10-K 1 f71058e10-k.txt FORM 10-K 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- LOGO UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 1-12911 GRANITE CONSTRUCTION INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0239383 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 585 WEST BEACH STREET, WATSONVILLE, CALIFORNIA 95076 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 724-1011 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant was approximately $755,067,485 as of March 19, 2001 based upon the average of the high and low sales prices per share of the registrant's Common Stock as reported on the New York Stock Exchange on such date. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. At March 19, 2001, 27,193,225 shares of Common Stock, par value $0.01, of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Stockholders of the Company to be held May 21, 2001, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE NO. ---- PART I................................................................. 3 Item 1. BUSINESS.................................................... 3 Item 2. PROPERTIES.................................................. 10 Item 3. LEGAL PROCEEDINGS........................................... 10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10 PART II................................................................ 12 Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS......................................... 12 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA........................ 12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 14 Item QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 7A... RISK........................................................ 21 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.... 22 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES................................... 22 PART III............................................................... 23 Item DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 10. 23 Item EXECUTIVE COMPENSATION...................................... 11. 23 Item SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 12. MANAGEMENT.................................................. 23 Item CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 13. 23 PART IV................................................................ 24 Item EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 14. 8-K......................................................... 24
2 3 PART I ITEM 1. BUSINESS FORWARD LOOKING DISCLOSURE This report contains forward-looking statements; such as statements related to the impact of government regulations on the Company's operations, the adequacy of the Company's aggregate reserves, 2000 backlog expected to be completed in 2001, the existence of bidding opportunities and the impact of legislation, availability of highway funds and economic conditions on the Company's future results. Additionally, forward-looking statements include statements that can be identified by the use of forward-looking terminology such as "outlook," "believes," "expects," "appears," "may," "will," "should," or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. All such forward looking statements are subject to risks and uncertainties that could cause actual results of operations and financial condition and other events to differ materially from those expressed or implied in such forward-looking statements. Specific risk factors include, without limitation, changes in the composition of applicable federal and state legislation appropriation committees; federal and state appropriation changes for infrastructure spending; the general state of the economy; weather conditions; competition and pricing pressures; the availability and pricing of fuel and energy and state referendums and initiatives. Forward-looking statements related to the Company's aggregate reserves and completion of backlog carry risk factors which include, without limitation, changes in estimates of existing reserves and estimates of the Company's need for those reserves and delays in the progress of work in the 2000 backlog. INTRODUCTION Granite Construction Incorporated (the "Company" or "Granite") was incorporated in Delaware in January 1990 as the holding company for Granite Construction Company, which was incorporated in California in 1922. Therefore, references herein to the "Company" or "Granite" in the context of operations should be read to mean Granite Construction Company and Granite Construction Incorporated's other subsidiaries. The Company is one of the largest heavy civil construction contractors in the United States and operates nationwide. Its focus is primarily in the West, South and East and increasingly in the Midwest, serving both public and private sector clients. Within the public sector, the Company concentrates on infrastructure projects; including the construction of roads, highways, bridges, dams, tunnels, canals, mass transit facilities and airports. Within the private sector, the Company performs site preparation services for buildings, plants, subdivisions and other facilities. Granite's participation in both the public and private sectors and its diverse mix of project types and sizes have contributed to the Company's revenue growth and profitability in various economic environments. The Company owns and leases substantial aggregate reserves and owns 100 construction materials processing plants. The Company also has one of the largest contractor owned heavy construction equipment fleets in the United States. The Company believes that the ownership of these assets enables it to compete more effectively by ensuring availability of these resources at a favorable cost. OPERATING STRUCTURE The principal operating company, Granite Construction Company, is organized into two business segments, the Branch Division and the Heavy Construction Division. The Branch Division is comprised of branch offices which serve local markets, while the Heavy Construction Division pursues major infrastructure projects throughout the nation. The Heavy Construction Division ("HCD") generally builds large heavy civil projects with contract amounts in excess of $15 million and contract durations greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. The two divisions complement each other in a variety of ways. The Heavy Construction Division is a major user of large construction equipment and employs sophisticated techniques on complex projects. The 3 4 branches draw on these resources which are generally not available to smaller, local competitors. Conversely, the Branch Division has greater knowledge of local markets and provides the Heavy Construction Division with valuable information regarding larger projects in the branches' areas. The two divisions sometimes jointly perform projects when a project in a particular region exceeds the local branch's capabilities. As decentralized profit centers, the branch offices and the Heavy Construction Division independently estimate, bid and complete contracts. Both divisions are supported by centralized functions, including finance, accounting, tax, human resources, labor relations, safety, legal, insurance, surety and information technology. The Company believes that centralized support for decentralized profit centers results in a more market responsive business with effective controls and reduced overhead. In addition to cost and profitability estimates, Granite considers the availability of estimating and project building personnel as key factors when determining whether to bid on a project. Other factors considered include the client, the geographic location, Granite's competitive advantages and disadvantages relative to likely competitors for the project, current and projected workload, and the likelihood of follow-up work. Both operating divisions use a proprietary computer-based project estimating system that reflects Granite's significant accumulated experience. Granite believes that an exhaustive, detailed approach to a project's estimate and bid is important in order to best identify the project's risks and opportunities. The Company's estimates are comprehensive in nature, sometimes totaling hundreds of pages of analysis. Each project is broken into phases and line items, for which separate labor, equipment and material estimates are made. Once a project begins, the estimate provides Granite with a budget against which actual project cost is regularly measured, enabling Granite to manage its projects more effectively. Information about the Company's business segments for the years ended December 31, 2000, 1999 and 1998 is incorporated in Note 15 of the "Notes to the Consolidated Financial Statements," located on page F-18 of this Annual Report on Form 10K. The Branch Division. In 2000, Branch Division contract revenue and sales of aggregate products were $1,010.9 million (75.0% of Company revenue) as compared with $976.5 million (73.5% of Company revenue) in 1999. The Branch Division has both public and private sector clients. Public sector activities include both new construction and improvement of streets, roads, highways and bridges. For example, the branches widen and re-pave roads and modify and replace bridges. Major private sector contracts include site preparation for housing and commercial development, including excavation; grading and street paving; and installation of curbs, gutters, sidewalks and underground utilities. The Company currently has 11 branch offices with 15 satellite operations. The Company's branch offices in California are located in Bakersfield, Hanford (Central Valley), Watsonville (Monterey Bay Area), Palm Springs (Southern California), Sacramento, San Jose, Santa Barbara and Stockton. The Company's branch offices outside of California are located in Arizona, Nevada and Utah. Each branch effectively operates as a local or regional construction company and its management is encouraged to participate actively in the local community. While individual branch revenues vary from year to year, in 2000 these revenues ranged from $35 million to $177 million per branch. As part of the Company's strategy, substantially all of Granite's branches mine aggregates and operate plants which process aggregates into construction materials for internal use and for sale to others. These activities provide both a source of profits and a competitive advantage to the Company's construction business. Close to half of the aggregate products produced in these branch operations are used in the Company's construction projects. The remainder is sold to unaffiliated parties and accounted for $159.9 million of revenue in 2000, representing 11.9% of the Company's total 2000 revenue compared with $159.0 million or 12.0% of the Company's total 1999 revenue. The Company has significant aggregate reserves which it has acquired by ownership in fee or through long-term leases. Heavy Construction Division. In 2000, revenue from HCD was $337.4 million (25.0% of Company revenue) as compared with $352.3 million (26.5% of Company revenue) in 1999. HCD projects are usually larger and more complex than those performed by the Branch Division. The Division has completed projects 4 5 throughout the nation; including mass transit projects in the metropolitan areas of Atlanta, Baltimore, Los Angeles, San Francisco and Washington, D.C., and major dam and tunnel projects in twelve states. HCD builds infrastructure projects; including major highways, large dams, mass transit facilities, bridges, pipelines, canals, tunnels, waterway locks and dams and airport runways, and has engaged in contract mine stripping, reclamation and large site preparation. It also performs activities such as demolition, clearing, excavation, de-watering, drainage, embankment fill, structural concrete, concrete and asphalt paving, and tunneling. The division markets, estimates, bids and provides management overview of its projects from its Watsonville, California headquarters and satellite estimating offices in Texas, Georgia, and Florida. Project staff located at job sites have the managerial, technical, and clerical capacity to meet on-site project management requirements. HCD has the ability, if appropriate, to process locally sourced aggregates into construction materials using its own portable crushing, concrete and asphalt processing plants. Additionally, during 2000, HCD acquired an asphalt processing capability and opened a regional office in Lubbock, Texas. This new location will serve the west Texas market for construction projects and materials, similar to a branch operation. HCD participates in joint ventures with other large construction companies from time to time. Joint ventures are used for large, technically complex projects, including design/build projects, where it is desirable to share risk and resources. Joint ventures provide independently prepared estimates, and shared financing, equipment and expertise. Design/build projects have emerged as an expanding market for HCD. Unlike traditional projects where owners first hire a design firm and then put the plans out to bid for construction, design/build projects provide the owner with a single point of responsibility and a single contact for both design and construction. Past design/build projects have included projects in California such as the SR-91 Tollway which was completed in 1995 and the San Joaquin Hills Transportation Corridor which was completed in 1996, as well as the I-17 rebuild in Arizona and a tollway in Texas -- both of which were completed in 2000. Ongoing projects include the I-15 Rebuild in Salt Lake City, Utah, the Atlantic City/Brigantine Connector in New Jersey, the Hathaway Bridge Replacement in Panama City, Florida, the Hiawatha Light Rail in Minnesota, and the Las Vegas Monorail in Nevada. Design/build projects have historically been bid with the Company as part of a joint venture team. INVESTMENT IN T.I.C. HOLDINGS, INC. The Company currently holds a 27% minority interest in T.I.C. Holdings, Inc. ("TIC"). In April 2000, the Company finalized an agreement with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement, TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. This will allow TIC to retain its independence while allowing both companies to maintain their strategic alliance. The agreement will also allow the Company to intensify its focus on its core business in heavy civil construction. INVESTMENT IN WILDER CONSTRUCTION COMPANY During the year ended December 31, 2000 the Company made a total investment of $14.8 million in the common stock of Wilder Construction Company ("Wilder"). Founded in 1911, Wilder is a heavy civil construction company with regional offices located in Washington, Oregon and Alaska. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. The Company held a 39% minority interest in Wilder Construction Company ("Wilder") as of December 31, 2000 and increased its interest to 45% in February 2001. 