GRANITE CONSTRUCTION INC - Quarter Report: 2008 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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ý
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended September 30, 2008
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ___________ to ___________
Commission
File Number: 1-12911
GRANITE
CONSTRUCTION INCORPORATED
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State
of Incorporation:
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I.R.S.
Employer Identification Number:
|
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Delaware
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77-0239383
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Corporate
Administration:
585 W.
Beach Street
Watsonville,
California 95076
(831)
724-1011
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for 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 ý
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated
filer ý
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller reporting
company ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes ý
No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of October 23,
2008.
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Class
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Outstanding
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Common
Stock, $0.01 par value
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38,262,061 shares
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Index
PART I.
FINANCIAL INFORMATION
Item
1. FINANCIAL
STATEMENTS (unaudited)
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GRANITE
CONSTRUCTION INCORPORATED
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||||||||||||
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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||||||||||||
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(Unaudited
- in thousands, except share and per share data)
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||||||||||||
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September 30,
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December
31,
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September 30,
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||||||||||
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2008
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2007
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2007
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||||||||||
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ASSETS
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||||||||||||
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Current
assets
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||||||||||||
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Cash
and cash equivalents
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$ | 281,046 | $ | 352,434 | $ | 265,605 | ||||||
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Short-term
marketable securities
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101,112 | 77,758 | 106,675 | |||||||||
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Accounts
receivable, net
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480,315 | 397,097 | 536,519 | |||||||||
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Costs
and estimated earnings in excess of billings
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34,759 | 17,957 | 24,489 | |||||||||
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Inventories,
net
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61,342 | 55,557 | 50,438 | |||||||||
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Real
estate held for development and sale
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52,165 | 51,688 | 57,296 | |||||||||
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Deferred
income taxes
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46,233 | 43,713 | 36,041 | |||||||||
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Equity
in construction joint ventures
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45,219 | 34,340 | 36,851 | |||||||||
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Other
current assets
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65,182 | 96,969 | 43,370 | |||||||||
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Total
current assets
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1,167,373 | 1,127,513 | 1,157,284 | |||||||||
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Property
and equipment, net
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522,733 | 502,901 | 487,000 | |||||||||
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Long-term
marketable securities
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30,209 | 55,156 | 61,308 | |||||||||
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Investments
in affiliates
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27,518 | 26,475 | 23,256 | |||||||||
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Other
noncurrent assets
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73,696 | 74,373 | 78,119 | |||||||||
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Total
assets
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$ | 1,821,529 | $ | 1,786,418 | $ | 1,806,967 | ||||||
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LIABILITIES AND
SHAREHOLDERS’ EQUITY
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||||||||||||
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Current
liabilities
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||||||||||||
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Current
maturities of long-term debt
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$ | 34,886 | $ | 28,696 | $ | 26,589 | ||||||
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Accounts
payable
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234,126 | 213,135 | 261,379 | |||||||||
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Billings
in excess of costs and estimated earnings
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251,402 | 275,849 | 274,209 | |||||||||
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Accrued
expenses and other current liabilities
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227,611 | 212,265 | 209,894 | |||||||||
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Total
current liabilities
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748,025 | 729,945 | 772,071 | |||||||||
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Long-term
debt
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246,487 | 268,417 | 140,410 | |||||||||
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Other
long-term liabilities
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46,178 | 46,441 | 65,111 | |||||||||
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Deferred
income taxes
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18,733 | 17,945 | 19,788 | |||||||||
| Commitments and contingencies | ||||||||||||
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Minority
interest in consolidated subsidiaries
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26,729 | 23,471 | 28,148 | |||||||||
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Shareholders’
equity
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||||||||||||
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Preferred
stock, $0.01 par value, authorized 3,000,000 shares, none
outstanding
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- | - | - | |||||||||
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Common
stock, $0.01 par value, authorized 150,000,000 shares; issued and
outstanding 38,264,058 shares as of September 30,
2008, 39,450,923 shares as of December 31, 2007 and 41,916,706 shares as
of September 30, 2007
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383 | 395 | 419 | |||||||||
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Additional
paid-in capital
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83,041 | 79,007 | 82,678 | |||||||||
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Retained
earnings
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655,287 | 619,699 | 694,557 | |||||||||
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Accumulated
other comprehensive (loss) income
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(3,334 | ) | 1,098 | 3,785 | ||||||||
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Total
shareholders’ equity
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735,377 | 700,199 | 781,439 | |||||||||
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Total
liabilities and shareholders’ equity
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$ | 1,821,529 | $ | 1,786,418 | $ | 1,806,967 | ||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
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GRANITE
CONSTRUCTION INCORPORATED
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||||||||||||||||
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CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
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||||||||||||||||
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(Unaudited
- in thousands, except per share data)
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||||||||||||||||
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Three
Months Ended September 30,
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Nine Months
Ended September 30,
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|||||||||||||||
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2008
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2007
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2008
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2007
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|||||||||||||
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Revenue
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||||||||||||||||
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Construction
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$ | 771,941 | $ | 701,622 | $ | 1,755,457 | $ | 1,778,638 | ||||||||
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Material
sales
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124,478 | 123,453 | 283,321 | 289,655 | ||||||||||||
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Real
estate
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1,369 | 21,238 | 8,142 | 36,556 | ||||||||||||
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Total
revenue
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897,788 | 846,313 | 2,046,920 | 2,104,849 | ||||||||||||
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Cost
of revenue
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||||||||||||||||
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Construction
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643,531 | 601,880 | 1,437,093 | 1,543,960 | ||||||||||||
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Material
sales
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109,068 | 96,130 | 247,959 | 229,116 | ||||||||||||
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Real
estate
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887 | 11,666 | 9,846 | 19,466 | ||||||||||||
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Total
cost of revenue
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753,486 | 709,676 | 1,694,898 | 1,792,542 | ||||||||||||
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Gross
profit
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144,302 | 136,637 | 352,022 | 312,307 | ||||||||||||
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General
and administrative expenses
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71,933 | 63,666 | 198,344 | 183,133 | ||||||||||||
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Gain
on sales of property and equipment
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2,008 | 2,994 | 4,564 | 8,053 | ||||||||||||
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Operating
income
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74,377 | 75,965 | 158,242 | 137,227 | ||||||||||||
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Other
(expense) income
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||||||||||||||||
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Interest
income
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5,439 | 7,514 | 15,087 | 20,796 | ||||||||||||
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Interest
expense
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(5,303 | ) | (1,884 | ) | (12,871 | ) | (4,998 | ) | ||||||||
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Equity
in (loss) income of affiliates
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(1,257 | ) | 4,037 | (1,436 | ) | 4,359 | ||||||||||
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Other,
net
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549 | (391 | ) | 9,196 | (1,057 | ) | ||||||||||
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Total
other (expense) income
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(572 | ) | 9,276 | 9,976 | 19,100 | |||||||||||
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Income
before provision for income taxes and
minority interest
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73,805 | 85,241 | 168,218 | 156,327 | ||||||||||||
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Provision
for income taxes
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21,473 | 25,437 | 46,681 | 47,680 | ||||||||||||
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Income
before minority interest
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52,332 | 59,804 | 121,537 | 108,647 | ||||||||||||
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Minority
interest in consolidated subsidiaries
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(594 | ) | (6,504 | ) | (31,058 | ) | (13,750 | ) | ||||||||
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Net
income
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$ | 51,738 | $ | 53,300 | $ | 90,479 | $ | 94,897 | ||||||||
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Net
income per common share
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||||||||||||||||
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Basic
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$ | 1.38 | $ | 1.30 | $ | 2.40 | $ | 2.31 | ||||||||
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Diluted
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$ | 1.36 | $ | 1.28 | $ | 2.37 | $ | 2.28 | ||||||||
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Weighted
average shares of common stock
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||||||||||||||||
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Basic
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37,430 | 41,106 | 37,664 | 41,065 | ||||||||||||
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Diluted
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37,975 | 41,640 | 38,138 | 41,587 | ||||||||||||
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Dividends
per common share
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$ | 0.13 | $ | 0.10 | $ | 0.39 | $ | 0.30 | ||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
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GRANITE
CONSTRUCTION INCORPORATED
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||||||||
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
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(Unaudited - in
thousands)
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||||||||
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Nine
Months Ended September 30,
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2008
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2007
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||||||
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Operating
Activities
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||||||||
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Net
income
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$ | 90,479 | $ | 94,897 | ||||
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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||||||||
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Impairment
of real estate held for development and sale
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4,500 | - | ||||||
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Depreciation,
depletion and amortization
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64,036 | 60,621 | ||||||
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Provision
for doubtful accounts
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8,914 | 1,119 | ||||||
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Gain
on sales of property and equipment
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(4,564 | ) | (8,053 | ) | ||||
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Change
in deferred income taxes
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1,116 | (11 | ) | |||||
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Stock-based
compensation
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5,135 | 4,600 | ||||||
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Excess
tax benefit on stock-based compensation
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(743 | ) | (3,042 | ) | ||||
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Minority
interest in consolidated subsidiaries
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31,058 | 13,750 | ||||||
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Equity
in loss (income) of affiliates
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1,436 | (4,359 | ) | |||||
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Acquisition
of minority interest
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(16,616 | ) | - | |||||
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Changes
in assets and liabilities, net of the effects of
acquisitions:
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||||||||
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Accounts
receivable
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(85,557 | ) | (35,805 | ) | ||||
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Inventories,
net
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(4,083 | ) | (4,794 | ) | ||||
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Real
estate held for development and sale
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(13,425 | ) | (2,139 | ) | ||||
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Equity
in construction joint ventures
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(10,879 | ) | (4,939 | ) | ||||
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Other
assets, net
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34,698 | 18,621 | ||||||
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Accounts
payable
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20,991 | 3,742 | ||||||
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Accrued
expenses and other current liabilities
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19,650 | 25,685 | ||||||
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Billings
in excess of costs and estimated earnings, net
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(41,249 | ) | (22,326 | ) | ||||
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Net
cash provided by operating activities
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104,897 | 137,567 | ||||||
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Investing
Activities
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||||||||
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Purchases
of marketable securities
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(68,732 | ) | (126,464 | ) | ||||
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Maturities
of marketable securities
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64,090 | 140,225 | ||||||
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Release
of funds for acquisition of minority interest
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28,332 | - | ||||||
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Additions
to property and equipment
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(76,098 | ) | (82,744 | ) | ||||
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Proceeds
from sales of property and equipment
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12,253 | 12,765 | ||||||
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Acquisition
of businesses
|
(14,022 | ) | (76,313 | ) | ||||
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Contributions
to affiliates
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(5,345 | ) | (3,772 | ) | ||||
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Other
investing activities
|
626 | 3,459 | ||||||
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Net
cash used in investing activities
|
(58,896 | ) | (132,844 | ) | ||||
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Financing
Activities
|
||||||||
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Proceeds
from long-term debt
|
2,660 | 111,634 | ||||||
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Long-term
debt principal payments
|
(15,748 | ) | (49,376 | ) | ||||
|
Cash
dividends paid
|
(15,081 | ) | (12,572 | ) | ||||
|
Purchase
of common stock
|
(45,489 | ) | (5,083 | ) | ||||
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Contributions
from minority partners
|
4,955 | 30,436 | ||||||
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Distributions
to minority partners
|
(37,713 | ) | (22,458 | ) | ||||
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Acquisition
of minority interest
|
(11,716 | ) | - | |||||
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Excess
tax benefit on stock-based compensation
|
743 | 3,042 | ||||||
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Other
financing, net
|
- | 366 | ||||||
|
Net
cash (used in) provided by financing activities
|
(117,389 | ) | 55,989 | |||||
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(Decrease)
increase in cash and cash equivalents
|
(71,388 | ) | 60,712 | |||||
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Cash
and cash equivalents at beginning of period
|
352,434 | 204,893 | ||||||
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Cash
and cash equivalents at end of period
|
$ | 281,046 | $ | 265,605 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
GRANITE
CONSTRUCTION INCORPORATED
|
||||||||
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
||||||||
|
(Unaudited - in
thousands)
|
||||||||
|
Nine
Months Ended September 30,
|
2008
|
2007
|
||||||
|
Supplementary
Information
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 9,204 | $ | 3,623 | ||||
|
Income
taxes
|
37,848 | 36,715 | ||||||
|
Non-cash
investing and financing activity:
|
||||||||
|
Restricted
stock issued for services, net
|
$ | 6,934 | $ | 10,809 | ||||
|
Restricted
stock units issued
|
3,208 | - | ||||||
|
Accrued
cash dividends
|
4,974 | 4,192 | ||||||
|
Assets
acquired through issuances of debt
|
2,660 | 1,492 | ||||||
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Debt
repayments from sale of assets
|
2,652 | 9,237 | ||||||
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
6
GRANITE
CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
|
1.
