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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, 1997
[ ] 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 0-17124
GRANITE CONSTRUCTION INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 77-0239383
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
585 WEST BEACH STREET, WATSONVILLE, CALIFORNIA 95076
(Address of principal executive offices) Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 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.[X]
The aggregate market value of voting and non-voting stock held by non-affiliates
of the registrant was approximately $343,429,000 as of March 20, 1998 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 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 affiliates status is not
necessarily a conclusive determination for other purposes.
At March 20, 1998, 18,255,266 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 18, 1998, which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1997.
This report, including all exhibits and attachments, contains 462 pages. The
exhibit index is on pages 24-25.
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TABLE OF CONTENTS
Page
No.
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PART I.......................................................................................................... 3
Item 1. BUSINESS........................................................................................ 3
Item 2. PROPERTIES ..................................................................................... 9
Item 3. LEGAL PROCEEDINGS .............................................................................. 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 9
PART II......................................................................................................... 11
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.............................................................................. 11
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA............................................................ 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................................ 13
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................ 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES....................................................................... 19
PART III........................................................................................................ 20
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................. 20
Item 11. EXECUTIVE COMPENSATION.......................................................................... 20
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................................................... 20
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................. 20
PART IV......................................................................................................... 21
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................. 21
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PART I
ITEM 1. BUSINESS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the 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; competition and pricing pressures; state
referendums and initiatives; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
INTRODUCTION
Granite Construction Incorporated, the "Company", is one of the largest
heavy civil construction contractors and is the largest transportation
contractor in the United States as ranked by Engineering News-Record magazine,
May 1997. Granite operates throughout the United States, focusing primarily in
the west, southwest and southeast and serves 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.
Granite also owns and leases substantial aggregate reserves and owns 108
construction materials processing plants and 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.
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. Granite operates primarily through its
wholly owned subsidiary, Granite Construction Company and has ten less
significant wholly-owned subsidiaries.
RECENT DEVELOPMENT
During 1997, the Company completed the purchase of a 30% minority interest
in T.I.C. Holdings Inc. ("TIC") as part of its diversification strategy (See
Business Strategy). The transaction included a 10% ownership interest acquired
in 1996.
TIC, founded in 1974, is one of the leading merit shop, general heavy
industrial contractors in the U.S., and is ranked in the Top 20 in both the
industrial and power marketplaces by Engineering News-Record Magazine. TIC
performs all major disciplines including civil, structural steel erection, heavy
mechanical, process piping and electrical/instrumentation. TIC has offices in
Colorado, Georgia, California, Texas, Louisiana, Kansas, Nevada, Oregon and
Wyoming.
TIC operates both nationally and internationally. TIC had annual revenues
of $420.5 million in 1997. By market sector, 57% of its 1997 revenue came from
industrial/petrochemical projects, 24% from water/sewer/wastewater projects, 12%
from power-related projects, and the remaining 7% derived from
transportation-related and other work.
OPERATING STRUCTURE
The principal operating company, Granite Construction Company, is
organized into two operating divisions. 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 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.
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
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resources which are generally not available to smaller, local competitors.
Conversely, the Branch Division has greater knowledge of local markets and
provides the Heavy Construction Division with valuable information regarding
larger projects in the branches' areas. The two divisions sometimes jointly
perform projects when a project in a particular region exceeds the local
branch's capabilities.
As decentralized profit centers, the branch offices and the Heavy
Construction Division independently estimate, bid and complete contracts. Both
divisions are supported by centralized functions, including finance, accounting,
tax, human resources, labor relations, safety, legal, insurance, surety and
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 which
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.
The Branch Division. In 1997, Branch Division contract revenue and sales
of aggregate products were $831.9 million (81% of Company revenue) as compared
with $715.6 million (77% of Company revenue) in 1996. 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 13 satellite operations.
The Company's branch offices in California are located in Bakersfield, Hanford
(Central Valley), Monterey Bay Area, Palm Springs (Southern California Region),
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 1997 these revenues ranged
from $33 million to $158 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. More than half of the aggregate products are used in the Company's
construction projects. The remainder is sold to unaffiliated parties and
accounted for $127.1 million of revenue in 1997, representing 12.4% of the
Company's total 1997 revenue. The Company has significant aggregate reserves
which it has acquired by ownership in fee or through long-term leases. It is the
Company's objective to continue to own or lease adequate aggregate reserves.
Heavy Construction Division. In 1997, revenue from HCD was $196.3 million
(19% of Company revenue) as compared with $213.2 million (23% of Company
revenue) in 1996. 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 27
major dam and tunnel projects in eight 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.
The Division markets, estimates, bids and provides management overview of
its projects from its Watsonville headquarters and satellite estimating offices
in Texas, Georgia, Florida and Maryland. Project staffs located at job sites
have the managerial, technical, and clerical capacity to meet on-site project
management requirements. HCD
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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 where it is desirable to share risk and resources. Joint ventures
provide independently prepared estimates, and shared financing, equipment and
expertise.
Privatization as a new market sector for the Division emerged in 1995 as
the Company pioneered the use of public/private partnerships to fund the
construction of public infrastructure projects which are not supported by
traditional tax-based revenue sources. Two such projects have been successfully
completed in joint venture - in 1995, the SR91 congestion relieving toll lanes
project and, in 1996, the San Joaquin Hills Transportation Corridor. As an
investor in the SR91 project, the Company participates in the partnership that
will operate the toll road under a 35 year franchise agreement with the State of
California. Except for these initial significant successes, the pursuit by HCD
of additional contracts in this market has been frustrated by a public sector
which is not yet ready to mix public and private sources of financing to produce
needed transportation facilities. Granite has turned its attention to private
sector projects where there appears to be potential to develop, design and
build.
BUSINESS STRATEGY
Granite's fundamental objective is to increase long-term shareholder value
by focusing on consistent profitability from carefully managed revenue growth.
Shareholder value is measured by the appreciation of the value of Granite stock
over a period of years, and to a minor 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: the building of
roads, highways, bridges, dams and tunnels, mass transit facilities and
site preparation. This focus emphasizes the Company's specialized
strengths which include earth moving, grading, paving and concrete
structures.
Vertical Integration of Aggregate Materials into Construction - Granite
owns aggregate reserves and processing plants and by ensuring availability
of these resources at favorable cost believes it has significant bidding
advantages in many of its markets.
Selective Bidding - Once Granite selects a job that meets our bidding
criteria, the project is estimated using a highly detailed method with a
proprietary estimating system which applies both contingency cost and
margin to achieve the appropriate profit margin for the risk assumed.
Diversification - To mitigate the risks inherent in construction and
general economic factors, Granite pursues projects (i) in both the public
and private sectors; (ii) for a wide range of customers within each sector
(from the federal government to small municipalities and from large
corporations to individual homeowners); (iii) in diverse geographic
markets; (iv) of various sizes, durations and complexity; and (v) in the
heavy industrial market segment.
Decentralized Profit Centers - Granite addresses each selected market with
a highly customer responsive organization 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 effectively operates
an internal leasing company, competing more effectively by ensuring
availability of these resources at favorable cost.
Controlled Expansion - The Company intends to continue its geographic
expansion by selectively adding branches in the western United States, by
pursuing major infrastructure projects throughout the nation and expanding
into other construction market segments through acquisitions.
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Accident Prevention - Granite believes that the prevention of accidents is
both a moral obligation and good business. By identifying and preventing
potential accidents the Company continues to significantly reduce the
costs associated with accidents.
Environmental Affairs - Granite believes it benefits all parties 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 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.
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, Arizona, Nevada and Utah. In 1997, contracts with the California
Department of Transportation represented 13.5% 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 U.S. Bureau of Reclamation, the State Departments of
Highways and Public Transportation in Texas, Georgia, Utah, Florida and New
Jersey, and the Metropolitan Water District of Southern California (See Note 2
of Notes to Consolidated Financial Statements).
