GRANITE CONSTRUCTION INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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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, 2011
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OR
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o
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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 ___________
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Commission File Number: 1-12911
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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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Address of principal executive offices:
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
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
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 the definitions 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
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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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).
o
Yes
x
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
October 25, 2011
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Class
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Outstanding
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Common Stock, $0.01 par value
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38,668,940 shares
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Index
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EXHIBIT 101.INS
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EXHIBIT 101.SCH
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EXHIBIT 101.CAL
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EXHIBIT 101.LAB
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EXHIBIT 101.PRE
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2
PART
I.
FINANCIAL INFORMATION
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Item 1.
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FINANCIAL
STATEMENTS
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GRANITE CONSTRUCTION INCORPORATED
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(Unaudited - in thousands, except share and per share data)
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September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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193,099
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$
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252,022
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$
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257,854
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Short-term marketable securities
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77,389
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109,447
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80,962
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Receivables, net
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357,807
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243,986
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375,914
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Costs and estimated earnings in excess of billings
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45,884
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10,519
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34,448
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Inventories
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57,987
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51,018
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45,224
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Real estate held for development and sale
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79,173
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75,716
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151,638
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Deferred income taxes
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52,714
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53,877
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31,035
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Equity in construction joint ventures
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97,415
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74,716
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80,496
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Other current assets
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29,526
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42,555
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42,409
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Total current assets
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990,994
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913,856
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1,099,980
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Property and equipment, net
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453,822
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473,607
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491,363
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Long-term marketable securities
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59,509
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34,259
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49,502
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Investments in affiliates
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33,435
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31,410
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32,515
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Other noncurrent assets
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80,709
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82,401
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78,611
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Total assets
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$
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1,618,469
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$
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1,535,533
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$
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1,751,971
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LIABILITIES AND EQUITY
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Current liabilities
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Current maturities of long-term debt
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$
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8,351
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$
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8,359
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$
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8,444
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Current maturities of non-recourse debt
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16,690
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29,760
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39,157
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Accounts payable
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216,600
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129,700
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206,993
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Billings in excess of costs and estimated earnings
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89,505
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120,185
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157,233
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Accrued expenses and other current liabilities
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185,624
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150,773
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173,547
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Total current liabilities
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516,770
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438,777
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585,374
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Long-term debt
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208,519
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217,014
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216,870
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Long-term non-recourse debt
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27,755
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25,337
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16,420
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Other long-term liabilities
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46,985
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47,996
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48,764
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Deferred income taxes
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10,330
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10,774
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27,883
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Commitments and contingencies
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Equity
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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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—
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—
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Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 38,664,403 shares as of September 30, 2011, 38,745,542 shares as of December 31, 2010 and 38,769,787 shares as of September 30, 2010
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387
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387
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388
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Additional paid-in capital
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108,096
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104,232
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101,567
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Retained earnings
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673,626
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656,412
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711,497
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Total Granite Construction Incorporated shareholders’ equity
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782,109
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761,031
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813,452
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Noncontrolling interests
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26,001
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34,604
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43,208
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Total equity
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808,110
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795,635
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856,660
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Total liabilities and equity
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$
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1,618,469
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$
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1,535,533
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$
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1,751,971
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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GRANITE CONSTRUCTION INCORPORATED
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(Unaudited - in thousands, except per share data)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2011
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2010
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2011
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2010
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Revenue
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Construction
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$
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431,101
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$
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409,989
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$
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784,393
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$
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729,118
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Large project construction
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213,320
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169,972
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513,478
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429,625
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Construction materials
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83,171
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88,128
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165,083
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175,381
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Real estate
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986
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2,761
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7,029
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11,613
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Total revenue
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728,578
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670,850
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1,469,983
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1,345,737
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Cost of revenue
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Construction
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372,561
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365,323
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696,911
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659,705
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Large project construction
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187,763
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151,656
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443,965
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379,991
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Construction materials
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73,617
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75,991
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154,329
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165,889
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Real estate
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744
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1,725
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5,941
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8,585
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Total cost of revenue
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634,685
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594,695
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1,301,146
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1,214,170
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Gross profit
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93,893
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76,155
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168,837
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131,567
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Selling, general and administrative expenses
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39,112
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47,160
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121,277
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153,809
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Gain on sales of property and equipment
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5,598
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3,165
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11,572
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11,417
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Operating income (loss)
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60,379
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32,160
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59,132
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(10,825
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)
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Other (expense) income
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Interest income
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476
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2,110
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2,295
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4,147
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Interest expense
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(3,418
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(547
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(7,653
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(7,294
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Equity in income (loss) of affiliates
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1,881
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529
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1,443
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(177
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Other (expense) income, net
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(1,833
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1,023
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(1,951
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)
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5,854
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Total other (expense) income
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(2,894
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)
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3,115
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(5,866
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)
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2,530
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Income (loss) before provision for (benefit from) income taxes
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57,485
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35,275
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53,266
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(8,295
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)
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Provision for (benefit from) income taxes
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15,109
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(8,026
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)
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11,973
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(11,233
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)
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Net income
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42,376
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43,301
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41,293
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2,938
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Amount attributable to noncontrolling interests
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(5,908
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)
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(4,620
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)
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(8,886
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)
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(11,902
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)
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Net income (loss) attributable to Granite Construction Incorporated
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$
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36,468
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$
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38,681
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$
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32,407
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$
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(8,964
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)
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Net income (loss) per share attributable to common shareholders
(see Note 14)
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Basic
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$
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0.94
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$
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1.00
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$
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0.84
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$
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(0.24
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)
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Diluted
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$
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0.93
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$
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0.99
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$
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0.83
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$
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(0.24
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)
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Weighted average shares of common stock
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Basic
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38,172
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37,865
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38,092
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37,802
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Diluted
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38,598
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38,071
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38,428
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37,802
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Dividends per common share
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$
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0.13
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$
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0.13
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$
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0.39
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$
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0.39
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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GRANITE CONSTRUCTION INCORPORATED
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(
Unaudited - in thousands
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Nine Months Ended September 30,
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2011
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2010
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Operating activities
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Net income
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$
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41,293
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$
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2,938
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation, depletion and amortization
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45,691
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54,169
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Gain on sales of property and equipment
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(11,572
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(11,417
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)
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Stock-based compensation
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8,994
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10,241
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Loss (gain) on company owned life insurance
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639
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(2,655
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Changes in assets and liabilities, net of the effects of consolidations:
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Receivables
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(112,790
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)
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(90,764
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)
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Costs and estimated earnings in excess of billings, net
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(66,045
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)
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(22,637
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)
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Inventories
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(6,969
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)
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576
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Real estate held for development and sale
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(1,725
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)
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(9,982
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Equity in construction joint ventures
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(22,699
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)
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(14,010
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)
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Other assets, net
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9,359
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7,136
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Accounts payable
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86,900
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75,422
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Accrued expenses and other current liabilities, net
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30,942
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11,549
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Net cash provided by operating activities
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2,018
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10,566
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Investing activities
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Purchases of marketable securities
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(115,146
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)
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(78,355
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)
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Maturities of marketable securities
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85,875
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50,900
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Proceeds from sale of marketable securities
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33,268
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10,000
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Additions to property and equipment
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(34,748
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)
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(30,182
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)
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Proceeds from sales of property and equipment
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20,071
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17,225
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Purchase of private preferred stock
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(50
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(6,400
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)
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Other investing activities, net
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2,363
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2,407
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Net cash used in investing activities
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(8,367
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)
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(34,405
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)
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Financing activities
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Long-term debt principal payments
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(17,293
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)
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(18,472
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)
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Cash dividends paid
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(15,090
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)
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(15,110
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)
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Purchase of common stock
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(3,840
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)
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(3,374
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)
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Distributions to noncontrolling partners, net
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(17,489
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)
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(20,940
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)
|
||||
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Other financing activities
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1,138
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633
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||||
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Net cash used in financing activities
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(52,574
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)
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(57,263
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)
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Decrease in cash and cash equivalents
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(58,923
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)
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(81,102
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)
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||||
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Cash and cash equivalents at beginning of period
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252,022
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338,956
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||||
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Cash and cash equivalents at end of period
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$
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193,099
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$
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257,854
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Supplementary Information
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Cash paid during the period for:
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||||||
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Interest
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$
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9,718
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$
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8,196
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Income taxes
|
905
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469
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||||
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Non-cash investing and financing activities:
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||||
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Restricted stock/units issued, net of forfeitures
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$
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6,896
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$
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6,763
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Accrued cash dividends
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5,026
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5,040
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||||
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Debt payments out of escrow from sale of assets
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3,446
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5,487
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||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1.
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Basis of Presentation
|
The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” “Company” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2010
. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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, 2011
and
2010
and the results of our operations and cash flows for the periods presented. The
December 31, 2010
condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements. Interim results are subject to significant seasonal variations and the results of operations for the
three and nine
months ended
September 30, 2011
are not necessarily indicative of the results to be expected for the full year.
|
2.
|
Recently Issued Accounting Pronouncements
|
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards
. This ASU clarifies the application of certain existing fair value measurement guidance as well as expands the disclosure requirements for fair value measurements that are estimated using significant unobservable (Level 3) inputs and for assets and liabilities disclosed but not recorded at fair value. This ASU will be effective for our quarter ending March 31, 2012. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
. This ASU requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements rather than as a footnote to the condensed consolidated financial statements, where it is currently disclosed. This ASU will be effective for our quarter ending March 31, 2012. Except for the presentation requirement, the adoption of this ASU will not have an impact on our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08,
Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment
. This ASU gives companies the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value when assessing goodwill for impairment. If it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, further impairment analysis is not necessary. However, if it is concluded otherwise, we are required to perform step one of the goodwill impairment test. This ASU will be effective for our quarter ending March 31, 2012. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-09,
Compensation - Retirement Benefits - Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan
. This ASU requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures. The additional disclosures include, but are not limited to, information on significant multiemployer plans in which we participate, such as plan names and identifying numbers, the amount of contributions to the plan, whether our contributions represent more than five percent of the total contributions made to the plan, funded status, whether funding improvement plans are pending or implemented, whether the plan has imposed surcharges and the expiration dates of the plans. This ASU is effective for our year ending December 31, 2011. Except for the additional disclosures, the adoption of this ASU will not have an impact on our consolidated financial statements.
6
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
3.
|
Revisions in Estimates
|
Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this option, revisions in estimates are accounted for in their entirety in the period of change. As of
September 30, 2011
, we had no revisions in estimates that are reasonably certain to impact future periods.
Construction
The net change in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit was a net decrease of
$1.3
million and a net increase of
$1.6
million for the
three and nine
months ended
September 30, 2011
, respectively. The net change in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit was a net increase of
$0.7 million
and a net decrease of
$0.4
million for the
three and nine
months ended
September 30, 2010
, respectively. The projects are summarized as follows:
Increases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Number of projects with upward estimate changes
|
2
|
|
2
|
|
4
|
|
3
|
|
||||||||
|
Range of increase in gross profit from each project, net
|
$
|
1.3 - 1.4
|
|
$
|
2.2 - 2.9
|
|
$
|
1.1 - 2.9
|
|
$
|
1.0 - 2.9
|
|
||||
|
Increase on project profitability
|
$
|
2.7
|
|
$
|
5.1
|
|
$
|
7.0
|
|
$
|
6.5
|
|
||||
The increases during the
three and nine
months ended
September 30, 2011
were primarily due to improved salvage prices for excess material, the settlement of outstanding cost issues and owner directed scope changes. The increases during the
three and nine
months ended
September 30, 2010
were due to the resolution of certain project uncertainties and owner directed scope changes.
Decreases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Number of projects with downward estimate changes
|
2
|
|
2
|
|
3
|
|
3
|
|
||||||||
|
Range of reduction in gross profit from each project, net
|
$
|
1.4 - 2.6
|
|
$
|
2.2 - 2.2
|
|
$
|
1.4 - 2.6
|
|
$
|
1.9 - 2.7
|
|
||||
|
Decrease on project profitability
|
$
|
4.0
|
|
$
|
4.4
|
|
$
|
5.4
|
|
$
|
6.9
|
|
||||
The decreases during the
three and nine
months ended
September 30, 2011
were due to lower productivity than anticipated and unanticipated rework costs. The downward estimate changes during the
three and nine
months ended
September 30, 2010
were due to lower productivity than anticipated, disputed materials performance issues and unanticipated rework costs.
7
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Large Project Construction
The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit were net increases of
$2.7
million and
$7.9
million for the
three and nine
months ended
September 30, 2011
, respectively. The net change for the
three and nine
months ended
September 30, 2010
was a net decrease of
$0.1
million and a net increase of
$6.5
million, respectively. Amounts attributable to noncontrolling interests were
$1.0
million and
$0.6 million
of the net increases for the
three and nine
months ended
September 30, 2011
, respectively,
$0.1
million of the net decrease for the
three months ended
September 30, 2010
and
$1.5
million of the net increase for the
nine months ended
September 30, 2010
. The projects are summarized as follows:
Increases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Number of projects with upward estimate changes
|
5
|
|
2
|
|
6
|
|
6
|
|
||||||||
|
Range of increase in gross profit from each project, net
|
$
|
1.0 - 2.6
|
|
$
|
1.4 - 2.8
|
|
$
|
1.4 - 4.2
|
|
$
|
1.0 - 4.2
|
|
||||
|
Increase on project profitability
|
$
|
8.8
|
|
$
|
4.2
|
|
$
|
17.7
|
|
$
|
11.6
|
|
||||
The increases during the
three and nine
months ended
September 30, 2011
were due to the settlement of outstanding issues with a contract owner, owner directed scope changes, lower than anticipated construction costs and the resolution of a project claim. The increases during the
three and nine
months ended
September 30, 2010
were due to the settlement of design issues with a subcontractor, resolution of project uncertainties, owner directed scope changes and higher productivity than anticipated.
8
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Decreases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2011
|
September 30, 2010
|
2011
|
September 30, 2010
|
||||||||||||
|
Number of projects with downward estimate changes
|
3
|
|
2
|
|
2
|
|
2
|
|
||||||||
|
Range of reduction in gross profit from each project, net
|
$
|
1.7 - 2.4
|
|
$
|
1.9 - 2.4
|
|
$
|
4.2 - 5.6
|
|
$
|
2.2 - 2.9
|
|
||||
|
Decrease on project profitability
|
$
|
6.1
|
|
$
|
4.3
|
|
$
|
9.8
|
|
$
|
5.1
|
|
||||
The downward estimate changes during the
three and nine
months ended
September 30, 2011
were due to increased costs to resolve project uncertainties and lower productivity than anticipated. The decreases during the
three and nine
months ended
September 30, 2010
were due to issues with contract owners as well as lower productivity than anticipated.
