
Income taxes 3,696 2,542
Other 16,179 14,902
- --------------------------------------------------------------------------------
$ 90,675 $ 78,760
================================================================================
8. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Senior notes payable $ 60,000 $ 60,000
Notes payable to bank 5,000 15,000
Other notes payable 5,838 4,924
- --------------------------------------------------------------------------------
70,838 79,924
Less current maturities 5,985 10,787
- --------------------------------------------------------------------------------
$ 64,853 $ 69,137
================================================================================
The aggregate minimum principal maturities of long-term debt for each of the
five years following December 31, 1999 are as follows: 2000 - $5,985; 2001 -
$2,707; 2002 - $7,686; 2003 - $6,863; 2004 - $6,876; and beyond 2004 - $40,721.
The Company has a bank revolving line of credit of $75,000
which allows for unsecured borrowings for up to five years through June
29, 2001, with interest rate options. Outstanding borrowings under the
revolving line of credit are at the IBOR interest rate plus margin
(6.19% and 1.0%, respectively at December 31, 1999) with principal
payable semiannually beginning December 2001 through June 2006 and
interest payable quarterly. There were no amounts outstanding at
December 31, 1999.
The Company has standby letters of credit totaling
approximately $14,603 outstanding at December 31, 1999 of which $12,559
reduces the amount available under the revolving line of credit and
$2,044 supports the commitment by the Company related to its investment
in a limited partnership. The unused and available portion of the line
of credit at December 31, 1999 was approximately $62,441.
F-13
40
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. LONG-TERM DEBT AND CREDIT ARRANGEMENTS, CONTINUED
Senior Notes Payable in the amount of $60 million are due to a
group of institutional holders. The notes are due in nine equal annual
installments beginning in 2002 and bear interest at 6.54% per annum.
The Company used $39 million of the proceeds of the notes to retire its
bank revolving credit notes.
Notes payable to bank are unsecured with principal payable
semiannually and interest payable quarterly through June 2000 at the
IBOR rate plus margin (6.19% and 1.0%, respectively at December 31,
1999).
Restrictive covenants under the terms of debt agreements
include the maintenance of certain levels of working capital and cash
flow. Other covenants prohibit capital expenditures in excess of
specified limits and require the maintenance of tangible net worth (as
defined) of approximately $238,000.
Other notes payable are comprised primarily of notes incurred
in connection with the purchase of property and equipment, and other
assets. These notes are collateralized by the assets purchased and bear
interest at 6.5% to 8.8% per annum with principal and interest payable
in installments through 2007.
9. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN: The Company's Employee Stock
Ownership Plan ("ESOP") covers all employees not included in collective
bargaining agreements. As of December 31, 1999, the ESOP owned
7,159,981 shares of the Company's common stock. Dividends on shares
held by the ESOP are charged to retained earnings and all shares held
by the ESOP are treated as outstanding in computing the Company's
earnings per share.
Contributions to the ESOP are at the discretion of the Board
of Directors and comprise shares of the Company's stock that were
purchased on the market and immediately contributed to the plan.
Compensation cost is measured as the cost to purchase the shares
(market value on the date of purchase and contribution). Contributions
for the years ended December 31, 1999, 1998 and 1997 were approximately
$1,769, $1,957 and $1,812, respectively.
PROFIT SHARING AND 401k PLAN: The Profit Sharing and 401k Plan
is a defined contribution plan covering all employees not included in
collective bargaining agreements. Each employee can elect to have up to
10% of gross pay contributed to the plan on a before-tax basis. The
plan allows for Company matching and additional contributions at the
discretion of the Board of Directors.
Company contributions to the Profit Sharing and 401k Plan for
the years ended December 31, 1999, 1998 and 1997 were $3,414, $8,402
and $4,706, respectively. Included in the contributions were 401k
matching contributions of $2,762, $1,990 and $1,807, respectively.
OTHER: The Company`s wholly owned subsidiary, Granite Construction
Company, also contributes to various multi-employer pension plans on
behalf of union employees. Contributions to these plans for the years
ended December 31, 1999, 1998 and 1997 were approximately $14,435,
$13,498 and $11,972, respectively.