A breakdown of the Company's revenues for the last three years by market
sector is as follows (in thousands):
1997 1996 1995
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AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------------------------------------------------------------------
Contract revenues
Federal agencies ............ $ 38,789 3.8% $ 32,825 3.5% $ 53,018 5.9%
State agencies .............. 449,727 43.6 345,505 37.2 283,272 31.7
Local public agencies ....... 238,141 23.2 278,917 30.0 338,350 37.8
Private sector .............. 174,479 17.0 178,053 19.2 129,028 14.4
Construction materials sales ... 127,069 12.4 93,499 10.1 91,128 10.2
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Total .................... $1,028,205 100.0% $928,799 100.0% $894,796 100.0%
=====================================================================
BACKLOG
The Company's backlog (anticipated revenue from uncompleted portions of
existing contracts) was $909.8 million at December 31, 1997, up from $597.9
million at December 31, 1996. The Company's backlog was $590.1 million at the
end of 1995. Approximately $380 million of the December 31, 1997 backlog will
remain at December 31, 1998. 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 substantial 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, 1997(in millions):
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1997 1996 1995
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AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------------------------------------------------------------------------
By Geographic Area:
California............................. $214.4 23.6% $247.5 41.4% $227.9 38.6%
West (excluding California)............ 379.5 41.7 72.6 12.1 79.2 13.4
South/East............................. 315.9 34.7 277.8 46.5 283.0 48.0
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$909.8 100.0% $597.9 100.0% $590.1 100.0%
==========================================================================
By Market Sector:
Federal agencies....................... $29.7 3.3% $ 28.7 4.8% $ 17.5 3.0%
State agencies......................... 674.9 74.2 374.8 62.7 354.3 60.0
Local public agencies.................. 144.9 15.9 123.0 20.6 152.6 25.9
Private sector......................... 60.3 6.6 71.4 11.9 65.7 11.1
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$909.8 100.0% $597.9 100.0% $590.1 100.0%
==========================================================================
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 1997 and 1996, the Company spent
approximately $45.4 million and $43.0 million, respectively, for construction
equipment, plants and vehicles. The breakdown of the Company's construction
equipment, plants and vehicles at December 31, 1997 is as follows:
Heavy construction equipment..................................... 2,207 units
Trucks, truck-tractors and trailers and vehicles................. 2,876 units
Aggregate crushing plants........................................ 38 plants
Asphalt concrete plants.......................................... 43 plants
Portland cement concrete batch plants............................ 25 plants
Thermal Soil Remediation Plants.................................. 2 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, 1997, Granite employed 1,054 salaried employees, who work
in management, estimating and clerical capacities, and 2,446 hourly employees.
The total number of hourly personnel employed by the Company is subject to the
volume of construction in progress. During 1997, the number of hourly employees
ranged from 1,803 to 4,052 and averaged approximately 3,309. The 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 feeling of dedication to and pride in the
Company. Among salaried and non-union hourly employees, this dedication is
reinforced by 30% equity ownership through the Employee Stock Ownership Plan
("ESOP") and performance-based incentive compensation arrangements. The
Company's 367 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 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.
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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.
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 generally requires its
subcontractors to furnish bonds guaranteeing their performance. Affirmative
action regulations require the Company to use its best efforts to employ certain
types of subcontractors for a specified portion (historically ranging up to 25%)
of contract work done for governmental agencies. 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 guaranteeing 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
355,600 square feet of office and shop space and leases, pursuant to leases
expiring in the year 2000, an additional 55,600 square feet of office and shop
space. The Company owns approximately 10,200 acres of land of which 1,300 acres
are un-permitted reserves available for future use and leases approximately
4,500 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 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 1998
to January 2038. The Company considers its available and future aggregate
reserves adequate to meet 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 has not submitted any matters to a vote of security holders
during the fourth quarter of the year ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
Age Position
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David H. Watts 59 President, Chief Executive Officer and Director
William E. Barton 53 Vice President, Chief Financial Officer
Patrick M. Costanzo 59 Senior Vice President and Manager, Heavy Construction Division
William G. Dorey 53 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 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. In 1997, Mr. Watts became a
director of TIC Holdings, Inc., 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. Barton has been an employee of the Company since 1980 and has served
in various capacities, including Vice President and Chief Financial Officer
since 1990, Controller in 1989, Treasurer in 1988 and Cash Manager from 1980
until 1988. In 1997, Mr. Barton became a director of TIC Holdings, Inc., 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.
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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 1972 to 1987. In 1997, Mr. Costanzo became
a director of TIC Holdings, Inc., in which Granite Construction Incorporated
owns a 30% interest. 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. Dorey has been an employee of the Company since 1968 and has served in
various capacities, including Senior Vice President and Manager, Branch Division
since 1987, and as Vice President and Assistant Manager, Branch Division from
1983 to 1987. In 1997, Mr. Dorey became a director of TIC Holdings, Inc., in
which Granite Construction Incorporated owns a 30% interest. He received a B.S.
degree in construction engineering from Arizona State University in 1967.
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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 is 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 $0.075 plus a
special dividend of $0.12 per share of Common Stock to stockholders of record as
of March 31, 1998 payable on April 17, 1998 (See Note 13 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 and financial conditions and such other factors as the
Board of Directors deems relevant. As of March 20, 1998 there were 18,255,266
shares of Common Stock outstanding held by approximately 313 stockholders of
record of the Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected Operations and Balance Sheet data set forth below have been
derived from Consolidated Financial Statements of the Company, which have been
audited by Coopers & Lybrand L.L.P., independent accountants.
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SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
==================================================================================================================================
YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING SUMMARY
Revenue $1,028,205 $928,799 $894,796 $693,388 $570,379 $518,312
Gross profit 111,730 110,655 111,963 89,988 50,743 50,578
As a percent of revenue 10.9% 11.9% 12.5% 13.0% 8.9% 9.8%
General and administrative expenses 73,593 71,587 69,610 62,795 47,107 46,906
As a percent of revenue 7.2% 7.7% 7.8% 9.1% 8.3% 9.0%
Income before cumulative effect of change
in accounting principle * 27,832 27,348 28,542 19,488 3,492 3,924
Net income 27,832 27,348 28,542 19,488 4,492 3,924
As a percent of revenue 2.7% 2.9% 3.2% 2.8% 0.8% 0.8%
Income per share before cumulative effect
of change in accounting principle: *
Basic $ 1.58 $ 1.57 $ 1.65 $ 1.13 $ 0.20 $ 0.23
Diluted 1.55 1.53 1.62 1.11 0.20 0.23
Net income per share:**
Basic 1.58 1.57 1.65 1.13 0.26 0.23
Diluted 1.55 1.53 1.62 1.11 0.26 0.23
Weighted average shares of common and
common stock equivalents outstanding:
Basic 17,598 17,471 17,277 17,256 17,250 17,250
Diluted 17,961 17,832 17,649 17,526 17,422 17,409
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
Total assets $ 551,809 $473,045 $454,744 $349,098 $319,416 $316,978
Cash, cash equivalents and short-term
investments 72,769 72,230 66,992 48,638 48,810 54,139
Working capital 103,910 92,542 77,179 65,537 64,619 66,329
Current maturities of long-term debt 12,921 10,186 13,948 10,070 10,060 15,469
Long-term debt 58,396 43,602 39,494 17,237 28,585 38,618
Stockholders' equity 257,434 233,605 209,905 182,692 164,338 158,594
Book value per share 14.09 12.89 11.74 10.37 9.37 9.07
Dividends per share $ 0.36 $ 0.37 $ 0.29 $ 0.13 $ 0.13 $ 0.13
Common shares outstanding 18,266 18,126 17,885 17,622 17,534 17,477
- ----------------------------------------------------------------------------------------------------------------------------------
BACKLOG $ 909,793 $597,876 $590,075 $550,166 $659,738 $245,234
- ----------------------------------------------------------------------------------------------------------------------------------
==============================================================================================================
YEARS ENDED DECEMBER 31, 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------
OPERATING SUMMARY
Revenue $564,060 $557,996 $504,084 $437,230 $380,519
Gross profit 69,502 70,646 60,837 55,614 46,621
As a percent of revenue 12.3% 12.7% 12.1% 12.7% 12.3%
General and administrative expenses 46,541 44,466 41,915 33,702 32,381
As a percent of revenue 8.3% 8.0% 8.3% 7.7% 8.5%
Income before cumulative effect of change
in accounting principle * 17,622 18,811 14,211 15,009 8,594
Net income 17,622 18,811 14,211 15,009 8,594
As a percent of revenue 3.1% 3.4% 2.8% 3.4% 2.3%
Income per share before cumulative effect
of change in accounting principle: *
Basic $ 1.02 $ 1.13 $ 0.95 $ 1.00 $ 0.57
Diluted 1.01 1.13 0.95 1.00 0.57
Net income per share:**
Basic 1.02 1.13 0.95 1.00 0.57
Diluted 1.01 1.13 0.95 1.00 0.57
Weighted average shares of common and
common stock equivalents outstanding:
Basic 17,250 16,575 15,000 15,000 15,000
Diluted 17,415 16,622 15,000 15,000 15,000
- --------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION SUMMARY
Total assets $277,426 $260,426 $245,880 $205,847 $178,846
Cash, cash equivalents and short-term
investments 54,973 50,451 46,306 44,911 41,959
Working capital 55,186 52,352 34,902 39,656 31,036
Current maturities of long-term debt 7,669 7,887 14,228 12,497 10,806
Long-term debt 14,816 19,084 39,707 44,328 49,542
Stockholders' equity 153,159 131,026 86,552 69,033 50,756
Book value per share 8.81 7.60 5.77 4.60 3.38
Dividends per share $ 0.13 $ 0.10 $ -- $ -- $ --
Common shares outstanding 17,385 17,250 15,000 15,000 15,000
- --------------------------------------------------------------------------------------------------------------
BACKLOG $292,017 $368,384 $377,529 $231,338 $255,858
- --------------------------------------------------------------------------------------------------------------
* Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes".
