Granite Reports Full-Year and Fourth-Quarter 2009 Results

Feb 25, 2010

Revenue decreased 27 percent in 2009
Net income down 40 percent year over year
Gross profit margin unchanged from prior year
Granite East backlog increased $52.3 million to $962.8 million
Granite West backlog decreased 44 percent to $439.2 million
Balance sheet strong with $381.4 million in cash and short-term marketable securities

WATSONVILLE, Calif.--(BUSINESS WIRE)-- Granite Construction Incorporated (NYSE:GVA) today reported net income of $73.5 million for the full year 2009, compared with $122.4 million for the full year 2008. Diluted earnings per share were $1.90 for the full year 2009 compared with $3.18 per diluted share for the full year 2008.

For the fourth quarter of 2009, Granite reported net income of $16.0 million, or $0.41 per diluted share. This compares with net income of $31.9 million, or $0.83 per diluted share, for the fourth quarter of 2008.

Commenting on the results, Granite President and Chief Executive Officer
William G. Dorey said, “We delivered the goods on our projects in 2009 despite today’s macroeconomic challenges and extraordinarily competitive markets. A number of factors contributed to our results, including excellent execution on our projects, resolution of project issues, bidding discipline and a focus on reducing our cost structure. Unfortunately, we also experienced a significant decline in revenue and backlog in the West as the weak private market led to increased competition for public-sector work and lower demand for construction materials.”

Full-year 2009 Financial Results

Total Company

Revenues for the year totaled $2.0 billion, compared with $2.7 billion in 2008, reflecting the competitive environment in Granite West and delayed notices to proceed on three large Granite East projects awarded in 2009.
Gross profit margin was 18 percent, unchanged from a year ago reflecting excellent project execution.
Gross profit on the sale of construction materials was $14.4 million in 2009, compared with $41.9 million in 2008, primarily as a result of significantly lower sales volume.
General and administrative expenses were $224.9 million compared with $257.5 million in 2008. The decrease reflects $9.5 million in lower incentive compensation and salaries, a recovery of $4.6 million that provided a credit in our provision for doubtful accounts, and lower travel, relocation and occupancy costs.
Operating income was $129.2 million compared with $216.7 million in the prior year.
Other income was $9.7 million, compared with $16.7 million in 2008, due primarily to a 73 percent decrease in interest income resulting from lower investment interest yields on marketable securities.
Net income attributable to noncontrolling interests in joint ventures was $26.7 million compared with $43.3 million in 2008. The decrease is associated primarily with a large settlement on a joint venture project that occurred in 2008 related to outstanding revenue issues on a project in southern California.
At year end, cash and short-term marketable securities totaled $381.4 million, including $122.4 million in cash and cash equivalents associated with the company’s consolidated joint ventures.
Total contract backlog at December 31, 2009, was $1.4 billion compared with $1.7 billion at December 31, 2008.

Granite West

Granite West revenues totaled $1.4 billion compared with $2.0 billion for the prior year, reflecting intense competition for public works projects, less private-sector work, as well as reduced sales of construction materials.
Gross profit margin for the year was 17 percent compared with 18 percent last year.
Operating income decreased to $126.5 million for the same period compared with $206.0 million in 2008.

Granite East

Granite East revenues totaled $550.2 million compared with $695.0 million in the prior year.
Gross profit margin for the year was 20 percent, compared with 18 percent for the same period last year, driven primarily by a quality project portfolio, improved project execution and issue resolutions with project owners.
Operating income totaled $85.7 million compared with $94.2 million in 2008.

Fourth-quarter 2009 Financial Results

Total Company

Revenues for the quarter totaled $434.7 million, compared with $627.3 million in 2008, driven primarily by a reduction in Granite West revenue.
Gross profit margin increased to 21 percent, up from 19 percent in 2008, reflecting higher gross profit margins in both divisions.
Operating income for the quarter was $35.6 million compared with $58.4 million in the prior year.
Other income for the quarter was $3.7 million compared with $6.8 million last year. In 2008, the company recognized a pre-tax gain related to the sale of an investment in an affiliate, which was partially offset by a $10.9 million loss on available-for-sale securities.
General and administrative expenses decreased $4.0 million in the fourth quarter of 2009 to $55.1 million. The decrease reflects approximately $2.0 million in lower incentive compensation and salary expense.
During the fourth quarter of 2009, the company recorded a $9.5 million restructuring charge which includes $7.0 million associated with a reduction in force and an impairment of $2.5 million related to selected plant facilities in the Pacific Northwest.
Net income attributable to noncontrolling interests in joint ventures was $11.0 million compared with $12.3 million in 2008.