|
Basis
of Presentation:
|
The
condensed consolidated financial statements included herein have been prepared
by Granite Construction Incorporated (“we,” “us,” “our” or “Granite”) without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission and should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2007. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted, although we believe the disclosures which are
made are adequate to make the information presented not misleading. Further, the
condensed consolidated financial statements reflect, in the opinion of
management, all normal recurring adjustments necessary to present fairly our
financial position at September 30, 2008 and 2007 and the results of our
operations and cash flows for the periods presented. The December 31, 2007
condensed consolidated balance sheet data was derived from audited consolidated
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of
America.
Interim
results are subject to significant seasonal variations and the results of
operations for the three and nine months ended September 30, 2008 are not
necessarily indicative of the results to be expected for the full
year.
|
2.
|
Recently
Issued Accounting
Pronouncements:
|
In April
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position 142-3,
Determination
of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. FSP 142-3 is effective for us in 2009.
We are currently assessing the impact of FSP 142-3 on our consolidated financial
statements.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, Noncontrolling
Interests in Consolidated Financial Statements (“SFAS 160”). Under
SFAS 160, the ownership interests in subsidiaries held by parties other
than the parent must be clearly identified, labeled, and presented in the
consolidated balance sheets within equity, but separate from the parent’s equity
and the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income. When a subsidiary is deconsolidated, any
retained noncontrolling equity investment in the former subsidiary should be
initially measured at fair value. The gain or loss on the deconsolidation of the
subsidiary is measured using the fair value of any noncontrolling equity
investment rather than the carrying amount of that retained investment. Lastly,
SFAS 160 requires entities to provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the non-controlling owners. SFAS 160 is effective for us in 2009.
We are currently assessing the impact of SFAS 160 on our consolidated
financial statements.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141-R, Business
Combinations (“SFAS 141-R”) which revised SFAS 141, Business
Combinations (“SFAS 141”). Under SFAS 141, organizations
utilized the announcement date as the measurement date for the purchase price of
the acquired entity. SFAS 141-R requires measurement at the date the
acquirer obtains control of the acquiree, generally referred to as the
acquisition date. SFAS 141-R will have a significant impact on the accounting
for transaction costs, restructuring costs and the initial recognition of
contingent assets and liabilities assumed during a business combination. Under
SFAS 141-R, adjustments to the acquired entity’s deferred tax assets and
uncertain tax position balances occurring outside the measurement period are
recorded as a component of income tax expense, rather than goodwill. This
pronouncement is effective for us in 2009. As the provisions of SFAS 141-R
are applied prospectively, the impact on us cannot be determined until the
transactions occur.
In
February 2007, the FASB issued FASB Staff Position No. 157-2, Effective
Date of FASB Statement No. 157 (“FSP 157-2) which delayed the effective
date of this statement for non-financial assets and non-financial liabilities
that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. This FSP will be effective for us in
2009. We are currently assessing the impact of FSP 157-2 on our
consolidated financial statements.
|
3.
|
Change
in Accounting
Estimates:
|
Our gross
profit for the three and nine months ended September 30, 2008 and
2007 include the effects of significant changes in the estimates of the
profitability of certain of our projects.
7
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Granite
East
The
impact of all changes in the estimates of profitability on Granite East
gross profit is summarized as follows:
|
Granite
East Change in Accounting Estimates
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
|
(dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Reduction
in gross profit
|
$ | (6.2 | ) | $ | (20.2 | ) | $ | (16.1 | ) | $ | (65.3 | ) | |||||
|
Increase
in gross profit
|
12.1 | 11.6 | 68.6 | 43.5 | |||||||||||||
|
Net
increase (reduction) in gross profit
|
$ | 5.9 | $ | (8.6 | ) | $ | 52.5 | $ | (21.8 | ) | |||||||
Changes
in estimates of project profitability in Granite East that individually had an
impact of $1.0 million or greater on gross profit are summarized as
follows:
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
|
(dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
Number
of projects with downward estimate changes
|
2 | 3 | 3 | 10 | ||||||||||||
|
Range
of net reduction in gross profit from each project
|
$ | 2.0 - 2.3 | $ | 1.9 - 10.9 | $ | 1.4 - 4.0 | $ | 1.0 - 36.5 | ||||||||
|
Number
of projects with upward estimate changes
|
4 | 6 | 6 | 10 | ||||||||||||
|
Range
of net increase in gross profit from each project
|
$ | 1.1 - 2.8 | $ | 1.0 - 4.4 | $ | 1.2 - 32.2 | $ | 1.1 - 19.2 | ||||||||
During
the three and nine months ended September 30, 2008, Granite East
recognized net increases in gross profit from the effects of changes in the
estimates of project profitability of approximately $5.9 million and $52.5
million, respectively. These increases in gross profit for 2008 compare to net
reductions in gross profit of approximately $8.6 million and $21.8 million,
respectively, for the three and nine months ended September 30, 2007. The
increases were primarily due to the resolution of project uncertainties, the
settlement of outstanding revenue issues with various contract owners and
improved productivity on certain projects. The changes in estimates
for the nine months ended September 30, 2008 included an increase
in gross profit in the first quarter of 2008 of approximately $28.6 million on
the SR-22 project in Southern California, due primarily to the negotiated
settlement of claims with the owner. Several of the projects with improved
profitability estimates in 2008 had recognized significant margin deterioration
in prior periods.
8
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Granite
West
The
impact of all changes in the estimates of profitability on Granite West
gross profit is summarized as follows:
|
Granite
West Change in Accounting Estimates
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
|
(dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Reduction
in gross profit
|
$ | (7.8 | ) | $ | (7.8 | ) | $ | (11.9 | ) | $ | (13.0 | ) | |||||
|
Increase
in gross profit
|
26.6 | 13.5 | 65.2 | 32.6 | |||||||||||||
|
Net
increase in gross profit
|
$ | 18.8 | $ | 5.7 | $ | 53.3 | $ | 19.6 | |||||||||
Changes
in estimates of project profitability in Granite West that individually had an
impact of $1.0 million or greater on gross profit are summarized as
follows:
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
|
(dollars
in millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
Number
of projects with downward estimate changes
|
2 | - | 2 | 2 | ||||||||||||
|
Range
of net reduction in gross profit from each project
|
$ | 1.1 - 1.7 | $ | - | $ | 1.1 - 3.0 | $ | 1.4 - 1.4 | ||||||||
|
Number
of projects with upward estimate changes
|
6 | 1 | 11 | 5 | ||||||||||||
|
Range
of net increase in gross profit from each project
|
$ | 1.5 - 5.1 | $ | 1.3 | $ | 1.2 - 18.4 | $ | 1.3 - 2.6 | ||||||||
During the
three and nine months ended September 30, 2008, Granite West
recognized net increases in gross profit from the effects of changes in the
estimates of project profitability of approximately $18.8 million and $53.3
million, respectively. This compares with an increase in gross
profit of approximately $5.7 million and $19.6 million during the
three and nine months ended September 30, 2007, respectively. The
increased Granite West profitability estimates during the three
and nine months ended September 30, 2008 were due primarily to
the resolution of project uncertainties, higher productivity than originally
estimated and the settlement of outstanding revenue and other issues with
contract owners.
9
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
4.
|
Fair
Value Measurement:
|
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair
Value Measurements (“SFAS 157”). SFAS 157 introduces a framework for
measuring fair value and expands required disclosure about fair value
measurements of certain assets and liabilities. We adopted SFAS 157 as of
January 1, 2008, and the impact of adoption was not significant. The FASB
has deferred the effective date of SFAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, to fiscal years
beginning after November 15, 2008. We are currently assessing the impact on
our financial statements of SFAS 157 as it pertains to non-financial assets and
liabilities measured on a non-recurring basis.
SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS 157 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 -
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
We
utilize the active market approach to measure fair value for our financial
assets and liabilities.
We have
no financial liabilities measured at fair value on a recurring
basis. Assets measured at fair value on a recurring basis are
summarized below and included in short-term marketable securities at September
30, 2008.
|
September
30, 2008
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Available-for-sale
securities
|
$ | 28,441 | $ | - | $ | - | $ | 28,441 | ||||||||
|
5.
|
Inventories,
net:
|
Inventories,
net consist primarily of quarry products, asphalt and fuel valued at the lower
of average cost or market.
10
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
6.
|
Real
Estate Entities:
|
We are
participants in real estate entities through our Granite Land Company subsidiary
(“GLC”). Generally, each entity is formed to accomplish a specific real estate
development project. We have determined that certain of these entities are
variable interest entities as defined by FASB Interpretation No. 46 (revised
December 2003), Consolidation
of Variable Interest Entities (“FIN 46(R)”). Accordingly, we have
consolidated those entities for which we have determined that we are the
primary beneficiary.
Due to
the downturn in the residential housing market, most notably in California,
together with tighter credit markets, we assessed whether our investments in
residential and commercial projects were impaired. The
carrying amounts of such real estate development assets are evaluated for
recoverability in accordance with Statement of Financial Accounting Standards
No. 144, Accounting
for the Impairment
or Disposal of Long-Lived Assets (“SFAS 144”). A real
estate development asset is considered impaired when its carrying amount is
greater than the undiscounted future net cash flows the asset is expected to
generate. The carrying value of impaired real estate development assets is
generally determined based on the sum of the discounted cash flows expected to
result from the eventual disposal of the asset. Based on our evaluations, we
recognized a pretax, non-cash impairment charge of $4.5 million in the second
quarter of 2008 on assets classified as real estate held for development and
sale. We recorded the charge in cost of revenue in our consolidated
statements of income in our Granite Land Company segment.
Impairment
assessment inherently involves judgment as to assumptions about expected future
cash flows and the impact of market conditions on those assumptions. Future
events and changing market conditions may impact our assumptions as to sales
prices, costs, holding periods or other factors that may result in changes in
our estimates of future cash flows. Although we believe the assumptions we
used in testing for impairment are reasonable, changes in any one of our
assumptions could produce a significantly different result.