** Effective December 31, 1997, the Company adopted Financial Accounting
Standard No. 128 "Earnings Per Share." All prior period earnings per share
amounts have been restated to reflect this adoption.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section contains forward-looking statements
which are made in reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements involve risks and uncertainties, including, 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; competition and
pricing pressures; state referendums and initiatives; and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission.
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, Oregon,
Maryland 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 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
REVENUE AND BACKLOG. During the year ended December 31, 1997, revenue
increased $99.4 million (10.7%) to $1.028 billion. The increase in revenue is
associated with higher levels of bidding opportunities and awards in our Branch
Division. The Branch Division revenue increased $116.3 million to $831.9 million
in 1997, from $715.6 million in 1996. Heavy Construction Division (HCD) revenue
decreased $16.9 million to $196.3 million in 1997, from $213.2 million in 1996.
The Company's revenue from public sector contracts increased to $726.6 million,
or 70.6% of the Company's revenue in 1997, from $657.2 million, or 70.7% in
1996. Revenue from private sector contracts decreased $3.6 million to $174.5
million in 1997, and decreased from 19.2% of total revenue in 1996 to 17.0% of
total revenue in 1997.
The Company's backlog at December 31, 1997 was $909.8 million, up
$311.9 million, or 52.2% over the same period in 1996. Backlog at December 31,
1997 includes 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 $320
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million portion of the contract began during the second quarter of 1997 with 25%
completion for profit recognition not expected until mid 1998. Management
expects that approximately 58% of the work in the backlog at December 31, 1997
will be recognized as revenue during 1998. The Company believes its bidding
opportunities in its major marketplaces remain strong (see "Outlook").
GROSS PROFIT. For the year ended December 31, 1997, gross profit
reached $111.7 million, a $1.0 million increase from 1996. As a percentage of
revenue, gross profit decreased in 1997 to 10.9% from 11.9% in 1996, due in part
to an increase in revenue recognized for contracts that had not reached the 25%
completion threshold. Additionally, gross profit in 1997 reflects the absence of
the San Joaquin Hills Toll Road Project completed in late 1996 which carried a
higher than average gross profit margin.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses include salaries, incentive compensation, retirement plans, costs
associated with the Company's estimating and bidding activities, and other
administrative costs. General and administrative expenses increased from $71.6
million, or 7.7% of revenue in 1996, to $73.6 million, or 7.2% of revenue in
1997. The increase reflects a higher level of costs to support the Company's
increased revenue and bidding activities and increased personnel to support the
Company's expansion into the South/East marketplace.
OTHER INCOME (EXPENSES). Other income increased $1.7 million to $6.0
million in 1997. The increase was due an increase in the Company's equity in the
earnings of its affiliates partially offset by higher interest expense
associated with higher debt levels and a decrease in gains on sales of property
and equipment.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1997 the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. SFAS 130 is effective for the Company in 1998 and its impact on
adoption is not expected to be significant.
In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 requires publicly-held companies to report
financial and other information about key revenue-producing segments of the
entity for which such information is available and is utilized by the chief
operations decision maker. Specific information to be reported for individual
segments includes profit or loss, certain revenue and expense items and total
assets. A reconciliation of segment financial information to amounts reported in
the financial statements would be provided. SFAS 131 is effective for the
Company in 1998 and the impact of adoption has not been determined.
OUTLOOK. This "Outlook" section contains forward-looking statements
which are made in reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements involve risks and uncertainties, including, 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; competition and
pricing pressures; state referendums and initiatives; and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission.
Looking ahead, re-authorization of the federal transportation bill,
often referred to as the "ISTEA" bill, is one of the most important issues
facing Granite and its industry in 1998. Federal funding for needed repair and
improvement of the nation's highway system expires May 1, 1998. If Congress
fails to take action by then, new federal funding for roads, bridges and transit
programs will cease. Some states, such as California, are currently enjoying the
fruits of a healthy state economy, and have surplus highway building funds that
could potentially be used to bridge any gap created by the lack of a federal
program, at least for the next fiscal year. In most states, however, that is not
the case, and the absence of federal highway funding could jeopardize many state
highway projects in the short-term.
We are very encouraged, however, by the action taken most
recently by the U.S. Senate. In previous communications with our shareholders,
we had indicated that it appeared unlikely that any action on the highway bill
would occur before the federal budget had been approved. Surprisingly, the
Senate passed a six-year, $214 billion ISTEA re-authorization bill in March
1998, a 38% increase over the previous authorization. The leadership in the
House has indicated that a companion bill will reach the floor by April 1. The
House version calls for increases in funding to $217 billion and taking the
Highway Trust Funds off-budget. A vote on the increase is expected to take place
during the week of March 30,
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1998. Taking the trust funds off-budget provides a mechanism to ensure that the
authorized funding is actually spent. In previous years Congress didn't always
appropriate funds to the same level as authorized under the earlier ISTEA. If
the House could pass its bill by April 1, it would greatly increase the chances
of a final bill being passed and signed by President Clinton near the May 1
deadline.
At the state level, our attention remains focused on the June
primary election and Proposition 224, the so-called contracting-out initiative.
The measure seeks to codify and expand a legal decision that precludes the
California Department of Transportation from contracting out to private
companies for design services at times when the agency does not have the
capacity internally to design highway projects. If this initiative passes, it
would decrease the throughput in the design process and offer contractors like
Granite fewer projects on which to bid.
We are pleased by the recent upswing in the private sector,
especially in California. According to the Construction Industry Research Board
(CIRB) private nonresidential building was the strongest construction sector in
1997. Moreover, residential building, as measured by new units in building
permits, was up 27.2% at year-end compared to the totals at December, 1996.
Another indicator of economic strength is job growth, and according to the CIRB,
non-farm job growth increased an estimated 3.3% in 1997, up from a 2.2% increase
in 1996.
Despite a still growing economy and the limited number of
construction workers, the labor market has been stable and labor costs have not
accelerated. We continue to expand our training and development efforts across
the country to attract and retain talented employees at both engineer and craft
levels.
We were very pleased with the 1997 return on our investment in
TIC Holdings, Inc.. The company had a very good year, and it enters 1998 with a
strong backlog and some excellent bidding opportunities. We were successful in
teaming with TIC and its subsidiary, Western Summit, on a large sewage treatment
plant in Atlanta and we continue to look for ways in which our two companies can
pursue joint venture opportunities.
The size and the quality of the backlog that we take into 1998
provide Granite with the opportunity to achieve continued success in the coming
year. We have some excellent bidding prospects this year to add to that backlog,
including the $1.8 billion Alameda Corridor Project in Southern California,
several large highway projects in the Southeastern U.S., and the San Francisco
Bay Area bridge retrofit projects. We are pleased with the progress of the
Interstate 15 project that we are building in joint venture in Salt Lake City,
Utah. The project is somewhat ahead of schedule, and we now expect it will reach
the 25% completion threshold, at which Granite recognizes earnings on a job, in
the third, perhaps even the second quarter of 1998, instead of the fourth
quarter, as previously estimated.
Based on strong economics in most of the regions in which it
operates, our Branch Division, coming off the best year in its history, is
expecting more of the same in 1998. The division is off to a good start, due
largely to the boost it is getting from El Nino-related emergency storm repair
projects.