5 6 BUSINESS STRATEGY Granite's fundamental objective is to increase long-term shareholder value by focusing on consistent profitability from managed revenue growth. Shareholder value is measured by the appreciation of the value of Granite stock over a period of years, and to some degree, a return from dividends. Further, it is a specific measure of the Company's financial success to achieve a Return on Net Assets ("RONA") greater than the cost of capital, creating "Granite Value Added." To accomplish these objectives, Granite employs the following strategies: Heavy/Highway Construction Focus -- Granite concentrates its core competencies on this segment of the construction industry which includes the building of roads, highways, bridges, dams and tunnels, mass transit facilities, underground utilities and site preparation. This focus emphasizes the Company's specialized strengths which include grading, paving and concrete structures. Vertical Integration of Aggregate Materials into Construction -- Granite owns aggregate reserves and processing plants and thus, by ensuring availability of these resources at favorable cost, it believes it has significant bidding advantages in many of its markets. Selective Bidding -- Once Granite selects a job that meets its bidding criteria, the project is estimated using a highly detailed method with a proprietary estimating system which details anticipated cost to construct and margin to achieve the appropriate bid price for the risk assumed. Diversification -- To mitigate the risks inherent in construction and general economic factors, Granite pursues projects (i) in both the public and private sectors; (ii) for a wide range of customers within each sector (from the federal government to small municipalities and from large corporations to individual homeowners); (iii) in diverse geographic markets; and (iv) of various sizes, durations and complexity. Decentralized Profit Centers -- Granite approaches each selected market with a local focus through its decentralized structure. Each of Granite's branches as well as the Heavy Construction Division is an individual profit center. Management Incentives -- The Company compensates its profit center managers with lower-than-market fixed salaries coupled with a substantial variable cash and restricted stock incentive element based on the annual profit performance of their respective profit centers. Ownership of Construction Equipment -- By owning and carefully maintaining a large fleet of heavy construction equipment, Granite competes more effectively by ensuring availability of these resources at favorable cost. Controlled Expansion -- The Company intends to continue its expansion by selectively adding branches in the western United States, pursuing major infrastructure projects throughout the nation, expanding into other construction market segments through acquisitions, and by leveraging its financial capacity for projects that will utilize Granite for construction work and provide an acceptable return on the Company's investment. Accident Prevention -- Granite believes that the prevention of accidents is both a moral obligation and good business. By identifying and concentrating resources to address jobsite hazards the Company continues to significantly reduce its incident rates and the costs associated with accidents. Environmental Affairs -- Granite believes it benefits everyone to maintain environmentally responsible operations. The Company is committed to effective air quality control measures and reclamation at its plant sites and to waste reduction and recycling of the potentially environmentally sensitive products used in its operations. Quality and High Ethical Standards -- Granite emphasizes the importance of performing high quality work and maintaining high ethical standards through an established code of conduct and an effective corporate compliance program. 6 7 CUSTOMERS The Company has customers in both the public and private sectors. The Branch Division's principal customer is the California Department of Transportation. In 2000, contracts with the California Department of Transportation represented 12.9% of the Company's revenue. Other Branch Division clients include county and city public works departments and developers and owners of industrial, commercial and residential sites. The principal clients of the Heavy Construction Division are in the public sector and currently include the State Departments of Transportation in several states. (See Note 2 of Notes to Consolidated Financial Statements). A breakdown of the Company's revenues for the last three years by geographic area and market sector is as follows (in thousands):
2000 1999 1998 -------------------- -------------------- -------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------- ------- ---------- ------- ---------- ------- California........................... $ 627,616 46.5% $ 574,618 43.2% $ 585,983 47.8% West (excluding California).......... 462,070 34.3 510,953 38.5 468,094 38.2 Midwest.............................. 3,923 0.3 -- -- -- -- South and East....................... 254,716 18.9 243,203 18.3 172,023 14.0 ---------- ----- ---------- ----- ---------- ----- Total...................... $1,348,325 100.0% $1,328,774 100.0% $1,226,100 100.0% ========== ===== ========== ===== ========== ===== Contract revenues: Federal agencies................... $ 56,595 4.2% $ 31,641 2.4% $ 44,844 3.7% State agencies..................... 540,688 40.1 567,366 42.7 516,485 42.1 Local public agencies.............. 257,786 19.1 257,392 19.4 274,657 22.4 Private sector..................... 333,361 24.7 313,356 23.5 248,447 20.2 Construction materials sales......... 159,895 11.9 159,019 12.0 141,667 11.6 ---------- ----- ---------- ----- ---------- ----- Total...................... $1,348,325 100.0% $1,328,774 100.0% $1,226,100 100.0% ========== ===== ========== ===== ========== =====
BACKLOG The Company's backlog (anticipated revenue from uncompleted portions of existing contracts) was $1,120.5 million at December 31, 2000, up from $793.3 million at December 31, 1999, and was $901.6 million at December 31, 1998. Approximately $410 million of the December 31, 2000 backlog is expected to remain at December 31, 2001. The Company includes a construction project in its backlog at such time as a contract is awarded or a firm letter of commitment is obtained, and funding is in place. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations.") The Company believes its backlog figures are firm, subject only to the cancellation and modification provisions contained in various contracts. Substantially all of the contracts in the backlog may be canceled or modified at the election of the client. However, the Company has not been materially adversely affected by contract cancellations or modifications in the past. (See "Business-Contract Provisions and Subcontracting.") A sizeable percentage of the Company's anticipated revenue in any year is not reflected in its backlog at the start of the year due to the short duration of smaller Branch Division projects that are initiated and completed during such year ("Turn Business"). EQUIPMENT The Company purchases and maintains many pieces of equipment; including cranes, bulldozers, scrapers, graders, loaders, trucks, pavers, rollers, and construction materials processing plants. In 2000 and 1999, the Company spent approximately $48.6 million and $53.0 million, respectively, for construction equipment, 7 8 plants and vehicles. The breakdown of the Company's construction equipment, plants and vehicles at December 31, 2000 is as follows: Heavy construction equipment................................ 2,497 units Trucks, truck-tractors and trailers and vehicles............ 3,259 units Aggregate crushing plants................................... 34 plants Asphalt concrete plants..................................... 35 plants Portland cement concrete batch plants....................... 20 plants Thermal soil remediation plants............................. 1 plant Asphalt rubber plants....................................... 3 plants Lime slurry plants.......................................... 7 plants
The Company believes that ownership of equipment is preferable to leasing because ownership ensures the equipment is available as needed and normally results in lower equipment costs. The Company attempts to keep its equipment as fully utilized as possible by pooling equipment for use by both the Branch Division and the Heavy Construction Division. The Company regularly leases or rents equipment on a short-term basis to supplement existing equipment and respond to construction activity peaks. EMPLOYEES On December 31, 2000, Granite employed 1,230 salaried employees, who work in management, estimating and clerical capacities, and 3,316 hourly employees. The total number of hourly personnel employed by the Company is subject to the volume of construction in progress. During 2000, the number of hourly employees ranged from 2,419 to 4,368 and averaged approximately 3,510. The Company's wholly owned subsidiary, Granite Construction Company, is a party to craft collective bargaining agreements in many areas in which it is working. The Company believes its employees are its most valuable resource and that its workforce possesses a strong dedication to and pride in the Company. Among salaried and non-union hourly employees, this dedication is reinforced by 27.9% equity ownership through the Employee Stock Ownership Plan ("ESOP"), the Profit Sharing and 401k Plan and performance-based incentive compensation arrangements at December 31, 2000. The Company's 446 managerial and supervisory personnel have an average of 11 years of service with Granite. COMPETITION Factors influencing the Company's competitiveness are price, reputation for quality, the availability of aggregate materials, machinery and equipment, financial strength, knowledge of local markets and conditions, and estimating abilities. The Company believes that it competes favorably on the basis of the foregoing factors. Branch Division competitors range from small local construction companies to large regional and national construction companies. While the market areas of these competitors overlap with several of the markets served by the Company's branches, few, if any, compete in all of the Company's market areas. The Heavy Construction Division normally competes with large regional and national construction companies. Although the construction business is highly competitive, particularly for competitively bid projects in the public sector, the Company believes it is well positioned to compete effectively. CONTRACT PROVISIONS AND SUBCONTRACTING The Company's revenue is substantially derived from contracts that are "fixed unit price" contracts under which the Company is committed to provide materials or services required by a project at fixed unit prices (for example, dollars per cubic yard of concrete or cubic yards of earth excavated). While the fixed unit price contract shifts the risk of estimating the quantity of units required for a particular project to the customer; any increase in the Company's unit cost over the unit price bid, whether due to inflation, inefficiency, faulty estimates or other factors, is borne by the Company unless otherwise provided in the contract. Design-build contracts are usually priced on a lump-sum basis. The Company's contracts are obtained primarily through 8 9 competitive bidding in response to advertisements by federal, state and local government agencies and private parties. There are a number of factors that can create variability in contract performance and results as compared to a project's original bid. The most significant of these include, without limitation, site conditions that differ from those assumed in the original bid, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials and inclement weather. Design-build projects carry other risks such as design error risk, scope of work and quantities of materials. All of these factors can impose inefficiencies on contract performance and therefore have a direct impact on contract productivity (i.e. drive up contract costs) which in turn can have a direct impact on contract results. All federal government contracts and many of the Company's other contracts provide for termination of the contract for the convenience of the party contracting with the Company. In addition, many of the Company's contracts are subject to certain completion schedule requirements with liquidated damages in the event schedules are not met. The Company has not been materially adversely affected by these provisions in the past. The Company acts as prime contractor on most of the construction projects it undertakes. The Company accomplishes the majority of its projects with its own resources and subcontracts specialized activities such as electrical and mechanical work. As prime contractor the Company is responsible for the performance of the entire contract, including subcontract work. Thus, the Company is subject to increased costs associated with the failure of one or more subcontractors to perform as anticipated. The Company's subcontractors generally furnish bonds if the Company believes it is necessary to provide an additional measure of security of their performance. Disadvantaged business enterprise regulations require the Company to use its best efforts to subcontract a specified portion of contract work done for governmental agencies to certain types of subcontractors. Some of these subcontractors may not be able to obtain surety bonds. The Company has not incurred any material loss or liability on work performed by subcontractors to date. INSURANCE AND BONDING The Company maintains general and excess liability, construction equipment, and workers' compensation insurance; all in amounts consistent with industry practices. Management believes its insurance programs are adequate. In connection with its business, the Company generally is required to provide various types of surety bonds which provide an additional measure of security of its performance under certain public and private sector contracts. The Company's ability to obtain surety bonds depends upon its capitalization, working capital, past performance, management expertise and other factors. Surety companies consider such factors in light of the amount of surety bonds then outstanding for the Company and their current underwriting standards, which may change from time to time. The Company has been bonded by the same surety for more than 60 years and has never been refused a bond. GOVERNMENT REGULATIONS The Company's operations are subject to compliance with regulatory requirements of federal, state, and municipal agencies and authorities; including regulations concerning labor relations, affirmative action and the protection of the environment. While compliance with applicable regulatory requirements has not adversely affected the Company's operations in the past relative to its competitive position within its industry sector, there can be no assurance that these requirements will not change and that compliance will not adversely affect the Company's operations. In addition, the aggregate materials operations of the Company require operating permits granted by governmental agencies. The Company believes that tighter regulations for the protection of the environment and other factors will make it increasingly difficult to obtain new permits and renewal of existing permits may be subject to more restrictive conditions than currently exist. 9 10 ITEM 2. PROPERTIES The Company owns and leases real property for use in its construction and aggregate mining and processing activities. The Company owns approximately 409,423 square feet of office and shop space and leases, pursuant to leases expiring between January 2001 and December 2005, an additional 78,636 square feet of office and shop space. The Company owns approximately 11,194 acres of land of which 1,500 acres are un-permitted reserves available for future use and leases approximately 4,141 additional acres of land at sites in California, Nevada, Arizona and Utah. A majority of the land owned or leased by the Company is intended to serve as aggregate reserves. There are no significant encumbrances against owned property. The Company's leases for aggregate reserves generally limit the Company's interest in the reserves to the right to mine the reserves. These leases range from month-to-month leases to leases with expiration dates ranging from January 2001 to March 2016. The Company considers its available and future aggregate reserves adequate to meet its expected operating needs. The Company pursues a plan of acquiring new sources of aggregate reserves to replenish those depleted and to assure future growth. ITEM 3. LEGAL PROCEEDINGS The Company is a party to a number of legal proceedings. The Company believes that the nature and number of these proceedings are typical for a construction firm of its size and scope and that none of these proceedings is material to the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders during the fourth quarter of the year ended December 31, 2000. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Company are as follows:
AGE POSITION --- -------- David H. Watts....................... 62 Chairman of the Board, President, Chief Executive Officer and Director William G. Dorey..................... 56 Executive Vice President and Chief Operating Officer William E. Barton.................... 56 Senior Vice President and Chief Financial Officer Patrick M. Costanzo.................. 62 Senior Vice President and Manager, Heavy Construction Division Mark E. Boitano...................... 52 Senior Vice President and Manager, Branch Division