Granite West

Granite West revenues for the quarter totaled $301.6 million, compared with $463.2 million for the same period in 2008, reflecting decreases in public- and private-sector work, and sales of construction materials.
Gross profit margin for the fourth quarter was 18 percent, unchanged from a year ago.
Operating income for the quarter totaled $28.4 million compared with $51.3 million for the same period last year.

Granite East

Granite East revenues for the quarter totaled $132.8 million compared with $163.2 million for the same period last year.
Gross profit margin for the quarter increased to 26 percent, compared with 21 percent for the same period last year, due primarily to the settlement of outstanding revenue issues and the completion of a large project.
Operating income for the quarter increased $3.5 million to $30.5 million.

Outlook

“As we have discussed, 2010 will prove to be very challenging. Backlog in the East increased, however, our backlog in the West is down substantially as we continue to face intense competitive pressure for the available public-sector work. While we expect some benefit from large projects reaching the profit recognition threshold this year, the positive impact will not offset the lower margins we anticipate from our work in the West. Public works funding challenges will continue as many states and local agencies adjust their budgets to compensate for lower tax revenues. Based on current expectations, our earnings will be lower in 2010 than what we achieved in 2009,” said Dorey.

“Despite our current challenges, we are encouraged about the longer-term prospects for our business. We are increasing our business development efforts, strengthening our alliances with well-established partners and pursuing work in new markets, as well as in our traditional transportation-related markets. In addition to several conventional and solar-related energy projects, we are also pursuing substantially more federal government work.

“We continue to focus on reducing our cost structure across the company and have reduced our planned capital expenditures for 2010 by approximately 40 percent. However, our primary goal will be to develop new sources of profitable revenue to complement our traditional portfolio without compromising our disciplined bidding philosophy,” said Dorey.

Reporting Segment Change

On August 31, 2009, the company announced changes to its organizational structure designed to improve operating efficiencies and better position the company for long-term growth. In conjunction with the reorganization, the company is changing its reportable business segments to align with its product lines rather than its geographies, as it has been in recent history. Beginning in fiscal 2010, the company’s new reportable segments are: Construction, Large Project Construction, Construction Materials and Real Estate. The Real Estate segment will contain what was previously known as Granite Land Company. Prior to reporting first-quarter 2010 financial results on May 3, 2010, the company will provide 2008 and 2009 segment results for the reorganized structure on a Current Report on Form 8-K.

Conference Call

Granite will conduct a conference call tomorrow, February 25, 2010, at 8:00 a.m. Pacific time/11:00 a.m. Eastern time to discuss the results of the fourth quarter and year ended December 31, 2009. Access to a live audio webcast is available at www.graniteconstruction.com/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 54210917. The call will be recorded and will be available for replay from approximately two hours after the live audio webcast through March 11, 2010 by calling (800) 642-1687 or (706) 645-9291. The conference ID for the recording is 54210917.

About Granite

Granite Construction Incorporated is a member of the S&P 400 Midcap Index, the Domini 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.graniteconstruction.com.

Forward-looking Statements

This press 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
(In thousands, except share and per share data)

	December 31,		December 31,
	2009		2008
	(Unaudited)		(1)

Assets

Current assets
Cash and cash equivalents	$	338,956	$	460,843
Short-term marketable securities		42,448		38,320
Receivables, net		280,252		314,733
Costs and estimated earnings in excess of billings		10,619		13,295
Inventories		45,800		55,223
Real estate held for development and sale		139,449		75,089
Deferred income taxes		31,034		43,637
Equity in construction joint ventures		67,693		44,681
Other current assets		50,467		56,742

