Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GVA > SEC Filings for GVA > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for GRANITE CONSTRUCTION INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for GRANITE CONSTRUCTION INC


2-Aug-2013

Quarterly Report


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." 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.


Table of Contents

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, trenchless and underground utilities, electrical utilities, tunnels, 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 business that we plan to orderly divest of as part of our Enterprise Improvement Plan ("EIP") initiated in 2010. Our permanent offices are located in Alaska, Arizona, California, Colorado, Florida, Illinois, Nevada, New York, Pennsylvania, Texas, Utah and Washington. We have four reportable business segments: Construction, Large Project Construction, Construction Materials and Real Estate (see Note 16 of "Notes to the Condensed Consolidated Financial Statements").

Our construction contracts are obtained through competitive bidding in response to solicitations by both public agencies and private parties and on a negotiated basis as a result of solicitations from private parties. Project owners use a variety of methods to make contractors aware of new projects, including posting bidding opportunities on agency websites, disclosing long-term infrastructure plans, advertising and other general solicitations. 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 generally defer recognition of profit on projects until they reach at least 25% completion (see "Gross Profit (Loss)" section below) and our profit recognition is based on estimates that may 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 four primary economic drivers of our business are (1) the overall health of the economy, (2) federal, state and local public funding levels, (3) population growth resulting in public and private development, and (4) the need to replace or repair aging infrastructure. 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 take actions 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 four groups defined as follows: 1) California; 2) Northwest, which primarily includes offices in Alaska, Nevada, Utah and Washington; 3) East, which primarily includes offices in Arizona, Florida, New York and Texas; and 4) Kenny, which primarily includes offices in Colorado, Illinois, and Pennsylvania. Each of these groups includes operations from our Construction and Large Project Construction lines of business. Our California, Northwest and East groups include operations from our Construction Materials line of business. A project's results are reported in the group that is responsible for the project, not necessarily the geographic area where the work is located. In some cases, the operations of a group include the results of work performed outside of that geographic region.


Table of Contents

Current Economic Environment and Outlook

There is a significant amount of large projects out to bid across the country in each of our market areas. We continue, however, to operate in a highly competitive bidding environment. Competition coupled with funding issues for public sector infrastructure projects and weak demand for commercial and residential development in many of our markets has impacted, and may continue to impact, our ability to grow backlog at adequate margins and increase profitability. While we expect these challenging conditions to persist through most of 2013, we are encouraged by improvements in the private sector across the country which has the potential to positively impact our business in 2014. In addition, we are proactively seeking opportunities outside our traditional markets, specifically in the power, tunnel and water markets through the acquisition of Kenny Construction Company ("Kenny"), as well as the rail, industrial and federal markets through expanded Granite lines of business. We continue to be encouraged by the opportunities driven by the Transportation Infrastructure Financing and Innovation Act, authorized in the 2012 federal highway bill, which we believe will help facilitate and accelerate several projects that would not have moved forward otherwise.

During 2013, we may record up to approximately $25.0 million of restructuring charges, primarily related to previously planned consolidation efforts and assets to be held-for-sale as part of our EIP. 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. The majority of restructuring charges associated with the EIP were recorded in 2010. During the six months ended June 30, 2013 and 2012, we recorded net gains on restructuring of $0.5 million and $1.9 million, respectively.

Results of Operations

Our operations are typically affected by weather conditions during the first and
fourth quarters of our fiscal year which may alter our construction schedules
and can create variability in our revenues and profitability. Therefore, the
results of operations for the three and six months ended June 30, 2013 are not
necessarily indicative of the results to be expected for the full year.
Comparative Financial Summary          Three Months Ended June 30,          Six Months Ended June 30,
(in thousands)                           2013               2012               2013              2012
Total revenue                      $     550,162       $     539,615     $     928,866       $  849,775
Gross profit                              51,197              51,916            81,253           76,852
Operating income (loss)                    8,049              14,064           (17,968 )         (2,271 )
Total other expense                       (3,117 )            (7,718 )          (5,954 )         (3,602 )
Amount attributable to
noncontrolling interests                    (448 )            (2,538 )          (2,603 )         (5,624 )
Net income (loss) attributable
to Granite Construction
Incorporated                               2,718               1,949           (19,264 )         (9,824 )


Table of Contents

Revenue
Total Revenue by
Segment                     Three Months Ended June 30,                      Six Months Ended June 30,
(dollars in
thousands)                 2013                    2012                    2013                    2012
Construction       $ 308,602      56.1 %   $ 245,113      45.5 %   $ 485,720      52.3 %   $ 363,059      42.7 %
Large Project
Construction         181,371      33.0       228,799      42.4       353,086      38.0       392,727      46.2
Construction
Materials             60,185      10.9        63,349      11.7        89,935       9.7        88,972      10.5
Real Estate                4         -         2,354       0.4           125         -         5,017       0.6
Total              $ 550,162     100.0 %   $ 539,615     100.0 %   $ 928,866     100.0 %   $ 849,775     100.0 %