Granite Construction Incorporated was incorporated in Delaware in January 1990 as the holding company for Granite Construction Company, which was incorporated in California in 1922. All dates of service for the executive officers of the registrant also include the periods in which they served for Granite Construction Company. Mr. Watts joined the Company in 1987 as President and Chief Executive Officer and has served as a director since 1988, and Chairman of the Board since 1999. In May 1997, Mr. Watts became a director of TIC Holdings, Inc. and in January 2000 he also became a director of Wilder Construction Company. From 1984 until 1987, Mr. Watts served as President, Chief Executive Officer and a director of Ford, Bacon & Davis, Inc., an industrial engineering and construction firm. From 1965 until 1984, Mr. Watts was employed by an underwater services and construction firm in various capacities, including as President and Chief Operating Officer. He received a B.A. degree in Economics from Cornell University in 1960. Mr. Watts is the Immediate Past Chair of the California Chamber of Commerce and serves as a Director of several other non-profit organizations. Mr. Dorey has been an employee of the Company since 1968 and has served in various capacities, including Executive Vice President and Chief Operating Officer since 1998, Senior Vice President and Manager, Branch Division from 1987 to 1998, and as Vice President and Assistant Manager, Branch Division 10 11 from 1983 to 1987. In 1997, Mr. Dorey became a director of TIC Holdings, Inc. and in January 2000 he also became a director of Wilder Construction Company. He received a B.S. degree in Construction Engineering from Arizona State University in 1967. Mr. Barton has been an employee of the Company since 1980 and has served in various capacities, including Senior Vice President since 1999, Vice President and Chief Financial Officer from 1990 to 1999, Controller in 1989, Treasurer in 1988 and Cash Manager from 1980 until 1988. In 1997, Mr. Barton became a director of TIC Holdings, Inc. and in January 2000 he also became a director of Wilder Construction Company. He received a B.S. degree in Accounting and Finance from San Jose State University in 1967 and an M.B.A. degree from the University of Santa Clara in 1973. Mr. Costanzo has been an employee of the Company since 1970 and has served in various capacities, including Senior Vice President and Manager, Heavy Construction Division, since 1990, Vice President and Assistant Manager, Heavy Construction Division, from 1988 to 1989, and an Area or Project Manager with the Heavy Construction Division from 1971 to 1987. In 1997, Mr. Costanzo became a director of TIC Holdings, Inc. He received a B.S. degree in civil engineering from the University of Connecticut in 1960 and a M.S. degree in Civil Engineering from Stanford University in 1961. Mr. Boitano has been an employee of the Company since 1977 and has served in various capacities, including Senior Vice President and Manager, Branch Division since 1998, Assistant Branch Division Manager from 1987 to 1998, Branch Manager, Arizona operations from 1983 to 1987, Assistant Manager, Arizona operations from 1980 to 1983, Assistant Manager, Salinas Branch in 1980, and Project Manager Estimator from 1977 to 1980. He received a B.S. degree in Civil Engineering from Santa Clara University in 1971 and an M.B.A. degree from California State University, Fresno in 1977. 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the New York Stock Exchange under the ticker symbol GVA. See Quarterly Results in Item 7 for a two-year summary of quarterly dividends and high and low sales prices of the Company's stock. On February 21, 2001 the Board of Directors declared a three for two stock split in the form of a 50% stock dividend payable April 13, 2001 to stockholders of record as of March 31, 2001. The Company also expects to pay a quarterly cash dividend of $0.12 per pre-split share of common stock to stockholders of record as of March 31, 2001 payable on April 13, 2001 (See Note 16 of Notes to Consolidated Financial Statements). Declaration and payment of dividends is within the sole discretion of the Company's Board of Directors, subject to limitations imposed by Delaware law, and will depend on the Company's earnings, capital requirements, financial conditions and such other factors as the Board of Directors deems relevant. As of March 19, 2001 there were 27,193,225 shares of common stock outstanding held by approximately 491 stockholders of record. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated operations data for 2000, 1999 and 1998 and consolidated balance sheet data as of December 31, 2000 and 1999 set forth below have been derived from consolidated financial statements of the Company, and are qualified by reference to our consolidated financial statements audited by PricewaterhouseCoopers LLP, independent accountants included herein. The selected consolidated statement of income data for 1990 through 1997 and the consolidated balance sheet data as of December 31, 1990 through 1998 have been derived from our audited financial statements not included herein. These historical results are not necessarily indicative of the results of operations to be expected for any future period. 12 13 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 --------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- -------- -------- -------- -------- OPERATING SUMMARY Revenue........................... $1,348,325 $1,328,774 $1,226,100 $1,028,205 $928,799 $894,796 $693,388 $570,379 Gross profit...................... 190,618 179,201 153,092 111,730 110,655 111,963 89,988 50,743 As a percent of revenue........... 14.1% 13.5% 12.5% 10.9% 11.9% 12.5% 13.0% 8.9% General and administrative expenses........................ 105,043 94,939 83,834 73,593 71,587 69,610 62,795 47,107 As a percent of revenue........... 7.8% 7.1% 6.8% 7.2% 7.7% 7.8% 9.1% 8.3% Income before cumulative effect of change in accounting principle*...................... 55,815 52,916 46,507 27,832 27,348 28,542 19,488 3,492 Net income........................ 55,815 52,916 46,507 27,832 27,348 28,542 19,488 4,492 As a percent of revenue........... 4.1% 4.0% 3.8% 2.7% 2.9% 3.2% 2.8% 0.8% Income per share before cumulative effect of change in accounting principle: Basic............................. $ 2.12 $ 2.03 $ 1.75 $ 1.05 $ 1.04 $ 1.10 $ 0.75 $ 0.13 Diluted........................... 2.07 1.96 1.70 1.03 1.02 1.08 0.74 0.13 Net income per share: Basic............................. 2.12 $ 2.03 $ 1.75 $ 1.05 $ 1.04 $ 1.10 $ 0.75 $ 0.17 Diluted........................... 2.07 1.96 1.70 1.03 1.02 1.08 0.74 0.17 Weighted average shares of common and common stock equivalents outstanding: Basic............................. 26,389 26,058 26,559 26,397 26,207 25,916 25,884 25,875 Diluted........................... 26,939 26,963 27,339 26,942 26,748 26,474 26,289 26,133 ---------- ---------- ---------- ---------- -------- -------- -------- -------- Total assets.............. $ 711,142 $ 679,572 $ 626,571 $ 551,809 $473,045 $454,744 $349,098 $319,416 Cash, cash equivalents and short-term investments.......... 100,731 108,077 121,424 72,769 72,230 66,992 48,638 48,810 Working capital................... 180,051 143,657 142,448 103,910 92,542 77,179 65,537 64,619 Current maturities of long-term debt............................ 1,130 5,985 10,787 12,921 10,186 13,948 10,070 10,060 Long-term debt.................... 63,891 64,853 69,137 58,396 43,602 39,494 17,237 28,585 Stockholders' equity.............. 377,764 327,732 301,282 257,434 233,605 209,905 182,692 164,338 Book value per share.............. 13.86 12.14 10.90 9.40 8.59 7.82 6.91 6.25 Dividends per share............... $ 0.43 $ 0.40 $ 0.30 $ 0.24 $ 0.25 $ 0.19 $ 0.09 $ 0.09 Common shares outstanding......... 27,255 26,996 27,649 27,400 27,189 26,828 26,433 26,301 ---------- ---------- ---------- ---------- -------- -------- -------- -------- Backlog........................... $1,120,481 $ 793,256 $ 901,592 $ 909,793 $597,876 $590,075 $550,166 $659,738 ========== ========== ========== ========== ======== ======== ======== ======== YEARS ENDED DECEMBER 31 ------------------------------ 1992 1991 1990 -------- -------- -------- OPERATING SUMMARY Revenue........................... $518,312 $564,060 $557,996 Gross profit...................... 50,578 69,502 70,646 As a percent of revenue........... 9.8% 12.3% 12.7% General and administrative expenses........................ 46,906 46,541 44,466 As a percent of revenue........... 9.0% 8.3% 8.0% Income before cumulative effect of change in accounting principle*...................... 3,924 17,622 18,811 Net income........................ 3,924 17,622 18,811 As a percent of revenue........... 0.8% 3.1% 3.4% Income per share before cumulative effect of change in accounting principle: Basic............................. $ 0.15 $ 0.68 $ 0.76 Diluted........................... 0.15 0.67 0.75 Net income per share: Basic............................. $ 0.15 $ 0.68 $ 0.76 Diluted........................... 0.15 0.67 0.75 Weighted average shares of common and common stock equivalents outstanding: Basic............................. 25,875 25,875 24,863 Diluted........................... 26,114 26,123 24,933 -------- -------- -------- Total assets.............. $316,978 $277,426 $260,426 Cash, cash equivalents and short-term investments.......... 54,139 54,973 50,451 Working capital................... 66,329 55,186 52,352 Current maturities of long-term debt............................ 15,469 7,669 7,887 Long-term debt.................... 38,618 14,816 19,084 Stockholders' equity.............. 158,594 153,159 131,026 Book value per share.............. 6.05 5.87 5.06 Dividends per share............... $ 0.09 $ 0.09 $ 0.07 Common shares outstanding......... 26,216 26,078 25,875 -------- -------- -------- Backlog........................... $245,234 $292,017 $368,384 ======== ======== ========
--------------- * Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." 13 14 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Granite is one of the largest heavy civil contractors in the United States and is engaged in the construction of highways, dams, airports, mass transit facilities and other infrastructure-related projects. The Company has offices in California, Texas, Georgia, Nevada, Arizona, Florida, and Utah. The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local agencies, and private parties. The Company's bidding activity is affected by such factors as backlog, current utilization of equipment and other resources, ability to obtain necessary surety bonds and competitive considerations. Bidding activity, backlog and revenue resulting from the award of new contracts to the Company may vary significantly from period to period. Revenue from construction contracts including construction joint ventures is recognized using the percentage-of-completion method of accounting, based upon costs incurred and projected costs. Revenue in an amount equal to cost incurred is recognized prior to contracts reaching 25% completion. The related earnings are not recognized until the period in which such percentage completion is attained. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, fuel, maintenance and repairs) and insurance costs. Depreciation is provided using accelerated methods for construction equipment. Contracts frequently extend over a period of more than one year and revisions in cost and profit estimates during construction are reflected in the accounting period in which the facts that require the revision become known. Losses on contracts, if any, are provided in total when determined, regardless of the degree of project completion. Claims for additional contract revenue are recognized in the period when it is probable that the claim will result in additional revenue and the amount can be reliably estimated. The foregoing as well as weather, stage of completion, and mix of contracts at different margins may cause fluctuations in gross profit between periods. The Company's compensation strategy for selected management personnel is to rely heavily on a variable cash and restricted stock performance-based incentive element. Thus, the Company may experience an increase in general and administrative expenses in a very profitable year and a decrease in less profitable years. The Company's profit sharing and pension contribution in excess of the 401K matching contributions is at the discretion of the Board of Directors based on the Company reaching certain levels of profitability each year. CURRENT YEAR
INCREASE 2000 1999 (DECREASE) % ---------- ---------- ---------- ---- (IN THOUSANDS) Revenue: Branch Division....................... $1,010,912 $ 976,464 $ 34,448 3.5 Heavy Construction Division........... 337,413 352,310 (14,897) (4.2) ---------- ---------- -------- ---- $1,348,325 $1,328,774 $ 19,551 1.5 ========== ========== ======== ====
Revenue and Backlog. Total revenue in 2000 increased to $1,348.3 million from $1,328.8 in 1999 which reflects a modest increase in revenue from the Branch Division partially offset by a decrease in HCD revenue. The HCD revenue decrease resulted from a lack of new awards during the period from late 1999 through mid 2000. Although HCD did receive significant new awards in late 2000, they were booked too late in the year to make a significant contribution to year 2000 revenue. On a market sector basis, revenue from private sector contracts increased $20.0 million to $333.4 million or 24.7% of total revenue in 2000, from $313.4 million or 23.5% of total revenue in 1999. The Company's private sector work is primarily comprised of site preparation for both commercial and residential developments and privately funded transportation projects. Although the private construction market remains strong in many of the areas that the Company works, there have been some signs of slowing growth in the private sector (see "Outlook"). The Company's revenue from public sector contracts decreased slightly to $855.1 million or 63.4% of total revenue in 2000 from $856.4 million or 14 15 64.5% of total revenue in 1999. The level of funding for public sector projects remained strong through 2000 in most of the Company's geographic markets. The following is a breakdown of backlog as of December 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998 --------------------- ------------------- ------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------- ------- -------- ------- -------- ------- By Geographic Area: California.................. $ 260,612 23.2% $245,861 31.0% $192,114 21.3% West (excluding California).............. 269,660 24.1 205,489 25.9 312,034 34.7 Midwest..................... 204,038 18.2 -- -- -- -- South and East.............. 386,171 34.5 341,906 43.1 397,444 44.0 ---------- ----- -------- ----- -------- ----- $1,120,481 100.0% $793,256 100.0% $901,592 100.0% ========== ===== ======== ===== ======== ===== By Market Sector: Federal agencies............ $ 75,907 6.8% $ 18,146 2.3% $ 22,550 2.5% State agencies.............. 649,242 57.9 468,992 59.1 635,833 70.5 Local public agencies....... 313,467 28.0 124,251 15.7 133,138 14.8 Private sector.............. 81,865 7.3 181,867 22.9 110,071 12.2 ---------- ----- -------- ----- -------- ----- $1,120,481 100.0% $793,256 100.0% $901,592 100.0% ========== ===== ======== ===== ======== =====
The Company's backlog at December 31, 2000 was $1,120.5 million, up $327.2 million, or 41.3% from 1999. The increase in backlog was due primarily to multiple HCD awards in the latter part of 2000 which include the Las Vegas Monorail project in Nevada, the Company's portion of the Hiawatha light rail joint venture in Minnesota and a major bridge and interchange project in Florida. Management believes that approximately 63% of the work in the backlog at December 31, 2000 will be recognized as revenue during 2001. The Company believes its bidding opportunities in its major marketplaces remain strong (see "Outlook"). Gross Profit. For the year ended December 31, 2000, gross profit reached $190.6 million, a $11.4 million increase from 1999. As a percentage of revenue, gross profit increased in 2000 to 14.1% from 13.5% in 1999. The increased gross profit margin reflected increases in both Branch Division and HCD and was a result of the continued favorable market conditions in both the public and private sectors and the overall successful execution of projects. Year to date revenue recognized for projects less than 25% complete was approximately $31.5 million and $36.9 million at December 31, 2000 and 1999, respectively. As described under "General" above, the Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. During 2000, the Company's gross profit margins were not significantly impacted by changes in the revenue from projects that were less than 25% complete. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs). Although the composition of costs varies with each contract, the Company's gross profit margins were not significantly impacted by changes in any one of these costs during 2000. The Company has experienced upward pressure on costs associated with labor markets and oil prices; however, the Company's gross profit margins were not materially impacted by such changes during 2000. 15 16 General and Administrative Expenses. For the years ended December 31, 2000 and 1999 general and administrative expenses comprised the following (in thousands):