Our
agreements with our partners in our real estate entities define the management
role of each partner and each partner’s financial responsibility in a
residential and commercial project. If one of our partners is unable
to make its required contribution or fulfill its management role, we may be
required to assume full financial and management responsibility for completion
of the project.
Consolidated
Real Estate Entities
At September
30, 2008, the entities we have consolidated were engaged in residential and
commercial development projects with total assets ranging from approximately
$0.4 million to $27.1 million.
The
breakdown by type and location of our real estate held for development and sale
is summarized below:
|
September
30,
|
December
31,
|
September
30,
|
||||||||||
|
(in
thousands)
|
2008
|
2007
|
2007
|
|||||||||
|
Residential
|
$ | 42,576 | $ | 42,344 | $ | 43,860 | ||||||
|
Commercial
|
9,589 | 9,344 | 13,436 | |||||||||
|
Total
|
$ | 52,165 | $ | 51,688 | $ | 57,296 | ||||||
|
Washington
|
$ | 29,134 | $ | 26,521 | $ | 25,394 | ||||||
|
California
|
15,153 | 17,606 | 25,954 | |||||||||
|
Texas
|
7,878 | 7,561 | 5,948 | |||||||||
|
Total
|
$ | 52,165 | $ | 51,688 | $ | 57,296 | ||||||
Additionally,
at September 30, 2008 we had $16.1 million in real estate held for use included
in property and equipment on our condensed consolidated balance sheet related to
consolidated real estate entities. Of the combined total of real estate held for
development, sale and use of $68.3 million, approximately $59.0 million was
pledged as collateral for the obligations of the real estate entities. This
debt, which totaled $25.4 million at September 30, 2008 is non-recourse to
Granite. Our proportionate share of the results of these entities varies
depending on the ultimate profitability of the entities.
11
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity
Method Real Estate Investments
We
account for our share of the operating results of real estate entities in which
we have determined we are not the primary beneficiary in “investments in
affiliates” in our condensed consolidated balance sheets and in
“other income (expense)” in our condensed consolidated statements of income.
At September 30, 2008, these entities were engaged in real estate
development projects with total assets ranging from approximately $6.3 million
to $52.5 million. Our proportionate share of the operating results of these
entities varies depending on the ultimate profitability of the entities.
At September 30, 2008 we had approximately $20.2 million recorded on our
condensed consolidated balance sheet related to our investment in these real
estate entities.
The
following table provides summarized financial information on a combined 100%
basis for our real estate affiliates accounted for under the equity
method:
|
September
30,
|
December
31,
|
September
30,
|
||||||||||
|
(in
thousands)
|
2008
|
2007
|
2007
|
|||||||||
|
Total
assets
|
$ | 197,591 | $ | 138,262 | $ | 124,188 | ||||||
|
Net
assets
|
91,985 | 66,589 | 60,103 | |||||||||
|
Granite's
share of net assets
|
|
20,192
|
17,472 | 14,575 | ||||||||
Substantially
all the assets of these entities are classified as real estate held for
sale. All outstanding debt of these entities is non-recourse to
Granite.
The
breakdown by type and location of our interest in these real estate ventures is
summarized below:
|
September
30,
|
December
31,
|
September
30,
|
||||||||||
|
(in
thousands)
|
2008
|
2007
|
2007
|
|||||||||
|
Residential
|
$ | 15,162 | $ | 11,990 | $ | 11,486 | ||||||
|
Commercial
|
5,030 | 5,482 | 3,089 | |||||||||
|
Total
|
$ | 20,192 | $ | 17,472 | $ | 14,575 | ||||||
|
Texas
|
$ | 12,564 | $ | 12,427 | $ | 9,761 | ||||||
|
Oregon
|
4,766 | 5,045 | 4,814 | |||||||||
|
Washington
|
2,862 | - | - | |||||||||
|
Total
|
$ | 20,192 | $ | 17,472 | $ | 14,575 | ||||||
12
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
7.
|
Construction
Joint Ventures and Line Item Joint
Ventures:
|
We
participate in various construction joint ventures. Generally, each construction
joint venture is formed to accomplish a specific project and is jointly
controlled by the joint venture partners. The joint venture agreements typically
provide that our ownership share in any profits and assets, and our respective
share in any losses and liabilities that may result from the performance of the
contract are limited to our stated percentage equity ownership in the project.
Although each construction joint venture’s contract with the project owner
typically requires joint and several liability among the joint venture partners,
our agreements with our joint venture partners provide that each partner will
assume and pay its full proportionate share of any losses resulting from a
project.
We have
determined that certain of these construction joint ventures are variable
interest entities as defined by FIN 46(R). Accordingly, we have consolidated
those joint ventures where we have determined that we are the primary
beneficiary. At September 30, 2008, the construction joint ventures we have
consolidated were engaged in construction projects with total contract values
ranging from approximately $11.5 million to $487.6 million. Our proportionate
equity ownership share of the consolidated joint ventures ranges from 40% to
99%.
Consistent
with Emerging Issues Task Force Issue 00-01, Investor
Balance Sheet and Income Statement Display under the Equity Method for
Investments in Certain Partnerships and Other Ventures we account for our
equity ownership share of the operating results of construction joint ventures
in which we have determined we are not the primary beneficiary on a pro rata
basis in the condensed consolidated statements of income and as a
single line item in the condensed consolidated balance sheets. At September
30, 2008, the joint ventures in which we held an equity ownership share but are
not the primary beneficiary were engaged in construction projects with contract
values ranging from approximately $94.4 million to $935.3 million. Our
proportionate equity ownership share of these joint ventures ranges from 20% to
40%.
We also
participate in various “line item” joint venture agreements under which each
partner is responsible for performing certain discrete items of the total scope
of contracted work. The revenue for these discrete items is defined in the
contract with the project owner and each partner assumes the
profitability risk associated with its own work. All partners in a line item
joint venture are jointly and severally liable for completion of the total
project under the terms of the contract with the project owner. There is not a
single set of books and records for a line item joint venture. Each partner
accounts for its items of work individually as it would for any self-performed
contract. We account for our portion of these contracts as a project in our
accounting system and include receivables and payables associated with our work
on our condensed consolidated balance sheets.
Although
our agreements with our joint venture partners for both construction joint
ventures and line item joint ventures provide that each partner will assume and
pay its share of any losses resulting from a project, if one of our partners is
unable to make its required contribution, we would be fully liable under
our contract with the project owner. Circumstances that could lead to a loss
under our joint venture arrangements beyond our proportionate share include a
partner’s inability to contribute additional funds to the venture in the event
the project incurs a loss, or additional costs that we could incur should a
partner fail to provide the services and resources toward project completion
that had been committed to in the joint venture agreement. At September 30,
2008, approximately $600.0 million of work representing our partners’ share of
unconsolidated and line item joint venture contracts in progress had yet to be
completed.
|
8.
|
Property
and Equipment, net:
|
Balances
of major classes of assets and allowances for depreciation, depletion and
amortization are included in property and equipment, net on our condensed
consolidated balance sheets as follows:
|
September 30,
|
December
31,
|
September 30,
|
||||||||||
|
(in
thousands)
|
2008
|
2007
|
2007
|
|||||||||
|
Land
and land improvements
|
$ | 115,389 | $ | 93,862 | $ | 74,693 | ||||||
|
Quarry
property
|
140,917 | 135,749 | 130,319 | |||||||||
|
Buildings
and leasehold improvements
|
92,661 | 79,663 | 75,971 | |||||||||
|
Equipment
and vehicles
|
846,629 | 843,570 | 847,629 | |||||||||
|
Office
furniture and equipment
|
33,262 | 28,889 | 28,819 | |||||||||
|
Property
and equipment
|
1,228,858 | 1,181,733 | 1,157,431 | |||||||||
|
Less:
accumulated depreciation, depletion and amortization
|
706,125 | 678,832 | 670,431 | |||||||||
|
Property
and equipment, net
|
$ | 522,733 | $ | 502,901 | $ | 487,000 | ||||||
13
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
9.
|
Intangible
Assets:
|
The
balances of the following intangible assets from our Granite West segment are
included in other noncurrent assets on our condensed consolidated balance sheets
at carrying value:
|
September 30,
|
December
31,
|
September
30,
|
||||||||||
|
(in
thousands)
|
2008
|
2007
|
2007
|
|||||||||
|
Unamortized
intangible assets:
|
||||||||||||
|
Goodwill
|
$ | 9,900 | $ | 9,900 | $ | 9,900 | ||||||
|
Use
rights
|
2,954 | - | - | |||||||||
|
Total
unamortized intangible assets
|
$ | 12,854 | $ | 9,900 | $ | 9,900 | ||||||
|
September 30,
2008
|
||||||||||||
|
Accumulated
|
||||||||||||
|
(in
thousands)
|
Gross
Value
|
Amortization
|
Net
Value
|
|||||||||
|
Amortized
intangible assets:
|
||||||||||||
|
Permits
|
$ | 36,070 | $ | (3,249 | ) | $ | 32,821 | |||||
|
Trade
names
|
1,583 | (1,256 | ) | 327 | ||||||||
|
Covenants
not to compete
|
1,588 | (593 | ) | 995 | ||||||||
|
Customer
lists and other
|
3,725 | (1,452 | ) | 2,273 | ||||||||
|
Total
amortized intangible assets
|
$ | 42,966 | $ | (6,550 | ) | $ | 36,416 | |||||
|
December 31,
2007
|
||||||||||||
|
(in
thousands)
|
Gross
Value
|
Accumulated
Amortization
|
Net
Value
|
|||||||||
|
Amortized
intangible assets:
|
||||||||||||
|
Permits
|
$ | 36,362 | $ | (1,953 | ) | $ | 34,409 | |||||
|
Trade
names
|
1,425 | (972 | ) | 453 | ||||||||
|
Covenants
not to compete
|
1,661 | (410 | ) | 1,251 | ||||||||
|
Customer
lists and other
|
1,712 | (671 | ) | 1,041 | ||||||||
|
Total
amortized intangible assets
|
$ | 41,160 | $ | (4,006 | ) | $ | 37,154 | |||||
|
September 30,
2007
|
||||||||||||
|
(in
thousands)
|
Gross
Value
|
Accumulated
Amortization
|
Net
Value
|
|||||||||
|
Amortized
intangible assets:
|
||||||||||||
|
Permits
|
$ | 36,362 | $ | (1,502 | ) | $ | 34,860 | |||||
|
Trade
names
|
1,425 | (921 | ) | 504 | ||||||||
|
Covenants
not to compete
|
1,661 | (308 | ) | 1,353 | ||||||||
|
Customer
lists and other
|
1,712 | (528 | ) | 1,184 | ||||||||
|
Total
amortized intangible assets
|
$ | 41,160 | $ | (3,259 | ) | $ | 37,901 | |||||
Amortization
expense related to intangible assets was approximately $0.9 million and $2.5
million for the three and nine months ended September 30, 2008,
respectively, and approximately $0.6 million and $1.4 million for the three
and nine months ended September 30, 2007, respectively. Amortization
expense expected to be recorded in the future is as follows: $0.9
million for the balance of 2008, $3.1 million in 2009, $2.5
million in 2010, $2.3 million in 2011, $2.2 million in 2012 and $25.4
million thereafter.