F-14
41
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. STOCKHOLDERS' EQUITY
1999 EQUITY INCENTIVE PLAN: On May 24, 1999, the Company's
stockholders approved the 1999 Equity Incentive Plan (the "Plan"),
which replaces the Company's 1990 Omnibus Stock and Incentive Plan (the
"1990 Plan"). The Plan provides for the grant of restricted common
stock, incentive and nonqualified stock options, performance units and
performance shares to employees and awards to the Company's board of
directors in the form of stock units or stock options ("Director
Options"). A total of 2,500,000 shares of the Company's common stock
have been reserved for issuance under the Plan. The exercise price for
incentive and nonqualified stock options granted under the Plan may not
be less than 100% and 85%, respectively, of the fair market value at
the date of the grant. Options granted will be exercisable at such
times and be subject to such restrictions and conditions as determined
by the compensation committee, but no option shall be exercisable later
than ten years from the date of grant. Restricted common stock is
issued for services to be rendered and may not be sold, transferred or
pledged for such period as determined by the compensation committee.
Restricted shares outstanding at December 31, 1999 were
804,412 shares. Restricted stock compensation cost is measured at the
stock's fair value on the date of grant. The compensation cost is
recognized ratably over the vesting period -- generally five years. An
employee may not sell or otherwise transfer unvested shares and, in the
event that an employee terminates his or her employment prior to the
end of the vesting period, any unvested shares are surrendered to the
Company. The Company has no obligation to repurchase restricted stock.
Compensation expense related to restricted shares for the years ended
December 31, 1999, 1998 and 1997 was $4,834, $3,286 and $2,299,
respectively.
Stock options granted under the 1990 Plan, all of which were
granted in 1990, will expire in 2000. All options were granted,
cancelled and exercised at $7.56 per share and are 100% vested at
December 31, 1999. Stock option transactions under the 1990 Plan during
1999, 1998 and 1997 are summarized as follows:
- -------------------------------------------------------------------------------------
December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------
Options outstanding, beginning of year 70,625 157,125 189,975
Options exercised (17,250) (81,405) (32,850)
Options forfeited -- (5,095) --
- -------------------------------------------------------------------------------------
Options outstanding, end of year 53,375 70,625 157,125
=====================================================================================
The Company granted Director Options to purchase 7,367 shares
of the Company's stock under the Plan during 1999 at a weighted average
exercise price of $10.35. The options are immediately exercisable and
all remain outstanding at December 31, 1999.
The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (SFAS 123). Accordingly, the compensation
cost for the options granted in 1999 was recognized to the extent the
fair market value exceeded the exercise price, as all of the options
were granted at prices less than fair market value.
F-15
42
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. STOCKHOLDERS' EQUITY, CONTINUED
The fair value of each option grant was estimated at the grant
date using a type of Black-Scholes option pricing model with the
following assumptions used for grants: dividend yield of 1.53%-2.17%,
volatility of 33.8%, risk free interest rates of 5.9%-6.45% and an
expected life of eight years. Based on these assumptions, the aggregate
fair value and weighted average fair value per share of options granted
in 1999 was $90 (of which $78 was recognized as expense in 1999) and
$12.28, respectively. Had compensation expense been determined based
upon fair values at the grant date in accordance with SFAS 123, the
Company's net earnings would have been reduced to the pro forma amount
indicated below, however the Company's earnings per share would be
unchanged.
-------------------------------------------------------
PRO FORMA NET INCOME
-------------------------------------------------------
Net Income as Reported $ 52,916
Pro forma Net Income $ 52,904
=======================================================
The options outstanding and exercisable by exercise price for
the Plan at December 31, 1999 are as follows:
- --------------------------------------------------------------------------------
Weighted
Options Average Weighted
Outstanding Remaining Average
and Contractual Exercise
Exercise Prices Exercisable Life (years) Price
- --------------------------------------------------------------------------------
$ 8.99 4,804 9.75 $ 8.99
$12.90 2,563 10.00 $12.90
- --------------------------------------------------------------------------------
7,367 9.84 $10.35
================================================================================
OTHER: The Company has issued warrants to purchase 450,000
shares of its common stock at an exercise price of $13.37 per share.
The warrants expire on July 25, 2002. As of December 31, 1999 there
were 215,300 warrants outstanding.