Our wholly owned subsidiaries, Granite Construction Company and Granite Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which is contracted by the Oregon Department of Transportation (“ODOT”) to construct a new road alignment of U.S. Highway 20 near Eddyville, Oregon. In addition to previous geologic landslide movements, the project site experienced unanticipated ground movement at several hillsides beginning in 2010. In some locations, the ground movements have caused damage to completed portions of bridge structures. Although design work towards a new mitigation plan on the project is continuing, the corrective work required to complete the project has not yet been determined. YRC and ODOT are engaged in the contractual dispute resolution process to determine the parties’ responsibilities for design issues and which party bears the financial responsibility for the corrective work. At this time, the Company cannot predict the timing of the resolution of the contractual disputes, including the design determination issue, nor reasonably estimate the impact the final resolution will have on the projected financial results for this project. If the required corrective work is determined to be substantial, and YRC is determined to bear the financial responsibility for the corrective work, the Company’s results of operations and cash flows for one or more future periods could be materially and adversely affected. Until the dispute is resolved, we will incur additional costs to maintain the job site. While we believe we are entitled to receive compensation for these additional costs, the contractual dispute resolution process will determine which party bears the financial responsibility for maintaining the job site. During the year ended December 31, 2010, a $10.2 million revision in estimate was recorded in our consolidated statements of operations primarily related to additional costs to maintain the project site until the beginning of the 2012 construction season. In addition, provisions for the estimated total cost of this contract in excess of its estimated total revenue have been made in the condensed consolidated statements of operations. Due to the uncertainties described above, no revisions in this project’s estimates were made during the
three and nine
months ended
September 30, 2011
related to the disputed work.
9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
4.
|
Marketable Securities
|
The carrying amounts of marketable securities were as follows (in thousands):
|
September 30, 2011
|
Held-to-Maturity
|
Trading
|
Total
|
|||||||||
|
U.S. Government and agency obligations
|
$
|
40,218
|
|
$
|
—
|
|
$
|
40,218
|
|
|||
|
Commercial paper
|
29,978
|
|
—
|
|
29,978
|
|
||||||
|
Municipal bonds
|
4,036
|
|
—
|
|
4,036
|
|
||||||
|
Corporate bonds
|
3,157
|
|
—
|
|
3,157
|
|
||||||
|
Total short-term marketable securities
|
77,389
|
|
—
|
|
77,389
|
|
||||||
|
U.S. Government and agency obligations
|
45,268
|
|
—
|
|
45,268
|
|
||||||
|
Municipal bonds
|
8,952
|
|
—
|
|
8,952
|
|
||||||
|
Corporate bonds
|
5,289
|
|
—
|
|
5,289
|
|
||||||
|
Total long-term marketable securities
|
59,509
|
|
—
|
|
59,509
|
|
||||||
|
Total marketable securities
|
$
|
136,898
|
|
$
|
—
|
|
$
|
136,898
|
|
|||
|
December 31, 2010
|
|
|
|
|||||||||
|
U.S. Government and agency obligations
|
$
|
40,047
|
|
$
|
—
|
|
$
|
40,047
|
|
|||
|
Commercial paper
|
33,971
|
|
—
|
|
33,971
|
|
||||||
|
Municipal bonds
|
10,896
|
|
—
|
|
10,896
|
|
||||||
|
Corporate bonds
|
10,122
|
|
—
|
|
10,122
|
|
||||||
|
Equity securities - mutual funds
|
—
|
|
14,411
|
|
14,411
|
|
||||||
|
Total short-term marketable securities
|
95,036
|
|
14,411
|
|
109,447
|
|
||||||
|
U.S. Government and agency obligations
|
30,618
|
|
—
|
|
30,618
|
|
||||||
|
Municipal bonds
|
3,641
|
|
—
|
|
3,641
|
|
||||||
|
Total long-term marketable securities
|
34,259
|
|
—
|
|
34,259
|
|
||||||
|
Total marketable securities
|
$
|
129,295
|
|
$
|
14,411
|
|
$
|
143,706
|
|
|||
|
September 30, 2010
|
|
|
|
|||||||||
|
U.S. Government and agency obligations
|
$
|
44,407
|
|
$
|
—
|
|
$
|
44,407
|
|
|||
|
Commercial paper
|
19,971
|
|
—
|
|
19,971
|
|
||||||
|
Municipal bonds
|
11,204
|
|
—
|
|
11,204
|
|
||||||
|
Equity securities - mutual funds
|
—
|
|
5,380
|
|
5,380
|
|
||||||
|
Total short-term marketable securities
|
75,582
|
|
5,380
|
|
80,962
|
|
||||||
|
U.S. Government and agency obligations
|
45,844
|
|
—
|
|
45,844
|
|
||||||
|
Municipal bonds
|
3,658
|
|
—
|
|
3,658
|
|
||||||
|
Total long-term marketable securities
|
49,502
|
|
—
|
|
49,502
|
|
||||||
|
Total marketable securities
|
$
|
125,084
|
|
$
|
5,380
|
|
$
|
130,464
|
|
|||
Scheduled maturities of held-to-maturity investments were as follows (in thousands):
|
September 30, 2011
|
|
||
|
Due within one year
|
$
|
77,389
|
|
|
Due in one to five years
|
59,509
|
|
|
|
Total
|
$
|
136,898
|
|
10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
5.
|
Fair Value Measurement
|
The following tables summarize each class of assets and liabilities measured at fair value on a recurring basis:
|
September 30, 2011
|
Fair Value Measurement at Reporting Date Using
|
|||||||||||||||
|
(in thousands)
|
Level 1
1
|
Level 2
2
|
Level 3
3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
149,966
|
|
$
|
—
|
|
$
|
—
|
|
$
|
149,966
|
|
||||
|
Total
|
$
|
149,966
|
|
$
|
—
|
|
$
|
—
|
|
$
|
149,966
|
|
||||
|
December 31, 2010
|
Fair Value Measurement at Reporting Date Using
|
|||||||||||||||
|
(in thousands)
|
Level 1
1
|
Level 2
2
|
Level 3
3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
226,009
|
|
$
|
—
|
|
$
|
—
|
|
$
|
226,009
|
|
||||
|
Trading securities
|
|
|
|
|
|
|
|
|
||||||||
|
Equity securities - mutual funds
|
14,411
|
|
—
|
|
—
|
|
14,411
|
|
||||||||
|
Total
|
$
|
240,420
|
|
$
|
—
|
|
$
|
—
|
|
$
|
240,420
|
|
||||
|
September 30, 2010
|
Fair Value Measurement at Reporting Date Using
|
|||||||||||||||
|
(in thousands)
|
Level 1
1
|
Level 2
2
|
Level 3
3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
210,189
|
|
$
|
—
|
|
$
|
—
|
|
$
|
210,189
|
|
||||
|
Trading securities
|
|
|
|
|
|
|
|
|
||||||||
|
Equity securities - mutual funds
|
5,380
|
|
—
|
|
—
|
|
5,380
|
|
||||||||
|
Total
|
$
|
215,569
|
|
$
|
—
|
|
$
|
—
|
|
$
|
215,569
|
|
||||
1
Quoted prices in active markets for identical assets or liabilities.
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.
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.
A reconciliation of money market funds to consolidated cash and cash equivalents is as follows:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
|
September 30,
2010 |
||||||||
|
Money market funds
|
$
|
149,966
|
|
$
|
226,009
|
|
|
$
|
210,189
|
|
||
|
Held-to-maturity commercial paper
|
4,997
|
|
4,999
|
|
14,997
|
|
||||||
|
Cash
|
|
38,136
|
|
|
21,014
|
|
|
32,668
|
|
|||
|
Total cash and cash equivalents
|
$
|
193,099
|
|
$
|
252,022
|
|
|
$
|
257,854
|
|
||
11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We believe the carrying values of receivables, other current assets, and other current liabilities approximate their fair values. The fair value of the senior notes payable was based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. The carrying amount and estimated fair value of senior notes payable, including current maturities, were as follows:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Carrying amount
|
|
|
|
|||||||||
|
Senior notes payable
|
$
|
216,667
|
|
$
|
225,000
|
|
$
|
225,000
|
|
|||
|
Fair value
|
|
|
|
|
|
|||||||
|
Senior notes payable
|
$
|
246,844
|
|
$
|
245,911
|
|
$
|
256,556
|
|
|||
We measure certain nonfinancial assets and liabilities at fair value on a nonrecurring basis. During the
three and nine
months ended
September 30, 2011
and
2010
, we did not record any significant fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
|
6.
|
Receivables, Net
|
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Construction contracts:
|
|
|
|
|||||||||
|
Completed and in progress
|
$
|
223,292
|
|
$
|
121,664
|
|
$
|
226,192
|
|
|||
|
Retentions
|
74,795
|
|
96,333
|
|
92,614
|
|
||||||
|
Total construction contracts
|
298,087
|
|
217,997
|
|
318,806
|
|
||||||
|
Construction material sales
|
52,157
|
|
17,674
|
|
51,114
|
|
||||||
|
Other
|
10,177
|
|
11,612
|
|
9,325
|
|
||||||
|
Total gross receivables
|
360,421
|
|
247,283
|
|
379,245
|
|
||||||
|
Less: allowance for doubtful accounts
|
2,614
|
|
3,297
|
|
3,331
|
|
||||||
|
Total net receivables
|
$
|
357,807
|
|
$
|
243,986
|
|
$
|
375,914
|
|
|||
Included in other receivables at
September 30, 2011
,
December 31, 2010
and
September 30, 2010
were items such as notes receivable, interest receivable, fuel tax refunds and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates.
Financing receivables consisted of long-term notes receivable and retentions receivable. As of
September 30, 2011
,
December 31, 2010
and
September 30, 2010
, long-term notes receivable outstanding were
$2.1 million
,
$1.8 million
and
$2.1 million
, respectively, and primarily related to loans made to employees and were included in other noncurrent assets in our condensed consolidated balance sheets.
12
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We segregate our retention receivables into two categories: escrow and non-escrow and the balances in each category were as follows:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Escrow
|
$
|
38,517
|
|
$
|
43,841
|
|
$
|
38,312
|
|
|||
|
Non-escrow
|
36,278
|
|
52,492
|
|
54,302
|
|
||||||
|
Total retention receivables
|
$
|
74,795
|
|
$
|
96,333
|
|
$
|
92,614
|
|
|||
The escrow receivables include amounts due to Granite which have been deposited into an escrow account and bear interest. Typically, escrow retention receivables are held until work on a project is complete and has been accepted by the owner who then releases those funds, along with accrued interest, to us. There is minimal risk of not collecting on these amounts.
Non-escrow retention receivables are amounts that the project owner has contractually withheld that will be paid upon owner acceptance of contract completion. We evaluate our non-escrow retention receivables for collectability using certain customer information that includes the following:
|
•
|
Federal - includes federal agencies such as the Bureau of Reclamation, the Army Corp of Engineers, and the Bureau of Indian Affairs. The obligations of these agencies are backed by the federal government. Consequently there is minimal risk of not collecting the amounts we are entitled to receive.
|
|
•
|
State - primarily state departments of transportation. The risk of not collecting on these accounts is small; however, we have experienced occasional delays in payment as states have struggled with budget issues.
|
|
•
|
Local - these customers include local agencies such as cities, counties and other local municipal agencies. The risk of not collecting on these accounts is small; however, we have experienced occasional delays in payment as some local agencies have struggled to deal with budget issues.
|
|
•
|
Private - includes individuals, developers and corporations. The majority of our collection risk is associated with these customers. We perform ongoing credit evaluations of our customers and generally do not require collateral, although the law provides us certain remedies, including, but not limited to, the ability to file mechanics’ liens on real property improved for private customers in the event of non-payment by such customers.
|
The following table summarizes the amount of our non-escrow retention receivables within each category:
|
(in thousands)
|
|
September 30,
2011 |
|
December 31,
2010 |
|
September 30,
2010 |
||||||
|
Federal
|
|
$
|
2,148
|
|
|
$
|
3,080
|
|
|
$
|
2,175
|
|
|
State
|
|
6,046
|
|
|
9,507
|
|
|
10,792
|
|
|||
|
Local
|
|
17,666
|
|
|
29,451
|
|
|
30,409
|
|
|||
|
Private
|
|
10,418
|
|
|
10,454
|
|
|
10,926
|
|
|||
|
Total
|
|
$
|
36,278
|
|
|
$
|
52,492
|
|
|
$
|
54,302
|
|
13
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We regularly review our accounts receivable, including past due amounts, to determine their probability of collection. If it is probable that an amount is uncollectible, it is charged to bad debt expense and a corresponding reserve is established in allowance for doubtful accounts. If it is deemed certain that an amount is uncollectible, the amount is written off. Based on contract terms, non-escrow retention receivables are typically due within 60 days of owner acceptance of contract completion. We consider retention amounts beyond 60 days of owner acceptance of contract completion to be past due. The following tables present the aging of our non-escrow retention receivables (in thousands):
|
September 30, 2011
|
|
Current
|
|
0 - 90 Days
Past Due
|
|
Over 90 Days
Past Due
|
|
Total
|
||||||||
|
Federal
|
|
$
|
1,976
|
|
$
|
77
|
|
$
|
95
|
|
|
$
|
2,148
|
|
||
|
State
|
|
3,880
|
|
1,397
|
|
769
|
|
|
6,046
|
|
||||||
|
Local
|
|
13,801
|
|
1,465
|
|
2,400
|
|
|
17,666
|
|
||||||
|
Private
|
|
9,911
|
|
108
|
|
399
|
|
|
10,418
|
|
||||||
|
Total
|
|
$
|
29,568
|
|
|
$
|
3,047
|
|
|
$
|
3,663
|
|
|
$
|
36,278
|
|
|
December 31, 2010
|
|
Current
|
|
0 - 90 Days
Past Due
|
|
Over 90 Days
Past Due
|
|
Total
|
||||||||
|
Federal
|
|
$
|
2,587
|
|
$
|
174
|
|
$
|
319
|
|
|
$
|
3,080
|
|
||
|
State
|
|
4,443
|
|
628
|
|
4,436
|
|
|
9,507
|
|
||||||
|
Local
|
|
22,641
|
|
2,800
|
|
4,010
|
|
|
29,451
|
|
||||||
|
Private
|
|
9,243
|
|
175
|
|
1,036
|
|
|
10,454
|
|
||||||
|
Total
|
|
$
|
38,914
|
|
|
$
|
3,777
|
|
|
$
|
9,801
|
|
|
$
|
52,492
|
|
|
September 30, 2010
|
|
Current
|
|
0 - 90 Days
Past Due
|
|
Over 90 Days
Past Due
|
|
Total
|
||||||||
|
Federal
|
|
$
|
1,921
|
|
$
|
22
|
|
$
|
232
|
|
|
$
|
2,175
|
|
||
|
State
|
|
9,227
|
|
131
|
|
1,434
|
|
|
10,792
|
|
||||||
|
Local
|
|
23,850
|
|
2,489
|
|
4,070
|
|
|
30,409
|
|
||||||
|
Private
|
|
9,689
|
|
243
|
|
994
|
|
|
10,926
|
|
||||||
|
Total
|
|
$
|
44,687
|
|
|
$
|
2,885
|
|
|
$
|
6,730
|
|
|
$
|
54,302
|
|
Federal, state and local agencies generally require several approvals to release payments, and these approvals often take over 90 days past contractual due dates to obtain. Amounts past due from government agencies primarily result from delays caused by paperwork processing and obtaining proper agency approvals rather than lack of funds. As of
September 30, 2011
, December 31, 2010 and
September 30, 2010
, our allowance for doubtful accounts contained no material provision related to non-escrow retention receivables as we determined there were no significant collectibility issues.
