Granite Reports Second-Quarter 2010 Financial Results

Granite Reports Second-Quarter 2010 Financial Results

  • Total revenue essentially flat compared with a year ago
  • Net loss for the second quarter of $6.7 million
  • SG&A expenses decreased $5.0 million in the quarter compared with a year ago
  • Total contract backlog $1.6 billion; Approximately $210 million in new projects awarded since June 30, 2010
  • $150 million credit facility renewed until June 2013

WATSONVILLE, Calif.--(BUSINESS WIRE)-- Granite Construction Incorporated (NYSE:GVA) today reported a net loss of $6.7 million, or $0.18 per diluted share, for the second quarter of 2010 compared with net income of $17.9 million, or $0.46 per diluted share, for the second quarter of 2009.

“Our 2010 construction season is in full swing despite a slow start in the second quarter,” said,
William G. Dorey, Granite President and Chief Executive Officer. “Although we were unable to build as much work as we would have liked in April and May, our June results were encouraging. However, as expected, gross margins are considerably lower as we build projects bid in this highly competitive environment.”

Mr. Dorey continued, “Large Project Construction segment results for the second quarter include the initial work on the Queens Bored Tunnel and
Houston Metro projects. Both of these projects are not expected to reach the profit recognition threshold until 2011. The profit associated with these two projects should lead to Large Project earnings growth next year.”

Second-quarter 2010 Financial Results

Total Company

  • Revenue totaled $454.2 million compared with $461.1 million in 2009.
  • Gross profit margin was 11 percent, down from 18 percent in 2009, driven primarily by the lack of private-sector work and too much capacity for the available work in the marketplace.
  • Operating income for the quarter was $2.1 million compared with $30.4 million in the prior year.
  • Selling, general and administrative expenses for the second quarter were $51.4 million compared with $56.3 million for the same period last year, driven by a continuing effort to reduce the Company’s overall cost structure.
  • Net income attributable to noncontrolling interests was $4.1 million compared with $4.7 million in 2009.
  • Total contract backlog at June 30, 2010 was $1.6 billion, essentially flat compared with backlog at June 30, 2009. Second quarter 2010 backlog does not include approximately $210 million associated with three projects awarded to date in the third quarter of 2010.
  • The tax rate for the second quarter was 248.5 percent compared with 26.5 percent in 2009. This unusually high rate for the quarter is due to adjusting the year-to-date tax rate to the current estimate of 6 percent for fiscal 2010.

Construction

  • Construction revenue for the quarter totaled $237.9 million compared with $277.5 million for the same period in 2009.
  • Gross profit margin for the second quarter was 10 percent compared with 19 percent a year ago. The decrease is due to the lack of profitability associated with border fence work in 2010 as compared with 2009, as well as lower margin backlog due to the competitive markets and a slow start to the construction season in the West.

Large Project Construction

  • Large Project Construction revenue for the quarter totaled $153.3 million compared with $125.8 million for the same period last year.
  • Gross profit margin for the quarter decreased to 14 percent compared with 18 percent for the same period last year, reflecting an increase in revenue on projects that have yet to reach the profit recognition threshold.

Construction Materials

  • Construction Materials revenue for the quarter totaled $61.1 million compared with $57.3 million for the same period last year.
  • Gross profit on the sale of construction materials was $4.5 million in 2010 compared with $9.6 million in 2009. The decline reflects an increase in fixed costs related to new plants that came on line in late 2009 without a corresponding increase in sales.

Outlook

“This year is proving to be very challenging, particularly in the West,” said Dorey. “Although the public works bidding activity in the Construction segment has been strong, the competitive climate is driving margins associated with that work substantially lower than in previous years. Based on our current outlook, we are updating our guidance for each of our segments. Revenue for the Construction segment is now expected to be between $950.0 million and $1.15 billion with a corresponding gross profit margin between 11 percent and 12 percent. Revenue for the Large Project Construction segment is expected to be between $650.0 million and $750.0 million with a corresponding gross profit margin between 10 and 11 percent. Construction Materials segment revenue is expected to be between $175.0 million and $225.0 million with a corresponding gross profit margin between 9 and 10 percent. Net income attributable to noncontrolling interests is expected to be approximately $19.0 million for the year. The tax rate for 2010 is currently forecasted to be 6 percent.

“Additionally, we continue to focus considerable effort on optimizing our cost structure and lowering expenses across the Company. In 2010, our goal is to reduce SG&A by 10 percent compared with 2009 through reductions in headcount, discretionary spending and lower compensation expense,” said Dorey.