2000 1999 -------- ------- (IN THOUSANDS) Salaries and related expenses............................... $ 46,897 $43,552 Incentive compensation, discretionary profit sharing and pension................................................... 24,153 22,264 Other general and administrative expenses................... 33,993 29,123 -------- ------- Total............................................. $105,043 $94,939 -------- ------- Percent of revenue.......................................... 7.8% 7.1% ======== =======
Salaries and related expenses increased in 2000 over 1999 due primarily to increased staffing to support the Company's current and expected growth. Incentive compensation and discretionary profit sharing and pension costs increased in 2000 over 1999 as a function of the Company's increased profitability and the impact of certain members of Company management reaching age 62, at which time all their restricted stock grants become fully vested. Other general and administrative expenses include various costs to support its operations, none of which exceeds 10% of total general and administrative expenses. The increase in other general and administrative expenses in 2000 primarily reflects the increases in facilities and other costs to support the Company's growth. Operating Income. The Heavy Construction Division's contribution to operating income in 2000 decreased slightly over the 1999 contribution due to a decreased volume of work performed as a result of HCD projects nearing completion. These HCD projects have been replaced by several new awards in the latter half of 2000, see "Revenue and Backlog" above. However, these significant new projects were awarded too late in the year to have a significant impact on revenue and operating income in 2000. The Branch Division's contribution to operating income in 2000 increased compared to 1999 due primarily to increases in construction revenue and gross margins as described in the "Gross Profit" section above. Other Income (Expenses). Other income increased $5.5 million to $7.3 million in 2000. The increase was primarily due to higher interest income resulting from the combined factor of higher interest rates and higher invested balances and the absence of the Company's share of a 1999 loss of approximately $2.8 million experienced by TIC, in which the Company currently has a 27% equity investment, partially offset by lower gains on the sale of property and equipment. Provision for Income Taxes. The Company's effective tax rate was 39.9% in 2000, an increase of 1.4% from 1999. The increase reflects additional tax expense recognized in the first quarter 2000 related to the Company reaching an agreement with TIC to divest its 30% investment over a three and one-half year period. OUTLOOK The Company experienced a sizeable increase in new awards for the year ended December 31, 2000. This increase in new awards resulted in a 41.3% improvement over the backlog at December 31, 1999. The Company believes this is a quality backlog that will provide a firm foundation from which to grow its business going forward. The bulk of these new awards were derived from the Company's public sector marketplace. As evidenced by the increase in new awards, the Company expects its public sector business will remain very positive in the coming year. The annual federal appropriations passed by Congress under TEA-21, and the matching state gas tax revenues continue to yield sizeable sums of money that flow into transportation programs across the country. Strong public sector markets nationwide should provide the Company with the opportunity to be very selective in its bidding, looking for those projects where it may have competitive advantages in terms of resources or expertise. However, it is still very early in the year to have a clear indication of how successful the Company can be in growing its business in 2001. Many of the larger projects the Company was awarded in 2000 were awarded in the later half of the year. As a result, some of the projects, most notably, the Las Vegas Monorail Project 16 17 and the Hiawatha Light Rail Project, may or may not reach the 25 percent complete profit recognition threshold in 2001. Moreover, as always, it is difficult to predict this early in the year what our Branch Division's annual financial results will be. Unlike the Heavy Construction Division, the Branch Division's work is not completely backlog-driven as most of its contracts are short-term in duration. Weather, competition, market demand and the short-term nature of the business are just a few of the variables that significantly impact earnings visibility of the Branch Division in any given year. There is also general uncertainty nationwide regarding the health of the economy. While we remain cautiously optimistic about our private sector business, the economic slowdown may prompt a downturn in private sector development and consequently decreased opportunities for the Company. It is also unclear how the current power crisis in California will affect the Company. To mitigate the Company's exposure, it is exploring alternative energy sources at its facilities. While the current crisis is expected to continue into the summer during our peak production periods, we hope to be in a position to deliver when others cannot. However, the threat of rolling blackouts during the peak summer construction season remains a risk to our business productivity. During January 2001, PG&E Corp., the parent company of Pacific Gas & Electric Company failed to pay $7 million in commercial paper that was held by the Company at December 31, 2000. On March 9, 2001 the full $7 million, plus interest, was paid. Looking at the prospects for the Company's Heavy Construction Division, it is experiencing a market that is extremely active. Texas is expected to again embark on a $2.5 billion annual construction program. Florida has a similar program that was enhanced in 2000 with a funding package that adds $4 billion of additional funds over the next 10 years. The design-build market continues to grow rapidly, and HCD is currently targeting approximately $7 billion of potential projects over the next 18 months. From an external growth perspective, the Company has not been as successful in 2000 as it had anticipated in growing the business through mergers and acquisitions. While the Company has seen some excellent candidates, a strong construction market has inflated valuations to levels that make it difficult to achieve the type of return the Company is looking for. The Company has several opportunities in the acquisition pipeline and will continue to be very assertive in the mergers and acquisitions area, but will remain disciplined in its approach. In summary, the Company's outlook for the short-term, barring any contributions from acquisitions, is for a year of modest growth, given the uncertainties related to the timing of some of the larger projects, the California energy crisis and general economic conditions. However, the Company's long-term prospects are anticipated to be exceptional, given the continued strength of the public sector marketplace. PRIOR YEARS
1999 1998 INCREASE % ---------- ---------- -------- ---- (IN THOUSANDS) Revenue: Branch Division........................ $ 976,464 $ 945,912 $ 30,552 3.2 Heavy Construction Division............ 352,310 280,188 72,122 25.7 ---------- ---------- -------- ---- $1,328,774 $1,226,100 $102,674 8.4 ========== ========== ======== ====
Revenue and Backlog. The increased revenue in 1999 was primarily attributable to increased revenue from private sector contracts which increased $65.0 million to $313.4 million or 23.5% of total revenue in 1999, from $248.4 million or 20.2% of total revenue in 1998. The Company's private sector work is primarily comprised of site preparation for both commercial and residential developments and privately funded transportation projects. The private sector revenue growth was significantly influenced by the continued strong growth in residential and commercial building construction during 1999. In California, one of the Company's largest markets, new building construction increased 13.0% during 1999 to $42.6 billion from $37.7 billion in 17 18 1998, according to the Construction Industry Research Board. The Company's revenue from public sector contracts increased to $856.4 million in 1999 from $836.0 million in 1998 while decreasing to 64.5% of the Company's total revenue in 1999 from 68.2% in 1998. Although the level of funding for public sector projects remained strong in 1999 in most of the Company's markets, the increased TEA-21 funding did not significantly impact the Company's revenue. The increase in Branch Division revenue during the year resulted from increases in revenue from federal sector and from private sector contracts, partially offset by a decrease in local sector revenue. The increase in HCD revenue was attributable to significantly drier weather conditions; particularly in Texas and Florida, and included revenue from a larger number of both private and public sector projects which included a private sector railroad project in Texas which was awarded in mid 1998, a private sector design-build tollroad project in Texas which was awarded in 1999 and a public sector design-build highway project in Arizona which was awarded in late 1998. The Company's backlog at December 31, 1999 was $793.3 million, down $108.3 million, or 12.0% from 1998. The decrease in backlog was due primarily to the absence of HCD awards in the fourth quarter. GROSS PROFIT. For the year ended December 31, 1999, gross profit reached $179.2 million, a $26.1 million increase from 1998. As a percentage of revenue, gross profit increased in 1999 to 13.5% from 12.5% in 1998. The increased gross profit margin was a result of the continued favorable market conditions in both the public and private sectors as described above, which tends to increase the Company's ability to win competitively bid projects at higher margins. Additionally, gross profit margin in 1999 was positively impacted by drier weather conditions, which allowed for more efficient utilization of resources, and the successful execution of several HCD projects that were added to backlog in mid to late 1998. Project to date revenue recognized for projects less than 25% complete was approximately $36.9 million and $24.4 million at December 31, 1999 and 1998, respectively. As described under "General" above, the Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. During 1999, the Company's gross profit margins were not significantly impacted by changes in the revenue from projects that were less than 25% complete. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs) and insurance costs. Although the composition of costs varies with each contract, the Company's gross profit margins were not significantly impacted by changes in any one of these costs during 1999. General and Administrative Expenses. For the years ended December 31, 1999 and 1998 general and administrative expenses comprised the following (in thousands):
1999 1998 ------- ------- (IN THOUSANDS) Salaries and related expenses............................ $43,552 $40,602 Incentive compensation, discretionary profit sharing and pension................................................ 22,264 18,894 Other general and administrative expenses................ 29,123 24,338 ------- ------- Total.......................................... $94,939 $83,834 ------- ------- Percent of revenue....................................... 7.1% 6.8% ======= =======
Salaries and related expenses increased in 1999 over 1998 due primarily to increased staffing to support the Company's current and expected growth. Incentive compensation and discretionary profit sharing and pension costs increased in 1999 over 1998 as a function of the Company's increased profitability. Other general and administrative expenses include various costs to support its operations, none of which exceeds 10% of total general and administrative expenses. The increase in other general and administrative expenses in 1999 primarily reflect the absence of the collection of a previously written-off bad debt that was recognized in 1998 and increases in other costs to support the Company's growth. Operating Income. The Heavy Construction Division's contribution to operating income in 1999 increased over the 1998 contribution due to increases in both the volume of work and the profit margins the Division was able to achieve. The Division's profit margins were positively impacted by the successful 18 19 execution of new work that was added to backlog in mid to late 1998, including two design-build projects, as well as drier weather conditions and improved margins on projects nearing completion. The Branch Division's contribution to operating income in 1999 decreased slightly compared to 1998 due primarily to the absence of the collection of a previously written-off bad debt and increases in other costs to support the Company's growth. Other Income (Expenses). Other income decreased $4.0 million to $1.8 million in 1999. The decrease was due primarily to a loss experienced by TIC, in which the Company had a 30% equity investment. The Company's share of TIC's loss was approximately $2.8 million, a decrease of approximately $7.0 million from the Company's share of TIC income in 1998. This decrease was partially offset by a $2.8 million gain recorded on the sale of a depleted quarry property. Provision for Income Taxes. The Company's effective tax rate was 38.5% in 1999, an increase of 0.5% from 1998. The increase was primarily due to a lower impact of the Company's percentage depletion deduction due to higher pre-tax earnings. LIQUIDITY AND CAPITAL RESOURCES
2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Cash and cash equivalents.......................... $ 57,759 $ 61,832 $ 62,470 Net cash provided (used) by: Operating activities............................. 74,846 99,987 96,030 Investing activities............................. (58,966) (54,204) (87,194) Financing activities............................. (19,953) (46,421) (725) Capital expenditures............................. 52,454 82,035 52,462 Working Capital.................................. $180,051 $143,657 $142,448
During 2000 the Company generated cash and cash equivalents from operating activities of $74.8 million which represented a decrease of $25.1 million over 1999. The decrease was primarily due to a reduced cash flow impact from accounts and notes receivable reflecting more modest revenue growth in 2000 and a reduction in the net billings in excess of cost. The impact of these changes were partially offset by a reduction in the equity in construction joint ventures resulting from the completion of two joint venture projects during the year. Cash used by investing activities in 2000 increased $4.8 million from 1999 primarily due to the investment in Wilder Construction in which the Company has a 39% equity investment at December 31, 2000, offset by a decrease in property and equipment purchases and the proceeds from the partial TIC divestiture. Cash used by financing activities in 2000 decreased $26.5 million from 1999 due to the absence Company's share repurchases and decreased payments on its debt obligations. The Company has budgeted $58.3 million for capital expenditures in 2001, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of land and aggregate reserves. The Company anticipates that cash generated internally and amounts available under its existing credit facilities will be sufficient to meet its capital and other requirements, including contributions to employee benefit plans, for the foreseeable future. The Company's consolidated working capital position was $180.1 million at December 31, 2000 compared to $143.7 million at December 31, 1999. The Company currently has access to funds under its revolving credit agreement which allow it to borrow up to $75.0 million, of which $63.2 million was available at December 31, 2000. The Company plans to renew its revolving credit facility in 2001. Subsequent Events. On February 21, 2001, the Company announced a quarterly cash dividend of $0.12 per pre split share of common stock to stockholders of record as of March 31, 2001 payable on April 13, 2001. 19 20 In addition, the Company announced a three for two stock split in the form of a 50% stock dividend payable April 13, 2001. The following unaudited summary reflects the pro forma net income per share restated for the three for two stock split (in thousands except per share data).