14
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
10.
|
Weighted
Average Common Shares
Outstanding:
|
A
reconciliation of the weighted average shares outstanding used in calculating
basic and diluted net income per share in the condensed consolidated statements
of income is as follows:
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
||||
|
Basic
weighted average common shares outstanding:
|
||||||||
|
Weighted
average common stock outstanding
|
38,272
|
41,939
|
38,486
|
41,906
|
||||
|
Less:
weighted average restricted stock outstanding
|
842
|
833
|
822
|
841
|
||||
|
Total
basic weighted average shares outstanding
|
37,430
|
41,106
|
37,664
|
41,065
|
||||
|
Diluted
weighted average common shares outstanding:
|
||||||||
|
Basic
weighted average shares outstanding
|
37,430
|
41,106
|
37,664
|
41,065
|
||||
|
Effect
of dilutive securities:
|
||||||||
|
Restricted
stock
|
418
|
489
|
378
|
477
|
||||
|
Common
stock options and units
|
127
|
45
|
96
|
45
|
||||
|
Total
diluted weighted average common shares outstanding
|
37,975
|
41,640
|
38,138
|
41,587
|
||||
Restricted
common stock, representing approximately 182,000 shares and 203,000 shares for
the three and nine months ended September 30, 2008,
respectively, and approximately 59,000 shares for the nine months
ended September 30, 2007, has been excluded from the calculation of
diluted common shares outstanding because their effect would be
anti-dilutive.
|
11.
|
Comprehensive
Income:
|
|
|
The
components of comprehensive income are as
follows:
|
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
||||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Net
income
|
$ | 51,738 | $ | 53,300 | $ | 90,479 | $ | 94,897 | |||||||||
|
Other
comprehensive income (loss):
|
|||||||||||||||||
|
Changes
in unrealized (loss) gain on investments
|
(3,931 | ) | (66 | ) | (7,280 | ) | 1,889 | ||||||||||
|
Tax
benefit (provision) on unrealized (loss) gain
|
1,538 | 25 | 2,848 | (735 | ) | ||||||||||||
|
Total
comprehensive income
|
$ | 49,345 | $ | 53,259 | $ | 86,047 | $ | 96,051 | |||||||||
15
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
12.
|
Legal
Proceedings:
|
Silica
Litigation
Our
wholly-owned subsidiary Granite Construction Company (“GCCO”) is one of
approximately 100 to 300 defendants in eight active California Superior Court
lawsuits. Of the eight lawsuits, five were filed against GCCO in 2005 and three
were filed against GCCO in 2006, in Alameda County ( Molina vs. A-1 Aggregates,
et al.; Dominguez vs. A-1 Aggregates, et al.; Cleveland vs. A. Teichert &
Son.; Guido vs. A. Teichert & Son, Inc.; Williams vs. A. Teichert & Son,
Inc.; Horne vs. Teichert & Son, Inc.; Kammer vs.A-1 Aggregates, et al.; and
Solis vs. The 3M Company et al.). Each lawsuit was brought by a single plaintiff
who is seeking money damages by way of various causes of action, including
strict product and market share liability, and alleges personal injuries caused
by exposure to silica products and related materials during the plaintiffs’ use
or association with sand blasting or grinding concrete. The plaintiff in each
lawsuit has categorized the defendants as equipment defendants, respirator
defendants, premises defendants and sand defendants. We have been identified as
a sand defendant, meaning a party that manufactured, supplied or distributed
silica-containing products. Our preliminary investigation revealed that we have
not knowingly sold or distributed abrasive silica sand for sandblasting, and
therefore, we believe the probability of these lawsuits resulting in an
incurrence of a material liability is remote. We have been dismissed from
sixteen other similar lawsuits.
Hiawatha
Project DBE Issues
The
Hiawatha Light Rail Transit (“HLRT”) project was performed by Minnesota Transit
Constructors (“MnTC”), a joint venture that consisted of GCCO and other
unrelated companies. GCCO was the managing partner of the joint
venture, with a 56.5% interest. The Minnesota Department of
Transportation (“MnDOT”) is the contracting agency for this federally funded
project. The Metropolitan Council is the local agency conduit for
providing federal funds to MnDOT for this HLRT project. MnDOT and the
U.S. Department of Transportation Office of Inspector General (“OIG”) each
conducted a review of the Disadvantaged Business Enterprise (“DBE”) program
maintained by MnTC for the HLRT project. In addition, the U.S.
Department of Justice (“USDOJ”) is conducting an investigation into compliance
issues with respect to MnTC’s DBE Program for the HLRT project. MnDOT
and the OIG (collectively, the “Agencies”) have initially identified certain
compliance issues in connection with MnTC’s DBE Program and, as a result, have
determined that MnTC failed to meet the DBE utilization criteria as represented
by MnTC. Although there has been no formal administrative subpoena
issued, nor has a civil complaint been filed in connection with the
administrative reviews or the investigation, MnDOT has proposed a monetary
sanction of $4.3 million against MnTC and specified DBE training for personnel
from the members of the MnTC joint venture as a condition of awarding future
projects to joint venture members of MnTC on MnDOT and Metropolitan Council
work. MnTC is fully cooperating with the Agencies and the USDOJ and,
on July 2, 2007, presented its detailed written response to the initial
determinations of the Agencies as well as the investigation by the
USDOJ. We have yet to receive a formal reply from the Agencies or the
USDOJ, those entities instead preferring to engage in informal discussions in
attempt to resolve the matter. We cannot, however, rule out the possibility of a
civil or criminal actions being brought against MnTC or one or more of its
members which could result in civil and criminal penalties.
I-494
Project DBE Issues
The I-494
project was performed by a joint venture (“JV”) that consisted of GCCO and
another unrelated party. GCCO was the managing partner of the JV,
with a 60% interest. MnDOT is the contracting agency for this
federally funded project. MnDOT conducted a review of the DBE program
maintained by the JV for the I-494 project. MnDOT has initially
identified certain compliance issues in connection with the JV’s DBE program,
and as a result, has determined that the JV failed to meet the DBE utilization
criteria as represented by the JV. On August 28, 2008 this matter was
resolved by agreement between the parties without any final determination of any
violations by MnDOT or any acknowledgement by the JV, or any member, of any
violations. The settlement does not impose any future obligations or
restrictions on the JV or any of its members.
US
Highway 20 Project
GCCO and
our wholly-owned subsidiary, Granite Northwest, Inc. are the members of a joint
venture known as Yaquina River Constructors (“YRC”) which is currently
constructing a new road alignment of US Highway 20 near Eddyville, Oregon under
contract with the Oregon Department of Transportation (“ODOT”). The
project involves constructing seven miles of new road through steep and forested
terrain in the Coast Range Mountains. During the fall and winter of
2006, extraordinary rain events produced runoff that overwhelmed erosion control
measures installed at the project and resulted in discharges to surface water in
alleged violations of the stormwater permit. The Oregon Department of
Environmental Quality has issued notices of violation and fine of $240,000 to
YRC for these alleged violations which have been resolved by an agreement and
final order entered into on July 25, 2008. The Oregon Department of
Justice is, however, still conducting a criminal investigation in connection
with stormwater runoff from the project. YRC and its members are
fully cooperating in the investigation, but YRC does not know whether criminal
charges or civil lawsuit, if any, will be brought or against whom. Therefore, we
cannot estimate what if any criminal or civil penalty or conditional assessment
will result from this investigation.
16
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
City
of San Diego Fire Debris Cleanup
In the
aftermath of the 2007 San Diego County wildfires, GCCO bid for and was awarded a
fixed unit price, variable quantity contract with the City of San Diego to
perform specified debris cleanup work. GCCO began work in November
2007 and completed the work in April 2008.
In August
2008, the City announced that it would conduct an independent audit of the
project. GCCO offered and the City received GCCO’s full cooperation
with such audit, providing all the information requested and meeting with the
auditors. GCCO is informed that the final report of the City’s audit
is largely complete, and is expected to be released in or about mid-November
2008. While it is difficult to predict the results of the City’s
efforts, GCCO believes that the City’s audit will not reveal any significant
discrepancies in our billings submitted to the City for the
work.
In August
and September 2008, GCCO received information that the office of San Diego City
Attorney was conducting a separate investigation of GCCO’s work on the
project. On October 17, 2008, in advance of completion of the City’s
own audit, the City Attorney filed a lawsuit in California Superior Court,
County of San Diego against GCCO and the one other contractor that had been
awarded a similar cleanup contract with the City. In the complaint,
the City Attorney alleges both contractors violated the California False Claims
Act. That lawsuit seeks monetary damages and penalties, and alleges
that GCCO engaged in a variety of wrongdoing, including inflating the costs of
materials and the quantities and type of debris removed, and presenting claims
for payment based on falsified records and incorrect information. The
lawsuit seeks trebled damages, in an amount to be determined, and a civil
penalty in the amount of $10,000 for each false claim made. GCCO believes the
allegations in the complaint to be without factual or legal basis and,
therefore, the City’s entitlement to relief sought under the California False
Claims Act is remote. GCCO will vigorously defend itself against the allegations
raised.
City
of Sacramento West El Camino Project
In August
2003, the City of Sacramento and GCCO entered into a contract for the
construction of a public work improvement referred to as West El Camino Widening
and Bridge Replacement Project. During the course of the project, the
City disputed GCCO’s entitlement to compensation for certain
work. GCCO excavated significantly more material than the City’s
engineer estimated and represented as a bid item in the contract. The City
maintains the engineer’s estimate contained in the contract was substantially
less than it should have been due to a clerical error. GCCO
filed a complaint in the California Superior Court, County of Sacramento,
against the City in November 2006 seeking payment in excess of $750,000 for the
actual quantity of material excavated which the City refuses to
pay. The City also claims GCCO submitted a false bid when GCCO
offered its bid to the City using a quantity for the material excavation GCCO
knew to be incorrect. On July 23, 2008 the City filed a
cross-complaint against GCCO to assert false representation allegations and seek
relief pursuant to the California False Claims Act and assert other fraud based
causes of action. The City’s cross-complaint seeks $10,000 for each
false claim, restitution and disgorgement of all earnings, punitive damages,
attorney fees, costs and interest. GCCO disputes certain material
facts as suggested by the City and believes the City’s entitlement to the relief
sought under the causes of action pled, including the California False Claims
Act, is remote. GCCO will vigorously defend itself against the
allegations raised.
Other
Legal Proceedings/Government Inquiries
We are a
party to a number of other legal proceedings arising in the normal course of
business. From time to time, we receive inquiries from public
agencies seeking information concerning our compliance with government
construction contracting requirements and related laws and regulations. We
believe that the nature and number of these proceedings and compliance inquiries
are typical for a construction firm of our size and scope. Our litigation
typically involves claims regarding public liability or contract related issues.
While management currently believes, after consultation with counsel, that the
ultimate outcome of such proceedings and compliance inquiries which are
currently pending, individually and in the aggregate, will not have a material
adverse effect on our financial position or overall trends in results of
operations or cash flows, litigation is subject to inherent uncertainties. Were
an unfavorable ruling to occur, there exists the possibility of a material
adverse impact on the results of operations, cash flows and/or financial
position for the period in which the ruling occurs. While any one of our pending
legal proceedings is subject to early resolution as a result of our ongoing
efforts to settle, whether or when any legal proceeding will resolve through
settlement is neither predictable nor guaranteed.