In summary, we enter 1998 with a record backlog and have a
number of exciting bidding opportunities in front of us. We still have to
execute the work, but based on the strength of our backlog, increased public
works expenditures, and the emergence of the private sector, we feel very
confident that we can continue to grow our revenue and our earnings at the pace
we expect of ourselves and which our investors and other stakeholders have come
to expect.
PRIOR YEARS
REVENUE AND BACKLOG. During the year ended December 31, 1996,
revenue increased $34.0 million (3.8%) to $928.8 million due to higher levels of
bidding opportunities and awards in our Branch Division and a full year of Utah
Branch activity in 1996. The Branch Division revenue increased $39.6 million to
$715.6 million in 1996, from $676.0 million in 1995. Heavy Construction Division
revenue decreased $5.6 million to $213.2 million in 1996, from $218.8 million in
1995. The Company's revenue from private sector contracts increased $49.1
million to $178.1 million, and went from 14.4% of total revenue in 1995 to 19.2%
of total revenue in 1996. Revenue from public sector contracts decreased to
$657.2 million, or 70.7% of the Company's revenue in 1996, from $674.7 million,
or 75.4% in 1995.
During the year ended December 31, 1995, revenue increased
$201.4 million (29.0%) to $894.8 million. The increase in revenue reflected a
strong quality backlog, healthy Turn Business and the addition of the Company's
new branch in Utah.
The Company's backlog at December 31, 1996 was $597.9 million,
up $7.8 million, or 1.3% over the same period in 1995.
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GROSS PROFIT. For the year ended December 31, 1996, gross profit
reached $110.7 million, a $1.3 million decrease from 1995. As a percentage of
revenue, gross profit decreased in 1996 to 11.9% from 12.5% in 1995. Gross
profit as a percentage of revenue in 1995 decreased to 12.5% from 13.0% in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $69.6 million, or 7.8% of revenue in 1995, to $71.6
million, or 7.7% of revenue in 1996. The increase reflects a full year of Utah
Branch activity as well as an approximately $3.0 million increase to bad debt
expense relating to one project. General and administrative expenses increased
$8.8 million from 1994 primarily due to the addition of the Utah Branch and
higher incentive compensation and retirement plan contributions.
OTHER INCOME (EXPENSES). Other income increased $1.4 million to $4.3
million in 1996. The increase was influenced by $2.0 million of gain on sales of
joint venture owned equipment which cannot be expected to be repeated in future
years. Other income decreased $0.3 million to $3.0 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------------------------------------------
Dollars in thousands 1997 1996 1995
-------------------------------------------------------------------
Cash and cash equivalents $ 54,359 $ 38,663 $ 22,410
Net cash provided (used) by:
Operating activities 63,798 61,424 69,622
Investing activities (49,207) (37,548) (48,977)
Financing activities 1,105 (7,623) (15,884)
Capital expenditures 48,448 46,139 36,006
Working Capital 103,910 92,542 77,179
-------------------------------------------------------------------
During 1997, cash provided from operations of $63.8 million was
primarily used to purchase $48.4 million of property and equipment, to repay
$16.5 million of long-term debt, to pay dividends of $6.6 million and repurchase
$3.1 million of common stock. Changes in cash provided by operating activities
primarily reflect normal variations in the cash flow on contracts and payables.
The Company's practice has been to replace and replenish its equipment
fleet with cash generated from operations. Cash purchases of property, plants
and equipment increased $2.3 million from 1996 to 1997 and $10.1 million from
1995 to 1996. The increase in 1996 primarily reflected the Company's purchase of
the Utah Branch in 1995.
During 1997, the Company increased its investment in T.I.C. Holdings,
Inc. by $12.2 million to approximately 30% from the 10% investment in 1996. The
investment was financed by borrowings under the Company's revolving line of
credit.
In March of 1997, the Board of Directors authorized the Company to
repurchase at management's discretion up to 500,000 shares of its own common
stock on the open market. Future purchases are expected to be made using the
Company's own cash resources. Shares repurchased will be held in the corporate
treasury and will be used to cover contributions to the current Employee Stock
Ownership Plan or for other corporate purposes.
The Company has budgeted $66.0 million for capital expenditures in
1998, which includes amounts for construction equipment, aggregate and asphalt
plants, buildings, leasehold improvements and the purchase of land and aggregate
reserves. The Company anticipates that cash generated internally and amounts
available under its existing credit facilities will be sufficient to meet its
capital and other requirements, including contributions to employee benefit
plans, for the foreseeable future. The Company currently has access to funds
under its revolving credit agreement which allow it to borrow up to $75.0
million, of which $32.4 million was available at December 31, 1997.
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
16
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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.
Based on a recent assessment, the Company determined that it will not
be required to materially modify or replace its software in response to the Year
2000 Issue. The Company has begun communications with 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 Issue. However, there can be no guarantee that the systems of other
companies or public agencies with which the Company does business will be timely
converted, or that failure to convert by another company or public agency would
not have a material adverse effect on the Company.
The Company does not believe that the cost of addressing the impact on
its computer systems of the Year 2000 Issue will be material to its business,
results of operations, financial condition, liquidity or capital resources.
SUBSEQUENT EVENTS. On January 23, 1998, the Board of Directors declared
a special dividend of $0.12 per share of common stock in addition to a $0.075
per share quarterly dividend, payable on April 17, 1998 to stockholders of
record as of March 31, 1998. The quarterly dividend represents a $0.015 per
share increase over the quarterly dividends paid in 1997 of $0.06 per share.
On March 19, 1998 the Company issued long-term debt in the amount of
$60 million 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.
Proceeds of the notes will be used to retire a portion of existing debt and for
general corporate purposes.
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QUARTERLY RESULTS
The following table sets forth selected unaudited financial information
for the Company for the eight quarters in the period ended December 31, 1997.
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)
- -----------------------------------------------------------------------------------------
1997 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- -----------------------------------------------------------------------------------------
Revenue $ 309,820 $ 328,988 $ 242,576 $ 146,821
Gross profit 26,008 38,882 30,990 15,850
As a percent of revenue 8.4% 11.8% 12.8% 10.8%
Net income 5,631 13,651 8,307 243
As a percent of revenue 1.8% 4.1% 3.4% 0.2%
Net income per share:
Basic $ 0.32 $ 0.77 $ 0.47 $ 0.01
Diluted $ 0.31 $ 0.76 $ 0.46 $ 0.01
- -----------------------------------------------------------------------------------------
Dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.18
Market price
High $ 24.00 $ 24.06 $ 21.25 $ 24.75
Low $ 20.31 $ 19.25 $ 17.75 $ 17.25
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
1996 QUARTERS ENDED DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- -----------------------------------------------------------------------------------------
Revenue $ 223,905 $ 302,646 $ 248,499 $ 153,749
Gross profit 25,979 40,816 29,218 14,642
As a percent of revenue 11.6% 13.5% 11.8% 9.5%
Net income 2,798 15,053 9,131 366
As a percent of revenue 1.2% 5.0% 3.7% 0.2%
Net income per share:
Basic $ 0.16 $ 0.86 $ 0.52 $ 0.02
Diluted $ 0.16 $ 0.84 $ 0.51 $ 0.02
- -----------------------------------------------------------------------------------------
Dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.19
Market price
High $ 21.25 $ 23.50 $ 27.25 $ 21.83
Low $ 18.00 $ 18.25 $ 19.00 $ 18.00
- -----------------------------------------------------------------------------------------
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, 1997 and 1996
Consolidated Statements of Income - Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Additionally, a two-year Summary of Quarterly Results is included in
Item 7 under "Quarterly Results".
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
19
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PART III
Certain information required by Part III is omitted from this Report in
that the Company will file its definitive proxy statement (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 Company's
definitive Proxy Statement in connection with the Annual Meeting of Stockholders
to be held May 18, 1998. 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 Company's definitive Proxy Statement in connection with the
Annual Meeting of Stockholders to be held May 18, 1998. 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 Company's definitive Proxy Statement in connection with the
Annual Meeting of Stockholders to be held May 18, 1998. 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 Company's definitive Proxy Statement in
connection with the Annual Meeting of Stockholders to be held May 18, 1998. Such
information is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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
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Report of Independent Accountants................................................ F-1
Consolidated Balance Sheets at December 31, 1997 and 1996........................ F-2
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.............................................. F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.................................. F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.............................................. F-5
Notes to the Consolidated Financial Statements................................... F-6 to F-15
2. FINANCIAL STATEMENT SCHEDULES. The following financial
statement schedule of Granite Construction Incorporated for
the years ended December 31, 1997, 1996 and 1995 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
---------
Report of Independent Accountants on Financial Statement Schedules.................... S-1
Schedule
--------
Schedule II - Schedule of Valuation and Qualifying Accounts.................. S-2
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
1997.