Conference Call

Granite will conduct a conference call today, August 2, 2010, at 8 a.m. Pacific time/11 a.m. Eastern time to discuss the results of the quarter ended June 30, 2010. Access to a live audio webcast is available at www.zkyk.net/investor-relations. The live conference call may be accessed by calling (877) 693-6483, or (706) 758-5304 for international listeners. The conference ID for the call is 86369247. The call will be recorded and will be available for replay from approximately two hours after the live audio webcast through August 13, 2010, by calling (800) 642-1687 or (706) 645-9291. The conference ID for the recording is 86369247.

About Granite

Granite Construction Incorporated is a member of the S&P 400 Midcap Index, the FTSE KLD 400 Social Index and the Russell 2000 Index. Granite Construction Company, a wholly owned subsidiary, is one of the nation’s largest diversified heavy civil contractors and construction materials producers. Granite Construction Company serves public- and private-sector clients through its offices and subsidiaries nationwide. For more information about Granite, please visit its Web site at www.zkyk.net.

Forward-looking Statements

This news release contains statements that are not based on historical facts and which may be forward-looking in nature. Under the Private Securities Litigation Reform Act of 1995, a “safe harbor” may be provided to Granite for certain of these forward-looking statements. Words such as outlook, believes, expects, appears, may, will, should, anticipates and the negatives thereof or comparable terminology are intended to identify these forward-looking statements. These forward-looking statements are estimates reflecting the best judgment of Granite’s senior management and are based on its current expectations and projections concerning future events, many of which are outside of Granite’s control and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those risks described in Granite’s Annual Report under “Item 1A. Risk Factors.” Except as required by law, Granite undertakes no obligation to revise or update any forward-looking statements for any reason. As a result, the reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release.

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
June 30, December 31, June 30,
2010 2009 2009
ASSETS
Current assets
Cash and cash equivalents $ 208,450 $ 338,956 $ 356,168
Short-term marketable securities 73,566 42,448 24,878
Receivables, net 295,779 280,252 281,432
Costs and estimated earnings in excess of billings 56,665 10,619 50,891
Inventories 48,529 45,800 68,755
Real estate held for development and sale 148,897 139,449 131,169
Deferred income taxes 31,870 31,034 43,314
Equity in construction joint ventures 72,571 67,693 50,215
Other current assets 39,031 50,467 46,719
Total current assets 975,358 1,006,718 1,053,541
Property and equipment, net 501,258 520,778 529,805
Long-term marketable securities 68,291 76,937 53,328
Investments in affiliates 31,210 24,644 17,310
Other noncurrent assets 79,060 80,498 80,300
Total assets $ 1,655,177 $ 1,709,575 $ 1,734,284
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt $ 8,538 $ 15,017 $ 15,348
Current maturities of non-recourse debt 39,657 43,961 49,500
Accounts payable 173,637 131,251 177,025
Billings in excess of costs and estimated earnings 144,935 156,041 184,665
Accrued expenses and other current liabilities 161,632 159,843 168,217
Total current liabilities 528,399 506,113 594,755
Long-term debt 216,870 225,203 225,220
Long-term non-recourse debt 16,615 19,485 8,455
Other long-term liabilities 49,197 48,998 46,686
Deferred income taxes 27,905 27,220 17,917
Equity

Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding

 - - -

Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 38,788,581 shares as of June 30, 2010, 38,635,021 shares as of December 31, 2009 and 38,673,034 shares as of June 30, 2009

 388 386 387
Additional paid-in capital 98,142 94,633 89,142
Retained earnings 677,873 735,632 699,050
Total Granite Construction Incorporated shareholders' equity 776,403 830,651 788,579
Noncontrolling interests 39,788 51,905 52,672
Total equity 816,191 882,556 841,251
Total liabilities and equity $ 1,655,177 $ 1,709,575 $ 1,734,284

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Revenue
Construction $ 237,943 $ 277,456 $ 319,129 $ 445,505
Large project construction 153,328 125,770 259,653 274,830
Construction materials 61,089 57,315 87,253 87,161
Real estate 1,844 534 8,852 951
Total revenue 454,204 461,075 674,887 808,447
Cost of revenue
Construction 215,042 224,655 294,382 357,528
Large project construction 131,493 103,259 228,335 218,655
Construction materials 56,609 47,732 89,898 77,892
Real estate 1,362 1,534 6,860 1,741
Total cost of revenue 404,506 377,180 619,475 655,816
Gross profit 49,698 83,895 55,412 152,631
Selling, general and administrative expenses 51,357 56,319 106,649 110,674
Gain on sales of property and equipment 3,800 2,808 8,252 5,329
Operating income (loss) 2,141 30,384 (42,985 ) 47,286
Other income (expense)
Interest income 1,098 1,109 2,037 3,170
Interest expense (3,013 ) (2,853 ) (6,747 ) (6,341 )
Equity in (loss) income of affiliates (387 ) 783 (706 ) 339
Other income, net 1,934 1,431 4,831 5,216
Total other (expense) income (368 ) 470 (585 ) 2,384
Income (loss) before provision for (benefit from) income taxes 1,773 30,854 (43,570 ) 49,670
Provision for (benefit from) income taxes 4,406 8,187 (3,207 ) 13,016
Net (loss) income (2,633 ) 22,667 (40,363 ) 36,654
Amount attributable to noncontrolling interests (4,058 ) (4,718 ) (7,282 ) (9,785 )
Net (loss) income attributable to Granite Construction Incorporated $ (6,691 ) $ 17,949 $ (47,645 ) $ 26,869
Net (loss) income per share attributable to common shareholders:
Basic (1) $ (0.18 ) $ 0.46 $ (1.26 ) $ 0.70
Diluted (1) $ (0.18 ) $ 0.46 $ (1.26 ) $ 0.70
Weighted average shares of common stock:
Basic 37,850 37,584 37,770 37,530