Total current assets		1,006,718		1,102,563

Property and equipment, net		520,778		517,678

Long-term marketable securities		76,937		21,239

Investment in affiliates		24,644		19,996

Other noncurrent assets		80,498		81,979

Total assets	$	1,709,575	$	1,743,455

Liabilities and Equity

Current liabilities
Current maturities of long-term debt	$	58,978	$	39,692
Accounts payable		131,251		174,626
Billings in excess of costs and estimated earnings		156,041		227,364
Accrued expenses and other current liabilities		159,843		184,939

Total current liabilities		506,113		626,621

Long-term debt		244,688		250,687

Other long-term liabilities		48,998		43,604

Deferred income taxes		27,220		18,261

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 in 2009 and 2008; issued and outstanding 38,635,021 shares as of December 31, 2009 and 38,266,791 shares as of December 31, 2008		386		383
Additional paid-in capital		94,633		85,035
Retained earnings		735,632		682,237
Accumulated other comprehensive loss		-		(146	)
Total Granite Construction Inc. shareholders' equity		830,651		767,509

Noncontrolling interests		51,905		36,773

Total equity		882,556		804,282

Total liabilities and equity	$	1,709,575	$	1,743,455
		-		-

	December 31,		December 31,
FINANCIAL POSITION	2009		2008
	(Unaudited)

Working capital	$	500,605	$	475,942
Current ratio		1.99		1.76
Debt to Granite Construction Inc. shareholders' equity capitalization		0.27		0.27
Total liabilities to Granite Construction Inc. shareholders' equity ratio		1.00		1.22

(1) Derived from Granite's annual audited consolidated financial statements.


GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)


	Three Months Ended						Year Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(1)

Revenue
Construction	$	387,149		$	556,659		$	1,755,260		$	2,312,116
Construction materials		47,257			69,794			205,945			353,115
Real estate		342			871			2,274			9,013
Total revenue		434,748			627,324			1,963,479			2,674,244
Cost of revenue
Construction		298,931			446,649			1,421,969			1,883,742
Construction materials		45,554			63,287			191,545			311,246
Real estate		320			690			3,592			10,536
Total cost of revenue		344,805			510,626			1,617,106			2,205,524

Gross profit		89,943			116,698			346,373			468,720

General and administrative expenses		55,144			59,188			224,910			257,532
Restructuring charges		9,453			-			9,453			-
Gain on sales of property and equipment		10,291			939			17,169			5,503

Operating income		35,637			58,449			129,179			216,691

Other income (expense)
Interest income		1,135			3,358			5,049			18,445
Interest expense		(5,170	)		(3,130	)		(15,756	)		(16,001	)
Equity in income (loss) of affiliates		3,336			378			7,696			(1,058	)
Other income, net		4,405			6,157			12,683			15,353

Total other income		3,706			6,763			9,672			16,739

Income before provision for income taxes		39,343			65,212			138,851			233,430

Provision for income taxes		12,334			21,011			38,650			67,692

Net income		27,009			44,201			100,201			165,738

Amount attributable to noncontrolling interests		(10,976	)		(12,276	)		(26,701	)		(43,334	)

Net income attributable to Granite Construction Inc.	$	16,033		$	31,925		$	73,500		$	122,404


Net income per share attributable to common shareholders
Basic (2)	$	0.41		$	0.83		$	1.91		$	3.19
Diluted (2)	$	0.41		$	0.83		$	1.90		$	3.18

Weighted average shares of common stock
Basic (2)		37,608			37,434			37,566			37,606
Diluted (2)		37,723			37,561			37,683			37,709

(1) Derived from Granite's annual audited consolidated financial statements.
(2) Computed using the two-class method as required by the accounting standards adopted on January 1, 2009.


GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years Ended December 31,	2009			2008
	(Unaudited)			(1)
Operating activities
Net income	$	100,201		$	165,738
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of real estate held for development and sale		1,686			4,500
Intangible impairment charge		3,873			-
Inventory written down		3,097			12,848
Depreciation, depletion and amortization		80,195			87,311
(Recovery of) provision for doubtful accounts		(4,404	)		10,958
Gain on sales of property and equipment		(17,169	)		(5,503	)
Change in deferred income taxes		21,107			1,190
Stock-based compensation		10,765			7,463
Excess tax benefit on stock-based compensation		(828	)		(851	)
Equity in (income) loss of affiliates		(7,696	)		1,058
(Gain) loss from marketable securities		(485	)		10,939
Gain on sale of investment in affiliate		-			(14,416	)
Acquisition of noncontrolling interest		-			(16,617	)
Gain on early extinguishment of debt		-			(1,150	)
Changes in assets and liabilities, net of the effects of acquisition and consolidations		(126,041	)		(6,132	)
Net cash provided by operating activities		64,301			257,336
Investing activities
Purchases of marketable securities		(99,011	)		(71,630	)
Maturities of marketable securities		36,970			108,090
Proceeds from sale of marketable securities		7,966			22,499
Purchase of company owned life insurance		(8,000	)		(8,000	)
Release of funds for acquisition of noncontrolling interest		-			28,332
Additions to property and equipment		(87,645	)		(94,135	)
Proceeds from sales of property and equipment		23,020			14,539
Acquisition of businesses		-			(14,022	)
Contributions to affiliates		(4,969	)		(8,053	)
Distributions from affiliates		-			3,895
Issuance of notes receivable		(11,314	)		-
Collection of notes receivable		13,104			728
Other investing activities, net		-			(500	)
Net cash used in investing activities		(129,879	)		(18,257	)
Financing activities
Proceeds from long-term debt		10,750			3,725
Long-term debt principal payments		(18,856	)		(17,092	)
Purchase of common stock		(3,431	)		(45,540	)
Cash dividends paid		(20,057	)		(20,055	)
Contributions from noncontrolling partners		420			5,026
Distributions to noncontrolling partners		(26,019	)		(45,909	)
Acquisition of noncontrolling interest		-			(11,716	)
Excess tax benefit on stock-based compensation		828			851
Other financing activities		56			40
Net cash used in financing activities		(56,309	)		(130,670	)

(Decrease) increase in cash and cash equivalents	$	(121,887	)	$	108,409

Cash and cash equivalents at beginning of year		460,843			352,434

Cash and cash equivalents at end of year	$	338,956		$	460,843

(1) Derived from Granite's annual audited consolidated financial statements.


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

	Three Months Ended December 31,									Year Ended December 31,

	Granite West			Granite East			Granite Land Company			Granite West			Granite East			Granite Land Company

2009
Revenue	$	301,574		$	132,832		$	342		$	1,411,016		$	550,189		$	2,274
Gross profit (loss)	$	55,548		$	34,373		$	22		$	236,868		$	110,823		$	(1,318	)
Gross profit (loss) as a percent of revenue		18.4	%		25.9	%		6.4	%		16.8	%		20.1	%		-58.0	%
Operating income (loss)	$	28,436		$	30,521		$	(841	)	$	126,509		$	85,657		$	(5,000	)
Operating income (loss) as a percent of revenue		9.4	%		23.0	%		-245.9	%		9.0	%		15.6	%		-219.9	%

2008
Revenue	$	463,244		$	163,209		$	871		$	1,970,196		$	695,035		$	9,013
Gross profit (loss)	$	82,361		$	34,156		$	181		$	348,818		$	121,425		$	(1,523	)
Gross profit (loss) as a percent of revenue		17.8	%		20.9	%		20.8	%		17.7	%		17.5	%		-16.9	%
Operating income (loss)	$	51,274		$	26,985		$	(348	)	$	205,958		$	94,181		$	(4,143	)
Operating income (loss) as a percent of revenue		11.1	%		16.5	%		-40.0	%		10.5	%		13.6	%		-46.0	%


GRANITE CONSTRUCTION INCORPORATED
Contract Backlog
(Unaudited - in thousands)

Contract Backlog by Segment	December 31, 2009						September 30, 2009						December 31, 2008

Granite West	$	439,155			31.3	%	$	553,728			34.3	%	$	788,872			46.4	%
Granite East		962,833			68.7	%		1,058,540			65.7	%		910,524			53.6	%

Total	$	1,401,988			100.0	%	$	1,612,268			100.0	%	$	1,699,396			100.0	%

Source: Granite Construction

Goodbye For Now