14
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
7.
|
Construction and Line Item Joint Ventures
|
We participate in various construction joint venture partnerships. 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.
Our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each party will pay for any losses it is responsible for under the joint venture agreement. Circumstances that could lead to a loss under our joint venture arrangements beyond our stated ownership interest include the failure of a partner 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 that it had committed to provide in the joint venture agreement. Due to the joint and several nature of the obligations under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for performance of the outstanding work.
At
September 30, 2011
, there was approximately
$1.7
billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which
$0.6
billion represented our share and the remaining
$1.1
billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.
Construction Joint Ventures
Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities resulting from the performance of the contracts are limited to our stated percentage interest in the project. We have no significant commitments beyond completion of the contracts. Under our contractual arrangements, we provide capital to these joint ventures in return for an ownership interest. In addition, partners dedicate resources to the ventures necessary to complete the contracts and are reimbursed for their cost. The operational risks of each construction joint venture are passed along to the joint venture partners. As we absorb our share of these risks, our investment in each venture is exposed to potential losses.
We have determined that certain of these joint ventures are variable interest entities (“VIEs”) as defined by Accounting Standards Codification (“ASC”) Topic 810,
Consolidation
, and related standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners.
Based on our primary beneficiary assessment during the
nine
months ended
September 30, 2011
, we determined no change was required to the accounting for existing construction joint ventures.
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Construction Joint Ventures
The carrying amounts and classification of assets and liabilities of construction joint ventures we are required to consolidate are included in our condensed consolidated financial statements as follows:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Cash and cash equivalents
1
|
$
|
65,350
|
|
$
|
109,380
|
|
$
|
103,367
|
|
|||
|
Other current assets
2
|
31,215
|
|
50,344
|
|
44,351
|
|
||||||
|
Total current assets
|
96,565
|
|
159,724
|
|
147,718
|
|
||||||
|
Noncurrent assets
|
9,821
|
|
2,561
|
|
894
|
|
||||||
|
Total assets
3
|
$
|
106,386
|
|
$
|
162,285
|
|
$
|
148,612
|
|
|||
|
Accounts payable
|
$
|
36,660
|
|
$
|
33,078
|
|
$
|
33,934
|
|
|||
|
Billings in excess of costs and estimated earnings
1
|
17,116
|
|
46,475
|
|
63,783
|
|
||||||
|
Accrued expenses and other current liabilities
|
5,997
|
|
11,633
|
|
11,195
|
|
||||||
|
Total current liabilities
|
59,773
|
|
91,186
|
|
108,912
|
|
||||||
|
Noncurrent liabilities
|
33
|
|
3
|
|
5
|
|
||||||
|
Total liabilities
3
|
$
|
59,806
|
|
$
|
91,189
|
|
$
|
108,917
|
|
|||
1
The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in cash and cash equivalents as well as billings in excess of costs and estimated earnings between periods.
2
Prior period amounts have been revised to conform to current year presentation. The revisions had no impact on the consolidated balances or on the accounting for consolidated construction joint ventures.
3
The assets and liabilities of each joint venture relate solely to that joint venture. The decision to distribute joint venture cash and cash equivalents and assets must generally be made jointly by all of the partners and, accordingly, these cash and cash equivalents and assets generally are not available for the working capital needs of Granite.
At
September 30, 2011
, we were engaged in
two
active consolidated construction joint venture projects with total contract values of
$227.6
million and
$312.1 million
. Our proportionate share of the equity in these joint ventures was
45.0%
and
60.0%
, respectively.
Unconsolidated Construction Joint Ventures
We account for our share of construction joint ventures that we are not required to consolidate on a pro rata basis in the condensed consolidated statements of operations and as a single line item on the condensed consolidated balance sheets. As of
September 30, 2011
, these unconsolidated joint ventures were engaged in
nine
active construction projects with total contract values ranging from
$57.6
million to
$975.4
million. Our proportionate share of the equity in these unconsolidated joint ventures was between
20.0%
and
49.0%
. As of
September 30, 2011
, we had between
$2.4 million
and
$196.1 million
of revenue per project remaining to be recognized on these unconsolidated joint ventures.
16
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following is summary financial information related to unconsolidated construction joint ventures:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Assets:
|
|
|
|
|||||||||
|
Cash and cash equivalents
1
|
$
|
356,399
|
|
$
|
318,408
|
|
$
|
273,173
|
|
|||
|
Other assets
|
265,549
|
|
212,911
|
|
192,606
|
|
||||||
|
Less partners’ interest
|
378,523
|
|
324,485
|
|
287,616
|
|
||||||
|
Granite’s interest
|
243,425
|
|
206,834
|
|
178,163
|
|
||||||
|
Liabilities:
|
|
|
|
|||||||||
|
Accounts payable
|
85,602
|
|
72,658
|
|
49,767
|
|
||||||
|
Billings in excess of costs and estimated earnings
1
|
302,039
|
|
282,702
|
|
211,822
|
|
||||||
|
Other liabilities
|
9,460
|
|
8,893
|
|
13,837
|
|
||||||
|
Less partners’ interest
|
251,091
|
|
232,135
|
|
177,759
|
|
||||||
|
Granite’s interest
|
146,010
|
|
132,118
|
|
97,667
|
|
||||||
|
Equity in construction joint ventures
|
$
|
97,415
|
|
$
|
74,716
|
|
$
|
80,496
|
|
|||
1
The volume and stage of completion of contracts from our unconsolidated construction joint ventures may cause fluctuations in cash and cash equivalents as well as billings in excess of costs and estimated earnings between periods.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Revenue:
|
|
|
|
|
||||||||||||
|
Total
|
$
|
243,654
|
|
$
|
168,981
|
|
$
|
667,920
|
|
$
|
427,379
|
|
||||
|
Less partners’ interest
1
|
158,079
|
|
120,790
|
|
448,357
|
|
300,425
|
|
||||||||
|
Granite’s interest
|
85,575
|
|
48,191
|
|
219,563
|
|
126,954
|
|
||||||||
|
Cost of revenue:
|
|
|
|
|
||||||||||||
|
Total
|
212,485
|
|
157,932
|
|
546,495
|
|
386,316
|
|
||||||||
|
Less partners’ interest
1
|
140,506
|
|
111,578
|
|
370,865
|
|
261,508
|
|
||||||||
|
Granite’s interest
|
71,979
|
|
46,354
|
|
175,630
|
|
124,808
|
|
||||||||
|
Granite’s interest in gross profit
|
$
|
13,596
|
|
$
|
1,837
|
|
$
|
43,933
|
|
$
|
2,146
|
|
||||
1
Partners’ interest represents amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies.
Line Item Joint Ventures
The revenue for each line item joint venture partner’s discrete items of work is defined in the contract with the project owner and each venture partner bears the profitability risk associated with its own work. 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 project revenues and costs in our accounting system and include receivables and payables associated with our work in our condensed consolidated financial statements. As of
September 30, 2011
, we had
four
active line item joint venture construction projects with total contract values between
$52.9
million and
$154.9
million of which our portions were between
$21.1
million and
$71.3
million. As of
September 30, 2011
, we had between
$0.9
million and
$43.8
million of revenue per project remaining to be recognized on these line item joint ventures.
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
8.
|
Real Estate Entities and Investments in Affiliates
|
The operations of our Real Estate segment are conducted through our wholly owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility in the project. If one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume full management or financial responsibility for the project. This may result in the consolidation of entities that are accounted for under the equity method in our consolidated financial statements. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture.
Substantially all the assets of these real estate entities in which we are participants through our GLC subsidiary are classified as real estate held for development and sale or real estate held for use. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt. Our real estate affiliates include limited partnerships or limited liability companies of which we are a limited partner or member. In the fourth quarter of 2010, we publicly announced our work in progress on our Enterprise Improvement Plan which includes business plans to orderly divest of our real estate investment business through the end of 2013, subject to market conditions.
GLC receives authorization to provide additional financial support for certain of its real estate entities in increments as they achieve entitlement or development milestones, or to address changes in business plans. During the
nine months ended
September 30, 2011
, GLC was authorized to increase its financial support to consolidated land entities by a total of
$12.0
million on
three
separate projects. This compares to an increase of
$13.5
million on
three
projects for the same period in
2010
. The authorization will allow GLC entities to refinance debt and complete entitlements necessary to sell these projects in keeping with the Company’s plans to orderly divest its real estate investment business. As of
September 30, 2011
,
$7.9
million of the total authorized investment had yet to be contributed to the consolidated entities.
We have determined that certain of the real estate joint ventures are VIEs as defined by ASC Topic 810,
Consolidation
, and related standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners. Based on our ongoing primary beneficiary assessments, there were no changes to our determinations of whether we are the VIE’s primary beneficiary for existing real estate entities during the
nine months ended
September 30, 2011
and
2010
.
To determine if impairment charges should be recognized, the carrying amount of each consolidated real estate development project is reviewed on a quarterly basis in accordance with ASC Topic 360,
Property, Plant, and Equipment
, and each real estate development project accounted for under the equity method of accounting is reviewed in accordance with ASC Topic 323,
Investments - Equity Method and Joint Ventures
. The review of each project includes an evaluation of entitlement status, market conditions, existing offers to purchase, cost of construction, debt load, development schedule, status of joint venture partners and other factors specific to each project to determine if events or changes in circumstances indicate that a project’s carrying amount may not be recoverable. If events or changes in circumstances indicate that a project’s carrying amount may not be recoverable, the undiscounted future cash flows are estimated and compared to the project’s carrying amount. In the event that the estimated undiscounted future cash flows are not sufficient to recover the carrying amount of a project, it is written down to its estimated fair value.
Based on our quarterly evaluations of each project’s business plan and our review of each project, we recorded no significant impairment charges during the
three and nine
months ended
September 30, 2011
and
2010
.
18
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Real Estate Entities
The carrying amounts and classification of assets and liabilities of real estate entities we are required to consolidate are included in our condensed consolidated balance sheets as follows:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Real estate held for development and sale
|
$
|
79,173
|
|
$
|
75,716
|
|
$
|
151,638
|
|
|||
|
Other current assets
|
2,801
|
|
2,453
|
|
2,858
|
|
||||||
|
Total current assets
|
81,974
|
|
78,169
|
|
154,496
|
|
||||||
|
Property and equipment, net
|
—
|
|
3,771
|
|
8,156
|
|
||||||
|
Other noncurrent assets
|
—
|
|
1,095
|
|
2,005
|
|
||||||
|
Total assets
|
$
|
81,974
|
|
$
|
83,035
|
|
$
|
164,657
|
|
|||
|
Current maturities of non-recourse debt
|
$
|
16,190
|
|
$
|
29,760
|
|
$
|
39,157
|
|
|||
|
Other current liabilities
|
1,901
|
|
2,619
|
|
3,083
|
|
||||||
|
Total current liabilities
|
18,091
|
|
32,379
|
|
42,240
|
|
||||||
|
Long-term non-recourse debt
|
27,755
|
|
25,337
|
|
16,420
|
|
||||||
|
Other noncurrent liabilities
|
278
|
|
404
|
|
443
|
|
||||||
|
Total liabilities
|
$
|
46,124
|
|
$
|
58,120
|
|
$
|
59,103
|
|
|||
Substantially all of the consolidated real estate entities’ real estate held for development and sale as well as property and equipment are pledged as collateral for the debt of the real estate entities. All outstanding debt of the real estate entities is recourse only to the real estate affiliate that incurred the debt (i.e. the limited partnership or limited liability company of which we are a limited partner or member). Our proportionate share of the profits and losses of these entities depends on the ultimate operating results of the entities.
19
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Included in current assets on our condensed consolidated balance sheets is real estate held for development and sale. The breakdown by type and location of our real estate held for development and sale is summarized below:
|
|
September 30, 2011
|
December 31, 2010
|
September 30, 2010
|
||||||||||||||||||
|
(dollars in thousands)
|
Amount
|
Number of Projects
|
Amount
|
Number of Projects
|
Amount
|
Number of Projects
|
|||||||||||||||
|
Residential
|
$
|
55,672
|
|
5
|
|
$
|
55,289
|
|
5
|
|
$
|
129,618
|
|
6
|
|
||||||
|
Commercial
1
|
23,501
|
|
7
|
|
20,427
|
|
5
|
|
22,020
|
|
5
|
|
|||||||||
|
Total
|
$
|
79,173
|
|
12
|
|
$
|
75,716
|
|
10
|
|
$
|
151,638
|
|
11
|
|
||||||
|
Washington
|
$
|
47,109
|
|
2
|
|
$
|
44,598
|
|
2
|
|
$
|
87,194
|
|
2
|
|
||||||
|
California
1
|
16,382
|
|
8
|
|
13,437
|
|
6
|
|
25,815
|
|
7
|
|
|||||||||
|
Texas
|
8,859
|
|
1
|
|
8,859
|
|
1
|
|
8,716
|
|
1
|
|
|||||||||
|
Oregon
|
6,823
|
|
1
|
|
8,822
|
|
1
|
|
29,913
|
|
1
|
|
|||||||||
|
Total
|
$
|
79,173
|
|
12
|
|
$
|
75,716
|
|
10
|
|
$
|
151,638
|
|
11
|
|
||||||
1
The increase in the number of projects from
December 31, 2010
to
September 30, 2011
is due to the reclassification of two projects from property and equipment to real estate held for development and sale. The reclassifications were due to a change in business plans for the projects in connection with our Enterprise Improvement Plan.