PRO FORMA WEIGHTED AVERAGE SHARES OF COMMON AND COMMON STOCK EQUIVALENTS PRO FORMA NET OUTSTANDING INCOME PER SHARE YEARS ENDED -------------------------- ----------------- DECEMBER 31, NET INCOME BASIC DILUTED BASIC DILUTED ------------ ---------- ----------- ------------ ------ -------- 2000 $55,815 39,584 40,409 $1.41 $1.38 1999 $52,916 39,087 40,445 $1.35 $1.31 1998 $46,507 39,839 41,009 $1.17 $1.13 1997 $27,832 39,596 40,413 $0.70 $0.69 1996 $27,348 39,311 40,122 $0.70 $0.68 1995 $28,542 38,874 39,711 $0.73 $0.72 1994 $19,488 38,826 39,434 $0.50 $0.49 1993 $ 4,492 38,813 39,200 $0.12 $0.11 1992 $ 3,924 38,813 39,171 $0.10 $0.10 1991 $17,622 38,813 39,185 $0.45 $0.45 1990 $18,811 37,295 37,400 $0.50 $0.50
Additionally, on the effective date of the three for two stock split, the Company will restate its shares outstanding at December 31, 2000 and 1999 to 40,882 and 40,493, respectively and will restate its common stock balance to $409 and $405 at December 31, 2000 and 1999, respectively. On February 23, 2001 the Company purchased an additional 450,000 shares of Wilder Construction Company for a purchase price of approximately $4.6 million. Also, subsequent to year end, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the "Plan") of which 3,000,000 shares of common stock are authorized for purchase. The Plan offers participation to record holders of common stock or other interested investors. Under the Plan, participants may buy additional shares of common stock by automatically reinvesting all or a portion of the cash dividends paid on their shares of common stock or by making optional cash investments. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "SFAS 133", Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of accounting and reporting for derivative instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal quarters of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The Company adopted this pronouncement in the first quarter of 2001 and it did not have a material impact on the Company's financial position and results of operations. 20 21 QUARTERLY RESULTS The following table sets forth selected unaudited financial information for the Company for the eight quarters in the period ended December 31, 2000. This information has been prepared on the same basis as the audited financial statements and, in the opinion of management, contains all adjustments necessary for a fair presentation thereof. QUARTERLY FINANCIAL DATA (UNAUDITED -- IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2000 QUARTERS ENDED --------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ -------- -------- Revenue..................................... $346,427 $441,756 $343,712 $216,430 Gross profit................................ 47,092 67,478 49,673 26,375 As a percent of revenue................... 13.6% 15.3% 14.5% 12.2% Net income.................................. 12,758 24,900 15,933 2,224 As a percent of revenue................... 3.7% 5.6% 4.6% 1.0% Net income per share: Basic..................................... $ 0.48 $ 0.95 $ 0.61 $ 0.08 Diluted................................... $ 0.47 $ 0.93 $ 0.59 $ 0.08 Dividends per share......................... $ 0.10 $ 0.10 $ 0.10 $ 0.16 Market price High...................................... $ 30.94 $ 27.13 $ 28.50 $ 27.50 Low....................................... $ 21.56 $ 21.00 $ 22.88 $ 17.44
1999 QUARTERS ENDED --------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ -------- -------- Revenue..................................... $365,975 $418,703 $329,292 $214,804 Gross profit................................ 51,194 58,509 46,169 23,329 As a percent of revenue................... 14.0% 14.0% 14.0% 10.9% Net income.................................. 14,436 20,849 15,131 2,500 As a percent of revenue................... 3.9% 5.0% 4.6% 1.2% Net income per share: Basic..................................... $ 0.55 $ 0.80 $ 0.58 $ 0.09 Diluted................................... $ 0.54 $ 0.77 $ 0.56 $ 0.09 Dividends per share......................... $ 0.07 $ 0.07 $ 0.07 $ 0.19 Market price High...................................... $ 26.50 $ 29.81 $ 29.88 $ 37.75 Low....................................... $ 16.88 $ 22.69 $ 21.88 $ 19.63
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to financial market risks due primarily to changes in interest rates which it manages primarily by managing the maturities in its investment portfolio. The Company does not use derivatives to alter the interest characteristics of its investment securities or its debt instruments. The Company has no holdings of derivative or commodity instruments and does not transact business in foreign currencies. 21 22 The fair value of the Company's investment portfolio or related income would not be significantly impacted by changes in interest rates since the investment maturities are short and the interest rates are primarily fixed. The Company's senior notes payable of $60.0 million at December 31, 2000 carry a fixed interest rate of 6.54% per annum with principal payments due in nine equal annual installments beginning in 2002. The table below presents principal amounts and related weighted average interest rates by year for the Company's cash and cash equivalents, short-term investments and significant debt obligations:
2001 2002 2003 2004 2005 THEREAFTER TOTAL ------- ------ ------ ------ ------ ---------- -------- (IN THOUSANDS) ASSETS Cash, cash equivalents and short-term investments........ $97,735 $ -- $1,998 $ 998 $ -- $ -- $100,731 Weighted average interest rate........................... 6.5% -- 5.9% 6.2% -- -- LIABILITIES Fixed rate debt Senior notes payable..................................... $ -- $6,667 $6,667 $6,667 $6,667 $33,332 $ 60,000 Weighted average interest rate......................... -- 6.54% 6.54% 6.54% 6.54% 6.54% 6.54%
The estimated fair value of the Company's cash, cash equivalents and short-term investments approximate the principal amounts reflected above based on the short maturities of these financial instruments. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt was approximately $57.3 million as of December 31, 2000 and $51.6 million as of December 31, 1999. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and auditor's report are included in Item 8 and appear following Item 14: Report of Independent Accountants Consolidated Balance Sheets -- At December 31, 2000 and 1999 Consolidated Statements of Income -- Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows -- Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Additionally, a two-year Summary of Quarterly Results is included in Item 7 under "Quarterly Results." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. 22 23 PART III Certain information required by Part III is omitted from this Report in that the Company will file its definitive proxy statement for the Annual Meeting of Stockholders to be held on May 21, 2001 (the "Proxy Statement") pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to the directors of the Company is set forth under the caption "Information about Granite -- Management, Directors" in the Proxy Statement. Such information is incorporated herein by reference. Information relating to the executive officers of the Company is set forth in Part I of this report under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation is set forth under the caption "Information about Granite -- Compensation of Directors and Executive Officers" in the Proxy Statement. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to ownership of equity securities of the Company by certain beneficial owners and Management is set forth under the caption "Information about Granite -- Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain relationships and related transactions is set forth under the caption "Information about Granite -- Management, Certain Transactions with Management" in the Proxy Statement. Such information is incorporated herein by reference. 23 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K The following documents are filed as part of this Report: (a) 1. FINANCIAL STATEMENTS. The following consolidated financial statements are filed as part of this Report:
FORM 10-K PAGES -------------- Report of Independent Accountants....................... F-1 Consolidated Balance Sheets at December 31, 2000 and 1999.................................................. F-2 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998...................... F-3 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.......... F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................ F-5 Notes to the Consolidated Financial Statements.......... F-6 to F-20
2. FINANCIAL STATEMENT SCHEDULE. The following financial statement schedule of Granite Construction Incorporated for the years ended December 31, 2000, 1999 and 1998 is filed as part of this Report and should be read in conjunction with the consolidated financial statements of Granite Construction Incorporated.
FORM 10-K SCHEDULE PAGES -------- --------- Schedule II -- Schedule of Valuation and Qualifying Accounts.................................................. S-1
Schedules not listed above have been omitted because the required information is not applicable or is shown in the financial statements or notes. 3. EXHIBITS. The Exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Report. (b) REPORTS ON FORM 8-K. The registrant was not required to file any reports on Form 8-K during the fourth quarter of fiscal 2000. 24 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and the stockholders of Granite Construction, Incorporated: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 24 present fairly, in all material respects, the financial position of Granite Construction, Incorporated and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 24 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP San Jose, California February 16, 2001, except for Note 16, as to which the date is February 23, 2001 F-1 26 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
DECEMBER 31, -------------------- 2000 1999 -------- -------- Current assets Cash and cash equivalents................................. $ 57,759 $ 61,832 Short-term investments.................................... 42,972 46,245 Accounts receivable....................................... 221,374 211,609 Costs and estimated earnings in excess of billings........ 19,473 14,105 Inventories............................................... 16,747 12,823 Deferred income taxes..................................... 15,857 14,885 Equity in construction joint ventures..................... 25,151 30,611 Other current assets...................................... 12,295 10,211 -------- -------- Total current assets.............................. 411,628 402,321 Property and equipment...................................... 249,077 242,913 Investments in affiliates................................... 40,052 23,139 Other assets................................................ 10,385 11,199 -------- -------- $711,142 $679,572 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt...................... $ 1,130 $ 5,985 Accounts payable.......................................... 90,111 95,662 Billings in excess of costs and estimated earnings........ 57,412 66,342 Accrued expenses and other current liabilities............ 82,924 90,675 -------- -------- Total current liabilities......................... 231,577 258,664 Long-term debt.............................................. 63,891 64,853 Other long-term liabilities................................. 6,370 - Deferred income taxes....................................... 31,540 28,323 Commitments and contingencies Stockholders' equity Preferred stock, $0.01 par value, authorized 3,000,000 shares; none outstanding............................... -- -- Common stock, $0.01 par value, authorized 100,000,000 shares; issued and outstanding 27,254,605 shares in 2000 and 26,995,506 in 1999............................ 272 270 Additional paid-in capital................................ 56,518 49,817 Retained earnings......................................... 330,172 285,832 -------- -------- 386,962 335,919 Unearned compensation..................................... (9,198) (8,187) -------- -------- 377,764 327,732 -------- -------- $711,142 $679,572 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-2 27 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Revenue Construction............................................. $1,188,430 $1,169,755 $1,084,433 Material sales........................................... 159,895 159,019 141,667 ---------- ---------- ---------- Total revenue.................................... 1,348,325 1,328,774 1,226,100 ---------- ---------- ---------- Cost of revenue Construction............................................. 1,020,317 1,015,041 955,213 Material sales........................................... 137,390 134,532 117,795 ---------- ---------- ---------- Total cost of revenue............................ 1,157,707 1,149,573 1,073,008 ---------- ---------- ---------- Gross profit............................................. 190,618 179,201 153,092 General and administrative expenses........................ 105,043 94,939 83,834 ---------- ---------- ---------- Operating income......................................... 85,575 84,262 69,258 ---------- ---------- ---------- Other income (expense) Interest income.......................................... 11,646 8,682 9,856 Interest expense......................................... (8,954) (8,791) (9,551) Gain on sales of property and equipment.................. 2,584 4,544 1,819 Other, net............................................... 2,019 (2,654) 3,629 ---------- ---------- ---------- 7,295 1,781 5,753 ---------- ---------- ---------- Income before provision for income taxes................. 92,870 86,043 75,011 Provision for income taxes................................. 37,055 33,127 28,504 ---------- ---------- ---------- Net income............................................... $ 55,815 $ 52,916 $ 46,507 ========== ========== ========== Net income per share Basic.................................................... $ 2.12 $ 2.03 $ 1.75 Diluted.................................................. $ 2.07 $ 1.96 $ 1.70 Weighted average shares of common and common stock equivalents outstanding Basic.................................................... 26,389 26,058 26,559 Diluted.................................................. 26,939 26,963 27,339 Dividends per share........................................ $ 0.43 $ 0.40 $ 0.30