21
22
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors
Granite Construction Incorporated
Watsonville, California
We have audited the accompanying consolidated balance sheets
of Granite Construction Incorporated and Subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Granite Construction Incorporated and Subsidiaries as of
December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------------
Coopers & Lybrand L.L.P.
San Jose, California
February 13, 1998, except
Note 13, as to which the
date is March 19, 1998
F-1
23
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
================================================================================================
DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 54,359 $ 38,663
Short-term investments 18,410 33,567
Accounts receivable 168,968 124,124
Costs and estimated earnings in excess of billings 22,585 29,494
Inventories 12,251 13,493
Deferred income taxes 13,365 13,060
Equity in construction joint ventures 12,951 5,371
Other current assets 11,394 6,033
-----------------------
Total current assets 314,283 263,805
- ------------------------------------------------------------------------------------------------
Property and equipment 194,339 178,515
- ------------------------------------------------------------------------------------------------
Other assets 43,187 30,725
- ------------------------------------------------------------------------------------------------
$ 551,809 $ 473,045
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 12,921 $ 10,186
Accounts payable 80,809 64,058
Billings in excess of costs and estimated earnings 51,573 45,352
Accrued expenses and other current liabilities 65,070 51,667
-----------------------
Total current liabilities 210,373 171,263
- ------------------------------------------------------------------------------------------------
Long-term debt 58,396 43,602
- ------------------------------------------------------------------------------------------------
Deferred income taxes 25,606 24,575
- ------------------------------------------------------------------------------------------------
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 27,000,000 shares;
1997- issued and outstanding 18,266,375 shares;
1996- issued 18,166,011 shares, outstanding
18,125,653 shares 183 182
Additional paid-in capital 39,836 36,901
Retained earnings 223,498 201,663
-----------------------
263,517 238,746
Unearned compensation (6,083) (5,141)
-----------------------
257,434 233,605
- ------------------------------------------------------------------------------------------------
$ 551,809 $ 473,045
================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
24
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
=================================================================================================
YEARS ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Revenue $ 1,028,205 $ 928,799 $ 894,796
Cost of revenue 916,475 818,144 782,833
---------------------------------------
GROSS PROFIT 111,730 110,655 111,963
General and administrative expenses 73,593 71,587 69,610
---------------------------------------
OPERATING INCOME 38,137 39,068 42,353
- -------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 7,941 6,330 6,395
Interest expense (7,515) (4,367) (3,443)
Gain on sales of property and equipment 2,463 3,458 31
Other, net 3,152 (1,080) (32)
---------------------------------------
6,041 4,341 2,951
- -------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 44,178 43,409 45,304
Provision for income taxes 16,346 16,061 16,762
- -------------------------------------------------------------------------------------------------
NET INCOME $ 27,832 $ 27,348 $ 28,542
=================================================================================================
- -------------------------------------------------------------------------------------------------
Net income per share
Basic $ 1.58 $ 1.57 $ 1.65
Diluted $ 1.55 $ 1.53 $ 1.62
Weighted average shares of common and
common stock equivalents outstanding
Basic 17,598 17,471 17,277
Diluted 17,961 17,832 17,649
Dividends per share $ 0.36 $ 0.37 $ 0.29
=================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
25
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
==================================================================================================================================
ADDITIONAL
COMMON PAID-IN RETAINED UNEARNED
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 STOCK CAPITAL EARNINGS COMPENSATION TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 $178 $ 29,021 $ 156,022 $(2,529) $ 182,692
Net income -- -- 28,542 -- 28,542
Restricted stock issued - 163,611 shares 1 2,134 -- (2,135) --
Amortized restricted stock -- -- -- 1,549 1,549
Employee stock options exercised and
related tax benefit - 98,517 shares -- 1,345 -- -- 1,345
Repurchase of common stock - 40,000 shares -- (762) -- -- (762)
Common stock contributed to ESOP - 40,000 shares -- 762 -- -- 762
Cash dividends on common stock -- -- (5,049) -- (5,049)
Tax benefit from ESOP dividends -- -- 826 -- 826
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 179 32,500 180,341 (3,115) 209,905
Net income -- -- 27,348 -- 27,348
Restricted stock issued - 182,089 shares, net 1 3,993 -- (3,994) --
Amortized restricted stock -- -- -- 1,968 1,968
Employee stock options exercised and
related tax benefit- 59,350 shares 2 934 -- -- 936
Repurchase of common stock - 107,608 shares -- (2,076) -- -- (2,076)
Common stock contributed to ESOP - 80,000 shares -- 1,550 -- -- 1,550
Cash dividends on common stock -- -- (6,760) -- (6,760)
Tax benefit from ESOP dividends -- -- 734 -- 734
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 182 36,901 201,663 (5,141) 233,605
Net income -- -- 27,832 -- 27,832
Restricted stock issued - 156,264 shares, net 1 3,240 -- (3,241) --
Amortized restricted stock -- -- -- 2,299 2,299
Employee stock options exercised and
related tax benefit- 21,900 shares -- 350 -- -- 350
Repurchase of common stock - 167,442 shares -- (3,011) (126) -- (3,137)
Common stock contributed to ESOP - 130,000 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 $183 $ 39,836 $ 223,498 $(6,083) $ 257,434
==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
26
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
============================================================================================================
YEARS ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 27,832 $ 27,348 $ 28,542
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 38,219 37,775 32,481
Gain on sales of property and equipment (2,463) (3,458) (31)
Deferred income taxes 726 3,962 (5,825)
Decrease in unearned compensation 2,299 1,968 1,549
Common stock contributed to ESOP 2,356 1,550 762
Equity in (earnings) loss of affiliates (733) 1,648 --
Cash provided by (used in):
Accounts and notes receivable (43,072) 15,990 (24,092)
Inventories 1,242 (3,313) 1,541
Equity in construction joint ventures (7,580) (5,161) 3,225
Other assets 864 (277) (1,239)
Accounts payable 16,751 (3,998) 17,483
Billings in excess of costs and estimated earnings, net 13,130 (9,739) 11,684
Accrued expenses 14,227 (2,871) 3,542
----------------------------------
Net cash provided by operating activities 63,798 61,424 69,622
- ------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (48,448) (46,139) (36,006)
Proceeds from sales of property and equipment 4,688 8,027 3,364
Acquisition, net of cash acquired -- -- (1,280)
Investment in affiliates (13,689) (8,566) --
Additions to notes receivable (203) (874) (1,083)
Repayments of notes receivable 720 618 1,588
Additions to investments and other assets (7,432) (1,629) (1,967)
Purchases of short-term investments (27,351) (45,639) (56,324)
Maturities of short-term investments 42,508 56,654 42,731
----------------------------------
Net cash used by investing activities (49,207) (37,548) (48,977)
- ------------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt 27,046 15,000 --
Repayments of long-term debt (16,480) (14,654) (11,497)
Employee stock options exercised 246 673 1,117
Repurchase of common stock (3,137) (2,076) (762)
Dividends paid (6,570) (6,566) (4,742)
----------------------------------
Net cash provided (used) by financing activities 1,105 (7,623) (15,884)
- ------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 15,696 16,253 4,761
Cash and cash equivalents at beginning of year 38,663 22,410 17,649
----------------------------------
Cash and cash equivalents at end of year $ 54,359 $ 38,663 $ 22,410
============================================================================================================
Supplementary Information
Cash paid during the year for:
Interest $ 7,516 $ 4,367 $ 3,445
Income taxes 10,172 10,258 20,040
Noncash investing and financing activity:
Restricted stock issued for services $ 3,241 $ 3,994 $ 2,135
Financed acquisition of property and equipment 6,963 -- --
Financed acquisition of Gibbons Company -- -- 31,750
============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
27
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT 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 developments and other
infrastructure related projects. The Company has offices in California,
Texas, Georgia, Nevada, Arizona, Utah, Maryland and Florida.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts
have been eliminated. The Company uses the equity method of accounting
for companies where its ownership is between 20% and 50% and for other
ventures and partnerships in which less than a controlling interest is
held. The Company's proportionate share of construction joint venture
revenue, cost of revenue and other income is included in the
consolidated statements of income.
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.