F-16
43
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. EARNINGS PER SHARE
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted
earnings per share is provided as follows (in thousands except per
share data):
- ------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------
NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE
Net income $ 52,916 $ 46,507 $ 27,832
==========================================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 27,159 27,570 27,375
Less restricted stock outstanding 1,101 1,011 978
- ------------------------------------------------------------------------------------------
TOTAL 26,058 26,559 26,397
- ------------------------------------------------------------------------------------------
Basic earnings per share $ 2.03 $ 1.75 $ 1.05
==========================================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 26,058 26,559 26,397
Effect of Dilutive Securities:
Warrants 190 175 --
Common stock options 41 64 74
Restricted stock 674 541 471
- ------------------------------------------------------------------------------------------
TOTAL 26,963 27,339 26,942
- ------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.96 $ 1.70 $ 1.03
==========================================================================================
F-17
44
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. INCOME TAXES
Provision for income taxes:
- --------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
Federal
Current $ 26,823 $ 23,592 $ 12,964
Deferred 905 138 646
- --------------------------------------------------------------------------------------
27,728 23,730 13,610
- --------------------------------------------------------------------------------------
State
Current 5,260 4,758 2,656
Deferred 139 16 80
- --------------------------------------------------------------------------------------
5,399 4,774 2,736
- --------------------------------------------------------------------------------------
$ 33,127 $ 28,504 $ 16,346
======================================================================================
Reconciliation of statutory to effective tax rate:
- --------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit 4.1 4.1 4.0
Percentage depletion deduction (1.5) (1.1) (2.0)
Other 0.9 -- --
- --------------------------------------------------------------------------------------
38.5% 38.0% 37.0%
======================================================================================
Deferred tax assets and liabilities:
- -------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- -------------------------------------------------------------------------------
Deferred Tax Assets:
Accounts receivable $ 1,222 $ 915
Inventory 1,349 1,556
Property and equipment 2,374 1,755
Insurance accruals 10,185 9,849
Deferred compensation 2,385 3,014
Other accrued liabilities 5,715 4,341
Other 329 936
- -------------------------------------------------------------------------------
23,559 22,366
- -------------------------------------------------------------------------------
Deferred Tax Liabilities:
Property and equipment 29,155 29,697
Contract recognition 3,867 1,532
TIC basis difference 2,694 3,053
Other 1,281 479
- -------------------------------------------------------------------------------
36,997 34,761
- -------------------------------------------------------------------------------
$(13,438) $(12,395)
===============================================================================
The deferred tax asset for insurance accruals relates
primarily to the self funded portion of the Company's workers
compensation and public liability insurance which is deductible in
future periods. The deferred tax asset for other accrued liabilities
relates to various items including accrued vacation and accrued
reclamation costs which are deductible in future periods. The deferred
tax liability for the TIC basis difference represents the undistributed
earnings of TIC for which income and the related tax provision have
been recognized on the Company's records.
F-18
45
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. LEASES
Minimum rental commitments under all noncancellable operating
leases, primarily quarry property and construction equipment, in effect
at December 31, 1999 were:
Years Ending December 31,
2000 $ 4,362
2001 2,602
2002 2,092
2003 1,932
2004 1,561
Later years (through 2016) 3,764
------------------------------------------------------
Total minimum rental commitment $16,313
======================================================
Operating lease rental expense was $4,726 in 1999, $4,628 in 1998, and
$4,414 in 1997.
F-19
46
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. BUSINESS SEGMENT INFORMATION
The Company has two reportable segments: the Branch Division
and the Heavy Construction Division (HCD). The Branch Division is
comprised of branch offices that serve local markets, while HCD pursues
major infrastructure projects throughout the nation. HCD generally has
large heavy civil projects with contract amounts in excess of $15
million and contract durations greater than two years, while the Branch
Division projects are typically smaller in size and shorter in
duration. HCD has been the primary participant in the Company's
construction joint ventures. Substantially all of the revenue from
these joint ventures is included in HCD's revenues from external
customers (Note 5).
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (Note 1).
The Company evaluates performance based on operating profit or loss
which does not include income taxes, interest income, interest expense
or other income (expense).