The accompanying notes are an integral part of these consolidated financial statements. F-3 28 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL COMMON PAID-IN RETAINED UNEARNED YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 STOCK CAPITAL EARNINGS COMPENSATION TOTAL -------------------------------------------- ------ ---------- -------- ------------ -------- BALANCES, DECEMBER 31, 1997....................... $274 $39,745 $223,498 $(6,083) $257,434 Net income........................................ -- -- 46,507 -- 46,507 Restricted stock issued -- 213,926 shares, net.... 2 3,793 -- (3,795) -- Amortized restricted stock........................ -- -- -- 3,286 3,286 Employee stock options exercised and related tax benefit -- 81,405 shares........................ 1 1,402 -- -- 1,403 Repurchase of common stock -- 107,733 shares...... -- (2,440) -- -- (2,440) Common stock contributed to ESOP -- 61,800 shares.......................................... -- 1,580 -- -- 1,580 Cash dividends on common stock and other.......... -- 1,000 (7,488) -- (6,488) ---- ------- -------- ------- -------- BALANCES, DECEMBER 31, 1998....................... 277 45,080 262,517 (6,592) 301,282 Net income........................................ -- -- 52,916 -- 52,916 Restricted stock issued -- 236,578 shares, net.... 2 6,427 -- (6,429) -- Amortized restricted stock........................ -- -- -- 4,834 4,834 Stock options and warrants exercised and related tax benefit -- 130,940 shares................... 1 1,419 -- -- 1,420 Repurchase of common stock -- 1,112,073 shares.... (10) (5,255) (19,764) -- (25,029) Common stock contributed to ESOP -- 91,100 shares.......................................... -- 2,146 -- -- 2,146 Cash dividends on common stock and other.......... -- -- (9,837) -- (9,837) ---- ------- -------- ------- -------- BALANCES, DECEMBER 31, 1999....................... 270 49,817 285,832 (8,187) 327,732 Net income........................................ -- -- 55,815 -- 55,815 Restricted stock issued -- 276,685 shares, net.... 3 6,909 -- (6,912) -- Amortized restricted stock........................ -- -- -- 5,901 5,901 Stock options exercised and related tax benefit -- 56,103 shares........................ -- 2,013 -- -- 2,013 Repurchase of common stock -- 103,689 shares...... (1) (2,853) -- -- (2,854) Common stock contributed to ESOP -- 30,000 shares.......................................... -- 632 -- -- 632 Cash dividends on common stock and other.......... -- -- (11,475) -- (11,475) ---- ------- -------- ------- -------- BALANCES, DECEMBER 31, 2000....................... $272 $56,518 $330,172 $(9,198) $377,764 ==== ======= ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 29 GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Operating Activities Net income................................................ $ 55,815 $ 52,916 $ 46,507 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization................ 44,624 42,363 38,124 Gain on sales of property and equipment................. (2,584) (4,544) (1,819) Deferred income taxes................................... 2,245 1,043 154 Gain on sale of investment.............................. (636) -- -- Amortization of unearned compensation................... 5,901 4,834 3,286 Common stock contributed to ESOP........................ 632 2,146 1,580 Equity in (gain) loss of affiliates..................... (57) 5,292 (2,728) Other................................................... 150 (424) -- Changes in assets and liabilities: Accounts and notes receivable........................... (11,287) (34,106) (10,715) Inventories............................................. (2,624) (50) (522) Equity in construction joint ventures................... 5,460 (10,591) (7,069) Other assets............................................ (1,933) 1,327 189 Accounts payable........................................ (5,551) 7,468 7,385 Billings in excess of costs and estimated earnings, net.................................................... (15,598) 18,285 6,954 Accrued expenses........................................ 289 14,028 14,704 -------- -------- -------- Net cash provided by operating activities.......... 74,846 99,987 96,030 -------- -------- -------- Investing Activities Purchases of short-term investments....................... (84,671) (98,082) (91,090) Maturities of short-term investments...................... 87,944 110,791 50,546 Additions to property and equipment....................... (52,454) (82,035) (52,462) Proceeds from sales of property and equipment............. 4,691 9,130 5,357 Proceeds from sale of investment.......................... 5,000 -- -- Investment in affiliates.................................. (21,220) 1,083 (385) Development and sale of land and other investing activities.............................................. 1,744 4,909 840 -------- -------- -------- Net cash used by investing activities.............. (58,966) (54,204) (87,194) -------- -------- -------- Financing Activities Additions to long-term debt............................... -- -- 60,000 Repayments of long-term debt.............................. (5,817) (10,786) (51,392) Employee stock options exercised.......................... 431 39 832 Repurchase of common stock................................ (2,854) (25,029) (2,440) Dividends paid............................................ (11,713) (10,645) (7,725) -------- -------- -------- Net cash used by financing activities.............. (19,953) (46,421) (725) -------- -------- -------- Increase (decrease) in cash and cash equivalents............ (4,073) (638) 8,111 Cash and cash equivalents at beginning of year.............. 61,832 62,470 54,359 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 57,759 $ 61,832 $ 62,470 ======== ======== ======== Supplementary Information Cash paid during the year for: Interest................................................ $ 6,387 $ 5,926 $ 4,857 Income taxes............................................ 28,060 24,210 22,294 Noncash financing and investing activity: Restricted stock issued for services.................... $ 6,912 $ 6,429 $ 3,795 Dividends accrued but not paid.......................... 2,725 1,890 1,659 Financed acquisition of property and equipment.......... -- 1,700 --
The accompanying notes are an integral part of these consolidated financial statements. F-5 30 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Company is a heavy civil contractor engaged in the construction of highways, dams, airports, mass transit facilities, real estate site development and other infrastructure related projects. The Company has offices in California, Texas, Georgia, Nevada, Arizona, Utah, and Florida. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated. The Company uses the equity method of accounting for affiliated companies where its ownership is between 20% and 50%. Additionally, the Company participates in joint ventures with other construction companies. The Company accounts for its share of the operations of these jointly controlled ventures on a pro rata basis in the consolidated statements of income and as a single line item in the consolidated balance sheets. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition: Earnings on construction contracts including construction joint ventures are recognized on the percentage of completion method in the ratio of costs incurred to estimated final costs. Revenue in an amount equal to cost incurred is recognized prior to contracts reaching 25% completion. The related earnings are not recognized until the period in which such percentage completion is attained. It is the Company's judgment that until a project reaches 25% completion, there is insufficient information to determine with a reasonable level of comfort what the estimated profit on the project will be. Factors that can contribute to changes in estimates of contract profitability include, without limitation, site conditions that differ from those assumed in the original bid, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, inclement weather and timing and coordination issues inherent in design/build projects. Contract cost is recorded as incurred and revisions in contract revenue and cost estimates are reflected in the accounting period when known. The 25% threshold is applied to all percentage of completion projects without exception unless and until the Company projects a loss on the project, in which case the estimated loss is immediately recognized. Claims for additional contract revenue are recognized if it is probable that the claim will result in additional revenue and the amount can be reliably estimated. Revenue from contract change orders is recognized when the owner has agreed to the change order. Revenue from the sale of materials is recognized when delivery and risk of ownership passes to the customer. The Company's revenue is substantially derived from contracts that are "fixed unit price" under which the Company is committed to provide materials or services required by a project at fixed unit prices (for example, dollars per cubic yard of concrete or cubic yards of earth excavated). The Company's contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local government agencies and private parties. All federal government contracts and many of the Company's other contracts provide for termination of the contract for the convenience of the party contracting with the Company. Balance Sheet Classifications: The Company includes in current assets and liabilities amounts receivable and payable under construction contracts which may extend beyond one year. A one-year time period is used as the basis for classifying all other current assets and liabilities. Cash and Cash Equivalents: Cash equivalents are securities held for cash management purposes having original maturities of three months or less from the date of purchase. F-6 31 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Short-Term Investments: Short-term investments that are deemed by management to be held-to-maturity are reported at amortized cost. Short-term investments that are considered available-for-sale are carried at fair value. Unrealized gains and losses, if material, are reported net of tax as a separate component of stockholders' equity until realized. Realized gains and losses, if any, are determined using the specific identification method. Financial Instruments: The carrying value of short-term investments approximates their fair value as determined by market quotes. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. The carrying value of receivables and other amounts arising out of normal contract activities, including retentions, which may be settled beyond one year, is estimated to approximate fair value. Inventories: Inventories consist primarily of quarry products valued at the lower of average cost or market. Property and Equipment: Property and equipment are stated at cost. Depreciation is provided using accelerated methods over lives ranging from three to ten years for construction equipment and the straight-line method over lives from three to twenty years for the remaining depreciable assets. The Company believes that accelerated methods best approximate the service provided by the construction equipment. Depletion of quarry property is based on the usage of depletable reserves. The cost and accumulated depreciation or depletion of property sold or retired is removed from the accounts and gains or losses, if any, are reflected in earnings for the period. The Company capitalized interest costs related to certain self-constructed assets which reduced total interest expense of $9,463 by $509 in 2000 and reduced total interest expense of $9,368 by $577 in 1999. Long-Lived Assets: Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There have been no significant events or changes in circumstances to date. The Company holds for development and sale certain property acquired in foreclosure proceedings. Such assets are held in long-term other assets until such time as they are available to be sold and expected to be sold within a year, at which time they are carried in other current assets. Additionally, the Company frequently sells property and equipment that has reached the end of its useful life or no longer meets the Company's needs, including depleted quarry property. Such property is held in property and equipment until sold. During 2000, 1999 and 1998 there were no losses resulting from changes in the carrying amounts of these assets. Intangible Assets: Intangible assets consist primarily of covenants not to compete amortized on a straight-line basis over five years. Income Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Computation of Earnings Per Share: Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding, excluding restricted common stock. Diluted earnings per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options, warrants and upon the vesting of restricted common stock. F-7 32 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Reclassifications: Certain financial statement items have been reclassified to conform to the current year's format. These reclassifications had no impact on previously reported net income. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "SFAS 133", Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of accounting and reporting for derivative instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal quarters of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The Company adopted this pronouncement in the first quarter of 2001 and it did not have a material impact on the Company's financial position and results of operations. 2. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES Disclosure of Significant Estimates -- Revenue Recognition: As outlined in the Summary of Significant Accounting Policies, the Company's construction revenue is recognized on the percentage of completion basis. Consequently, construction revenue and gross margin for each reporting period is determined on a contract by contract basis by reference to estimates by the Company's engineers of expected costs to be incurred to complete each project. These estimates include provisions for known and anticipated cost overruns, if any exist or are expected to occur. These estimates may be subject to revision in the normal course of business. Disclosure of Significant Estimates -- Litigation: The Company is a party to a number of legal proceedings and believes that the nature and number of these proceedings are typical for a construction firm of its size and scope and that none of these proceedings is material to the Company's financial position. The Company's litigation typically involves claims regarding public liability or contract related issues. Concentrations: The Company maintains the majority of cash balances and all of its short-term investments with several financial institutions. The Company invests with high credit quality financial institutions, and, by policy, limits the amount of credit exposure to any financial institution. A significant portion of the Company's labor force is subject to collective bargaining agreements. Collective bargaining agreements covering approximately 5% of the Company's unionized labor force at December 31, 2000 will expire during 2001. Revenue received from federal, state and local government agencies amounted to $855,069 (63.4%) in 2000, $856,399 (64.5%) in 1999, and $835,986 (68.2%) in 1998. California Department of Transportation represented $174,560 (12.9%) in 2000, $135,265 (10.2%) in 1999, and $142,008 (11.6%) in 1998 of total revenue. At December 31, 2000 and 1999, the Company had significant amounts receivable from these agencies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral, although the law provides the Company the ability to file mechanics liens on real property improved for private customers in the event of non-payment by such customers. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company has no foreign operations. F-8 33 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. SHORT-TERM INVESTMENTS The carrying and market values of short-term investments are as follows at December 31, 2000 and 1999:
HELD-TO-MATURITY HELD-TO-MATURITY DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------------------------------------- ----------------------------------------------- CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE -------- ---------- ---------- ------- -------- ---------- ---------- ------- U.S. Government and Agency Obligations............. $11,922 $7 $-- $11,929 $20,222 $ 4 $-- $20,226 Commercial Paper.......... 16,865 1 -- 16,866 12,917 16 -- 12,933 Municipal Bonds........... -- -- -- -- -- -- -- -- Domestic Banker's Acceptance.............. 7,180 1 -- 7,181 7,079 22 -- 7,101 ------- -- -- ------- ------- --- -- ------- 35,967 9 -- 35,976 40,218 42 -- 40,260 ------- -- -- ------- ------- --- -- -------
AVAILABLE-FOR-SALE AVAILABLE-FOR-SALE DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------------------------------------- ----------------------------------------------- CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE -------- ---------- ---------- ------- -------- ---------- ---------- ------- U.S. Government and Agency Obligations............. 4,492 -- (6) 4,486 2,999 -- (82) 2,917 Municipal Bonds........... 2,513 1 -- 2,514 3,028 -- (18) 3,010 ------- --- --- ------- ------- --- ----- ------- 7,005 1 (6) 7,000 6,027 -- (100) 5,927 ------- --- --- ------- ------- --- ----- ------- Total Short-Term Investments............. $42,972 $10 $(6) $42,976 $46,245 $42 $(100) $46,187 ======= === === ======= ======= === ===== =======
There were no sales of investments classified as available-for-sale for the years ended December 31, 2000 and 1999. Unrealized gains and losses were considered immaterial for both 2000 and 1999 and, thus, not recorded. At December 31, 2000, scheduled maturities of investments are as follows:
HELD-TO- AVAILABLE- MATURITY FOR-SALE TOTAL -------- ---------- ------- Within one year............................................. $35,967 $4,009 $39,976 After one year through five years........................... -- 2,996 2,996 ------- ------ ------- $35,967 $7,005 $42,972 ======= ====== =======
For the years ended December 31, 2000 and 1999, purchases and maturities were as follows:
DECEMBER 31, 1999 DECEMBER 31, 2000 ---------------------------------- --------------------------------- HELD- HELD-TO- AVAILABLE- TO- AVAILABLE- MATURITY FOR-SALE TOTAL MATURITY FOR-SALE TOTAL -------- ---------- ------- -------- ---------- -------- Purchases..................................... $81,640 $3,031 $84,671 $ 92,870 $5,212 $ 98,082 Maturities.................................... 85,891 2,053 87,944 107,587 3,204 110,791 ------- ------ ------- -------- ------ -------- Net change.................................... $(4,251) $ 978 $(3,273) $(14,717) $2,008 $(12,709) ======= ====== ======= ======== ====== ========
F-9 34 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 4. ACCOUNTS RECEIVABLE