CONSTRUCTION CONTRACTS: 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. Revisions in contract revenue and cost estimates are
reflected in the accounting period when known. Provision for the entire
amount of estimated losses on uncompleted contracts is made in the
period such losses are determined. 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.
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 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 market value. Unrealized gains and losses, if material, are
reported net of tax as a separate component of stockholders' equity
until realized. Realized gains and losses, if any, are determined using
the specific identification method.
FINANCIAL INSTRUMENTS: The carrying value of short-term
investments approximates their fair value as determined by market
quotes. All significant debt obligations carry variable interest rates
or market interest rates 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.
F-6
28
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT: Property and equipment are stated at
cost. Depreciation is provided using accelerated methods over lives
ranging from four to ten years for construction equipment and the
straight-line method over lives from three to twenty years for the
remaining depreciable assets. Depletion of quarry property is based on
the usage of depletable reserves. The cost and accumulated depreciation
and depletion of property sold or retired are removed from the accounts
and gains or losses, if any, are reflected in earnings for the period.
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: The Company has adopted the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), effective December 31, 1997. SFAS
128 requires the presentation of basic and diluted 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 and upon the vesting of restricted common
stock. All prior period earnings per share amounts have been restated
to reflect the adoption of SFAS 128.
RECLASSIFICATIONS: Certain financial statement items have been
reclassified to conform to the current year's format.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1997 the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
SFAS 130 is effective for the Company in 1998 and the impact of its
adoption is not expected to be significant.
In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 requires publicly-held
companies to report financial and other information about key
revenue-producing segments of the entity for which such information is
available and is utilized by the chief operations decision maker.
Specific information to be reported for individual segments includes
profit or loss, certain revenue and expense items and total assets. A
reconciliation of segment financial information to amounts reported in
the financial statements would be provided. SFAS 131 is effective for
the Company in 1998 and the impact of adoption has not been determined.
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.
F-7
29
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES, CONTINUED
DISCLOSURE OF SIGNIFICANT ESTIMATES - LITIGATION: The Company
has been named as a defendant in legal proceedings wherein substantial
damages are claimed. Such proceedings are not uncommon in the Company's
business and usually involve claims against multiple defendants who
were involved in the project which is the subject of the proceeding.
Historically, the Company has been successful in defending such actions
or has settled them within insured limits.
CONCENTRATIONS: The Company maintains the majority of cash
balances and all of its short-term investments with twelve financial
institutions. The Company invests with high credit quality financial
institutions, and, by policy, limits the amount of credit exposure to
any financial institution. Substantially all of the Company's labor
force is subject to collective bargaining agreements. Collective
bargaining agreements covering 27.5% of the Company's unionized labor
force at December 31, 1997 will expire during 1998.
The Company operates in a single industry segment encompassing
the construction of infrastructure assets and has no foreign
operations. Revenue received from federal, state and local government
agencies amounted to $726,657 (70.6%) in 1997, $657,247 (70.7%) in
1996, and $674,640 (75.4%) in 1995. One customer, California Department
of Transportation, represented $139,300 (13.5%) in 1997, $104,171
(11.2%) in 1996, and $88,970 (9.9%) in 1995 of total revenue. At
December 31, 1997, 1996 and 1995 the Company had significant amounts
receivable from these agencies and customer. 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.
3. SHORT-TERM INVESTMENTS
The carrying and market values of short-term
investments are as follows at December 31, 1997 and 1996:
Held-To-Maturity Held-To-Maturity
December 31, 1997 December 31, 1996
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
----------------------------------------------- ----------------------------------------------
U.S. Government and Agency
Obligations $ 1,998 $ -- $ -- $ 1,998 $ 2,993 $ -- $ -- $ 2,993
Commercial Paper -- -- -- -- 3,977 -- -- 3,977
Municipal Bonds 5,019 -- -- 5,019 6,011 6 -- 6,017
Foreign Banker's Acceptances -- -- -- -- 7,420 1 -- 7,421
Domestic Banker's Acceptances 3,450 -- -- 3,450 -- -- -- --
----------------------------------------------- ----------------------------------------------
10,467 -- -- 10,467 20,401 7 -- 20,408
----------------------------------------------- ----------------------------------------------
Available-For-Sale Available-For-Sale
December 31, 1997 December 31, 1996
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
----------------------------------------------- ----------------------------------------------
U.S. Government and Agency
Obligations 2,984 -- -- 2,984 9,146 3 (14) 9,135
Municipal Bonds 4,959 44 -- 5,003 4,020 23 -- 4,043
----------------------------------------------- ----------------------------------------------
7,943 44 -- 7,987 13,166 26 (14) 13,178
----------------------------------------------- ----------------------------------------------
Total Short-Term Investments $18,410 $ 44 $ -- $18,454 $33,567 $ 33 $ (14) $33,586
=============================================== ==============================================
F-8
30
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. SHORT-TERM INVESTMENTS, CONTINUED
There were no sales of investments classified as
available-for-sale for the years ended December 31, 1997 and 1996. At
December 31, 1997, scheduled maturities of investments are as follows:
- ------------------------------------------------------------------------------------------
Held-To- Available-
Maturity For-Sale Total
- ------------------------------------------------------------------------------------------
Within one year $10,467 $5,959 $16,426
After one year through five years -- 1,984 1,984
- ------------------------------------------------------------------------------------------
$10,467 $7,943 $18,410
==========================================================================================
For the years ended December 31, 1997 and 1996, purchases and
maturities were as follows:
------------------------------------- ---------------------------------------
December 31, 1997 December 31, 1996
Held-To- Available Total Held-To- Available Total
Maturity For Sale Maturity For Sale
------------------------------------- ---------------------------------------
Purchases $ 15,566 $11,785 $ 27,351 $ 35,315 $ 10,324 $ 45,639
Maturities 31,536 10,972 42,508 43,300 13,354 56,654
------------------------------------- ---------------------------------------
Net change $(15,970) $ 813 $(15,157) $ (7,985) $ (3,030) $(11,015)
===================================== =======================================
4. ACCOUNTS RECEIVABLE
-------------------------------------------------------------------------
DECEMBER 31, 1997 1996
-------------------------------------------------------------------------
Construction Contracts
Completed and in progress $ 94,482 $ 59,764
Retentions 55,041 47,956
-------------------------------------------------------------------------
149,523 107,720
Construction material sales 17,383 12,651
Other 2,753 4,446
-------------------------------------------------------------------------
169,659 124,817
Less allowance for doubtful accounts 691 693
-------------------------------------------------------------------------
$168,968 $124,124
=========================================================================
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, 1997 are
expected to be collected as follows: $49,801 in 1998; $1,511
in 1999 and $3,729 in 2000.