Investments in Affiliates
We account for our share of unconsolidated real estate entities in which we have determined we are not the primary beneficiary in other income in the condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as investments in affiliates
.
At
September 30, 2011
, these entities were engaged in real estate development projects with total assets ranging from approximately
$3.1
million to
$48.4
million. Our proportionate share of the profits and losses of these entities depends on the ultimate operating results of the entities.
Additionally, we have investments in non-real estate affiliates that are accounted for using the equity method. The most significant of these investments is a 50% interest in a limited liability company which owns and operates an asphalt terminal in Nevada. We also have a cost method investment in the preferred stock of a corporation that designs and manufactures power generation equipment.
20
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our investments in affiliates balance consists of the following:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Equity method investments in real estate affiliates
|
$
|
15,856
|
|
$
|
12,128
|
|
$
|
14,290
|
|
|||
|
Equity method investments in other affiliates
|
11,129
|
|
12,882
|
|
11,825
|
|
||||||
|
Total equity method investments
|
26,985
|
|
25,010
|
|
26,115
|
|
||||||
|
Cost method investments
|
6,450
|
|
6,400
|
|
6,400
|
|
||||||
|
Total investments in affiliates
|
$
|
33,435
|
|
$
|
31,410
|
|
$
|
32,515
|
|
|||
The breakdown by type and location of our interests in real estate ventures is summarized below:
|
|
September 30, 2011
|
December 31, 2010
|
September 30, 2010
|
||||||||||||||||||
|
(dollars in thousands)
|
Amount
|
Number of Projects
|
Amount
|
Number of Projects
|
Amount
|
Number of Projects
|
|||||||||||||||
|
Residential
|
$
|
11,511
|
|
2
|
|
$
|
9,029
|
|
2
|
|
$
|
8,893
|
|
2
|
|
||||||
|
Commercial
|
4,345
|
|
3
|
|
3,099
|
|
3
|
|
5,397
|
|
3
|
|
|||||||||
|
Total
|
$
|
15,856
|
|
5
|
|
$
|
12,128
|
|
5
|
|
$
|
14,290
|
|
5
|
|
||||||
|
Texas
|
$
|
15,856
|
|
5
|
|
$
|
12,128
|
|
5
|
|
$
|
14,290
|
|
5
|
|
||||||
|
Total
|
$
|
15,856
|
|
5
|
|
$
|
12,128
|
|
5
|
|
$
|
14,290
|
|
5
|
|
||||||
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a 100% combined basis:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Total assets
|
$
|
157,054
|
|
$
|
156,868
|
|
$
|
165,653
|
|
|||
|
Net assets
|
80,306
|
|
84,368
|
|
88,530
|
|
||||||
|
Granite’s share of net assets
|
26,985
|
|
25,010
|
|
26,115
|
|
||||||
|
9.
|
Property and Equipment, net
|
Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net on our condensed consolidated balance sheets as follows:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Land and land improvements
|
$
|
122,728
|
|
$
|
120,342
|
|
$
|
123,278
|
|
|||
|
Quarry property
|
175,431
|
|
174,231
|
|
175,048
|
|
||||||
|
Buildings and leasehold improvements
|
81,217
|
|
85,655
|
|
89,401
|
|
||||||
|
Equipment and vehicles
|
753,776
|
|
778,443
|
|
791,449
|
|
||||||
|
Office furniture and equipment
|
48,996
|
|
42,509
|
|
41,354
|
|
||||||
|
Property and equipment
|
1,182,148
|
|
1,201,180
|
|
1,220,530
|
|
||||||
|
Less: accumulated depreciation and depletion
|
728,326
|
|
727,573
|
|
729,167
|
|
||||||
|
Property and equipment, net
|
$
|
453,822
|
|
$
|
473,607
|
|
$
|
491,363
|
|
|||
21
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
10.
|
Intangible Assets
|
The balances of the following intangible assets are included in other noncurrent assets on our condensed consolidated balance sheets:
Indefinite-lived Intangible Assets:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Goodwill
1
|
$
|
9,900
|
|
$
|
9,900
|
|
$
|
9,900
|
|
|||
|
Use rights and other
|
1,319
|
|
1,319
|
|
1,319
|
|
||||||
|
Total unamortized intangible assets
|
$
|
11,219
|
|
$
|
11,219
|
|
$
|
11,219
|
|
|||
1
Goodwill for all periods presented primarily relates to our Construction segment.
Amortized Intangible Assets:
|
September 30, 2011
|
|
Accumulated
|
|
|||||||||
|
(in thousands)
|
Gross Value
|
Amortization
|
Net Value
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(7,205
|
)
|
$
|
22,508
|
|
|||
|
Customer lists
|
2,198
|
|
(1,885
|
)
|
313
|
|
||||||
|
Covenants not to compete
|
1,588
|
|
(1,439
|
)
|
149
|
|
||||||
|
Other
|
871
|
|
(545
|
)
|
326
|
|
||||||
|
Total amortized intangible assets
|
$
|
34,370
|
|
$
|
(11,074
|
)
|
$
|
23,296
|
|
|||
|
December 31, 2010
|
|
|||||||||||
|
(in thousands)
|
|
|
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(6,100
|
)
|
$
|
23,613
|
|
|||
|
Customer lists
|
2,198
|
|
(1,715
|
)
|
483
|
|
||||||
|
Covenants not to compete
|
1,588
|
|
(1,325
|
)
|
263
|
|
||||||
|
Other
|
871
|
|
(432
|
)
|
439
|
|
||||||
|
Total amortized intangible assets
|
$
|
34,370
|
|
$
|
(9,572
|
)
|
$
|
24,798
|
|
|||
|
September 30, 2010
|
|
|||||||||||
|
(in thousands)
|
|
|
|
|||||||||
|
Permits
|
$
|
33,582
|
|
$
|
(6,401
|
)
|
$
|
27,181
|
|
|||
|
Customer lists
|
2,198
|
|
(1,658
|
)
|
540
|
|
||||||
|
Covenants not to compete
|
1,588
|
|
(1,286
|
)
|
302
|
|
||||||
|
Other
|
1,082
|
|
(606
|
)
|
476
|
|
||||||
|
Total amortized intangible assets
|
$
|
38,450
|
|
$
|
(9,951
|
)
|
$
|
28,499
|
|
|||
Amortization expense related to these intangible assets for the
three and nine
months ended
September 30, 2011
was approximately
$0.5
million and
$1.5
million, respectively, and approximately
$0.6
million and
$1.8
million for the
three and nine
months ended
September 30, 2010
, respectively. Based on the amortized intangible assets balance at
September 30, 2011
, amortization expense expected to be recorded in the future is as follows:
$0.5
million for the balance of 2011;
$1.9
million in 2012;
$1.6
million in 2013;
$1.5
million in 2014;
$1.5
million in 2015; and
$16.3
million thereafter.
22
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
11.
|
Restructuring
|
We had no significant restructuring charges during the
three and nine
months ended
September 30, 2011
and
2010
. During 2011 and beyond, we expect to record between
$2.0
million and
$11.0
million of restructuring charges, primarily related to previously planned additional consolidation efforts and assets to be held-for-sale as part of our Enterprise Improvement Plan. The ultimate amount and timing of future restructuring charges is subject to our ability to negotiate sales of certain assets at prices acceptable to us.
|
12.
|
Covenants and Events of Default
|
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the agreements, (2) termination of the agreements, (3) the requirement that any letters of credit under the agreements be cash collateralized, (4) acceleration of the maturity of outstanding indebtedness under the agreements and (5) foreclosure on any collateral securing the obligations under the agreements.
As of
September 30, 2011
, we were in compliance with the covenants contained in our senior note agreements and Credit Agreement.
Except as noted below, as of
September 30, 2011
, we were in compliance with the covenants contained in our debt agreements related to our consolidated real estate entities, and we are not aware of any material non-compliance by any of our unconsolidated entities with the covenants contained in their debt agreements. As of
September 30, 2011
, two of our consolidated and two of our unconsolidated real estate entities were in default under debt agreements as a result of their failure to make timely required principal and/or interest payments. Subsequent to
September 30, 2011
, defaults under the debt agreements of one of our consolidated real estate entities has been cured. The affected loans are non-recourse to Granite and these defaults do not result in cross-defaults under other debt agreements under which Granite is the obligor; however, there is recourse to the real estate entity that incurred the debt. The real estate entities remaining in default are currently in discussions with lenders to revise the terms of the defaulted debt agreements.
23
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
13.
|
Weighted Average Shares Outstanding
|
A reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share in the accompanying condensed consolidated statements of operations is as follows:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||
|
Weighted average shares outstanding:
|
|
|
|
|
||||||||
|
Weighted average common stock outstanding
|
38,669
|
|
38,773
|
|
38,678
|
|
38,747
|
|
||||
|
Less: weighted average unvested restricted stock outstanding
|
497
|
|
908
|
|
586
|
|
945
|
|
||||
|
Total basic weighted average shares outstanding
|
38,172
|
|
37,865
|
|
38,092
|
|
37,802
|
|
||||
|
Diluted weighted average shares outstanding:
|
|
|
|
|
||||||||
|
Weighted average common stock outstanding, basic
|
38,172
|
|
37,865
|
|
38,092
|
|
37,802
|
|
||||
|
Effect of dilutive securities:
|
|
|
|
|||||||||
|
Common stock options and restricted stock units
1
|
426
|
|
206
|
|
336
|
|
—
|
|
||||
|
Total weighted average shares outstanding assuming dilution
|
38,598
|
|
38,071
|
|
38,428
|
|
37,802
|
|
||||
1
Due to the net loss for the
nine months ended
September 30, 2010
,
146,000
common stock options and restricted stock units have been excluded from the number of shares used in calculating diluted loss per share, as their inclusion would be antidilutive.
24
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
14.
|
Earnings Per Share
|
We calculate earnings per share (“EPS”) under the two-class method by allocating earnings to both common shares and unvested restricted stock which are considered participating securities. However, net losses are not allocated to participating securities for purposes of computing EPS under the two-class method. The following is a reconciliation of net income (loss) attributable to Granite and related weighted average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share using the two-class method:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands, except per share amounts)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Basic
|
|
|
|
|
|
|||||||||||
|
Numerator:
|
|
|
|
|
|
|||||||||||
|
Net income (loss) attributable to Granite
|
$
|
36,468
|
|
$
|
38,681
|
|
$
|
32,407
|
|
$
|
(8,964
|
)
|
||||
|
Less: net income allocated to participating securities
|
469
|
|
903
|
|
491
|
|
—
|
|
||||||||
|
Net income (loss) allocated to common shareholders for basic calculation
|
$
|
35,999
|
|
$
|
37,778
|
|
$
|
31,916
|
|
$
|
(8,964
|
)
|
||||
|
Denominator:
|
|
|
|
|
|
|||||||||||
|
Weighted average common shares outstanding, basic
|
38,172
|
|
37,865
|
|
38,092
|
|
37,802
|
|
||||||||
|
Net income (loss) per share, basic
|
$
|
0.94
|
|
$
|
1.00
|
|
$
|
0.84
|
|
$
|
(0.24
|
)
|
||||
|
Diluted
|
|
|
|
|
|
|||||||||||
|
Numerator:
|
|
|
|
|
|
|||||||||||
|
Net income (loss) attributable to Granite
|
$
|
36,468
|
|
$
|
38,681
|
|
$
|
32,407
|
|
$
|
(8,964
|
)
|
||||
|
Less: net income allocated to participating securities
|
462
|
|
898
|
|
487
|
|
—
|
|
||||||||
|
Net income (loss) allocated to common shareholders for diluted calculation
|
$
|
36,006
|
|
$
|
37,783
|
|
$
|
31,920
|
|
$
|
(8,964
|
)
|
||||
|
Denominator:
|
|
|
|
|
|
|||||||||||
|
Weighted average common shares outstanding, diluted
|
38,598
|
|
38,071
|
|
38,428
|
|
37,802
|
|
||||||||
|
Net income (loss) per share, diluted
|
$
|
0.93
|
|
$
|
0.99
|
|
$
|
0.83
|
|
$
|
(0.24
|
)
|
||||
25
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
15.
|
Income Taxes
|
Our effective tax rate was
26.3%
and
22.5%
for the
three and nine
months ended
September 30, 2011
, respectively, and was
(22.8)%
and
135.4%
for the
three and nine
months ended
September 30, 2010
, respectively. The changes from prior year periods were primarily due to the effect from noncontrolling interests as a percent of net income (loss), as noncontrolling interests are not subject to income taxes on a stand-alone basis. Included in the tax rate for the
nine months ended
September 30, 2011
is the recognition and measurement of previously unrecognized tax benefits, which is considered a discrete item for tax provision purposes. The recognition and measurement of these tax benefits was the result of a favorable settlement of an income tax examination conducted by the Internal Revenue Service. In addition, our effective tax rate for the
nine months ended
September 30, 2010
was affected by non-taxable life insurance proceeds which were considered a discrete item for tax provision purposes.
|
16.
|
Equity and Other Comprehensive Income (Loss)
|
The following tables summarize our equity activity for the periods presented:
|
(in thousands)
|
Granite Construction Incorporated
|
Noncontrolling Interests
|
Total Equity
|
|||||||||
|
Balance at December 31, 2010
|
$
|
761,031
|
|
$
|
34,604
|
|
$
|
795,635
|
|
|||
|
Purchase of common stock
1
|
(3,840
|
)
|
—
|
|
(3,840
|
)
|
||||||
|
Other transactions with shareholders
3
|
7,589
|
|
—
|
|
7,589
|
|
||||||
|
Transactions with noncontrolling interests, net
4
|
—
|
|
(17,489
|
)
|
(17,489
|
)
|
||||||
|
Comprehensive income:
|
|
|
|
|
|
|
||||||
|
Net income
|
32,407
|
|
8,886
|
|
41,293
|
|
||||||
|
Total comprehensive income
|
32,407
|
|
8,886
|
|
41,293
|
|
||||||
|
Dividends on common stock
|
(15,078
|
)
|
—
|
|
(15,078
|
)
|
||||||
|
Balance at September 30, 2011
|
$
|
782,109
|
|
$
|
26,001
|
|
$
|
808,110
|
|
|||
|
(in thousands)
|
|
|
|
|||||||||
|
Balance at December 31, 2009
|
$
|
830,651
|
|
$
|
51,905
|
|
$
|
882,556
|
|
|||
|
Purchase of common stock
2
|
(3,374
|
)
|
—
|
|
(3,374
|
)
|
||||||
|
Other transactions with shareholders
3
|
10,266
|
|
—
|
|
10,266
|
|
||||||
|
Transactions with noncontrolling interests, net
4
|
—
|
|
(20,599
|
)
|
(20,599
|
)
|
||||||
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
||||||
|
Net (loss) income
|
(8,964
|
)
|
11,902
|
|
2,938
|
|
||||||
|
Total comprehensive (loss) income
|
(8,964
|
)
|
11,902
|
|
2,938
|
|
||||||
|
Dividends on common stock
|
(15,127
|
)
|
—
|
|
(15,127
|
)
|
||||||
|
Balance at September 30, 2010
|
$
|
813,452
|
|
$
|
43,208
|
|
$
|
856,660
|
|
|||
1
Represents
138,000
shares purchased in connection with employee tax withholding for shares/units granted under our Amended and Restated 1999 Equity Incentive Plan.