INFORMATION ABOUT PROFIT AND ASSETS
- ----------------------------------------------------------------------------------------
HCD BRANCH TOTAL
- ----------------------------------------------------------------------------------------
1999
Revenues from external customers $ 373,876 $ 954,898 $1,328,774
Intersegment revenue transfer (21,566) 21,566 --
-------------------------------------------
Net revenue 352,310 976,464 1,328,774
Depreciation and amortization 8,068 30,080 38,148
Operating income 34,176 83,878 118,054
Property and equipment 28,759 194,919 223,678
- ----------------------------------------------------------------------------------------
1998
Revenues from external customers $ 305,856 $ 920,244 $1,226,100
Intersegment revenue transfer (25,668) 25,668 --
-------------------------------------------
Net revenue 280,188 945,912 1,226,100
Depreciation and amortization 7,396 27,292 34,688
Operating income 12,139 86,688 98,827
Property and equipment 26,618 167,540 194,158
- ----------------------------------------------------------------------------------------
1997
Revenues from external customers $ 208,094 $ 820,111 $1,028,205
Intersegment revenue transfer (11,831) 11,831 --
-------------------------------------------
Net revenue 196,263 831,942 1,028,205
Depreciation and amortization 7,364 27,513 34,877
Operating income 3,394 54,679 58,073
Property and equipment 26,995 159,057 186,052
- ----------------------------------------------------------------------------------------
F-20
47
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. BUSINESS SEGMENT INFORMATION, CONTINUED
RECONCILIATION OF SEGMENT PROFIT AND ASSETS TO THE COMPANY'S CONSOLIDATED
TOTALS:
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
Profit or Loss:
Total profit or loss for reportable segments $ 118,054 $ 98,827 $ 58,073
Other income 1,781 5,753 6,041
Unallocated other corporate expenses (33,792) (29,569) (19,936)
- --------------------------------------------------------------------------------------------
Income before provision for income taxes $ 86,043 $ 75,011 $ 44,178
============================================================================================
Assets:
Total assets for reportable segments $ 223,678 $ 194,158
Assets not allocated to segments:
Cash and cash equivalents 61,832 62,470
Short-term investments 46,245 58,954
Deferred income taxes 14,885 15,397
Other current assets 279,359 233,987
Property and equipment 19,235 11,579
Other assets 34,338 50,026
- ----------------------------------------------------------------------------
Consolidated Total $ 679,572 $ 626,571
============================================================================
15. SUBSEQUENT EVENTS (UNAUDITED)
On January 24, 2000, the Board of Directors declared a special
dividend of $0.06 per share of common stock in addition to a $0.10 per
share quarterly dividend, payable on April 14, 2000 to stockholders of
record as of March 31, 2000. The quarterly dividend represents a $0.03
per share increase over the dividends paid in 1999 of $0.07 per share.
In January 2000, the Company purchased 30% of the common stock
of Wilder Construction Company ("Wilder") for a purchase price of $13.1
million. The purchase agreement provides for the Company to increase
its ownership in Wilder to between 51% and 60% in 2002 and to 75% in
2004. Founded in 1911, Wilder is a heavy-civil construction company
with regional offices located in Washington, Oregon and Alaska. Wilder
has annual revenues of approximately $150 million and employs
approximately 650 people throughout the Northwest and Alaska.
The Company currently holds a 30% minority interest in T.I.C.
Holdings, Inc. ("TIC"). In February 2000, the Company reached an
agreement in principle with TIC to sell its minority interest back to
TIC over a three and one half-year period. Under the agreement in
principle, TIC will have the opportunity to repurchase shares sooner
based on an agreed to formula. A definitive agreement has not yet been
finalized. This will allow TIC to retain its independence while
allowing both companies to maintain their strategic alliance. The
proposed agreement will also allow the Company to intensify its focus
on its core business in heavy civil construction.
F-21
48
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-36482 and 33-36485) of Granite Construction
Incorporated of our report dated February 11, 2000 relating to the financial
statements and financial statement schedule, which appears in this Annual Report
on Form 10-K.
PricewaterhouseCoopers LLP
San Jose, California
March 30, 2000
27
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 20, 2000 GRANITE CONSTRUCTION INCORPORATED
By: /s/ William E. Barton
-----------------------------------------
[William E. Barton, Senior Vice President
and Chief Financial Officer]
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below on March 22, 2000, by the following persons in the
capacities indicated.
/s/ David H. Watts Chairman of the Board,
- --------------------------------- President, Chief Executive Officer,
[David H. Watts] and Director
/s/ William E. Barton Senior Vice President and Chief Financial Officer
- --------------------------------- Principal Accounting and Financial Officer
[William E. Barton]
/s/ Joseph J. Barclay Director
- ---------------------------------
[Joseph J. Barclay]
/s/ Richard M. Brooks Director
- ---------------------------------
[Richard M. Brooks]
/s/ Linda Griego Director
- ---------------------------------
[Linda Griego]
/s/ Brian C. Kelly Director
- ---------------------------------
[Brian C. Kelly]
/s/ Rebecca A. McDonald Director
- ---------------------------------
[Rebecca A. McDonald]
/s/ Raymond E. Miles Director
- ---------------------------------
[Raymond E. Miles]
/s/ J. Fernando Niebla Director
- ---------------------------------
[J. Fernando Niebla]
/s/ George B. Searle Director
- ---------------------------------
[George B. Searle]
28
50
INDEX TO FORM 10-K EXHIBITS
Exhibit Page
No. Description No.