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 combined assets, liabilities and net assets of these
ventures are as follows:
F-9
31
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. EQUITY METHOD INVESTMENTS, CONTINUED
------------------------------------------------------------
DECEMBER 31, 1997 1996
------------------------------------------------------------
Assets
Total $276,038 $96,760
Less other venturers' interest 208,830 69,175
------------------------------------------------------------
Company's interest 67,208 27,585
------------------------------------------------------------
Liabilities
Total 223,711 75,408
Less other venturers' interest 169,454 53,194
------------------------------------------------------------
Company's interest 54,257 22,214
------------------------------------------------------------
Company's interest in net assets $ 12,951 $ 5,371
============================================================
The revenue and costs of revenue of construction joint
ventures are as follows:
-----------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996 1995
-----------------------------------------------------------------------------------------
Revenue
Total $326,895 $234,824 $321,388
Less other venturers' interest 248,028 164,676 224,972
-----------------------------------------------------------------------------------------
Company's interest 78,867 70,148 96,416
-----------------------------------------------------------------------------------------
Cost of Revenue
Total 287,705 160,056 267,650
Less other venturers' interest 220,497 112,313 187,355
-----------------------------------------------------------------------------------------
Company's interest 67,208 47,743 80,295
-----------------------------------------------------------------------------------------
$ 11,659 $ 22,405 $ 16,121
=========================================================================================
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, 1997 the Company had a
commitment supported by a letter of credit of $2,400 related to its
limited partnership interest. The summarized unaudited financial
information below represents an aggregation of the Company's
nonsubsidiary affiliates:
-----------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996
-----------------------------------------------------------------------
Balance sheet data
Assets $275,685 $130,897
Liabilities 216,512 119,363
Net assets 59,173 11,534
-----------------------------------------------------------------------
Company's equity in net assets 25,008 2,564
-----------------------------------------------------------------------
Earnings data
Revenue 434,389 6,719
Gross profit (loss) 41,137 (3,104)
Earnings (loss) before taxes 1,891 (7,446)
-----------------------------------------------------------------------
Company's equity in earnings (loss) $ 733 $ (1,648)
=======================================================================
F-10
32
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. PROPERTY AND EQUIPMENT
-------------------------------------------------------------------
DECEMBER 31, 1997 1996
-------------------------------------------------------------------
Land $ 20,654 $ 15,328
Quarry property 35,862 34,408
Buildings and leasehold improvements 17,175 12,973
Equipment and vehicles 416,073 388,697
Office furniture and equipment 5,467 5,485
-------------------------------------------------------------------
495,231 456,891
Less accumulated depreciation,
depletion and amortization 300,892 278,376
-------------------------------------------------------------------
$194,339 $178,515
===================================================================
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
-------------------------------------------------------------------
DECEMBER 31, 1997 1996
-------------------------------------------------------------------
Payroll and related employee benefits $24,374 $21,627
Accrued insurance 25,882 19,997
Income taxes 3,129 53
Other 11,685 9,990
-------------------------------------------------------------------
$65,070 $51,667
===================================================================
8. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
---------------------------------------------------------------------
DECEMBER 31, 1997 1996
---------------------------------------------------------------------
Bank revolving credit notes $39,000 $18,000
Notes payable to bank 25,000 35,000
Other notes payable 7,317 788
---------------------------------------------------------------------
71,317 53,788
Less current maturities 12,921 10,186
---------------------------------------------------------------------
$58,396 $43,602
=====================================================================
The aggregate minimum principal maturities of long-term debt
for each of the five years following December 31, 1997 are as
follows: 1998 - $12,921; 1999 - $14,843; 2000 - $13,997; 2001
- $8,748; 2002 - $7,984 and beyond 2002 - $12,824.
The Company has a bank revolving line of credit of $75,000
which allows for unsecured borrowings for up to five years through June
30, 1999, with interest rate options. Outstanding borrowings under the
revolving line of credit at December 31, 1997 are at the IBOR interest
rate plus margin (6.44% at December 31, 1997) with principal payable
semiannually beginning December 1999 through June 2004 and interest
payable quarterly.
The Company has standby letters of credit totaling
approximately $6,100 outstanding at December 31, 1997 of which $3,600
reduces the amount available under the line of credit and $2,400
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, 1997 was $32,400.
Notes payable to bank are unsecured with principal payable
semiannually and interest payable quarterly at primarily the IBOR rate
plus margin (6.54% at December 31, 1997) through June 2000.
F-11
33
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM DEBT AND CREDIT ARRANGEMENTS, CONTINUED
Restrictive covenants under the terms of the 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 $188,000.
Other notes payable are comprised primarily of notes incurred
in connection with the purchase of property and equipment and other
assets. The notes are collateralized by the assets purchased, bear
interest at 6.5% per annum and are payable in installments through
2007.
9. EMPLOYEE BENEFIT AND COMPENSATION 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, 1997, the ESOP owned
5,530,686 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. Contributions for the years ended December 31, 1997, 1996
and 1995 were approximately $1,812, $2,094 and $762, respectively.
PROFIT SHARING AND 401K PLAN: The Profit Sharing Plan is a
defined contribution plan covering all employees not included in
collective bargaining agreements. The plan receives annual
contributions at the discretion of the Board of Directors. On January
1, 1995, the Company amended the Profit Sharing Plan to create the
Granite Construction Profit Sharing and 401K Plan, beginning for the
year ended December 31, 1995. The amended plan is also a defined
contribution plan covering all employees not included in collective
bargaining agreements. Each employee can elect to have up to 3% 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.
Contributions to the Profit Sharing and 401K Plan for the
years ended December 31, 1997, 1996 and 1995 were $4,706, $4,064 and
$5,681, respectively. Included in the contributions were 401K matching
contributions of $1,807, $1,647 and none in 1997, 1996 and 1995,
respectively.
1990 OMNIBUS STOCK AND INCENTIVE PLAN: Under the Company's
1990 Omnibus Stock and Incentive Plan (the "Stock Plan") a total of
1,000,000 shares of the Company's common stock are reserved to grant
key employees of the Company restricted common stock, incentive and
nonqualified stock options, performance units and performance shares.
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 under the Plan at December 31,
1997 were 651,546 shares. Unearned compensation is amortized over the
restriction periods of generally five years. Compensation expense
related to restricted shares for the years ended December 31, 1997,
1996 and 1995 was $2,299, $1,968 and $1,549, respectively.
F-12
34
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. EMPLOYEE BENEFIT AND COMPENSATION PLANS, CONTINUED
The exercise price for incentive and nonqualified stock
options granted under the Stock 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. Options generally vest one third after 3 years of
service from the date of grant and one third during each of the
following two years. Stock option transactions during 1997, 1996 and
1995 are summarized as follows:
-------------------------------------------------------------------------------
December 31, 1997 1996 1995
-------------------------------------------------------------------------------
Options outstanding, beginning of year 126,650 186,000 284,517
Options exercised (21,900) (59,350) (98,517)
-------------------------------------------------------------------------------
Options outstanding, end of year 104,750 126,650 186,000
-------------------------------------------------------------------------------
At December 31, 1997, all options are 100% vested. All shares
have been granted, exercised and canceled at $11.00 per share.
OTHER: The Company also contributes to various multi-employer
pension plans on behalf of union employees. Contributions to these
plans for the years ended December 31, 1997, 1996 and 1995 were
approximately $11,972, $10,406 and $10,705, respectively.
10. 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:
---------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996 1995
---------------------------------------------------------------------------------
NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE
Net income $27,832 $27,348 $28,542
=================================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 18,250 18,066 17,802
Less restricted stock outstanding 652 595 525
-----------------------------
TOTAL 17,598 17,471 17,277
-----------------------------
Basic earnings per share $ 1.58 $ 1.57 $ 1.65
=================================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 17,598 17,471 17,277
Effect of Dilutive Securities:
Common stock options 49 66 50
Restricted stock 314 295 322
-----------------------------
TOTAL 17,961 17,832 17,649
-----------------------------
Diluted earnings per share $ 1.55 $ 1.53 $ 1.62
=================================================================================
F-13
35
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. INCOME TAXES
Provision for income taxes:
-----------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
-----------------------------------------------------------------------------
Federal
Current $12,964 $ 9,727 $18,785
Deferred 646 3,470 (5,108)
-----------------------------------------------------------------------------
13,610 13,197 13,677
-----------------------------------------------------------------------------
State
Current 2,656 2,372 3,802
Deferred 80 492 (717)
-----------------------------------------------------------------------------
2,736 2,864 3,085
-----------------------------------------------------------------------------
$16,346 $16,061 $16,762
=============================================================================
Reconciliation of statutory to effective tax rate:
----------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
----------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit 4.0 4.3 4.4
Percentage depletion deduction (2.0) (1.3) (1.3)
Other -- (1.0) (1.1)
----------------------------------------------------------------------------
37.0% 37.0% 37.0%
============================================================================
Deferred tax assets and liabilities:
-------------------------------------------------------------
DECEMBER 31, 1997 1996
-------------------------------------------------------------
DEFERRED TAX ASSETS:
Accounts receivable $ 2,280 $ 2,041
Inventory 1,520 1,050
Property and equipment 2,508 2,319
Insurance accruals 8,301 7,529
Deferred compensation 2,144 1,879
Other accrued liabilities 3,113 3,012
Other 621 613
Valuation allowance -- --
-------------------------------------------------------------
20,487 18,443
-------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Property and equipment 28,837 28,553
Contract recognition 1,207 199
TIC basis difference 1,355 --
Other 1,329 1,206
-------------------------------------------------------------
32,728 29,958
-------------------------------------------------------------
$ (12,241) $ (11,515)
=============================================================
F-14
36
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. LEASES
Minimum rental commitments under all noncancellable operating
leases, primarily quarry property and construction equipment, in effect
at December 31, 1997 were:
Years Ending December 31,
1998 $ 4,923
1999 3,767
2000 3,047
2001 1,321
2002 1,165
Later years (through 2038) 7,190
---------------------------------------------------
Total minimum rental commitment $21,413
===================================================
Operating lease rental expense was $4,414 in 1997, $3,593 in
1996, and $4,261 in 1995.