2
Represents
122,000
shares purchased in connection with employee tax withholding for shares granted under our Amended and Restated 1999 Equity Incentive Plan.
3
Amounts are comprised primarily of amortized restricted stock and units.
4
Amounts are comprised primarily of distributions to noncontrolling partners.
26
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
17.
|
Legal Proceedings
|
In the ordinary course of business, we are involved in various legal proceedings that are pending against us and our affiliates alleging, among other things, breach of contract or tort in connection with the performance of professional services, the various outcomes of which cannot be predicted with certainty. The most significant of these proceedings are as follows:
|
•
|
Hiawatha Project DBE Issues:
The Hiawatha Light Rail Transit (“HLRT”) project was performed by Minnesota Transit Constructors (“MnTC”), a joint venture that consisted of our wholly owned subsidiary, Granite Construction Company (“GCCO”), and other unrelated companies. GCCO was the managing partner of the joint venture. The Minnesota Department of Transportation (“MnDOT”), which was the contracting agency, the Metropolitan Council, which was the local agency conduit for providing federal funds to MnDOT for the HLRT project, and the U.S. Departments of Transportation and Justice made certain claims that MnTC had not complied with certain contract and legal requirements regarding the use of Disadvantaged Business Enterprise (“DBE”) firms on the project. All agencies and MnTC reached a negotiated settlement of all claims asserted. In return for a release from the agencies of their asserted claims, and to avoid the additional expense and uncertainty of pursuing a formal resolution of the claims, MnTC agreed to make a payment to the U.S. Department of Justice (“USDOJ”). Granite's portion of the settlement is approximately $1.1 million and had been reserved in prior period financial statements. However, in the settlement MnTC did not admit to, and continued to dispute, the agencies' claims. There were no civil or criminal actions filed in this matter. There are no special requirements or limitations on GCCO or the MnTC joint venture partners regarding future contracts with the federal government or MnDOT arising out of this matter or the settlement.
|
|
•
|
US Highway 20 Project:
Our wholly owned subsidiaries, GCCO and Granite Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which is contracted by the Oregon Department of Transportation (“ODOT”) to construct a new road alignment of US Highway 20 near Eddyville, Oregon. 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 installed erosion control measures and resulted in discharges to surface water resulting in alleged violations of YRC’s stormwater permit. In June 2009, YRC was informed that the USDOJ had assumed the criminal investigation that the Oregon Department of Justice initiated in connection with stormwater runoff from the project. YRC and its members are fully cooperating in the investigation. We continue to communicate with the USDOJ about the agency’s possible penalties against GCCO. We do not know whether any criminal charges, civil lawsuits or fines will be brought against GCCO as a result of the USDOJ’s investigation. Under certain circumstances the resolution of this matter could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flow and liquidity.
|
27
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
•
|
Grand Avenue Project DBE Issues:
On March 6, 2009, the U.S. Department of Transportation, Office of Inspector General (“OIG”) served upon our wholly-owned subsidiary, Granite Construction Northeast, Inc. (“Granite Northeast”), a United States District Court Eastern District of New York subpoena to testify before a grand jury by producing documents. The subpoena seeks all documents pertaining to the use of a DBE firm (the “Subcontractor”), and the Subcontractor's use of a non-DBE lower tier subcontractor/consultant, on the Grand Avenue Bus Depot and Central Maintenance Facility for the Borough of Queens Project (the “Grand Avenue Project”), a Granite Northeast project. The subpoena also seeks any documents regarding the use of the Subcontractor as a DBE on any other projects and any other documents related to the Subcontractor or to the lower-tier subcontractor/consultant. We have complied with the subpoena and are fully cooperating with the OIG's investigation. To date, Granite Northeast has not been notified that it is either a subject or target of the OIG's investigation. Accordingly, we do not know whether any criminal charges or civil lawsuits will be brought or against whom, as a result of the investigation. We cannot, however, rule out the possibility of civil or criminal actions or administrative sanctions being brought against Granite Northeast.
|
|
•
|
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 also 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 pending proceedings and compliance inquiries, individually and in the aggregate, will not have a material adverse affect on our financial position or overall trends in results of operations or cash flows, litigation is subject to inherent uncertainties. Were one or more unfavorable rulings to occur, there exists the possibility of a material adverse effect on our financial position, results of operations, cash flows and/or liquidity for the period in which the ruling occurs. In addition, our government contracts could be terminated, we could be suspended or debarred, or payment of our costs disallowed. 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 be resolved through settlement is neither predictable nor guaranteed.
|
We record amounts in our condensed consolidated balance sheets representing our estimated liability relating to legal proceedings and government inquiries. During the
three and nine
months ended
September 30, 2011
and
2010
, there were no significant additions or revisions to the estimated liability that were recorded in our condensed consolidated statements of operations, or significant changes to our accrual for such ligation loss contingencies on our condensed consolidated balance sheets.
28
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
18.
|
Business Segment Information
|
Our reportable segments are: Construction, Large Project Construction, Construction Materials and Real Estate.
The Construction segment performs various heavy civil construction projects with a large portion of the work focused on new construction and improvement of streets, roads, highways, bridges, site work and other infrastructure projects. These projects are typically bid-build projects completed within two years with a contract value of less than $75 million.
The Large Project Construction segment focuses on large, complex infrastructure projects which typically have longer duration than our Construction segment work. These projects include major highways, mass transit facilities, bridges, tunnels, waterway locks and dams, pipelines, canals and airport infrastructure. This segment primarily includes bid-build, design-build and construction management/general contractor contracts, generally with contract values in excess of $75 million.
The Construction Materials segment mines and processes aggregates and operates plants that produce construction materials for internal use and for sale to third parties.
The Real Estate segment purchases, develops, operates, sells and invests in real estate related projects and provides real estate services for the Company’s operations. The Real Estate segment’s current portfolio consists of residential, retail and office site development projects for sale to home and commercial property developers in Washington, Oregon, California and Texas. In October 2010, we announced our Enterprise Improvement Plan that includes plans to orderly divest of our real estate investment business consistent with our strategy to focus on our core business.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies contained in our 2010 Annual Report on Form 10-K. We evaluate segment performance based on gross profit or loss, and do not include overhead and non-operating income or expense. Segment assets include property and equipment, intangibles, inventory, equity in construction joint ventures and real estate held for development and sale.
29
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summarized segment information is as follows:
|
|
Three Months Ended September 30,
|
|||||||||||||||||||
|
(in thousands)
|
Construction
|
Large Project Construction
|
Construction Materials
|
Real Estate
|
Total
|
|||||||||||||||
|
2011
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue from reportable segments
|
$
|
431,101
|
|
$
|
213,320
|
|
$
|
170,574
|
|
$
|
986
|
|
$
|
815,981
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(87,403
|
)
|
—
|
|
(87,403
|
)
|
||||||||||
|
Revenue from external customers
|
431,101
|
|
213,320
|
|
83,171
|
|
986
|
|
728,578
|
|
||||||||||
|
Gross profit
|
58,540
|
|
25,557
|
|
9,554
|
|
242
|
|
93,893
|
|
||||||||||
|
Depreciation, depletion and amortization
|
3,437
|
|
1,259
|
|
7,487
|
|
46
|
|
12,229
|
|
||||||||||
|
2010
|
|
|
|
|
|
|
|
|||||||||||||
|
Total revenue from reportable segments
|
$
|
409,989
|
|
$
|
169,972
|
|
$
|
193,578
|
|
$
|
2,761
|
|
$
|
776,300
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(105,450
|
)
|
—
|
|
(105,450
|
)
|
||||||||||
|
Revenue from external customers
|
409,989
|
|
169,972
|
|
88,128
|
|
2,761
|
|
670,850
|
|
||||||||||
|
Gross profit
|
44,666
|
|
18,316
|
|
12,137
|
|
1,036
|
|
76,155
|
|
||||||||||
|
Depreciation, depletion and amortization
|
3,432
|
|
678
|
|
9,433
|
|
82
|
|
13,625
|
|
||||||||||
|
|
Nine Months Ended September 30,
|
|||||||||||||||||||
|
(in thousands)
|
Construction
|
Large Project Construction
|
Construction Materials
|
Real Estate
|
Total
|
|||||||||||||||
|
2011
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue from reportable segments
|
$
|
784,393
|
|
$
|
513,478
|
|
$
|
309,846
|
|
$
|
7,029
|
|
$
|
1,614,746
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(144,763
|
)
|
—
|
|
(144,763
|
)
|
||||||||||
|
Revenue from external customers
|
784,393
|
|
513,478
|
|
165,083
|
|
7,029
|
|
1,469,983
|
|
||||||||||
|
Gross profit
|
87,482
|
|
69,513
|
|
10,754
|
|
1,088
|
|
168,837
|
|
||||||||||
|
Depreciation, depletion and amortization
|
11,362
|
|
3,316
|
|
21,594
|
|
143
|
|
36,415
|
|
||||||||||
|
Segment assets
|
114,359
|
|
108,272
|
|
368,141
|
|
87,232
|
|
678,004
|
|
||||||||||
|
2010
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total revenue from reportable segments
|
$
|
729,118
|
|
$
|
429,625
|
|
$
|
335,896
|
|
$
|
11,613
|
|
$
|
1,506,252
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(160,515
|
)
|
—
|
|
(160,515
|
)
|
||||||||||
|
Revenue from external customers
|
729,118
|
|
429,625
|
|
175,381
|
|
11,613
|
|
1,345,737
|
|
||||||||||
|
Gross profit
|
69,413
|
|
49,634
|
|
9,492
|
|
3,028
|
|
131,567
|
|
||||||||||
|
Depreciation, depletion and amortization
|
14,058
|
|
2,147
|
|
24,985
|
|
412
|
|
41,602
|
|
||||||||||
|
Segment assets
|
127,445
|
|
88,752
|
|
376,312
|
|
168,041
|
|
760,550
|
|
||||||||||
A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Total gross profit from reportable segments
|
$
|
93,893
|
|
$
|
76,155
|
|
$
|
168,837
|
|
$
|
131,567
|
|
||||
|
Selling, general and administrative expenses
|
39,112
|
|
47,160
|
|
121,277
|
|
153,809
|
|
||||||||
|
Gain on sales of property and equipment
|
5,598
|
|
3,165
|
|
11,572
|
|
11,417
|
|
||||||||
|
Other (expense) income, net
|
(2,894
|
)
|
3,115
|
|
(5,866
|
)
|
2,530
|
|
||||||||
|
Income (loss) before provision for (benefit from) income taxes
|
$
|
57,485
|
|
$
|
35,275
|
|
$
|
53,266
|
|
$
|
(8,295
|
)
|
||||
30
|
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, including statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. 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 regarding future events, occurrences, circumstances, activities, performance, outcomes and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors”
and in “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.
Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason
.
31
Overview
We are one of the largest diversified heavy civil contractors and construction materials producers in the United States, engaged in the construction and improvement of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams and other infrastructure-related projects. We own aggregate reserves and plant facilities to produce construction materials for use in our construction business and for sale to third parties. We also operate a real estate investment and development company. Our permanent offices are located in Alaska, Arizona, California, Florida, Nevada, New York, Texas, Utah and Washington. We have four reportable business segments: Construction, Large Project Construction, Construction Materials and Real Estate (see Note 18 of “Notes to the Condensed Consolidated Financial Statements”). In October 2010, we announced our Enterprise Improvement Plan that includes business plans to orderly divest of our real estate investment business consistent with our business strategy to focus on our core business.
Our construction contracts are obtained through competitive bidding in response to advertisements and other general solicitations by both public agencies and private parties and on a negotiated basis as a result of direct solicitation by private parties. Our bidding activity is affected by such factors as the nature and volume of advertising and other solicitations, contract backlog, available personnel, current utilization of equipment and other resources, our ability to obtain necessary surety bonds and competitive considerations. Our contract review process includes identifying risks and opportunities during the bidding process and managing these risks through mitigation efforts such as insurance and pricing. Contracts fitting certain criteria of size and complexity are reviewed by various levels of management and, in some cases, by the Executive Committee of our Board of Directors. Bidding activity, contract backlog and revenue resulting from the award of new contracts may vary significantly from period to period.
Our typical construction project begins with the preparation and submission of a bid to a customer. If selected as the successful bidder, we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as identified in the contract. We usually invoice our customers on a monthly basis. Our contracts frequently call for retention that is a specified percentage withheld from each payment until the contract is completed and the work accepted by the customer. Additionally, we defer recognition of profit on projects until they reach at least 25% completion (see “Gross Profit” section below) and our profit recognition is based on estimates that change over time. Our revenue, gross margin and cash flows can differ significantly from period to period due to a variety of factors including the projects’ stage of completion, the mix of early and late stage projects, our estimates of contract costs and the payment terms of our contracts. The timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital.