Diluted

 37,850 37,699 37,770 37,650
Note:
(1) Computed using the two-class method, except when in a net loss position

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Six Months Ended June 30, 2010 2009
Operating activities
Net (loss) income $ (40,363 ) $ 36,654
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Impairment of real estate held for development and sale 107 1,036
Depreciation, depletion and amortization 35,839 39,670
Provision for (recovery of) doubtful accounts 406 (3,386 )
Gain on sales of property and equipment (8,252 ) (5,329 )
Stock-based compensation 6,885 4,561
Gain on company owned life insurance (1,748 ) -
Changes in assets and liabilities, net of the effects of consolidations (31,792 ) (79,241 )
Net cash used in operating activities (38,918 ) (6,035 )
Investing activities
Purchases of marketable securities (60,073 ) (39,043 )
Maturities of marketable securities 34,900 27,610
Proceeds from company owned life insurance 2,078 -
Additions to property and equipment (21,809 ) (55,659 )
Proceeds from sales of property and equipment 11,936 7,416
Purchase of private preferred stock (6,400 ) -
Contributions to affiliates (1,014 ) (4,971 )
Issuance of notes receivable (1,242 ) -
Collection of notes receivable 1,720 374
Other investing activities (333 ) 65
Net cash used in investing activities (40,237 ) (64,208 )
Financing activities
Proceeds from long-term debt 95 4,911
Long-term debt principal payments (18,155 ) (17,475 )
Cash dividends paid (10,067 ) (10,003 )
Purchase of common stock (3,434 ) (2,821 )
Distributions to noncontrolling partners, net (19,797 ) (9,080 )
Other financing activities 7 36
Net cash used in financing activities (51,351 ) (34,432 )
Decrease in cash and cash equivalents (130,506 ) (104,675 )
Cash and cash equivalents at beginning of period 338,956 460,843
Cash and cash equivalents at end of period $ 208,450 $ 356,168

GRANITE CONSTRUCTION INCORPORATED
Business Segment Information
(Unaudited - in thousands)

Three Months Ended June 30,

Six Months Ended June 30,
Large Project Construction

Real Estate

 Large Project Construction

Real Estate
Construction Construction Materials Construction Construction Materials
2010
Revenue $ 237,943 $ 153,328 $ 61,089 $ 1,844 $ 319,129 $ 259,653 $ 87,253 $ 8,852
Gross profit (loss) $ 22,901 $ 21,835 $ 4,480 $ 482 $ 24,747 $ 31,318 $ (2,645 ) $ 1,992
Gross profit (loss) as a percent of revenue 9.6 % 14.2 % 7.3 % 26.1 % 7.8 % 12.1 % -3.0 % 22.5 %
2009
Revenue $ 277,456 $ 125,770 $ 57,315 $ 534 $ 445,505 $ 274,830 $ 87,161 $ 951
Gross profit (loss) $ 52,801 $ 22,511 $ 9,583 $ (1,000 ) $ 87,977 $ 56,175 $ 9,269 $ (790 )
Gross profit (loss) as a percent of revenue 19.0 % 17.9 % 16.7 % -187.3 % 19.7 % 20.4 % 10.6 % -83.1 %
GRANITE CONSTRUCTION INCORPORATED

Contract Backlog by Segment
(Unaudited - in thousands)

June 30, 2010 March 31, 2010 June 30, 2009
Construction $ 594,214 38.3 % $ 487,751 30.9 % $ 687,696 44.9 %
Large project construction 957,080 61.7 % 1,091,251 69.1 % 844,547 55.1 %
Total $ 1,551,294 100.0 % $ 1,579,002 100.0 % $ 1,532,243 100.0 %

Source: Granite Construction Incorporated