13. SUBSEQUENT EVENTS
On January 23, 1998 the Board of Directors declared a cash dividend of
$0.075 per common share plus a special cash dividend of $0.12 per share of
common stock to stockholders of record as of March 31, 1998, payable on April
17, 1998.
On March 19, 1998 the Company issued long-term debt in the amount of
$60 million 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.
Proceeds of the notes will be used to retire a portion of existing debt and for
general corporate purposes.
F-15
37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Granite Construction Incorporated
Watsonville, California
Our report on the consolidated financial statements of Granite Construction
Incorporated is included on page F-1 of this 10-K. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule listed in the index on page 22 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
February 13, 1998, except
Note 13, as to which the
date is March 19, 1998
S-1
38
SCHEDULE II
GRANITE CONSTRUCTION INCORPORATED
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
ADDITIONS
-------------------------
BALANCE AT ADJUSTMENTS BALANCE AT
BEGINNING BAD DEBT AND END OF
DESCRIPTION OF YEAR EXPENSE COLLECTIONS DEDUCTIONS(1) PERIOD
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts ....... $693 $ 759 $ 1,162 $(1,923) $691
=======================================================================
Allowance for notes receivable ........ $ 68 $ -- $ -- $ -- $ 68
=======================================================================
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts ....... $898 $3,614 $ 1,576 $(5,395) $693
=======================================================================
Allowance for notes receivable ........ $ 68 $ -- $ -- $ -- $ 68
=======================================================================
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts (2) ... $655 $ 743 $ 531 $(1,031) $898
=======================================================================
Allowance for notes receivable ......... $309 $ 68 $ (309) $ -- $ 68
=======================================================================
(1) Accounts deemed to be uncollectible and (2) $542 of adjustments related to
the acquisition of Gibbons and Reed.
S-2
39
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Granite Construction Incorporated on Form S-8 (File No. 33-36482 and
33-36485) of our report dated February 13, 1998 (except Note 13, as to which the
date is March 19, 1998) on our audits of the consolidated financial statements
and the financial statement schedule of Granite Construction Incorporated, as of
December 31, 1997 and 1996, and the years ended December 31, 1997, 1996 and
1995, which report is included in the Annual Report on Form 10-K on Page F-1.
San Jose, California
March 27, 1998
22
40
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, 1998 GRANITE CONSTRUCTION INCORPORATED
By: /s/ William E. Barton
-----------------------------------------
[William E. Barton, 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 20, 1998, by the following persons in the
capacities indicated.
/s/ Richard C. Solari Chairman of the Board
- ------------------------ and Director
[Richard C. Solari]
/s/ David H. Watts President, Chief Executive Officer,
- ------------------------ and Director
[David H. Watts]
/s/ William E. Barton 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/ Brian C. Kelly Director
- ------------------------
[Brian C. Kelly]
/s/ Rebecca A. McDonald Director
- ------------------------
[Rebecca A. McDonald]
/s/ Denman K. McNear Director
- ------------------------
[Denman K. McNear]
/s/ Raymond E. Miles Director
- ------------------------
[Raymond E. Miles]
23
41
INDEX TO FORM 10-K EXHIBITS
Exhibit Page
No. Description No.
- --- ----------- ---
3.1 Certificate of Incorporation of Granite Construction Incorporated [a]
3.2 Bylaws of Granite Construction Incorporated (as amended and restated effective
February 27, 1991) [b]
10.1 Granite Construction Incorporated Employee Stock Ownership Plan, through
amendments and Trust Agreement (**as to Trust Agreements only) [b]
10.1.a Amendment 3 to the Granite Construction Incorporated Employee Stock Ownership
Plan, through amendments and Trust Agreement (**as to Trust Agreements only) [c]
10.1.b Amendment 4 to the Granite Construction Incorporated Employee Stock Ownership
Plan as of May 21, 1993 [d]
10.1.c Amendment 5 to the Granite Construction Incorporated Employee Stock Ownership
Plan adopted December 16, 1993 and effective January 1, 1994 [d]
10.1.d Amendment 6 to the Granite Construction Incorporated Employee Stock Ownership
Plan adopted December 15, 1994 and effective January 1, 1995 [e]
10.1.e Amendment 7 to Granite Construction Incorporated Employee Stock Ownership
Plan and Amendment 1 to the Trust Agreement adopted December 19, 1995, effective
January 1, 1996 [g]
10.2 Amendment to and Restatement of the Granite Construction Company Profit Sharing
and 401K Plan adopted December 15, 1994 and effective January 1, 1995 [e]
10.2.a Amendment to and Restatement of Granite Construction Incorporated Profit Sharing
and 401K Plan and Trust Agreement adopted and effective as of December 15, 1994 [e]
10.2.b Amendment 2 to the Granite Construction Incorporated Profit Sharing and 401K Plan
and Amendment 2 to the Trust Agreement adopted March 20, 1995 and effective
January 1, 1996 [g]
10.2.c Amendment 3 to the Granite Construction Incorporated Profit Sharing and 401K Plan
adopted August 23, 1996 and effective January 1, 1997 [h]
10.2.d Amendment 4 to the Granite Construction Incorporated Profit Sharing and 401(k) Plan
adopted July 24, 1997 and effective January 1, 1995, January 1, 1997,
February 3, 1997 and January 1, 1998 28
10.2.e Amendment 5 to the Granite Construction Incorporated Profit Sharing and 401(k) Plan
adopted December 29, 1997 and effective January 1, 1997 and January 1, 1998 34
10.5 Credit Agreement dated and effective June 30, 1997 40
10.5.a First Amendment to the Credit Agreement entered into January 16, 1998 297
10.6 Form of Director and Officer Indemnification Agreement [a]
10.7 Form of Executive Officer Employment Agreement [a]
24
42
10.8 Stock Purchase Agreement among Granite Construction Incorporated, Gibbons
Company and all of the Shareholders of Gibbons Company, dated March 17, 1995 [f]
10.9 Restated Gibbons Company Profit Sharing and Retirement Plan adopted December 30,
1994 and effective January 1, 1989 [h]
10.9.a First Amendment to the Restated Gibbons Company Profit Sharing and Retirement
Plan adopted March 29, 1995 and effective January 1, 1989 [h]
10.9.b Second Amendment to the Restated Gibbons Company Profit Sharing and Retirement
Plan adopted April 27, 1995 and effective May 8, 1995 and May 31, 1995 [h]
10.9.c Third Amendment to the Restated Gibbons Company Profit Sharing and Retirement
Plan adopted June 23, 1995 and effective July 1, 1995 [h]
10.9.d Fourth Amendment to the Restated Gibbons Company Profit Sharing and Retirement
Plan adopted December 1, 1995 [h]
10.9.e Fifth Amendment to the Restated Gibbons Company Profit Sharing and Retirement
Plan adopted July 16, 1996 and effective January 1, 1995 [h]
10.9.f Sixth Amendment to the Restated Gibbons Company Profit Sharing and Retirement
Plan adopted May 30, 1997 and effective January 1, 1989 and July 1, 1993 306
10.10 Granite Construction Incorporated Key Management Deferred Compensation Plan
adopted and effective January 1, 1996 [h]
10.11 Granite Construction Incorporated Key Management Deferred Incentive Compensation
Plan adopted and effective January 1, 1996 [h]
10.12 Stock Purchase Agreement between Granite Construction Incorporated and TIC Holdings,
Inc. dated December 23, 1996 314
21.1 List of Subsidiaries of Granite Construction Incorporated [h]
24.1 Consent of Coopers & Lybrand L.L.P. is contained on page 23 of this Report
27.1 Financial Data Schedule - Year Ended December 31, 1997 433
27.2 Financial Data Schedule - Nine Months Ended September 30, 1997 434
27.3 Financial Data Schedule - Six Months Ended June 30, 1997 435
27.4 Financial Data Schedule - Three Months Ended March 31, 1997 436
27.5 Financial Data Schedule - Year Ended December 31, 1996 437
27.6 Financial Data Schedule - Nine Months Ended September 30, 1996 438
27.7 Financial Data Schedule - Six Months Ended June 30, 1996 439
27.8 Financial Data Schedule - Three Months Ended March 31, 1996 440
27.9 Financial Data Schedule - Year Ended December 31, 1995 441
[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, 1992.
[d] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1993.
[e] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1994.
[f] Incorporated by reference to the exhibits filed with the Company's 8-K dated
May 8, 1995.
[g] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1995.
[h] Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1996.
25