The three primary economic drivers of our business are (1) the overall health of the economy, (2) federal, state and local public funding levels, and (3) population growth resulting in public and private development. A stagnant or declining economy will generally result in reduced demand for construction and construction materials 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 revenues and/or have a downward impact on our gross profit margins. In addition, a stagnant or declining economy tends to produce less tax revenue for public agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements. Some funding sources that have been specifically earmarked for infrastructure spending, such as diesel and gasoline taxes, are not as directly affected by a stagnant or declining economy, unless actual consumption is reduced. However, even these can be temporarily at risk as state and local governments struggle to balance their budgets. Additionally, high fuel prices can have a dampening effect on consumption, resulting in overall lower tax revenue. Conversely, increased levels of 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 market sector information reflects three regions defined as follows: 1) California; 2) Northwest, which includes our offices in Alaska, Nevada, Utah and Washington; and 3) East which includes our offices in Arizona, Florida, New York and Texas. Each of these regions includes operations from our Construction, Large Project Construction, and Construction Materials lines of business.
32
Current Economic Environment and Outlook
Our year-over-year operating results have improved for the
three and nine months ended
September 30, 2011
when compared to the same periods in 2010. However, intense competition continues to have a negative impact on construction and large project construction gross margins. In addition, funding issues for public sector infrastructure projects coupled with weak demand for commercial and residential development in many of our markets has had a negative impact on sales of construction materials. While we continue to have a significant amount of work to bid across the country, lower tax revenues, budget deficits, financing constraints and competing priorities have impacted the timing and volume of public infrastructure projects. In addition, the number of new commercial and residential construction projects has been adversely affected by an oversupply of existing inventories of commercial and residential properties, declining property values and subsequent financing restrictions. We expect these challenging conditions to persist throughout the remainder of 2011, and into 2012, pending improvement in the overall level of economic activity, the level of tax revenue collected by public agencies, the competitive landscape and the availability of financing.
The current extension of the federal surface transportation program authorization expires in March 2012 and the continuing resolution of appropriations to fund federal government programs for the 2012 fiscal year expires in November 2011. While the full Senate has passed legislation appropriating full funding for surface transportation for the 2012 fiscal year, the full House has yet to act on the transportation budget. In September 2011, the President of the U.S. proposed a $447 billion American Jobs Act, which is a proposal that will make an immediate investment of $50 billion in our nation’s surface transportation infrastructure and a $10 billion investment to create a bipartisan National Infrastructure bank. While it has received mixed reviews in Congress, the policy leadership in both houses has responded by advocating for full funding for transportation infrastructure going forward. While there has been no resolution to the funding debate in Congress, we are pleased that infrastructure funding has taken a higher priority on the federal agenda.
In response to the challenging market conditions, we continue to seek opportunities in our traditional markets while leveraging our capabilities and further diversifying into rail, energy and federal government opportunities. In addition, last fall, we implemented the Enterprise Improvement Plan to reduce our cost structure. The majority of restructuring charges associated with the Enterprise Improvement Plan were recorded in 2010. During 2011 and beyond, we expect to record between $2.0 million and $11.0 million of restructuring charges, primarily related to previously planned additional consolidation efforts and assets to be held-for-sale as part of our Enterprise Improvement Plan. The ultimate amount and timing of future restructuring charges is subject to our ability to negotiate sales of certain assets at prices acceptable to us. We had no material restructuring charges during the
three and nine
months ended
September 30, 2011
and
2010
.
Results of Operations
Interim results are subject to significant seasonal variations and the results of operations for the
three and nine
months ended
September 30, 2011
are not necessarily indicative of the results to be expected for the full year.
|
Comparative Financial Summary
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Total revenue
|
$
|
728,578
|
|
$
|
670,850
|
|
$
|
1,469,983
|
|
$
|
1,345,737
|
|
||||
|
Gross profit
|
93,893
|
|
76,155
|
|
168,837
|
|
131,567
|
|
||||||||
|
Selling, general and administrative expenses
|
39,112
|
|
47,160
|
|
121,277
|
|
153,809
|
|
||||||||
|
Operating income (loss)
|
60,379
|
|
32,160
|
|
59,132
|
|
(10,825
|
)
|
||||||||
|
Net income (loss) attributable to Granite Construction Incorporated
|
36,468
|
|
38,681
|
|
32,407
|
|
(8,964
|
)
|
||||||||
33
Revenue
|
Total Revenue by Segment
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||||||||||||
|
Construction
|
$
|
431,101
|
|
59.2
|
%
|
$
|
409,989
|
|
61.1
|
%
|
$
|
784,393
|
|
53.4
|
%
|
$
|
729,118
|
|
54.2
|
%
|
||||||||
|
Large Project Construction
|
213,320
|
|
29.3
|
|
169,972
|
|
25.4
|
|
513,478
|
|
34.9
|
|
429,625
|
|
31.9
|
|
||||||||||||
|
Construction Materials
|
83,171
|
|
11.4
|
|
88,128
|
|
13.1
|
|
165,083
|
|
11.2
|
|
175,381
|
|
13.0
|
|
||||||||||||
|
Real Estate
|
986
|
|
0.1
|
|
2,761
|
|
0.4
|
|
7,029
|
|
0.5
|
|
11,613
|
|
0.9
|
|
||||||||||||
|
Total
|
$
|
728,578
|
|
100.0
|
%
|
$
|
670,850
|
|
100.0
|
%
|
$
|
1,469,983
|
|
100.0
|
%
|
$
|
1,345,737
|
|
100.0
|
%
|
||||||||
|
Construction Revenue
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||||||||||||
|
California:
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Public sector
|
$
|
172,064
|
|
39.9
|
%
|
$
|
163,272
|
|
39.9
|
%
|
$
|
327,576
|
|
41.7
|
%
|
$
|
272,553
|
|
37.3
|
%
|
||||||||
|
Private sector
|
11,668
|
|
2.7
|
|
7,864
|
|
1.9
|
|
33,711
|
|
4.3
|
|
24,887
|
|
3.4
|
|
||||||||||||
|
Northwest:
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Public sector
|
197,513
|
|
45.8
|
|
199,711
|
|
48.7
|
|
316,700
|
|
40.4
|
|
339,419
|
|
46.6
|
|
||||||||||||
|
Private sector
|
14,904
|
|
3.5
|
|
10,005
|
|
2.4
|
|
24,830
|
|
3.2
|
|
17,419
|
|
2.4
|
|
||||||||||||
|
East:
|
|
|
|
|
|
|
||||||||||||||||||||||
|
Public sector
|
34,531
|
|
8.0
|
|
28,603
|
|
7.0
|
|
80,299
|
|
10.2
|
|
72,963
|
|
10.0
|
|
||||||||||||
|
Private sector
|
421
|
|
0.1
|
|
534
|
|
0.1
|
|
1,277
|
|
0.2
|
|
1,877
|
|
0.3
|
|
||||||||||||
|
Total
|
$
|
431,101
|
|
100.0
|
%
|
$
|
409,989
|
|
100.0
|
%
|
$
|
784,393
|
|
100.0
|
%
|
$
|
729,118
|
|
100.0
|
%
|
||||||||
Revenue for the
three and nine
months ended
September 30, 2011
increased by
$21.1 million
, or
5.1%
, and
$55.3 million
, or
7.6%
, respectively, compared to the same periods in
2010
. These increases were due to improved construction activity in our California sector as a result of entering the year with greater contract backlog.
|
Large Project Construction Revenue
1
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||||||||||||
|
California
|
$
|
24,599
|
|
11.5
|
%
|
$
|
11,305
|
|
6.7
|
%
|
$
|
56,625
|
|
11.0
|
%
|
$
|
38,103
|
|
8.9
|
%
|
||||||||
|
Northwest
|
71,609
|
|
33.6
|
|
17,940
|
|
10.6
|
|
132,982
|
|
25.9
|
|
37,928
|
|
8.8
|
|
||||||||||||
|
East
|
117,112
|
|
54.9
|
|
140,727
|
|
82.7
|
|
323,871
|
|
63.1
|
|
353,594
|
|
82.3
|
|
||||||||||||
|
Total
|
$
|
213,320
|
|
100.0
|
%
|
$
|
169,972
|
|
100.0
|
%
|
$
|
513,478
|
|
100.0
|
%
|
$
|
429,625
|
|
100.0
|
%
|
||||||||
1
For the periods presented, all Large Project Construction revenue was earned from the public sector.
Revenue for the
three and nine
months ended
September 30, 2011
increased by
$43.3 million
, or
25.5%
, and
$83.9 million
, or
19.5%
, respectively, compared to the same periods in
2010
, due to increases in revenue of our California and Northwest sectors partially offset by decreases in our East sector. Revenue in California increased due to progress on jobs that were awarded in late 2010 and early 2011. Revenue in the Northwest was significantly higher in
2011
as a result of work completed on two projects that were awarded in
2010
. Revenue decreased in the East in
2011
when compared to
2010
primarily due to projects nearing completion.
34
|
Construction Materials Revenue
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||||||||||||
|
California
|
$
|
46,759
|
|
56.2
|
%
|
$
|
45,491
|
|
51.6
|
%
|
$
|
103,832
|
|
62.9
|
%
|
$
|
105,737
|
|
60.3
|
%
|
||||||||
|
Northwest
|
31,492
|
|
37.9
|
|
35,440
|
|
40.2
|
|
48,277
|
|
29.2
|
|
53,581
|
|
30.5
|
|
||||||||||||
|
East
|
4,920
|
|
5.9
|
|
7,197
|
|
8.2
|
|
12,974
|
|
7.9
|
|
16,063
|
|
9.2
|
|
||||||||||||
|
Total
|
$
|
83,171
|
|
100.0
|
%
|
$
|
88,128
|
|
100.0
|
%
|
$
|
165,083
|
|
100.0
|
%
|
$
|
175,381
|
|
100.0
|
%
|
||||||||
Revenue for the
three and nine
months ended
September 30, 2011
decreased by
$5.0 million
, or
5.6%
, and
$10.3 million
, or
5.9%
, respectively, compared to the same periods in
2010
. The decreases were primarily due to continued weakness in the commercial and residential development markets.
Real Estate Revenue
Revenue for the
three and nine
months ended
September 30, 2011
decreased by
$1.8 million
and
$4.6 million
, respectively, compared with the same periods in
2010
. The decrease during the
three
months was due to land sales in Texas and home sales in Oregon during the third quarter of
2010
with limited corresponding sales in
2011
. The decrease during the
nine
months was attributable to the sale of a commercial property in California during the first quarter of 2010 with limited corresponding sales in
2011
. Factors that contribute to real estate revenue fluctuations include national and local market conditions, entitlement status and buyers access to capital.
Contract Backlog
Our contract backlog consists of the remaining unearned revenue on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in our contract backlog at the time it is awarded and funding is in place. Certain federal government contracts where funding is appropriated on a periodic basis are included in contract backlog at the time of the award. Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past.
The following tables illustrate our contract backlog as of the respective dates:
|
Total Contract Backlog by Segment
|
|
|
|||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2011
|
June 30, 2011
|
September 30, 2010
|
||||||||||||||||||
|
Construction
|
$
|
562,705
|
|
30.5
|
%
|
$
|
800,434
|
|
38.0
|
%
|
$
|
497,089
|
|
30.3
|
%
|
||||||
|
Large Project Construction
|
1,280,945
|
|
69.5
|
|
1,306,961
|
|
62.0
|
|
1,141,453
|
|
69.7
|
|
|||||||||
|
Total
|
$
|
1,843,650
|
|
100.0
|
%
|
$
|
2,107,395
|
|
100.0
|
%
|
$
|
1,638,542
|
|
100.0
|
%
|
||||||
35
|
Construction Contract Backlog
|
|
|
|
||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2011
|
June 30, 2011
|
September 30, 2010
|
||||||||||||||||||
|
California:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
$
|
334,795
|
|
59.5
|
%
|
$
|
445,686
|
|
55.7
|
%
|
$
|
194,889
|
|
39.2
|
%
|
||||||
|
Private sector
|
14,937
|
|
2.7
|
|
8,334
|
|
1.0
|
|
9,488
|
|
1.9
|
|
|||||||||
|
Northwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Public sector
|
151,916
|
|
27.0
|
|
282,693
|
|
35.3
|
|
205,992
|
|
41.4
|
|
|||||||||
|
Private sector
|
23,211
|
|
4.1
|
|
18,280
|
|
2.3
|
|
9,611
|
|
2.0
|
|
|||||||||
|
East:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Public sector
|
37,210
|
|
6.6
|
|
44,555
|
|
5.6
|
|
75,416
|
|
15.2
|
|
|||||||||
|
Private sector
|
636
|
|
0.1
|
|
886
|
|
0.1
|
|
1,693
|
|
0.3
|
|
|||||||||
|
Total
|
$
|
562,705
|
|
100.0
|
%
|
$
|
800,434
|
|
100.0
|
%
|
$
|
497,089
|
|
100.0
|
%
|
||||||
Construction contract backlog of
$562.7 million
at
September 30, 2011
was
$237.7 million
, or
29.7%
, lower than at
June 30, 2011
and
$65.6 million
, or
13.2%
, higher than at
September 30, 2010
. The decrease from
June 30, 2011
was primarily due to progress on existing projects partially offset by new awards in California. The increase from
September 30, 2010
was primarily due to improved success rate on bidding activity in California offset by progress on existing projects in the Northwest and the East.
|
Large Project Construction Contract Backlog
1
|
|
|
|
||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2011
|
June 30, 2011
|
September 30, 2010
|
||||||||||||||||||
|
California
|
$
|
221,501
|
|
17.3
|
%
|
$
|
170,203
|
|
13.0
|
%
|
$
|
176,189
|
|
15.4
|
%
|
||||||
|
Northwest
|
455,558
|
|
35.6
|
|
520,367
|
|
39.8
|
|
138,138
|
|
12.1
|
|
|||||||||
|
East
|
603,886
|
|
47.1
|
|
616,391
|
|
47.2
|
|
827,126
|
|
72.5
|
|
|||||||||
|
Total
|
$
|
1,280,945
|
|
100.0
|
%
|
$
|
1,306,961
|
|
100.0
|
%
|
$
|
1,141,453
|
|
100.0
|
%
|
||||||
1
For all dates presented, Large Project Construction contract backlog is related to contracts with public agencies.