- --- ----------- ----
3.1 Certificate of Incorporation of Granite Construction Incorporated [a]
3.1.a Amendment to the Certificate of Incorporation of Granite Construction Incorporated [f]
3.1.b Certificate of Incorporation of Granite Construction Incorporated as Amended and
Restated (Effective May 22, 1998) [f]
3.2 Bylaws of Granite Construction Incorporated (as amended and restated effective
February 27, 1991) [b]
10.1 Amendment to and Restatement of the Granite Construction Incorporated Employee
Stock Ownership Plan adopted November 16, 1998 and effective January 1, 1998 [f]
10.1.a Granite Construction Incorporated Employee Stock Ownership Trust Agreement [b]
10.1.b Amendment 1 to the Granite Construction Incorporated Employee Stock Ownership
Plan Trust Agreement adopted December 19, 1995, effective January 1, 1996 [c]
10.2 Granite Construction Profit Sharing and 401(k) Plan as Amended and Restated Effective
January 1, 1999 __
10.3 Credit Agreement dated and effective June 30, 1997 [e]
10.3.a First Amendment to the Credit Agreement entered into January 16, 1998 [e]
10.3.b Second Amendment to the Credit Agreement entered into June 30, 1998 [f]
10.3.c Third Amendment to the Credit Agreement entered into June 30, 1999 __
10.4 Form of Director and Officer Indemnification Agreement [a]
10.5 Form of Executive Officer Employment Agreement [a]
10.6 Amendment to and Restatement of the Granite Construction Incorporated Key
Management Deferred Compensation Plan adopted and effective January 1, 1998 [f]
10.6.a Amendment 1 to Granite Construction Incorporated Key Management Deferred
Compensation Plan dated April 23, 1999 __
10.7 Amendment to and Restatement of the Granite Construction Incorporated Key
Management Deferred Incentive Compensation Plan adopted and effective January 1, 1998 [f]
10.7.a Amendment 1 to Granite Construction Incorporated Key Management Deferred Incentive
Compensation Plan dated April 23, 1999 __
10.8 Note Purchase Agreement between Granite Construction Incorporated and certain purchasers
dated March 1, 1998 [f]
29
51
10.9 Subsidiary Guaranty Agreement from the Subsidiaries of Granite Construction Incorporated
as Guarantors of the Guaranty of Notes and Note Agreement and the Guaranty of Payment
and Performance dated March 1, 1998 [f]
10.10 Granite Construction Incorporated 1999 Equity Incentive Plan __
21.1 List of Subsidiaries of Granite Construction Incorporated [d]
24.1 Consent of PricewaterhouseCoopers, LLP is contained on page 27 of this Report
27.1 Financial Data Schedule __
[a] Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (No. 33-33795).
[b] Incorporated by reference to the exhibits filed with the Company's Form
10-K for the year ended December 31, 1991.
[c] Incorporated by reference to the exhibits filed with the Company's Form
10-K for the year ended December 31, 1995.
[d] Incorporated by reference to the exhibits filed with the Company's Form
10-K for the year ended December 31, 1996.
[e] Incorporated by reference to the exhibits filed with the Company's Form
10-K for the year ended December 31, 1997.
[f] Incorporated by reference to the exhibits filed with the Company's Form
10-K for the year ended December 31, 1998.
30
52
SCHEDULE II
GRANITE CONSTRUCTION INCORPORATED
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
--------------------------
BALANCE AT ADJUSTMENTS BALANCE AT
BEGINNING BAD DEBT AND END OF
DESCRIPTION OF YEAR EXPENSE COLLECTIONS DEDUCTIONS(1) PERIOD
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts ........ $ 699 $ 997 $ 1,516 $ (1,988) $ 1,224
================================================================
Allowance for notes receivable ......... $ 68 $ -- $ -- $ -- $ 68
================================================================
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts ........ $ 691 $ (2,628) $ 3,538 $ (902) $ 699
================================================================
Allowance for notes receivable ......... $ 68 $ -- $ -- $ -- $ 68
================================================================
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts ........ $ 693 $ 759 $ 1,162 $ (1,923) $ 691
================================================================
Allowance for notes receivable ......... $ 68 $ -- $ -- $ -- $ 68
================================================================
(1) Accounts deemed to be uncollectible
S-1