17
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
13.
|
Business
Segment Information:
|
|
|
|
Our three
reportable segments based on similar economic characteristics as defined in
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (“SFAS 131”)
are Granite West; Granite East; and Granite Land Company
(“GLC”).
Granite
West is comprised of decentralized branch offices in the western United States
that perform various heavy civil construction projects with a large portion
of the work focused on new construction and improvement of streets, roads,
highways and bridges as well as site preparation for residential and
commercial development and sales of construction materials. Each branch
reports under one of three operating groups: Northwest, Northern California and
Southwest. Although most Granite West projects are started and
completed within a year, the division also has the capability of constructing
larger projects and at September 30, 2008 had six such active
large projects, each with total contract revenue greater than $50.0
million. All of our revenue from the sale of construction materials
is generated by Granite West which mines aggregates and operates
plants that process aggregates into construction materials for internal use and
for sale to others. These activities are vertically integrated into the
Granite West business, providing both a source of profits and a competitive
advantage to our construction business.
Granite
East operates in the eastern portion of the United States with a focus on large,
complex infrastructure projects, primarily east of the Rocky
Mountains. With its division office in Lewisville, Texas, Granite East
operates out of three regional offices: the Central Region, based in Lewisville,
Texas; the Southeast Region, based in Tampa, Florida; and the Northeast Region,
based in Tarrytown, New York. Granite East construction contracts are
typically greater than two years in duration.
GLC
purchases, develops, operates, sells and otherwise invests in real estate
developments as well as provides real estate services for other Granite
operations. GLC’s current portfolio consists of residential, retail and office
site development projects for sale to home and commercial property developers
or held
for rental income in
Washington,
California,
Texas, and
Oregon.
The
accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies contained in our 2007 Annual Report
on Form 10-K. We evaluate performance based on operating profit or loss
(excluding gain on sales of property and equipment), and do not include income
taxes, interest income, interest expense or other income (expense). Unallocated
other corporate expenses principally comprise corporate general and
administrative expenses.
Summarized
segment information is as follows:
|
Three
Months Ended September 30,
|
||||||||||||||||
|
(in
thousands)
|
Granite
West
|
Granite
East
|
Granite
Land Company
|
Total
|
||||||||||||
|
2008
|
||||||||||||||||
|
Revenue
from external customers
|
$ | 749,368 | $ | 147,051 | $ | 1,369 | $ | 897,788 | ||||||||
|
Intersegment
revenue transfer
|
119 | (119 | ) | - | - | |||||||||||
|
Net
revenue
|
749,487 | 146,932 | 1,369 | 897,788 | ||||||||||||
|
Depreciation,
depletion and amortization
|
18,865 | 1,949 | 86 | 20,900 | ||||||||||||
|
Operating
income (loss)
|
93,404 | 3,653 | (191 | ) | 96,866 | |||||||||||
|
2007
|
||||||||||||||||
|
Revenue
from external customers
|
$ | 641,717 | $ | 183,358 | $ | 21,238 | $ | 846,313 | ||||||||
|
Intersegment
revenue transfer
|
711 | (711 | ) | - | - | |||||||||||
|
Net
revenue
|
642,428 | 182,647 | 21,238 | 846,313 | ||||||||||||
|
Depreciation,
depletion and amortization
|
18,331 | 3,044 | 54 | 21,429 | ||||||||||||
|
Operating
income (loss)
|
89,755 | (3,174 | ) | 8,241 | 94,822 | |||||||||||
18
GRANITE
CONSTRUCTION INCORPORATED
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Nine
Months Ended September 30,
|
||||||||||||||||
|
(in
thousands)
|
Granite
West
|
Granite
East
|
Granite
Land Company
|
Total
|
||||||||||||
|
2008
|
||||||||||||||||
|
Revenue
from external customers
|
$ | 1,504,498 | $ | 534,280 | $ | 8,142 | $ | 2,046,920 | ||||||||
|
Intersegment
revenue transfer
|
2,454 | (2,454 | ) | - | - | |||||||||||
|
Net
revenue
|
1,506,952 | 531,826 | 8,142 | 2,046,920 | ||||||||||||
|
Depreciation,
depletion and amortization
|
54,546 | 6,125 | 267 | 60,938 | ||||||||||||
|
Operating
income (loss)
|
155,284 | 67,795 | (3,795 | ) | 219,284 | |||||||||||
|
Segment
assets
|
460,347 | 20,575 | 68,284 | 549,206 | ||||||||||||
|
2007
|
||||||||||||||||
|
Revenue
from external customers
|
$ | 1,478,561 | $ | 589,732 | $ | 36,556 | $ | 2,104,849 | ||||||||
|
Intersegment
revenue transfer
|
4,408 | (4,408 | ) | - | - | |||||||||||
|
Net
revenue
|
1,482,969 | 585,324 | 36,556 | 2,104,849 | ||||||||||||
|
Depreciation,
depletion and amortization
|
50,359 | 7,812 | 99 | 58,270 | ||||||||||||
|
Operating
income (loss)
|
186,476 | (13,359 | ) | 14,120 | 187,237 | |||||||||||
|
Segment
assets
|
423,299 | 28,414 | 66,352 | 518,065 | ||||||||||||
A
reconciliation of segment operating income to consolidated income before tax and
minority interest is as follows:
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
||||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Total
operating income for reportable segments
|
$ | 96,866 | $ | 94,822 | $ | 219,284 | $ | 187,237 | |||||||||
|
Other
(expense) income, net
|
(572 | ) | 9,276 | 9,976 | 19,100 | ||||||||||||
|
Gain
on sales of property and equipment
|
2,008 | 2,994 | 4,564 | 8,053 | |||||||||||||
|
Unallocated
other corporate expense
|
(24,497 | ) | (21,851 | ) | (65,606 | ) | (58,063 | ) | |||||||||
|
Income
before provision for income taxes and minority interest
|
$ | 73,805 | $ | 85,241 | $ | 168,218 | $ | 156,327 | |||||||||
|
14.
|
Acquisition:
|
In
January 2008, we acquired certain assets and assumed certain liabilities of a
construction materials supplier in Nevada for a purchase price of approximately
$14.0 million in cash. The effect of the operating results of the acquired
business on our consolidated operating results was not material. The estimated
fair value of the assets acquired approximated the purchase price; therefore, no
goodwill was recorded.
|
15.
|
Share
Purchase
Authorization:
|
In 2007,
our Board of Directors authorized us to purchase, at management’s discretion, up
to $200.0 million of our common stock. During the nine months
ended September 30, 2008, we purchased 1.4 million common shares for a
total of $43.2 million under this share purchase
program. From the inception of this share purchase program in
2007 through September 30, 2008, we have purchased a total of 3.8
million common shares for an aggregate cost of $135.9 million. All
shares were retired upon acquisition. At September 30, 2008, $64.1
million of the $200.0 million authorization was available for future common
share purchases.
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS
OF OPERATIONS
Forward-Looking
Disclosure
From
time to time, Granite makes certain comments and disclosures in reports and
statements, including in this Quarterly Report on Form 10-Q, or statements made
by its officers or directors that are not based on historical facts and which
may be forward-looking in nature. Under the Private Securities Litigation Reform
Act of 1995, a “safe harbor” may be provided to us for certain of these
forward-looking statements. Words such as “outlook,” “believes,” “expects,”
“appears,” “may,” “will,” “should,” “anticipates” or the negative thereof or
comparable terminology, are intended to identify such forward-looking
statements. In addition, other written or oral statements which constitute
forward-looking statements have been made and may in the future be made by or on
behalf of Granite. These forward-looking statements are estimates reflecting the
best judgment of senior management and are based on our current expectations and
projections concerning future events, many of which are outside of our
control, and involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. Factors that might cause or contribute to such differences include,
but are not limited to, those more specifically described in our Annual Report
on Form 10-K under “Item 1A. Risk Factors.” Granite undertakes no obligation to
publicly revise or update any forward-looking statements for any reason. As a
result, the reader is cautioned not to rely on these forward-looking statements,
which speak only as of the date of this Quarterly Report on Form
10-Q.
Overview
|
|
|
We are
one of the largest heavy civil contractors and producers of construction
materials in the United States and are engaged in the construction and
improvement of streets, roads, highways and bridges as well as dams, airport
infrastructure, mass transit facilities, and other infrastructure-related
projects, as well as the production of construction material through the use of
our extensive aggregate reserves and plant facilities. We also operate a real
estate development company on a significantly smaller scale. We have offices in
Alaska, Arizona, California, Florida, Nevada, New York, Oregon, Texas, Utah and
Washington.
Our
construction contracts are obtained primarily through competitive bidding in
response to advertisements by federal, state and local agencies and private
parties and to a lesser extent through negotiation with private parties. Our
bidding activity is affected by such factors as backlog, available personnel,
current utilization of equipment and other resources, our ability to obtain
necessary surety bonds and competitive considerations. Bidding activity, backlog
and revenue resulting from the award of new contracts may vary significantly
from period to period. We have three reportable business segments: Granite West,
Granite East and Granite Land Company (see Note 13 to the condensed consolidated
financial statements).
The three
primary economic drivers of our business are (1) the overall health of the
economy, (2) federal, state and local public funding levels, both nationally and
locally and (3) population growth and the resulting private development. The
level of demand for our services will have a direct correlation to these
drivers. For example, a stagnant or declining economy will generally result in a
reduced demand for construction in the private sector. This reduced demand
increases competition for private sector projects and will ultimately also
increase competition in the public sector as companies migrate from bidding on
scarce private sector work to projects in the public sector. Greater competition
can reduce our revenue growth and/or have a downward impact on gross profit
margins. In addition, a stagnant or declining economy tends to produce less tax
revenue, thereby decreasing a source of funds available for spending on public
infrastructure improvements. There are funding sources that have been
specifically earmarked for infrastructure spending, such as diesel and gasoline
taxes, which are not as directly impacted by a stagnant or declining economy.
However, even these funding sources can be temporarily at risk as state and
local governments struggle to balance their budgets. Additionally, high fuel
prices can have a damping effect on consumption, resulting in overall lower tax
revenue. Conversely, higher public funding as well as an expanding or robust
economy will generally increase demand for our services and provide
opportunities for revenue growth and margin improvement.
Our
general and administrative costs include salaries and related expenses,
incentive compensation, discretionary profit sharing, provision for doubtful
accounts and other costs to support our business. In general, these costs
will increase in response to the growth and the related increased complexity of
our business. These costs will vary depending on the number of projects in
process in a particular area and the corresponding level of estimating activity.
For example, as large projects are completed or if the level of work slows down
in a particular area, we will often re-assign project employees to estimating
and bidding activities until another project gets underway,
temporarily allocating their salaries and related costs from cost of
revenue to general and administrative expense. Additionally, our compensation
strategy for selected management personnel is to rely heavily on a variable cash
and restricted stock performance-based incentive element. The cash portion of
these incentives is expensed when earned while the restricted stock portion is
expensed over the vesting period of the restricted stock award. Depending on the
mix of cash and restricted stock, these incentives can have the effect of
materially altering general and administrative expenses from year to
year.