Large project construction contract backlog of
$1.3 billion
at
September 30, 2011
was
$26.0 million
, or
2.0%
, lower than at
June 30, 2011
, and
$139.5 million
, or
12.2%
, higher than at
September 30, 2010
. The decrease in backlog from
June 30, 2011
was primarily due to work completed during the quarter partially offset by new awards, including a $64.4 million bridge widening and re-decking design-build project in Florida as well as awards for our portion of a utility and site improvement design-build project in Guam and an airport taxiway renovation design-build project in California. Our share of the Guam project is 49% or approximately $44.0 million and our share of the California project is 25% or approximately $24.3 million. The increase in contract backlog from
September 30, 2010
was primarily due to improved success rate on bidding activity in the West, including awards of $306.3 million for a highway expansion and reconstruction project in Washington, $220.2 million for a new freeway, transit and trail system in Utah and $125.9 million for an auxiliary spillway control structure in California. The increase in awards in the West was partially offset by progress made on large construction projects in the East.
Noncontrolling interests included in large project construction contract backlog as of
September 30, 2011
,
June 30, 2011
, and
September 30, 2010
were
$178.2 million
,
$210.4 million
and
$98.0 million
, respectively.
36
Gross Profit
The following table presents gross profit by business segment for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Construction
|
$
|
58,540
|
|
$
|
44,666
|
|
$
|
87,482
|
|
$
|
69,413
|
|
||||
|
Percent of segment revenue
|
13.6
|
%
|
10.9
|
%
|
11.2
|
%
|
9.5
|
%
|
||||||||
|
Large Project Construction
|
25,557
|
|
18,316
|
|
69,513
|
|
49,634
|
|
||||||||
|
Percent of segment revenue
|
12.0
|
|
10.8
|
|
13.5
|
|
11.6
|
|
||||||||
|
Construction Materials
|
9,554
|
|
12,137
|
|
10,754
|
|
9,492
|
|
||||||||
|
Percent of segment revenue
|
11.5
|
|
13.8
|
|
6.5
|
|
5.4
|
|
||||||||
|
Real Estate
|
242
|
|
1,036
|
|
1,088
|
|
3,028
|
|
||||||||
|
Percent of segment revenue
|
24.5
|
|
37.5
|
|
15.5
|
|
26.1
|
|
||||||||
|
Total gross profit
|
$
|
93,893
|
|
$
|
76,155
|
|
$
|
168,837
|
|
$
|
131,567
|
|
||||
|
Percent of total revenue
|
12.9
|
%
|
11.4
|
%
|
11.5
|
%
|
9.8
|
%
|
||||||||
We defer profit recognition until a project reaches at least 25% completion. In the case of large, complex design-build projects, we may 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. Because we have a large number of smaller projects at various stages of completion in our Construction segment, this policy generally does not impact gross profit significantly on a quarterly or annual basis. However, our Large Project Construction segment has fewer projects at any given time; therefore, gross profit can vary significantly in periods where one or more projects reach our percentage of completion threshold and the deferred profit is recognized or, conversely, in periods where contract backlog is growing rapidly and a higher percentage of projects are in their early stages with no associated gross profit recognition.
The following table presents revenue from projects that have not yet reached our profit recognition threshold:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Construction
|
$
|
38,215
|
|
$
|
20,434
|
|
$
|
45,288
|
|
$
|
21,176
|
|
||||
|
Large Project Construction
|
64,725
|
|
44,069
|
|
138,348
|
|
105,589
|
|
||||||||
|
Total revenue from contracts with deferred profit
|
$
|
102,940
|
|
$
|
64,503
|
|
$
|
183,636
|
|
$
|
126,765
|
|
||||
We do not recognize revenue from contract claims until we have a signed agreement and payment is assured, nor do we recognize revenue from contract change orders until the 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 costs are incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. As a result, our gross profit as a percent of revenue can vary depending on the magnitude and timing of settlement claims and change orders.
When we experience significant contract forecast changes, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as a change in estimate for the current period. In our review of these changes for the
three and nine
months ended
September 30, 2011
, we did not identify any material amounts that should have been recorded in a prior period.
37
Construction gross profit increased
$13.9 million
and
$18.1 million
for the
three and nine
months ended
September 30, 2011
, respectively, compared to the same periods in
2010
. Construction gross profit as a percent of revenue for the
three and nine
months ended
September 30, 2011
increased to
13.6%
and
11.2%
, respectively, from
10.9%
and
9.5%
, respectively, for the same periods in 2010. The increases were due to successful execution of overlay and highway rebuild projects in Arizona, improved cost management of our equipment fleet and increased revenues.
Large Project Construction gross profit for the
three and nine
months ended
September 30, 2011
increased
$7.2 million
and
$19.9 million
, respectively, compared to the same periods in
2010
. Large project construction gross profit as a percent of revenue for the
three and nine
months ended
September 30, 2011
increased to
12.0%
and
13.5%
, respectively, from
10.8%
and
11.6%
, respectively, for the same periods in 2010. The increase in gross profit during the
three and nine
months ended
September 30, 2011
was primarily due to the recognition of $12.2 million in profit on a transportation project in New York and a new freeway, transit and trail system in Utah that both reached the profit recognition threshold in the third quarter of 2011. Amounts attributable to noncontrolling interests for these projects were $5.0 million for the
three and nine
months ended
September 30, 2011
. The increase in gross profit during the
nine
months ended
September 30, 2011
also included the recognition of deferred profit on a project that reached the profit recognition threshold in the first quarter of 2011. Our wholly owned subsidiaries, Granite Construction Company and Granite Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which is contracted by the Oregon Department of Transportation (“ODOT”) to construct a new road alignment of U.S. Highway 20 near Eddyville, Oregon. In addition to previous geologic landslide movements, the project site experienced unanticipated ground movement at several hillsides beginning in 2010. In some locations, the ground movements have caused damage to completed portions of bridge structures. Although design work towards a new mitigation plan on the project is continuing, the corrective work required to complete the project has not yet been determined. YRC and ODOT are engaged in the contractual dispute resolution process to determine the parties’ responsibilities for design issues and which party bears the financial responsibility for the corrective work. At this time, the Company cannot predict the timing of the resolution of the contractual disputes, including the design determination issue, nor reasonably estimate the impact the final resolution will have on the projected financial results for this project. If the required corrective work is determined to be substantial, and YRC is determined to bear the financial responsibility for the corrective work, the Company’s results of operations and cash flows for one or more future periods could be materially and adversely affected. Until the dispute is resolved, we will incur additional costs to maintain the job site. While we believe we are entitled to receive compensation for these additional costs, the contractual dispute resolution process will determine which party bears the financial responsibility for maintaining the job site. During the year ended December 31, 2010, a $10.2 million revision in estimate was recorded in our consolidated statements of operations primarily related to additional costs to maintain the project site until the beginning of the 2012 construction season. In addition, provisions for the estimated total cost of this contract in excess of its estimated total revenue have been made in the condensed consolidated statements of operations. Due to the uncertainties described above, no revisions in this project’s estimates were made during the
three and nine
months ended
September 30, 2011
related to the disputed work.
Construction Materials and Real Estate gross profit remained relatively unchanged for the
three
months ended
September 30, 2011
compared to the same periods in
2010
as the residential, commercial and private markets remained depressed. Factors that contribute to real estate revenue fluctuations include national and local market conditions, entitlement status and buyers access to capital.
38
Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Selling
|
|
|
|
|
|
|
|
|
||||||||
|
Salaries and related expenses
|
$
|
7,050
|
|
$
|
9,671
|
|
$
|
25,846
|
|
$
|
35,925
|
|
||||
|
Other selling expenses
|
2,360
|
|
3,428
|
|
6,901
|
|
8,850
|
|
||||||||
|
Total selling
|
9,410
|
|
13,099
|
|
32,747
|
|
44,775
|
|
||||||||
|
General and administrative
|
|
|
|
|
|
|
|
|
||||||||
|
Salaries and related expenses
|
12,076
|
|
13,556
|
|
38,278
|
|
51,090
|
|
||||||||
|
Restricted stock amortization and incentive compensation
|
6,339
|
|
5,911
|
|
16,252
|
|
15,574
|
|
||||||||
|
Other general and administrative expenses
|
11,287
|
|
14,594
|
|
34,000
|
|
42,370
|
|
||||||||
|
Total general and administrative
|
29,702
|
|
34,061
|
|
88,530
|
|
109,034
|
|
||||||||
|
Total selling, general and administrative
|
$
|
39,112
|
|
$
|
47,160
|
|
$
|
121,277
|
|
$
|
153,809
|
|
||||
|
Percent of revenue
|
5.4
|
%
|
7.0
|
%
|
8.3
|
%
|
11.4
|
%
|
||||||||
Selling, general and administrative expenses for the
three and nine
months ended
September 30, 2011
decreased
$8.0 million
, or
17.1%
, and
$32.5 million
, or
21.2%
, respectively, compared to the same periods in
2010
.
Selling Expenses
Selling expenses include the costs of business and aggregate resource development, estimating and bidding. Selling compensation can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses.
Total selling expenses for the
three and nine
months ended
September 30, 2011
decreased
$3.7 million
, or
28.2%
, and
$12.0 million
, or
26.9%
, respectively, compared to the same periods in
2010
, primarily due to workforce reductions associated with our Enterprise Improvement Plan.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. These costs include variable cash and restricted stock performance-based incentives for select management personnel on which our compensation strategy heavily relies. 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 (generally three years).
Total general and administrative expenses for the
three and nine
months ended
September 30, 2011
decreased
$4.4 million
and
$20.5 million
, respectively, compared to the same periods in
2010
. Salaries and related expenses for the
three and nine
months ended
September 30, 2011
decreased
$1.5 million
and
$12.8 million
, respectively, when compared to the same periods of
2010
primarily due to the reduction in workforce associated with our Enterprise Improvement Plan, as well as other ongoing efforts to reduce our cost structure.
Other general and administrative expenses include information technology, occupancy, office supplies, depreciation, travel and entertainment, outside services, training and other miscellaneous expenses none of which individually exceeded 10% of total selling, general and administrative expenses.
39
Other (Expense) Income
The following table presents the components of other (expense) income for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Interest income
|
$
|
476
|
|
$
|
2,110
|
|
$
|
2,295
|
|
$
|
4,147
|
|
||||
|
Interest expense
|
(3,418
|
)
|
(547
|
)
|
(7,653
|
)
|
(7,294
|
)
|
||||||||
|
Equity in income (loss) of affiliates
|
1,881
|
|
529
|
|
1,443
|
|
(177
|
)
|
||||||||
|
Other (expense) income, net
|
(1,833
|
)
|
1,023
|
|
(1,951
|
)
|
5,854
|
|
||||||||
|
Total other (expense) income
|
$
|
(2,894
|
)
|
$
|
3,115
|
|
$
|
(5,866
|
)
|
$
|
2,530
|
|
||||
Interest income decreased
$1.6 million
and interest expense increased
$2.9 million
for the
three
months ended
September 30, 2011
from the same periods in
2010
, respectively, primarily related to changes in federal and state look back interest income and expense. Look back interest is the interest due or receivable on income tax related to revisions in estimated profitability on long-term contracts. The change in equity in income (loss) of affiliates during the
three
and
nine
months ended
September 30, 2011
from the same periods in 2011 was primarily related to a gain of $1.4 million on the sale of an equity method investment during the third quarter of 2011. The change in other (expense) income, net for the
three and nine
months ended
September 30, 2011
from the same periods in 2010 was primarily due to unrealized losses on our company owned life insurance. Additionally, other (expense) income, net for the
nine months ended
September 30, 2010
included a $1.7 million gain related to life insurance proceeds and a $2.9 million gain related to the sale of a cost method investment.
40
Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Provision for (benefit from) income taxes
|
$
|
15,109
|
|
$
|
(8,026
|
)
|
$
|
11,973
|
|
$
|
(11,233
|
)
|
||||
|
Effective tax rate
|
26.3
|
%
|
(22.8
|
)%
|
22.5
|
%
|
135.4
|
%
|
||||||||
We calculate our income tax provision (benefit) at the end of each interim period by estimating our annual effective tax rate and applying that rate to our year-to-date ordinary earnings. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs.
Our effective tax rate was
26.3%
and
22.5%
for the
three and nine
months ended
September 30, 2011
, respectively, and was
(22.8)%
and
135.4%
for the
three and nine
months ended
September 30, 2010
, respectively. The changes from prior year periods were primarily due to the effect from noncontrolling interests as a percent of net income (loss), as noncontrolling interests are not subject to income taxes on a stand-alone basis. Included in the tax rate for the
nine months ended
September 30, 2011
is the recognition and measurement of previously unrecognized tax benefits, which is considered a discrete item for tax provision purposes. The recognition and measurement of these tax benefits was the result of a favorable settlement of an income tax examination conducted by the Internal Revenue Service. In addition, our effective tax rate for the
nine months ended
September 30, 2010
was affected by non-taxable life insurance proceeds which were considered a discrete item for tax provision purposes.
Noncontrolling Interests
The following table presents the amount attributable to noncontrolling interests in consolidated subsidiaries for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
Amount attributable to noncontrolling interests
|
$
|
(5,908
|
)
|
$
|
(4,620
|
)
|
$
|
(8,886
|
)
|
$
|
(11,902
|
)
|
||||
The amount attributable to noncontrolling interests represents the noncontrolling owners’ share of the income or loss of our consolidated construction joint ventures and real estate development entities. The balance for the
three
months ended
September 30, 2011
increased compared to the same periods in
2010
due to the settlement of claims on one project. The balance for the
nine months ended
September 30, 2011
decreased as activity on one joint venture project neared completion and one new consolidated joint venture had not yet reached profit recognition.
Certain Legal Proceedings
As discussed in Note 7 to the unaudited condensed consolidated financial statements included in this report and in Item 1A of Part II of this report (Risk Factors), under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.
41
Liquidity and Capital Resources
We believe our cash and cash equivalents, short-term investments and cash generated from operations will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments, and other liquidity requirements associated with our existing operations through the next twelve months. We maintain a secured revolving credit facility of $100.0 million primarily to provide capital needs to fund growth opportunities, either internally or generated through acquisition (see “Credit Agreement” section below for further discussion). We do not anticipate that this credit facility will be required to fund future operations. If we experience a prolonged change in our business operating results or make a significant acquisition, we may need to acquire additional sources of financing, which, if available, may be limited by the terms of our existing debt covenants, or may require the amendment of our existing debt agreements.