DECEMBER 31, -------------------- 2000 1999 -------- -------- Construction Contracts Completed and in progress............................ $122,935 $127,544 Retentions........................................... 72,883 61,055 -------- -------- 195,818 188,599 Construction material sales............................ 22,874 19,421 Other.................................................. 4,463 4,813 -------- -------- 223,155 212,833 Less allowance for doubtful accounts................... 1,781 1,224 -------- -------- $221,374 $211,609 ======== ========
Accounts receivable includes amounts billed and billable for public and private contracts. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts generally become due upon completion of the contracts and acceptance by the owners. Retainage amounts at December 31, 2000 are expected to be collected as follows: $67,909 in 2001; $3,182 in 2002, $1,595 in 2003 and $197 in 2004. 5. EQUITY IN CONSTRUCTION JOINT VENTURES The Company participates in various construction joint venture partnerships. Generally, each construction joint venture is formed to accomplish a specific project and is dissolved upon completion of the project. The joint venture agreements typically provide that the interests of the Company in any profits and assets, and its respective shares in any losses and liabilities that may result from the performance of the contract are limited to the Company's stated percentage interest in the project. Although the venture's contract with the project owner typically requires joint and several liability, the Company's agreements with its joint venture partners provide that each party will assume and pay its full proportionate share of any losses resulting from a project. The Company has no significant commitments beyond completion of the contract. The Company's share of equity in these ventures ranges from 15% -- 57% the most significant of which include a 23% share of the I-15 Corridor reconstruction project in Salt Lake City, Utah, a 40% share of a highway and tunnel project in Atlantic City, New Jersey and a 57% share of a light rail project in Minneapolis, Minnesota. The combined assets, liabilities and net assets of these ventures are as follows:
DECEMBER 31, -------------------- 2000 1999 -------- -------- Assets Total..................................................... $165,361 $260,275 Less other venturers' interest............................ 116,988 188,803 -------- -------- Company's interest........................................ 48,373 71,472 -------- -------- Liabilities Total..................................................... 80,788 149,453 Less other venturers' interest............................ 57,566 108,592 -------- -------- Company's interest........................................ 23,222 40,861 -------- -------- Company's interest in net assets............................ $ 25,151 $ 30,611 ======== ========
F-10 35 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The revenue and costs of revenue of construction joint ventures are as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Revenue Total................................................ $463,634 $646,277 $649,042 Less other venturers' interest....................... 328,612 469,350 497,407 -------- -------- -------- Company's interest................................... 135,022 176,927 151,635 -------- -------- -------- Cost of Revenue Total................................................ 413,512 575,432 578,608 Less other venturers' interest....................... 294,304 418,628 443,123 -------- -------- -------- Company's interest................................... 119,208 156,804 135,485 -------- -------- -------- $ 15,814 $ 20,123 $ 16,150 ======== ======== ========
6. INVESTMENTS IN AFFILIATES The Company has investments in affiliates that are accounted for on the equity method. The most significant of these investments is a 39% interest in Wilder Construction Company, a 27% interest in T.I.C. Holdings, Incorporated and a 22.2% limited partnership interest in a partnership which constructed and operates a private toll road. At December 31, 2000 the Company had a commitment supported by a letter of credit of $3,300 related to its limited partnership interest. During the year ended December 31, 2000 the Company made a total investment of $14,841 in the common stock of Wilder Construction Company ("Wilder"). Founded in 1911, Wilder is a heavy civil construction company with regional offices located in Washington, Oregon and Alaska. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. In April 2000, the Company finalized an agreement with TIC to sell its minority interest back to TIC over a three and one half-year period. Under the agreement, TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. On June 5, 2000 TIC repurchased 478,012 TIC common shares held by the Company. The Company received $5.0 million in proceeds from the transaction and recognized a gain of $0.6 million. At December 31, 2000 the Company held 2,093,248 shares of TIC common stock. F-11 36 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Differences between the carrying amount of the Company's investments and the underlying equity in net assets, which approximate $8,000 at December 31, 2000, are being amortized over an estimated useful life of 10 years. The summarized financial information below represents an aggregation of the Company's nonsubsidiary affiliates:
YEARS ENDED DECEMBER 31, ---------------------------------- 2000 1999 1998 ---------- -------- -------- Balance sheet data Assets.......................................... $ 470,239 $347,721 $328,496 Liabilities..................................... 399,199 305,542 267,397 Net assets...................................... 71,040 42,179 61,099 ---------- -------- -------- Company's equity investment in affiliates......... 40,052 23,139 29,515 ---------- -------- -------- Earnings data Revenue......................................... 1,173,716 767,754 561,568 Gross profit.................................... 77,874 33,628 50,452 Earnings (loss) before taxes and continuing operations................................... 10,110 (12,426) 7,510 Net income (loss)............................... 1,214 (18,655) 7,510 ---------- -------- -------- Company's equity in earnings (loss)............... $ 57 $ (5,292) $ 2,728 ---------- -------- --------
7. PROPERTY AND EQUIPMENT
DECEMBER 31, -------------------- 2000 1999 -------- -------- Land................................................... $ 38,113 $ 36,485 Quarry property........................................ 45,080 46,891 Buildings and leasehold improvements................... 38,753 33,791 Equipment and vehicles................................. 508,976 478,990 Office furniture and equipment......................... 8,597 7,110 -------- -------- 639,519 603,267 Less accumulated depreciation, depletion and amortization......................................... 390,442 360,354 -------- -------- $249,077 $242,913 ======== ========
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
DECEMBER 31, -------------------- 2000 1999 -------- -------- Payroll and related employee benefits.................. $ 41,069 $ 40,375 Accrued insurance...................................... 24,200 30,425 Income taxes........................................... -- 3,696 Other.................................................. 17,655 16,179 -------- -------- $ 82,924 $ 90,675 ======== ========
F-12 37 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 9. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
DECEMBER 31, -------------------- 2000 1999 -------- -------- Senior notes payable................................... $ 60,000 $ 60,000 Notes payable to bank.................................. -- 5,000 Other notes payable.................................... 5,021 5,838 -------- -------- 65,021 70,838 Less current maturities................................ 1,130 5,985 -------- -------- $ 63,891 $ 64,853 ======== ========
--------------- The aggregate minimum principal maturities of long-term debt for each of the five years following December 31, 2000 are as follows: 2001 -- $1,130; 2002 -- $9,433; 2003 -- $6,863; 2004 -- $6,876; 2005 -- $6,901; and beyond 2005 -- $33,818. The Company has a bank revolving line of credit of $75,000 which allows for unsecured borrowings for up to five years through June 29, 2001, with interest rate options. Outstanding borrowings under the revolving line of credit are at the IBOR interest rate plus margin (6.2% and 1.0%, respectively at December 31, 2000) with principal payable semiannually beginning December 2001 through June 2006 and interest payable quarterly. There were no amounts outstanding at December 31, 2000. The Company has standby letters of credit totaling approximately $15,087 outstanding at December 31, 2000 of which $11,787 reduces the amount available under the revolving line of credit and $3,300 supports the commitment by the Company related to its investment in a limited partnership. The unused and available portion of the line of credit at December 31, 2000 was approximately $63,213. Senior Notes Payable in the amount of $60 million are due to a group of institutional holders. The notes are due in nine equal annual installments beginning in 2002 and bear interest at 6.54% per annum. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt was approximately $57,300 as of December 31, 2000 and $51,600 as of December 31, 1999. Notes payable to bank are unsecured with principal payable semiannually and interest payable quarterly and were paid in full in 2000. Restrictive covenants under the terms of debt agreements include the maintenance of certain levels of working capital and cash flow. Other covenants prohibit capital expenditures in excess of specified limits and require the maintenance of tangible net worth (as defined) of approximately $266,000. Other notes payable are comprised primarily of notes incurred in connection with the purchase of property and equipment, and other assets. These notes are collateralized by the assets purchased and bear interest at 6.5% to 8.8% per annum with principal and interest payable in installments through 2007. 10. EMPLOYEE BENEFIT PLANS Employee Stock Ownership Plan: The Company's Employee Stock Ownership Plan ("ESOP") covers all employees not included in collective bargaining agreements. As of December 31, 2000, the ESOP owned 6,578,519 shares of the Company's common stock. Dividends on shares held by the ESOP are charged to retained earnings and all shares held by the ESOP are treated as outstanding in computing the Company's earnings per share. F-13 38 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Contributions to the ESOP are at the discretion of the Board of Directors and comprise shares of the Company's stock that were purchased on the market and immediately contributed to the plan. Compensation cost is measured as the cost to purchase the shares (market value on the date of purchase and contribution). Contributions for the years ended December 31, 2000, 1999 and 1998 were approximately $632, $1,769 and $1,957, respectively. Profit Sharing and 401k Plan: The plan is a defined contribution plan covering all employees not included in collective bargaining agreements. Each employee can elect to have up to 10% of gross pay contributed to the 401K plan on a before-tax basis. The plan allows for Company matching and additional contributions at the discretion of the Board of Directors. Company contributions to the Profit Sharing and 401k Plan for the years ended December 31, 2000, 1999 and 1998 were $5,021, $3,414 and $8,402, respectively. Included in the contributions were 401k matching contributions of $2,990, $2,762 and $1,990, respectively. Other: The Company's wholly owned subsidiary, Granite Construction Company, also contributes to various multi-employer pension plans on behalf of union employees. Contributions to these plans for the years ended December 31, 2000, 1999 and 1998 were approximately $14,532, $14,435 and $13,498, respectively. 11. STOCKHOLDERS' EQUITY 1999 Equity Incentive Plan: On May 24, 1999, the Company's stockholders approved the 1999 Equity Incentive Plan (the "Plan"), which replaces the Company's 1990 Omnibus Stock and Incentive Plan (the "1990 Plan"). The Plan provides for the grant of restricted common stock, incentive and nonqualified stock options, performance units and performance shares to employees and awards to the Company's board of directors in the form of stock units or stock options ("Director Options"). A total of 2,500,000 shares of the Company's common stock have been reserved for issuance under the Plan. The exercise price for incentive and nonqualified stock options granted under the Plan may not be less than 100% and 85%, respectively, of the fair market value at the date of the grant. Options granted will be exercisable at such times and be subject to such restrictions and conditions as determined by the compensation committee, but no option shall be exercisable later than ten years from the date of grant. Restricted common stock is issued for services to be rendered and may not be sold, transferred or pledged for such period as determined by the compensation committee. Restricted shares outstanding at December 31, 2000 were 807,637 shares. Restricted stock compensation cost is measured at the stock's fair value on the date of grant. The compensation cost is recognized ratably over the vesting period -- generally five years. Restricted shares generally become fully vested when a holder reaches age 62. An employee may not sell or otherwise transfer unvested shares and, in the event that an employee terminates his or her employment prior to the end of the vesting period, any unvested shares are surrendered to the Company. The Company has no obligation to repurchase restricted stock. Compensation expense related to restricted shares for the years ended December 31, 2000, 1999 and 1998 was $5,901, $4,834 and $3,286, respectively. F-14 39 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Stock options granted under the 1990 Plan, all of which were granted in 1990 expired in 2000. All options were granted, cancelled and exercised at $7.56 per share. Stock option transactions under the 1990 Plan during 2000, 1999 and 1998 are summarized as follows:
DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Options outstanding, beginning of year................ 53,375 70,625 157,125 Options exercised..................................... (53,375) (17,250) (81,405) Options forfeited..................................... -- -- (5,095) ------- ------- ------- Options outstanding, end of year...................... -- 53,375 70,625 ======= ======= =======
The Company granted Director Options under the Plan to purchase shares of the Company's stock under the Plan for the years ended December 31, 2000 and 1999 at a weighted average exercise price of $12.81 in 2000 and $10.35 in 1999. The options are immediately exercisable and 16,292 shares remain outstanding at December 31, 2000. Director's option transactions are summarized as follows:
DECEMBER 31, --------------- 2000 1999 ------ ----- Options outstanding, beginning of year...................... 7,367 -- Options granted............................................. 11,653 7,367 Options exercised........................................... (2,728) -- ------ ----- Options outstanding, end of year............................ 16,292 7,367 ====== =====
The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). Accordingly, the compensation cost for the options granted in 1999 and 2000 was recognized to the extent the fair market value exceeded the exercise price, as all of the options were granted at prices less than fair market value. The fair value of each option grant was estimated at the grant date using a Black-Scholes option pricing model with the following assumptions:
2000 1999 ------------- ------------- ASSUMPTIONS Dividend yield.............................................. 1.59% - 1.90% 1.53% - 2.17% Volatility.................................................. 39.0% 33.8% Risk free interest rates.................................... 5.1% - 6.2% 5.9% - 6.45% Expected life............................................... 10 years 10 years
Based on these assumptions, the aggregate fair value and weighted average fair value per share of options granted in 2000 was $185 and $15.90, respectively. The aggregate fair value and weighted average fair value per share of options granted in 1999 was $90 and $12.28, respectively. The Company recognized $150 and $78 of compensation expense related to grants of stock options in 2000 and 1999, respectively. Had compensation expense been determined based upon fair values at the grant date in accordance with SFAS 123, the Company's net earnings would have been reduced to the pro forma amount indicated below, however the Company's earnings per share would be unchanged.