Results
of Operations:
|
Comparative
Financial Summary
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Revenue
|
$ | 897,788 | $ | 846,313 | $ | 2,046,920 | $ | 2,104,849 | |||||||||
|
Gross
profit
|
144,302 | 136,637 | 352,022 | 312,307 | |||||||||||||
|
General
and administrative expenses
|
71,933 | 63,666 | 198,344 | 183,133 | |||||||||||||
|
Gain
on sales of property and equipment
|
2,008 | 2,994 | 4,564 | 8,053 | |||||||||||||
|
Operating
income
|
74,377 | 75,965 | 158,242 | 137,227 | |||||||||||||
|
Other
(expense) income, net
|
(572 | ) | 9,276 | 9,976 | 19,100 | ||||||||||||
|
Minority
interest in consolidated subsidiaries
|
(594 | ) | (6,504 | ) | (31,058 | ) | (13,750 | ) | |||||||||
|
Net
income
|
51,738 | 53,300 | 90,479 | 94,897 | |||||||||||||
Our
results of operations for the three and nine months ended September
30, 2008 reflect continued growth in Granite West public sector projects despite
a slowing economy and a very competitive market, as well as a continuation of
profitability improvement in Granite East.
|
Total
Revenue
|
Three
Months Ended September 30,
|
Nine Months
Ended September 30,
|
||||||||||||||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||||||
|
(in
thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||||||||
|
Revenue
by Division:
|
||||||||||||||||||||||||||||||||
|
Granite
West
|
$ | 749,487 | 83.4 | $ | 642,428 | 75.9 | $ | 1,506,952 | 73.6 | $ | 1,482,969 | 70.5 | ||||||||||||||||||||
|
Granite
East
|
146,932 | 16.4 | 182,647 | 21.6 | 531,826 | 26.0 | 585,324 | 27.8 | ||||||||||||||||||||||||
|
Granite
Land Company
|
1,369 | 0.2 | 21,238 | 2.5 | 8,142 | 0.4 | 36,556 | 1.7 | ||||||||||||||||||||||||
|
Total
|
$ | 897,788 | 100.0 | $ | 846,313 | 100.0 | $ | 2,046,920 | 100.0 | $ | 2,104,849 | 100.0 | ||||||||||||||||||||
|
Granite
West Revenue
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
|
(in
thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||||
|
California:
|
||||||||||||||||||||||||||||
|
Public
sector
|
$ | 275,768 | 73.4 | $ | 181,094 | 55.7 | $ | 507,645 | 65.7 | $ | 456,639 | 56.8 | ||||||||||||||||
|
Private
sector
|
26,930 | 7.2 | 67,169 | 20.6 | 86,047 | 11.1 | 163,409 | 20.3 | ||||||||||||||||||||
|
Material
sales
|
73,065 | 19.4 | 77,122 | 23.7 | 179,653 | 23.2 | 183,397 | 22.9 | ||||||||||||||||||||
|
Total
|
$ | 375,763 | 100.0 | $ | 325,385 | 100.0 | $ | 773,345 | 100.0 | $ | 803,445 | 100.0 | ||||||||||||||||
|
West
(excluding California):
|
||||||||||||||||||||||||||||
|
Public
sector
|
$ | 293,242 | 78.4 | $ | 220,885 | 69.7 | $ | 554,499 | 75.6 | $ | 433,775 | 63.8 | ||||||||||||||||
|
Private
sector
|
29,069 | 7.8 | 49,827 | 15.7 | 75,440 | 10.3 | 139,491 | 20.5 | ||||||||||||||||||||
|
Material
sales
|
51,413 | 13.8 | 46,331 | 14.6 | 103,668 | 14.1 | 106,258 | 15.7 | ||||||||||||||||||||
|
Total
|
$ | 373,724 | 100.0 | $ | 317,043 | 100.0 | $ | 733,607 | 100.0 | $ | 679,524 | 100.0 | ||||||||||||||||
|
Total
Granite West Revenue:
|
||||||||||||||||||||||||||||
|
Public
sector
|
$ | 569,010 | 75.9 | $ | 401,979 | 62.6 | $ | 1,062,144 | 70.5 | $ | 890,414 | 60.0 | ||||||||||||||||
|
Private
sector
|
55,999 | 7.5 | 116,996 | 18.2 | 161,487 | 10.7 | 302,900 | 20.4 | ||||||||||||||||||||
|
Material
sales
|
124,478 | 16.6 | 123,453 | 19.2 | 283,321 | 18.8 | 289,655 | 19.6 | ||||||||||||||||||||
|
Total
|
$ | 749,487 | 100.0 | $ | 642,428 | 100.0 | $ | 1,506,952 | 100.0 | $ | 1,482,969 | 100.0 | ||||||||||||||||
Granite
West Revenue: Revenue from Granite West for the three and nine
months ended September 30, 2008 increased by $107.1 million, or
16.7%, and $24.0 million, or 1.6%, respectively, over the corresponding
2007 periods. The increases in public sector revenue for the quarter were
primarily attributable to profitable progress toward completion of federally
funded security projects and the positive effect of the resolution of
significant uncertainties on certain projects. The decreases in
private sector revenue for the three and the nine months ended September 30,
2008 were driven by the ongoing contraction of residential construction and
credit markets. Granite West revenue from projects with a contract
value greater than $50.0 million was $107.7 million and $49.8 million in
the three months ended September 30, 2008 and 2007, respectively,
and $206.9 million and $130.6 million in the nine months
ended September 30, 2008 and 2007, respectively.
|
Granite
East Revenue
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
|
(in
thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||||
|
Revenue
by Geographic Area:
|
||||||||||||||||||||||||||||
|
Midwest
|
$
|
49,520
|
33.7
|
$
|
29,620
|
16.2
|
$
|
133,333
|
25.1
|
$
|
72,373
|
12.4
|
||||||||||||||||
|
Northeast
|
25,295
|
17.2
|
52,542
|
28.8
|
97,338
|
18.3
|
150,794
|
25.8
|
||||||||||||||||||||
|
South
|
28,322
|
19.3
|
24,993
|
13.7
|
92,417
|
17.4
|
97,258
|
16.6
|
||||||||||||||||||||
|
Southeast
|
41,520
|
28.3
|
65,364
|
35.8
|
164,973
|
31.0
|
223,721
|
38.2
|
||||||||||||||||||||
|
West
|
2,275
|
1.5
|
10,128
|
5.5
|
43,765
|
8.2
|
41,178
|
7.0
|
||||||||||||||||||||
|
Total
|
$
|
146,932
|
100.0
|
$
|
182,647
|
100.0
|
$
|
531,826
|
100.0
|
$
|
585,324
|
100.0
|
||||||||||||||||
|
Revenue
by Contract Type:
|
||||||||||||||||||||||||||||
|
Fixed
unit price
|
$
|
10,630
|
7.2
|
$
|
29,229
|
16.0
|
$
|
45,099
|
8.5
|
$
|
101,961
|
17.4
|
||||||||||||||||
|
Fixed
price, including design/build
|
136,302
|
92.8
|
153,418
|
84.0
|
486,727
|
91.5
|
483,363
|
82.6
|
||||||||||||||||||||
|
Total
|
$
|
146,932
|
100.0
|
$
|
182,647
|
100.0
|
$
|
531,826
|
100.0
|
$
|
585,324
|
100.0
|
||||||||||||||||
Granite
East Revenue: Revenue from Granite East for the three
and nine months ended September 30, 2008 decreased by $35.7
million, or 19.6%, and $53.5 million, or 9.1%, respectively, compared
to the corresponding 2007 periods. This decrease is reflective, in
part, of our plan to slow revenue growth in the division over the last several
years to focus on execution and improved profitability. Geographically, the
largest decreases were experienced in the Northeast and the Southeast due
primarily to certain large projects nearing
completion. Increases in the Midwest and South resulted
from revenue contributions from progress on a large design/build project in
St. Louis, Missouri and project productivity on a bridge project in Mississippi,
respectively.
Granite
Land Company Revenue: Revenue from GLC for the three
and nine months ended September 30, 2008 decreased by $19.9
million and $28.4 million, respectively, compared to the
corresponding 2007 periods. The current real estate downturn and associated
tightening of credit markets has had a direct impact on the anticipated timing
of several GLC development projects. Such market conditions will normally only
delay the timing of sales revenue as we generally have the ability to either
defer development activities to a later date, or to hold and operate commercial
properties until the markets recover.
The
following tables illustrate our contract backlog as of the respective
dates:
|
Total
Contract Backlog
|
September
30, 2008
|
June 30,
2008
|
September
30, 2007
|
|||||||||||||||||||||
|
(in
thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
Backlog
by Division:
|
||||||||||||||||||||||||
|
Granite
West
|
$ | 915,472 | 50.3 | $ | 1,188,948 | 55.5 | $ | 950,833 | 40.7 | |||||||||||||||
|
Granite
East
|
906,116 | 49.7 | 952,700 | 44.5 | 1,385,688 | 59.3 | ||||||||||||||||||
|
Total
|
$ | 1,821,588 | 100.0 | $ | 2,141,648 | 100.0 | $ | 2,336,521 | 100.0 | |||||||||||||||
|
Granite
West Contract Backlog
|
September
30, 2008
|
June 30,
2008
|
September
30, 2007
|
|||||||||||||||||||||
|
(in
thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
California:
|
||||||||||||||||||||||||
|
Public
sector
|
$ | 408,652 | 93.4 | $ | 597,257 | 93.5 | $ | 342,971 | 79.4 | |||||||||||||||
|
Private
sector
|
28,922 | 6.6 | 41,548 | 6.5 | 89,004 | 20.6 | ||||||||||||||||||
|
Total
|
$ | 437,574 | 100.0 | $ | 638,805 | 100.0 | $ | 431,975 | 100.0 | |||||||||||||||
|
West
(excluding California):
|
||||||||||||||||||||||||
|
Public
sector
|
$ | 457,686 | 95.8 | $ | 523,629 | 95.2 | $ | 463,764 | 89.4 | |||||||||||||||
|
Private
sector
|
20,212 | 4.2 | 26,514 | 4.8 | 55,094 | 10.6 | ||||||||||||||||||
|
Total
|
$ | 477,898 | 100.0 | $ | 550,143 | 100.0 | $ | 518,858 | 100.0 | |||||||||||||||
|
Granite
West Contract Backlog:
|
||||||||||||||||||||||||
|
Public
sector
|
$ | 866,338 | 94.6 | $ | 1,120,886 | 94.3 | $ | 806,735 | 84.8 | |||||||||||||||
|
Private
sector
|
49,134 | 5.4 | 68,062 | 5.7 | 144,098 | 15.2 | ||||||||||||||||||
|
Total
|
$ | 915,472 | 100.0 | $ | 1,188,948 | 100.0 | $ | 950,833 | 100.0 | |||||||||||||||
Granite
West Contract Backlog: Granite West backlog of $915.5 million
at September 30, 2008 was $273.5 million, or 23.0%, lower than
at June 30, 2008 and $35.4 million, or 3.7%, lower than
at September 30, 2007. The decrease from September 30, 2007 was
primarily driven by projects nearing completion in the quarter and
the continued weak demand for residential
construction. This decrease was partially offset by increased public
sector awards in Arizona and California primarily in the first six months of
2008. The decrease in backlog from June 30, 2008 to September 30,
2008 is due primarily to the absence of significant awards in the
quarter. Granite West backlog from projects with a total contract value
greater than $50.0 million was $280.9 million, $369.7 million and $253.4
million at September 30, 2008, June 30, 2008 and September 30,
2007, respectively.
|
Granite
East Contract Backlog
|
September
30, 2008
|
June 30,
2008
|
September
30, 2007
|
|||||||||||||||||||||
|
(in
thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
Backlog
by Geographic Area:
|
||||||||||||||||||||||||
|
Midwest
|
$ | 204,166 | 22.5 | $ | 248,888 | 26.1 | $ | 350,496 | 25.3 | |||||||||||||||
|
Northeast
|
107,575 | 11.9 | 88,686 | 9.3 | 166,453 | 12.0 | ||||||||||||||||||
|
South
|
135,534 | 15.0 | 114,365 | 12.0 | 166,168 | 12.0 | ||||||||||||||||||
|
Southeast
|
455,260 | 50.2 | 495,007 | 52.0 | 679,301 | 49.0 | ||||||||||||||||||
|
West
|
3,581 | 0.4 | 5,754 | 0.6 | 23,270 | 1.7 | ||||||||||||||||||
|
Total
|
$ | 906,116 | 100.0 | $ | 952,700 | 100.0 | $ | 1,385,688 | 100.0 | |||||||||||||||
Granite
East Contract Backlog: Granite East backlog of $906.1 million
at September 30, 2008 was $46.6 million, or 4.9%, lower than
at June 30, 2008, and $479.6 million, or 34.6%, lower than
at September 30, 2007. The decrease reflects progress
on construction projects. Significant new awards for the quarter include a
$33.8 million federal security project in Texas and our $13.0 million share of
additional work order packages related to the World Trade Center Transportation
Hub project in New York.