The following table presents our cash, cash equivalents and marketable securities, including amounts from our consolidated joint ventures, as of the respective dates:
|
(in thousands)
|
September 30,
2011 |
December 31,
2010 |
September 30,
2010 |
|||||||||
|
Cash and cash equivalents excluding consolidated joint ventures
|
$
|
127,749
|
|
$
|
142,642
|
|
$
|
154,487
|
|
|||
|
Consolidated construction joint venture cash and cash equivalents
1
|
65,350
|
|
109,380
|
|
103,367
|
|
||||||
|
Total consolidated cash and cash equivalents
|
193,099
|
|
252,022
|
|
257,854
|
|
||||||
|
Short-term and long-term marketable securities
2
|
136,898
|
|
143,706
|
|
130,464
|
|
||||||
|
Total cash, cash equivalents and marketable securities
|
$
|
329,997
|
|
$
|
395,728
|
|
$
|
388,318
|
|
|||
1
The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in joint venture cash and cash equivalents between periods.
2
See Note 4 of “Notes to the Condensed Consolidated Financial Statements” for the composition of our marketable securities.
Our primary sources of liquidity are cash and cash equivalents and marketable securities. We may also from time to time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions.
Our cash and cash equivalents consisted of commercial paper, deposits and money market funds held with established national financial institutions. Marketable securities consist of U.S. government and agency obligations, commercial paper, municipal bonds and corporate bonds. Cash and cash equivalents held by our consolidated joint ventures represent the working capital needs of each joint venture’s project. The decision to distribute joint venture cash must generally be made jointly by all of the partners and, accordingly, these funds generally are not available for the working capital or other liquidity needs of Granite.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness, and acquire assets or businesses that are complementary to our operations.
42
|
Cash Flows
(in thousands)
|
Nine Months Ended September 30,
|
|||||||
|
|
2011
|
2010
|
||||||
|
Net cash provided by (used in):
|
|
|
||||||
|
Operating activities
|
$
|
2,018
|
|
$
|
10,566
|
|
||
|
Investing activities
|
(8,367
|
)
|
(34,405
|
)
|
||||
|
Financing activities
|
(52,574
|
)
|
(57,263
|
)
|
||||
Cash provided by operating activities for the
nine
months ended
September 30, 2011
decreased
$8.5 million
when compared to the same period in
2010
. This decrease was primarily driven by an unfavorable change in working capital items in
2011
as compared to
2010
, the most significant of which was the change in net cost and estimated earnings in excess of billings. This was primarily driven by the fluctuation in the stage of completion of contracts related to our consolidated and unconsolidated construction joint ventures. These decreases in cash flow were partially offset by an overall increase in net income.
Cash used in investing activities for the
nine
months ended
September 30, 2011
was
$26.0 million
lower than the same period in
2010
primarily due to a $21.5 million increase in net proceeds from marketable securities. Additionally, 2010 included a
$6.4 million
investment made in a corporation that designs and manufactures power generation and equipment systems with no corresponding investment in 2011.
Cash used in financing activities for the
nine
months ended
September 30, 2011
decreased
$4.7 million
compared to the same period in
2010
. The primary reason for this change was a $3.5 million decrease in net distributions to noncontrolling partners.
Capital Expenditures
During the
nine
months ended
September 30, 2011
, we had capital expenditures of
$34.7 million
compared to
$30.2 million
during the same period in
2010
. Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. We currently anticipate investing up to $45.0 million in capital expenditures during
2011
.
43
Credit Agreement
We have a
$100.0 million
committed secured revolving credit facility, with a sublimit for letters of credit of
$50.0 million
(“Credit Agreement”), which expires on June 22, 2013. Borrowings under the Credit Agreement bear interest at LIBOR plus an applicable margin. LIBOR varies based on the applicable loan term. The applicable margin is based upon certain financial ratios calculated quarterly and was
2.75%
at
September 30, 2011
. Accordingly, the effective interest rate was between
2.99%
and
3.61%
at
September 30, 2011
. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and are secured by first priority liens on substantially all of the assets of Granite Construction Incorporated and our subsidiaries that are guarantors or co-borrowers under the Credit Agreement, excluding any owned or leased real property subject to an existing mortgage. At
September 30, 2011
, there were no revolving loans outstanding under the Credit Agreement, but there were standby letters of credit totaling approximately
$3.2 million
. The letters of credit will expire between
March 2012
and
October 2012
. These letters of credit will be replaced upon expiration.
The most significant restrictive covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum Adjusted Consolidated Leverage Ratio. The calculations and terms of such covenants are defined by Amendment No. 1 of the Credit Agreement filed as Exhibit 10.1 to our current report on Form 8-K filed December 30, 2010. As of
September 30, 2011
and pursuant to the definitions in the Credit Agreement, our Consolidated Tangible Net Worth was
$738.5 million
, which exceeded the minimum of
$650.7 million
, the Consolidated Interest Coverage Ratio was
7.12
, which exceeded the minimum of
4.00
and the Adjusted Consolidated Leverage Ratio was
1.92
, which did not exceed the maximum of
4.00
. The maximum Adjusted Consolidated Leverage Ratio subsequently decreases in 0.25 increments until reaching 3.00 for the quarter ending March 31, 2013.
Senior Notes Payable
As of
September 30, 2011
, senior notes payable in the amount of
$16.7 million
were due to a group of institutional holders in nine equal annual installments which began in 2005 and bear interest at 6.96% per annum. The most significant covenants under the terms of the related agreement require the maintenance of a minimum Consolidated Net Worth, the calculations and terms of which are defined by the related agreement filed as Exhibit 10.3 to our Form 10-Q filed August 14, 2001. As of
September 30, 2011
and pursuant to the definitions in the note agreement, our Consolidated Net Worth was
$782.1 million
, which exceeded the minimum of
$677.1 million
.
In addition, as of
September 30, 2011
, senior notes payable in the amount of
$200.0 million
were due to a second group of institutional holders in five equal annual installments beginning in 2015 and bear interest at 6.11% per annum. The most significant covenants under the terms of the related agreement require the maintenance of a minimum Consolidated Net Worth, the calculations and terms of which are defined by the related agreement filed as Exhibit 10.1 to our current report on Form 8-K filed January 31, 2008. As of
September 30, 2011
and pursuant to the definitions in the note agreement, our Consolidated Net Worth was
$782.1 million
, which exceeded the minimum of
$688.0 million
.
Surety Bonds and Real Estate Mortgages
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, 2011
, approximately
$1.6 billion
of our contract backlog was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. 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.
A significant portion of our real estate held for development and sale is subject to mortgage indebtedness. All of this indebtedness is non-recourse to Granite but is recourse to the real estate entities that incurred the indebtedness. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entities to repay portions of the debt. During the
three and nine
months ended
September 30, 2011
, we provided funding of
$0.3 million
and
$8.0 million
, respectively, to our real estate entities to either pay off or refinance certain real estate loans. As of
September 30, 2011
, the principal amount of debt of our real estate entities secured by mortgages was $
44.0 million
, of which
$16.2 million
was included in current liabilities and
$27.8 million
was included in long-term liabilities on our condensed consolidated balance sheet.
44
Covenants and Events of Default
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described above. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the agreements, (2) termination of the agreements, (3) the requirement that any letters of credit under the agreements be cash collateralized, (4) acceleration of the maturity of outstanding indebtedness under the agreements and (5) foreclosure on any collateral securing the obligations under the agreements.
As of
September 30, 2011
, we were in compliance with the covenants contained in our senior note agreements and Credit Agreement.
Except as noted below, as of
September 30, 2011
, we were in compliance with the covenants contained in our debt agreements related to our consolidated real estate entities, and we are not aware of any material non-compliance by any of our unconsolidated entities with the covenants contained in their debt agreements. As of
September 30, 2011
, two of our consolidated and two of our unconsolidated real estate entities were in default under debt agreements as a result of their failure to make timely required principal and/or interest payments. Subsequent to
September 30, 2011
, defaults under the debt agreements of one of our consolidated real estate entities has been cured. The affected loans are non-recourse to Granite and these defaults do not result in cross-defaults under other debt agreements under which Granite is the obligor; however, there is recourse to the real estate entity that incurred the debt. The real estate entities remaining in default are currently in discussions with lenders to revise the terms of the defaulted debt agreements.
Share Purchase Program
In 2007, our Board of Directors authorized us to purchase up to $200.0 million of our common stock at management’s discretion. As of
September 30, 2011
, $64.1 million was available for purchase. We did not purchase shares under the share purchase program in any of the periods presented.
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 operations 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 U.S. 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 U.S. Securities and Exchange Commission, www.sec.gov.
45
|
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There has been no significant change in our exposure to market risks since
December 31, 2010
.
|
Item 4.
|
CONTROLS AND PROCEDURES
|
Our management carried out, as of
September 30, 2011
, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2011
, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the
third
quarter of
2011
, 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.
46
|
Item 1.
|
LEGAL PROCEEDINGS
|
The description of the matters set forth in Part I, Item 1 of this Report under “Note 17 - Legal Proceedings” is incorporated herein by reference.
|
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, 2010
except for the addition of the following:
Possible further deterioration of the United States economy could have a material adverse effect on our business, financial condition and results of operations.
Congress’ inability to substantially lower United States debt could result in an additional downgrade of the United States credit rating and a decrease in government spending, which could negatively impact the ability of government agencies to fund existing or new infrastructure projects. In addition, such actions could have a material adverse effect on the financial markets and economic conditions in the United States as well as throughout the world, which may limit our ability and the ability of our customers to obtain financing. Deterioration in general economic activity and infrastructure spending, as well as other potential consequences of additional credit downgrades or Congress’ deficit reduction measures could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.
Government contractors are subject to suspension or debarment from government contracting.
Our substantial dependence on government contracts exposes us to a variety of risks that differ from those associated with private sector contracts. Various statutes to which our operations are subject, including the Davis-Bacon Act (which regulates wages and benefits), the Walsh-Healy Act (which prescribes a minimum wage and regulates overtime and working conditions), Executive Order 11246 (which establishes equal employment opportunity and affirmative action requirements) and the Drug-Free Workplace Act, provide for mandatory suspension and debarment of contractors in certain circumstances involving statutory violations. In addition, the Federal Acquisition Regulation and various state statutes provide for discretionary suspension and debarment in certain circumstances that might call into question a contractor’s willingness or ability to act responsibly, including as a result of being convicted of, or being found civilly liable for, fraud or a criminal offense in connection with obtaining, attempting to obtain or performing public contract or subcontract. The scope and duration of any suspension or debarment may vary depending upon the facts and the statutory or regulatory grounds for debarment and could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.
47
|
Item 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
During the
three
months ended
September 30, 2011
, we did not sell any of our equity securities that were not registered under the Securities Act of 1933, as amended. The following table sets forth information regarding the repurchase of shares of our common stock during the
three
months ended
September 30, 2011
:
|
Period
|
|
Total number of shares purchased
1
|
|
Average price paid per share
|
|
Total number of shares purchased as part of publicly announced plans or programs
|
|
Approximate dollar value of shares that may yet be purchased under the plans or programs
2
|
|
||||||
|
July 1, 2011 through July 31, 2011
|
|
2,197
|
|
|
$
|
25.09
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
August 1, 2011 through August 31, 2011
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
September 1, 2011 through September 30, 2011
|
|
6,030
|
|
|
$
|
20.63
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
|
|
8,227
|
|
|
$
|
21.82
|
|
|
—
|
|
|
|
|
||
1
The number of shares purchased is in connection with employee tax withholding for shares/units granted under our Amended and Restated 1999 Equity Incentive Plan.
2
In October 2007, our Board of Directors authorized us to purchase, at management’s discretion, up to $200.0 million of our common stock. Under this purchase program, the Company may purchase shares from time to time on the open market or in private transactions. The specific timing and amount of purchases will vary based on market conditions, securities law limitations and other factors. Purchases under the share purchase program may be commenced, suspended or discontinued at any time and from time to time without prior notice.
|
Item 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None.
|
Item 4.
|
RESERVED
|
48
|
Item 5.
|
OTHER INFORMATION
|
Pursuant to Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), operators of a coal or other mine that are also required to file reports under Section 13(a) of the Exchange Act must include in each periodic report filed with the SEC certain information regarding health and safety violations at its mines.
We operate surface mines in the western United States to produce construction aggregates. The operation of our mines is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA conducted 25 inspections at 19 of our mines during the
three
months ended
September 30, 2011
. There were no reportable citations or orders following 22 of those inspections during the
three
months ended
September 30, 2011
. The chart below contains information regarding certain mining safety and health citations or orders that MSHA issued during the
three
months ended
September 30, 2011
associated with our mining operations. With respect to this information, it should be noted that: (i) the number of citations and orders will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, may be reduced in severity and amount or dismissed.
|
Three Months Ended September 30, 2011
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||||
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Name of Mine
|
Section 104
1
|
|||
|
Coalinga Pit and Mill
|
3
|
|
||
|
Circle T Ranch Pit
|
2
|
|
||
|
Total
|
5
|
|
||
1
The total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under Section 104 of the Mine Act for which the operator received a citation from the MSHA.
During the
three months ended
September 30, 2011
, with respect to our mines, MSHA did not issue any orders requiring persons to be withdrawn from the areas affected by the alleged violations of mandatory health or safety standards under Section 104(b) of the Mine Act, did not issue any citations or orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section104(d) of the Mine Act, did not identify any flagrant violations under Section 110(b)(2) of the Mine Act and did not issue any imminent danger orders requiring immediate withdrawal from the affected areas under Section 107(a) of the Mine Act. During the
three months ended
September 30, 2011
, there were no proposed assessments from the MSHA. We did not experience any mining-related fatalities during the
three months ended
September 30, 2011
. Furthermore, during the
three months ended
September 30, 2011
, we did not receive written notice of a pattern of violations of mandatory health or safety standards from MSHA under Section 104(e) of the Mine Act or of the potential to have a pattern of violations of mandatory health or safety standards from MSHA.
49
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101.INS
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††
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XBRL Instance Document
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101.SCH
|
††
|
XBRL Taxonomy Extension Schema
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101.CAL
|
††
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.LAB
|
††
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
††
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
|
|
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†
|
Filed herewith
|
|
|
††
|
Furnished herewith
|
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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GRANITE CONSTRUCTION INCORPORATED
|
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Date:
|
November 3, 2011
|
|
By:
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/s/ Laurel J. Krzeminski
|
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Laurel J. Krzeminski
|
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Vice President and Chief Financial Officer
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(Principal Financial and Accounting Officer)
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51
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. ReservedItem 5. Other InformationItem 6. Exhibits