Construction Revenue              Three Months Ended June 30,                      Six Months Ended June 30,
(dollars in thousands)           2013                    2012                    2013                    2012
California:
Public sector            $  94,284      30.6 %   $ 112,546      45.9 %   $ 156,620      32.2 %   $ 179,959      49.6 %
Private sector              20,089       6.5        11,704       4.8        35,530       7.3        19,587       5.4
Northwest:
Public sector              108,078      35.0        74,473      30.4       126,122      26.0        91,283      25.1
Private sector              24,009       7.8        33,337      13.6        39,333       8.1        46,631      12.8
East:
Public sector               10,944       3.5        10,783       4.4        19,433       4.0        21,333       5.9
Private sector               1,635       0.5         2,270       0.9         5,821       1.2         4,266       1.2
Kenny:
Public sector               49,563      16.1             -         -       102,861      21.2             -         -
Total                    $ 308,602     100.0 %   $ 245,113     100.0 %   $ 485,720     100.0 %   $ 363,059     100.0 %

Construction revenue for the three and six months ended June 30, 2013 increased by $63.5 million, or 25.9%, and $122.7 million, or 33.8%, respectively, compared to the same periods in 2012 primarily due to the acquisition of Kenny in December 2012. The decrease in California public sector revenue and the increases in Northwest public sector and California private sector revenues were the result of fluctuations in bidding success.


Table of Contents

Large Project
Construction Revenue1            Three Months Ended June 30,                      Six Months Ended June 30,
(dollars in
thousands)                      2013                    2012                    2013                    2012
California              $  30,875      17.0 %   $  25,893      11.3 %   $  65,368      18.5 %   $  46,019      11.7 %
Northwest                  30,070      16.6        86,839      38.0        65,551      18.6       130,355      33.2
East                      103,335      57.0       116,067      50.7       194,633      55.1       216,353      55.1
Kenny                      17,091       9.4             -         -        27,534       7.8             -         -
Total                   $ 181,371     100.0 %   $ 228,799     100.0 %   $ 353,086     100.0 %   $ 392,727     100.0 %

1For the periods presented, all Large Project Construction revenue was earned from the public sector.

Large Project Construction revenue for the three and six months ended June 30, 2013 decreased by $47.4 million, or 20.7%, and $39.6 million, or 10.1%, respectively, compared to the same periods in 2012 primarily due to ongoing projects nearing completion in the Northwest and East while new projects were just beginning. These decreases were partially offset by increases from progress on projects in California and the impact of the acquisition of Kenny in December 2012.

Construction
Materials
Revenue                    Three Months Ended June 30,                    Six Months Ended June 30,
(dollars in
thousands)                 2013                   2012                   2013                   2012
California         $ 31,837      52.9 %   $ 39,673      62.7 %   $ 52,398      58.2 %   $ 59,000      66.3 %
Northwest            20,110      33.4       17,251      27.2       24,079      26.8       20,266      22.8
East                  8,238      13.7        6,425      10.1       13,458      15.0        9,706      10.9
Total              $ 60,185     100.0 %   $ 63,349     100.0 %   $ 89,935     100.0 %   $ 88,972     100.0 %

Construction Materials revenue decreased $3.2 million, or 5.0%, for the three months ended June 30, 2013 and increased by $1.0 million, or 1.1%, for the six months ended June 30, 2013 compared to the same periods in 2012. Although revenue increased for the six months ended June 30, 2013 when compared to 2012, the construction materials business continues to be impacted by the weakness in the commercial and residential development markets.

Real Estate Revenue

Real Estate revenue decreased $2.4 million and $4.9 million for the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012. The decreases were primarily attributable to the sale of a commercial property in California during the first quarter of 2012 with no corresponding sales in 2013. Factors that contribute to fluctuations in revenue include national and local market conditions, entitlement status of properties and buyers access to capital. Additionally, as we execute on our EIP, we have less real estate for sale.

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)            June 30, 2013              March 31, 2013             June 30, 2012
Construction                 $   807,686       28.9 %   $   740,259       30.8 %   $   697,535       35.8 %
Large Project Construction     1,989,156       71.1       1,660,056       69.2       1,252,828       64.2
Total                        $ 2,796,842      100.0 %   $ 2,400,315      100.0 %   $ 1,950,363      100.0 %


Table of Contents

Construction Contract Backlog
(dollars in thousands)             June 30, 2013          March 31, 2013         June 30, 2012
California:
Public sector                   $ 366,583     45.4 %   $ 330,484     44.6 %   $ 367,737     52.7 %
Private sector                     37,309      4.6        38,676      5.2        13,374      1.9
Northwest:
Public sector                     250,137     31.0       212,305     28.8       231,574     33.2
Private sector                     46,159      5.7        15,806      2.1        44,690      6.4
East:
Public sector                       6,485      0.8        11,894      1.6        33,935      4.9
Private sector                      4,271      0.5         4,503      0.6         6,225      0.9
Kenny:
Public sector                      49,902      6.2        49,071      6.6             -        -
Private sector                     46,840      5.8        77,520     10.5             -        -
Total                           $ 807,686    100.0 %   $ 740,259    100.0 %   $ 697,535    100.0 %