The
following table presents gross profit (loss) by business segment for the
respective periods:
|
Gross
Profit (Loss)
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Granite
West
|
$
|
133,738
|
$
|
124,656
|
$
|
267,057
|
$
|
286,394
|
|||||||||
|
Percent
of division revenue
|
17.8
|
%
|
19.4
|
%
|
17.7
|
%
|
19.3
|
%
|
|||||||||
|
Granite
East
|
$
|
9,750
|
$
|
2,075
|
$
|
87,868
|
$
|
8,478
|
|||||||||
|
Percent
of division revenue
|
6.6
|
%
|
1.1
|
%
|
16.5
|
%
|
1.4
|
%
|
|||||||||
|
Granite
Land Company
|
$
|
482
|
$
|
9,571
|
$
|
(1,704)
|
$
|
17,090
|
|||||||||
|
Percent
of division revenue
|
35.2
|
%
|
45.1
|
%
|
-20.9
|
%
|
46.8
|
%
|
|||||||||
|
Other
|
$
|
332
|
$
|
335
|
$
|
(1,199)
|
$
|
345
|
|||||||||
|
Total
gross profit
|
$
|
144,302
|
$
|
136,637
|
$
|
352,022
|
$
|
312,307
|
|||||||||
|
Percent
of total revenue
|
16.1
|
%
|
16.1
|
%
|
17.2
|
%
|
14.8
|
%
|
|||||||||
Gross
Profit: We defer recognition of construction project profit until a
project reaches 25% completion. In the case of large, complex
design/build projects, we may continue to defer profit recognition beyond the
point of 25% completion until such time as we believe we have enough information
to make a reasonably dependable estimate of contract revenue and cost. This
policy can have a significant impact on gross profit, particularly in periods
where one or several large projects reach the point of profit
recognition and the deferred profit is recognized or, conversely, in
periods where backlog related to larger projects is growing rapidly and a higher
percentage of projects are in their early stages with no associated gross margin
recognition. Revenue from jobs with deferred contract profit for the period
was as follows:
|
Revenue
from Contracts with Deferred Profit
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
Granite
West
|
$ | 18,070 | $ | 18,382 | $ | 18,757 | $ | 21,235 | ||||||||
|
Granite
East
|
20,922 | 40,370 | 63,729 | 88,274 | ||||||||||||
|
Total
revenue from contracts with deferred profit
|
$ | 38,992 | $ | 58,752 | $ | 82,486 | $ | 109,509 | ||||||||
Additionally,
we do not recognize revenue from contract claims until we have a signed
settlement agreement and payment is assured, and we do not recognize revenue
from contract change orders until the contract owner has agreed to the change
order in writing. However, we do recognize the costs related to any contract
claims or pending change orders in our forecasts when we are contractually
obligated to incur them. As a result, our gross profit as a percent of revenue
can vary during periods when a large volume of contract claims or change
orders are pending resolution (reducing gross profit) or, conversely,
during periods where large contract claims or change orders are
agreed to or settled (increasing gross profit).
Granite
West gross profit as a percent of revenue for the three and nine months ended
September 30, 2008 decreased to 17.8% and 17.7%, respectively, from 19.4% and
19.3% for the three and nine months ended September 30, 2007,
respectively. The quarter over quarter and year over year
decreases were primarily due to significantly lower gross profit margins on
the sale of construction materials and lower gross profit margin on projects bid
in a more competitive environment. Profit margins on our construction
materials sales have been negatively impacted by lower demand from the private
sector for our higher margin products and higher costs of certain raw
materials such as diesel fuel and liquid asphalt. These
decreases were partially offset by the positive effect of project forecast
changes during the three and nine months ended September 30,
2008 which increased our gross profit by approximately $18.8 million
and $53.3 million, respectively. This compares with an increase in gross
profit from such forecast changes of approximately $5.7 million
and $19.6 million during the three and nine months ended September 30,
2007, respectively (see Note 3 of the “Notes to the Condensed Consolidated
Financial Statements”).
Granite
East gross profit as a percent of revenue for the three and nine months ended
September 30, 2008 increased to 6.6% and 16.5%, respectively, from 1.1% and 1.4%
for the three and nine months ended September 30, 2007, respectively. Gross
profit in the 2008 periods was positively impacted by changes in profitability
estimates which added approximately $5.9 million to gross profit in the quarter
and $52.5 million in the nine month period. Gross profit
decreased by $8.6 million and $21.8 million in the three and nine
months ended September 30, 2007, respectively, due to project estimate changes
(see Note 3 of the “Notes to the Condensed Consolidated Financial
Statements”).
Granite
Land Company recorded a gross profit of $0.5 million for the three months ended
September 30, 2008 and a gross loss of $1.7 million for the nine months ended
September 30, 2008. The gross loss for the nine months is primarily due to an
impairment charge of $4.5 million recorded in the prior quarter related to real
estate development assets in California, partially offset by rental and royalty
income during the period. Gross profit in the three and nine month
periods ended September 30, 2007 included the impacts of several sales of real
estate projects. As a result of the current real estate downturn and the stages
of development of our current project portfolio, there has been very limited
sales activity in 2008. (See Note 6 of the “Notes to the
Condensed Consolidated Financial Statements”).
The
following table presents the components of general and administrative expenses
for the respective periods:
|
General
and Administrative Expenses
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Salaries
and related expenses
|
$ | 31,925 | $ | 30,008 | $ | 102,520 | $ | 96,374 | |||||||||
|
Incentive
compensation, discretionary profit sharing and other variable
compensation
|
14,069 | 13,484 | 29,879 | 30,174 | |||||||||||||
| Provision (recovery) for doubtful accounts | 7,531 |
(37
|
) | 8,914 | 1,119 | ||||||||||||
|
Other
general and administrative expenses
|
18,408 | 20,211 | 57,031 | 55,466 | |||||||||||||
|
Total
|
$ | 71,933 | $ | 63,666 | $ | 198,344 | $ | 183,133 | |||||||||
|
Percent
of revenue
|
8.0 | % | 7.5 | % | 9.7 | % | 8.7 | % | |||||||||
General
and Administrative Expenses: Our general and administrative expenses for
the three and nine months ended September 30, 2008 increased $8.3 million, or
13.0%, and $15.2 million, or 8.3%, over the comparable periods in 2007. The
increase for the three and nine months ended September 30, 2008 was due to an
increase in the allowance for doubtful accounts (primarily related to
receivables from real estate developers), higher personnel related costs
(primarily related to normal salary increases), and costs associated with
integrating our businesses acquired in 2007.
The
following table presents the components of other
(expense)
income for
the respective periods:
|
Other
(Expense) Income
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Interest
income
|
$ | 5,439 | $ | 7,514 | $ | 15,087 | $ | 20,796 | |||||||||
|
Interest
expense
|
(5,303 | ) | (1,884 | ) | (12,871 | ) | (4,998 | ) | |||||||||
|
Equity
in (loss) income of affiliates
|
(1,257 | ) | 4,037 | (1,436 | ) | 4,359 | |||||||||||
|
Other,
net
|
549 | (391 | ) | 9,196 | (1,057 | ) | |||||||||||
|
Total
|
$ | (572 | ) | $ | 9,276 | $ | 9,976 | $ | 19,100 | ||||||||
Other
(Expense) Income: Interest
income decreased in both the three and nine months ended September 30,
2008, compared with the corresponding periods in 2007 due to the decline in
short term interest rates on our invested balances. Interest expense
increased in both the three and nine months ended September 30, 2008,
compared with the corresponding periods in 2007 due to an increase
in the weighted average debt outstanding during the periods. We recorded equity in the
loss of an affiliate of $1.4 million in the three months ended September 30,
2008 due primarily to the effects of inventory valuation adjustments. In
the third quarter of 2007 we recorded a gain of approximately $3.9 million on
the sale of a building by a partnership in which we had an equity method
investment. The increase in other, net during the nine
months ended September 30, 2008 was primarily due to a gain of
approximately $9.3 million recognized in the second quarter of 2008 on the
sale of gold, a by-product of one of our aggregate extraction
operations.
The
following table presents the components of the provision for income
taxes for the respective periods:
|
Provision
for Income Taxes
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Provision
for income taxes
|
$ | 21,473 | $ | 25,437 | $ | 46,681 | $ | 47,680 | |||||||||
|
Effective
tax rate
|
29.1 | % | 29.8 | % | 27.8 | % | 30.5 | % | |||||||||
Provision
for Income Taxes:
Our effective tax rate decreased to 29.1% and 27.8% for the three and nine
months ended September 30, 2008, from 29.8% and 30.5%, respectively, for the
corresponding periods in 2007. The decreased effective tax rates were due
primarily to decreases in the estimated income attributed to minority partners’
share in our consolidated construction joint ventures and other entities which
are not subject to income taxes on a stand
alone basis.
The
following table presents the minority
interest
in consolidated
subsidiaries for
the respective periods:
|
Minority
Interest in Consolidated Subsidiaries
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Minority
interest in consolidated subsidiaries
|
$ | (594 | ) | $ | (6,504 | ) | $ | (31,058 | ) | $ | (13,750 | ) | |||||
Minority
Interest in Consolidated Subsidiaries: Our
minority interest in consolidated subsidiaries represents the minority owners’
share of the income of our consolidated construction joint ventures and real
estate development entities. The decrease in the minority interest in
consolidated subsidiaries for the three months ended September 30, 2008 when
compared to the corresponding period in 2007 was primarily due to continued
progression and the effect of changes in estimates related to certain joint
venture projects. The increase in
the minority interest in consolidated subsidiaries for the nine months ended
September 30, 2008 when compared to the corresponding period in 2007
was
largely attributable to the minority partners’ share of the improved performance
from our Granite East consolidated joint venture projects, and
included
approximately $17.7 million
related to the resolution of revenue issues on the SR-22
project in Southern California which was partially offset by the reversal of
approximately $9.8 million
in previously recognized reserves.