2000 1999 ------- ------- PRO FORMA NET INCOME Net Income as Reported................................... $55,815 $52,916 Pro forma Net Income..................................... $55,780 $52,904
F-15 40 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The options outstanding and exercisable by exercise price for the Plan at December 31, 2000 are as follows:
WEIGHTED OPTIONS AVERAGE OUTSTANDING REMAINING AND CONTRACTUAL EXERCISE PRICES EXERCISABLE LIFE (YEARS) --------------- ----------- ------------ $ 8.99............................... 3,473 8.75 $11.26............................... 3,198 9.75 $12.80............................... 2,704 9.50 $12.90............................... 2,005 9.00 $13.42............................... 2,516 9.25 $14.41............................... 2,396 10.00 ------ ----- 16,292 9.36 ====== =====
Other: The Company has issued warrants to purchase 450,000 shares of its common stock at an exercise price of $13.37 per share. The warrants expire on July 25, 2002. As of December 31, 2000 there were 215,300 warrants outstanding. 12. EARNINGS PER SHARE In accordance with the disclosure requirements of SFAS 128, a reconciliation of the numerator and denominator of basic and diluted earnings per share is provided as follows (in thousands, except per share data):
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- NUMERATOR -- BASIC AND DILUTED EARNINGS PER SHARE Net income.......................................... $55,815 $52,916 $46,507 ======= ======= ======= DENOMINATOR -- BASIC EARNINGS PER SHARE Common stock outstanding............................ 27,288 27,159 27,570 Less restricted stock outstanding................... 899 1,101 1,011 ------- ------- ------- Total....................................... 26,389 26,058 26,559 ------- ------- ------- Basic earnings per share.............................. $ 2.12 $ 2.03 $ 1.75 ======= ======= ======= DENOMINATOR -- DILUTED EARNINGS PER SHARE Denominator -- Basic Earnings per Share............. 26,389 26,058 26,559 ------- ------- ------- Effect of Dilutive Securities: Warrants......................................... 98 190 175 Common stock options............................. 8 41 64 Restricted stock................................. 444 674 541 ------- ------- ------- Total....................................... 26,939 26,963 27,339 ------- ------- ------- Diluted earnings per share............................ $ 2.07 $ 1.96 $ 1.70 ======= ======= =======
F-16 41 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 13. INCOME TAXES Provision for income taxes:
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Federal Current..................................... $28,998 $26,823 $23,592 Deferred.................................... 1,989 905 138 ------- ------- ------- 30,987 27,728 23,730 ------- ------- ------- State Current..................................... 5,812 5,260 4,758 Deferred.................................... 256 139 16 ------- ------- ------- 6,068 5,399 4,774 ------- ------- ------- $37,055 $33,127 $28,504 ======= ======= =======
Reconciliation of statutory to effective tax rate:
YEARS ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ---- ---- ---- Federal statutory tax rate......................... 35.0% 35.0% 35.0% State taxes, net of federal tax benefit............ 4.2 4.1 4.1 Percentage depletion deduction..................... (1.7) (1.5) (1.1) Other.............................................. 2.4 0.9 -- ---- ---- ---- 39.9% 38.5% 38.0% ==== ==== ====
Deferred tax assets and liabilities:
DECEMBER 31, ---------------------- 2000 1999 -------- -------- Deferred Tax Assets: Accounts receivable................................ $ 1,606 $ 1,222 Inventory.......................................... 2,149 1,349 Property and equipment............................. 2,243 2,374 Insurance accruals................................. 8,674 10,185 Deferred compensation.............................. 2,699 2,385 Other accrued liabilities.......................... 5,517 5,715 Other.............................................. 172 329 -------- -------- 23,060 23,559 -------- -------- Deferred Tax Liabilities: Property and equipment............................. 30,957 29,155 Contract recognition............................... 2,348 3,867 TIC basis difference............................... 4,107 2,694 Other.............................................. 1,331 1,281 -------- -------- 38,743 36,997 -------- -------- $(15,683) $(13,438) ======== ========
F-17 42 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The deferred tax asset for insurance accruals relates primarily to the self funded portion of the Company's workers compensation and public liability insurance which is deductible in future periods. The deferred tax asset for other accrued liabilities relates to various items including accrued vacation and accrued reclamation costs which are deductible in future periods. The deferred tax liability for the TIC basis difference represents the undistributed earnings of TIC for which income and the related tax provision have been recognized on the Company's records. 14. LEASES Minimum rental commitments under all noncancellable operating leases, primarily quarry property and construction equipment, in effect at December 31, 2000 were: Years Ending December 31, 2001............................................. $ 4,453 2002............................................. 3,241 2003............................................. 2,631 2004............................................. 1,799 2005............................................. 1,499 Later years (through 2016)....................... 3,259 ------- Total minimum rental commitment.......... $16,882 =======
Operating lease rental expense was $5,455 in 2000, $4,726 in 1999, and $4,628 in 1998. 15. BUSINESS SEGMENT INFORMATION The Company has two reportable segments: the Branch Division and the Heavy Construction Division (HCD). The Branch Division is comprised of branch offices that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD generally has large heavy civil projects with contract amounts in excess of $15 million and contract durations greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in the Company's construction joint ventures. Substantially all of the revenue from these joint ventures is included in HCD's revenues from external customers (Note 5). The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1). The Company evaluates performance based on operating profit or loss which does not include income taxes, interest income, interest expense or other income (expense). F-18 43 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) INFORMATION ABOUT PROFIT AND ASSETS
HCD BRANCH TOTAL -------- ---------- ---------- 2000 Revenues from external customers.............. $352,825 $ 995,500 $1,348,325 Intersegment revenue transfer................. (15,412) 15,412 -- -------- ---------- ---------- Net revenue................................... 337,413 1,010,912 1,348,325 Depreciation and amortization................. 7,670 31,885 39,555 Operating income.............................. 33,775 87,769 121,544 Property and equipment........................ 33,830 194,810 228,640 1999 Revenues from external customers.............. $373,876 $ 954,898 $1,328,774 Intersegment revenue transfer................. (21,566) 21,566 -- -------- ---------- ---------- Net revenue................................... 352,310 976,464 1,328,774 Depreciation and amortization................. 8,068 30,080 38,148 Operating income.............................. 34,176 83,878 118,054 Property and equipment........................ 28,759 194,919 223,678 1998 Revenues from external customers.............. $305,856 $ 920,244 $1,226,100 Intersegment revenue transfer................. (25,668) 25,668 -- -------- ---------- ---------- Net revenue................................... 280,188 945,912 1,226,100 Depreciation and amortization................. 7,396 27,292 34,688 Operating income.............................. 12,139 86,688 98,827 Property and equipment........................ 26,618 167,540 194,158
RECONCILIATION OF SEGMENT PROFIT AND ASSETS TO THE COMPANY'S CONSOLIDATED TOTALS:
2000 1999 1998 -------- -------- -------- Profit or Loss: Total profit or loss for reportable segments............. $121,544 $118,054 $ 98,827 Other income............................................. 7,295 1,781 5,753 Unallocated other corporate expenses..................... (35,969) (33,792) (29,569) -------- -------- -------- Income before provision for income taxes.............. $ 92,870 $ 86,043 $ 75,011 ======== ======== ======== Assets: Total assets for reportable segments..................... $228,640 $223,678 Assets not allocated to segments: Cash and cash equivalents............................. 57,759 61,832 Short-term investments................................ 42,972 46,245 Deferred income taxes................................. 15,857 14,885 Other current assets.................................. 295,040 279,359 Property and equipment................................ 20,437 19,235 Other assets.......................................... 50,437 34,338 -------- -------- Consolidated Total....................................... $711,142 $679,572 ======== ========
F-19 44 GRANITE CONSTRUCTION INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 16. SUBSEQUENT EVENTS On February 21, 2001, the Company announced a quarterly cash dividend of $0.12 per pre split share of common stock to stockholders of record as of March 31, 2001 payable on April 13, 2001. In addition, the Company announced a three for two stock split in the form of a 50% stock dividend payable April 13, 2001. The following unaudited summary reflects the pro forma net income per share restated for the three for two stock split (in thousands except per share data).
PRO FORMA WEIGHTED AVERAGE SHARES OF COMMON AND COMMON YEARS ENDED STOCK EQUIVALENTS PRO FORMA NET DECEMBER 31, NET INCOME OUTSTANDING INCOME PER SHARE ----------------------------- ---------- ------------------- ------------------ BASIC DILUTED BASIC DILUTED ------ ------- ----- ------- 2000....................... $55,815 39,584 40,409 $1.41 $1.38 1999....................... $52,916 39,087 40,445 $1.35 $1.31 1998....................... $46,507 39,839 41,009 $1.17 $1.13
Additionally, on the effective date of the three for two stock split, the Company will restate its shares outstanding at December 31, 2000 and 1999 to 40,882 and 40,493, respectively and will reclassify $137 and $135 from additional paid-in capital to common stock at December 31, 2000 and 1999, respectively. On February 23, 2001 the Company purchased an additional 450,000 shares of Wilder Construction Company for a purchase price of approximately $4.6 million. Also, subsequent to year end, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the "Plan") of which 3,000,000 shares of common stock are authorized for purchase. The Plan offers participation to record holders of common stock or other interested investors. Under the Plan, participants may buy additional shares of common stock by automatically reinvesting all or a portion of the cash dividends paid on their shares of common stock or by making optional cash investments. F-20 45 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-36482 and 33-36485) and Form S-3 (File No. 333-43422) of Granite Construction Incorporated of our report dated February 16, 2001, except for Note 16, as to which the date is February 23, 2001, relating to the financial statements and financial statement schedule, which appears in this Annual Report on Form 10-K. We also consent to the reference to us under the heading "Selected Consolidated Financial Data" in such Annual Report. PRICEWATERHOUSECOOPERS LLP San Jose, California March 30, 2001 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 2, 2001 GRANITE CONSTRUCTION INCORPORATED By: /s/ WILLIAM E. BARTON ------------------------------------ [William E. Barton Senior Vice President and Chief Financial Officer] Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on April 2, 2001, by the following persons in the capacities indicated. /s/ DAVID H. WATTS Chairman of the Board, -------------------------------------------------------- President, Chief Executive Officer, [David H. Watts] and Director /s/ WILLIAM E. BARTON Senior Vice President and -------------------------------------------------------- Chief Financial Officer [William E. Barton] Principal Accounting and Financial Officer /s/ JOSEPH J. BARCLAY Director -------------------------------------------------------- [Joseph J. Barclay] /s/ RICHARD M. BROOKS Director -------------------------------------------------------- [Richard M. Brooks] /s/ LINDA GRIEGO Director -------------------------------------------------------- [Linda Griego] /s/ BRIAN C. KELLY Director -------------------------------------------------------- [Brian C. Kelly] /s/ REBECCA A. MCDONALD Director -------------------------------------------------------- [Rebecca A. McDonald] /s/ RAYMOND E. MILES Director -------------------------------------------------------- [Raymond E. Miles] /s/ J. FERNANDO NIEBLA Director -------------------------------------------------------- [J. Fernando Niebla] /s/ GEORGE B. SEARLE Director -------------------------------------------------------- [George B. Searle]
47 INDEX TO FORM 10-K EXHIBITS
EXHIBIT PAGE NO. DESCRIPTION NO. ------- ----------- ---- 3.1 Certificate of Incorporation of Granite Construction Incorporated [a] 3.1.a Amendment to the Certificate of Incorporation of Granite Construction Incorporated [f] 3.1.b Amendment to Certificate of Incorporation of Granite Construction Incorporated 3.1.c Certificate of Correction of Certificate of Incorporation of Granite Construction Incorporated (Effective January 31, 2001) 3.1.d Certificate of Correction of Certificate of Amendment of Granite Construction Incorporated filed May 22, 1998 (Effective January 31, 2001) 3.1.e Certificate of Correction of Certificate of Incorporation of Granite Construction Incorporated filed May 23, 2000 (Effective January 31, 2001) 3.1.f Certificate of Incorporation of Granite Construction Incorporated as Amended (Effective January 31, 2001) 3.2 Bylaws of Granite Construction Incorporated (as amended and restated effective February 27, 1991) [b] 10.1 Amendment to and Restatement of the Granite Construction Incorporated Employee Stock Ownership Plan adopted November 16, 1998 and effective January 1, 1998 [f] 10.1.a Granite Construction Incorporated Employee Stock Ownership Trust Agreement [b] 10.1.b Amendment 1 to the Granite Construction Incorporated Employee Stock Ownership Plan Trust Agreement adopted December 19, 1995, effective January 1, 1996 [c] 10.2 Granite Construction Profit Sharing and 401(k) Plan as Amended and Restated Effective January 1, 1999 [g] 10.3 Credit Agreement dated and effective June 30, 1997 [e] 10.3.a First Amendment to the Credit Agreement entered into January 16, 1998 [e] 10.3.b Second Amendment to the Credit Agreement entered into June 30, 1998 [f] 10.3.c Third Amendment to the Credit Agreement entered into June 30, 1999 [g] 10.4 Form of Director and Officer Indemnification Agreement [a] 10.5 Form of Executive Officer Employment Agreement [a] 10.6 Amendment to and Restatement of the Granite Construction Incorporated Key Management Deferred Compensation Plan adopted and effective January 1, 1998 [f] 10.6.a Amendment 1 to Granite Construction Incorporated Key Management Deferred Compensation Plan dated April 23, 1999 [g] 10.7 Amendment to and Restatement of the Granite Construction Incorporated Key Management Deferred Incentive Compensation Plan adopted and effective January 1, 1998 [f] 10.7.a Amendment 1 to Granite Construction Incorporated Key Management Deferred Incentive Compensation Plan dated April 23, 1999 [g] 10.8 Note Purchase Agreement between Granite Construction Incorporated and certain purchasers dated March 1, 1998 [f]
27 48
EXHIBIT PAGE NO. DESCRIPTION NO. ------- ----------- ---- 10.9 Subsidiary Guaranty Agreement from the Subsidiaries of Granite Construction Incorporated as Guarantors of the Guaranty of Notes and Note Agreement and the Guaranty of Payment and performance dated March 1, 1998 [f] 10.10 Granite Construction Incorporated 1999 Equity Incentive Plan [g] 21.1 List of Subsidiaries of Granite Construction Incorporated [d] 24.1 Consent of PricewaterhouseCoopers, LLP is contained on page 25 of this Report
--------------- [a] Incorporated by reference to the exhibits filed with the Company's Registration Statement on Form S-1 (No. 33-33795). [b] Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1991. [c] Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1995. [d] Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1996. [e] Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1997. [f] Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1998. [g] Incorporated by reference to the exhibits filed with the Company's 10-K for the year ended December 31, 1999. 49 SCHEDULE II GRANITE CONSTRUCTION INCORPORATED ------------------------ SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS BALANCE AT ----------------------- ADJUSTMENTS BALANCE AT BEGINNING BAD DEBT AND END OF DESCRIPTION OF YEAR EXPENSE COLLECTIONS DEDUCTIONS(1) YEAR ----------- ---------- -------- ----------- ------------- ---------- YEAR ENDED DECEMBER 31, 2000 Allowance for doubtful accounts...................... $1,224 $ 1,165 $1,617 $(2,225) $1,781 ====== ======= ====== ======= ====== Allowance for notes receivable... $ 68 $ -- $ -- $ -- $ 68 ====== ======= ====== ======= ====== YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts...................... $ 699 $ 997 $1,516 $(1,988) $1,224 ====== ======= ====== ======= ====== Allowance for notes receivable... $ 68 $ -- $ -- $ -- $ 68 ====== ======= ====== ======= ====== YEAR ENDED DECEMBER 31, 1998 Allowance for doubtful accounts...................... $ 691 $(2,628) $3,538 $ (902) $ 699 ====== ======= ====== ======= ====== Allowance for notes receivable... $ 68 $ -- $ -- $ -- $ 68 ====== ======= ====== ======= ======
--------------- (1) Accounts deemed to be uncollectible S-1