Construction contract backlog of $807.7 million at June 30, 2013 was $67.4 million, or 9.1%, higher than at March 31, 2013 and $110.2 million, or 15.8%, higher than at June 30, 2012. The increase from March 31, 2013 was primarily due to new awards in the California and Northwest public sectors as well as in the Northwest private sector, partially offset by progress on existing projects. New awards during the three months ended June 30, 2013 included a highway improvement project of $33.8 million in California and a rail improvement project of $20.0 million in Washington. The increase from June 30, 2012 was primarily due to the acquisition of Kenny contract backlog, partially offset by progress on existing projects.

Large
Project Construction
Contract Backlog1
(dollars in thousands)        June 30, 2013              March 31, 2013             June 30, 2012
California               $   153,428        7.7 %   $   116,755        7.0 %   $   177,047       14.1 %
Northwest                    132,608        6.7         157,016        9.5         323,337       25.8
East                       1,513,085       76.0       1,181,537       71.2         752,444       60.1
Kenny2                       190,035        9.6         204,748       12.3               -          -
Total                    $ 1,989,156      100.0 %   $ 1,660,056      100.0 %   $ 1,252,828      100.0 %

1For the periods presented, all Large Project Construction contract backlog is related to contracts with public agencies.
2As of June 30, 2013 and March 31, 2013, $69.5 million and $70.7 million, respectively, of Kenny contract backlog was translated from Canadian dollars to U.S. dollars at the spot rate in effect at the date of reporting.

Large Project Construction contract backlog of $2.0 billion at June 30, 2013 was $329.1 million, or 19.8%, higher than at March 31, 2013, and $736.3 million, or 58.8%, higher than at June 30, 2012. The increase from March 31, 2013 was primarily due to an improved success rate on bidding activity partially offset by progress on existing projects. Awards included a $296.0 million highway rebuild project in Texas, a $130.1 million highway reconstruction project in North Carolina and a $61.3 million dam removal project in northern California. The increase from June 30, 2012 was primarily due to the award of the Tappan Zee Bridge project in the East as well as the acquisition of Kenny contract backlog, partially offset by progress on existing projects.

Noncontrolling interests included in Large Project Construction contract backlog as of June 30, 2013, March 31, 2013, and June 30, 2012 were $82.3 million, $96.2 million and $117.3 million, respectively.


Table of Contents

Gross Profit (Loss)

The following table presents gross profit (loss) by business segment for the
respective periods:
                                           Three Months Ended June 30,           Six Months Ended June 30,
(dollars in thousands)                       2013               2012              2013               2012
Construction                           $      25,154       $      17,961     $    38,353        $    26,541
Percent of segment revenue                       8.2 %               7.3 %           7.9  %             7.3  %
Large Project Construction                    22,088              28,239          44,808             50,488
Percent of segment revenue                      12.2                12.3            12.7               12.9
Construction Materials                         3,954               5,000          (2,020 )             (950 )
Percent of segment revenue                       6.6                 7.9            (2.2 )             (1.1 )
Real Estate                                        1                 716             112                773
Percent of segment revenue                      25.0                30.4            89.6               15.4
Total gross profit                     $      51,197       $      51,916     $    81,253        $    76,852
Percent of total revenue                         9.3 %               9.6 %           8.7  %             9.0  %

We generally 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 June 30,       Six Months Ended June 30,
(in thousands)                               2013             2012            2013             2012
Construction                           $       37,144     $   14,065     $      41,194     $   14,645
Large Project Construction                     12,728         16,789            12,777         26,727
Total revenue from contracts with
deferred profit                        $       49,872     $   30,854     $      53,971     $   41,372


Table of Contents

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 when such costs are incurred, and we revise estimated total costs 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 the settlement of 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 six months ended June 30, 2013 and 2012, we did not identify any material amounts that should have been recorded in a prior period.

Construction gross profit for the three and six months ended June 30, 2013 increased $7.2 million and $11.8 million, respectively, compared to the same periods in 2012. The increases were primarily due to $8.5 million and $13.2 million in gross profit from Kenny operations that are reflected in the three and six months ended June 30, 2013 results, respectively, and not in 2012. The increases from Kenny operations were partially offset by decreases in gross profit due to increased competition and challenging market conditions, primarily in the Northwest. Construction gross profit as a percent of segment revenue remained relatively unchanged during the three and six months ended June 30, 2013 compared to the same periods in 2012.

. . .

  Add GVA to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GVA - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.