Outlook
Our Granite West business
continues to focus on building backlog and maximizing the profit potential in a
difficult market. We are experiencing significant competition in most of our
Granite West locations as competitors continue to migrate from the scarce
private sector work to the public sector and certain public sector competitors
expand outside of their traditional markets. We are also seeing a reduction
in demand for certain construction material products typically sold to third
party retail customers. We have been able to capitalize on certain local markets
that remain active and several large project opportunities to mitigate the
effects of the general economic climate on our Granite West
business.
Our
Granite East business is concentrating on effectively executing at the
project level. We purposely slowed revenue growth in this division over the last
several years to focus on execution and improved profitability. We are
pursuing a number of bidding opportunities and are maintaining our disciplined
approach to help ensure that new work will deliver appropriate profit
margins.
We
anticipate federal transportation programs to be a strong and stable funding
source through 2009 because of recent action by Congress and the
Administration. On September 15, 2008 the President signed
legislation to restore solvency to the Highway Trust Fund by transferring $8
billion from the general fund into the Highway Trust Fund, which is expected to
address short term funding commitments through fiscal 2009.
Many
states are currently facing difficult budget decisions as a result of the
economic downturn which could impact current or future construction
projects. Additionally, available funding sources for our public
sector customers may be constrained due to the tightening of the credit
markets.
California,
our largest revenue producing state, fully funded its Proposition 42 and
Proposition 1B commitments to transportation funding in its recently enacted
fiscal 2009 budget. It is too early to determine if transportation
revenues for fiscal 2009 will be at risk in anticipated discussions related to
the ongoing budget deficit.
We are
exposed to the price volatility of diesel fuel, natural gas, propane, liquid
asphalt and steel. While some of our construction contracts include relief
from price fluctuations for these commodities, we also manage this exposure by
closely monitoring our costs and pricing potential future escalations into our
bids and proposals accordingly. A unique benefit of our portfolio of
smaller, shorter duration projects in the West is that we are able to re-price
our portfolio regularly. On our fixed price contracts, it is our practice
to solicit firm quotes from our suppliers and subcontractors, whenever possible,
during the bidding process to mitigate our exposure.
As in
prior economic downturns, the current economic environment is presenting us with
a number of challenges. Strategically, we have consistently focused on
increasing the diversity and flexibility of our business model and believe this
will prove valuable in helping to mitigate the impact of the current downturn on
our profitability.
Liquidity
and Capital Resources
We
believe our cash and cash equivalents, short-term investments, cash generated
from operations and amounts available under our existing committed credit
facility will be sufficient to meet our expected working capital needs, cash
dividend payments, capital expenditures, financial commitments and other
liquidity requirements associated with our existing operations through the next
twelve months and beyond. If we experience a significant change in our business
operating results or make a significant acquisition, we may need to
acquire additional sources of financing, which may be limited by the terms of
our existing debt covenants, or may require the amendment of our existing debt
agreements.
|
Cash
and Marketable Securities (in
thousands)
|
September
30,
|
||||||||
|
|
2008
|
2007
|
|||||||
|
Cash
and cash equivalents excluding consolidated joint ventures
|
$ | 146,138 | $ | 139,368 | |||||
|
Consolidated
joint venture cash and cash equivalents
|
134,908 | 126,237 | |||||||
|
Total
consolidated cash and cash equivalents
|
281,046 | 265,605 | |||||||
|
Short-term
and long-term marketable securities
|
131,321 | 167,983 | |||||||
|
Total
cash, cash equivalents and marketable securities
|
$ | 412,367 | $ | 433,588 | |||||
Our cash
and cash equivalents are comprised of deposits and money market funds held with
established national banks, and fixed income securities having remaining
maturities of three months or less from the date of purchase. Cash
and cash equivalents held by our consolidated joint ventures is for the working
capital needs of each joint venture’s project. The decision to distribute cash
must generally be made jointly by all of the partners and therefore these funds
are not available for the working capital needs of Granite as a
whole. Our marketable securities include United States government
obligations, municipal bonds, commercial paper and to a lesser extent, mutual
funds.
|
Cash
Flows (in
thousands)
|
Nine Months
Ended September 30,
|
||||||||
|
|
2008
|
2007
|
|||||||
|
Net
cash provided by (used in):
|
|||||||||
|
Operating
activities
|
$ | 104,897 | $ | 137,567 | |||||
|
Investing
activities
|
(58,896 | ) | (132,844 | ) | |||||
|
Financing
activities
|
(117,389 | ) | 55,989 | ||||||
Cash provided
by operating activities of $104.9 million for the nine months
ended September 30, 2008 represents a $32.7 million decline from the
amount provided by operating activities during the same period in 2007. This
decrease was primarily due to a larger increase in accounts receivable from
higher revenue in the quarter ended September 30, 2008 when compared to the same
quarter in the prior year; a change in the amount of billings in excess of costs
and estimated earnings, net, primarily due to progress on projects that had
received large mobilization payments in the prior year and the acquisition of
the remaining minority interest of our Wilder Construction Company
(“Wilder”) subsidiary in 2008. These decreases were partially offset by an
increase in minority interest in consolidated subsidiaries due to higher
profitability on construction joint ventures (including the effects of a large
settlement of claims on the SR-22 project), an increase in accounts payable and
accrued expenses to support increased cost of revenue in the quarter ended
September 30, 2008 when compared to the same quarter in the prior year and a
decrease in other assets, net, primarily due to the release of funds in 2008
from an escrow account to fund the Wilder minority share purchase.
Cash used
in investing activities of $58.9 million for the nine months
ended September 30, 2008 represents a $73.9
million reduction from the amount used in the same period in 2007. The
change was due primarily to the effect of the Wilder minority share
purchase and a lower amount attributable to business acquisitions in the 2008
period.
Cash used
in financing activities was $117.4 million for the nine months
ended September 30, 2008, representing
a $173.4 million change from the same 2007 period. This change was
largely attributable to lower proceeds from long-term borrowings and
significantly higher purchases of common shares in the 2008 period. The
remainder of the change was primarily due to the financing cash flow portion of
the Wilder minority share purchase and a decrease in contributions from our
minority partners.
Debt
and Capital
We have
$281.4 million in long-term debt at September 30, 2008. Restrictive covenants
under the terms of our debt agreements require the maintenance of certain
financial ratios and the maintenance of tangible net worth (as defined). We
were in compliance with these covenants at September 30, 2008. Failure
to comply with these covenants could cause the amounts due under the debt
agreements to become immediately payable.
We have a
committed $150 million bank revolving line of credit (“LOC”), which allows for
unsecured borrowings through June 24, 2011. Borrowings under the
LOC bear interest at LIBOR plus an applicable margin
determined based upon certain financial ratios calculated quarterly. The
margin was 0.70% at September 30, 2008. The unused and available portion of the
LOC was $145.6 million at September 30, 2008.
We had
standby letters of credit (“Letters”) totaling approximately $4.4 million
outstanding at September 30, 2008, which will expire between March
2009 and October 2009. We are generally required by the beneficiaries
of these Letters to replace them upon expiration. Additionally, we are
generally required to provide various types of surety bonds that provide an
additional measure of security under certain public and private sector
contracts. At September 30, 2008, approximately $1.8 billion of our
backlog was bonded and performance bonds totaling approximately $10.6 billion
were outstanding. Performance bonds do not have stated expiration dates; rather,
we are generally released from the bonds when each contract is accepted by the
owner. The ability to maintain bonding capacity to support our current and
future level of contracting requires that we maintain cash and working capital
balances satisfactory to our sureties.
In 2007,
our Board of Directors authorized a plan to purchase, at management’s
discretion, up to $200.0 million of our common shares. During the nine
months ended September 30, 2008, we purchased 1.4 million shares for a
total of $43.2 million under the purchase plan. From the inception
of this plan in 2007 through September 30, 2008, we have
purchased a total of 3.8 million common shares for an aggregate cost of
$135.9 million. All common shares were retired upon acquisition.
At September 30, 2008, $64.1 million of the $200.0 million authorization
was available for common share purchases.
Capital
Expenditures
During
the nine months ended September 30, 2008, we had capital expenditures of $76.1
million compared to $82.7 million during the nine months ended September 30,
2007. We currently anticipate spending approximately $110.0 million for
capital expenditures in total for 2008, which includes amounts for
construction equipment, aggregate and asphalt production facilities, buildings,
leasehold improvements, development of real estate projects and aggregate
reserves. The timing and amount of such expenditures can vary based on the
progress of planned capital projects, changes in business outlook and other
factors.
Acquisitions
In
December 2007, we deposited $28.3 million with an exchange agent in connection
with our purchase of the remaining minority shares of Wilder. In
January 2008, the amount was paid to the Wilder minority
shareholders. This amount was reflected as an increase in cash from
investing activities and a corresponding $16.6 million decrease in cash from
operating activities and an $11.7 million decrease in cash from financing
activities for the estimated amounts attributable to return on investment and
return of investment, respectively.
In
January 2008, we acquired certain assets and assumed certain liabilities of a
construction materials supplier in Nevada for a purchase price of approximately
$14.0 million in cash. The effect of the operating results of the acquired
business on our consolidated operating results was not material. The estimated
fair value of the assets acquired approximated the purchase price; therefore, no
goodwill was recorded.
Recent
Accounting Pronouncements
See
Note 2 of the “Notes to the Condensed Consolidated Financial Statements”
for a description of recent accounting pronouncements, including the expected
dates of adoption and effects on our condensed consolidated balance sheets,
statements of income and statements of cash
flows.
Website
Access
Our
website address is www.graniteconstruction.com. On our website we make
available, free of charge, our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all amendments to those reports as
soon as reasonably practicable after such material is electronically filed with
or furnished to the Securities and Exchange Commission. The information on our
website is not incorporated into, and is not part of, this report. These
reports, and any amendments to them, are also available at the website of the
Securities and Exchange Commission, www.sec.gov.
|
Item
3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
There was
no significant change in our exposure to market risk in our investment controls
and procedures during the three months ended September 30, 2008.
|
Item
4.
|
CONTROLS AND
PROCEDURES
|
We
carried
out an evaluation, under the supervision of and with the participation of
management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended). Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of September 30, 2008, our
disclosure controls and procedures were effective.
During
the third quarter of 2008, there were no changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II. OTHER INFORMATION
|
Item
1.
|
LEGAL
PROCEEDINGS
|
See Part I, Item 1. Financial Statements, Note 12 - Legal
Proceedings.
|
Item
1A.
|
RISK
FACTORS
|
There
have been no material changes in the risk factors previously disclosed
in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
|
Item
2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
None.
|
Item
3.
|
DEFAULTS UPON SENIOR
SECURITIES
|
None
|
Item
4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None
|
Item
5.
|
OTHER
INFORMATION
|
None
|
Item
6.
|
|
10.1
|
†
|
Amendment
No. 1, dated August 6, 2008, to the Key Management Deferred Compensation
Plan II
|
|
31.1
|
†
|
Certification
of Principal Executive Officer
|
|
31.2
|
†
|
Certification
of Principal Financial Officer
|
|
32
|
††
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
†
|
Filed
herewith
|
|
|
††
|
Furnished
herewith
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
GRANITE
CONSTRUCTION INCORPORATED
|
|||||
|
Date:
|
October 30,
2008
|
By:
|
/s/
LeAnne M. Stewart
|
||
|
LeAnne
M. Stewart
|
|||||
|
Senior
Vice President and Chief Financial Officer
|
33