<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File No. 0-18350
GRANITE CONSTRUCTION INCORPORATED
State of Incorporation: I.R.S. Employer Identification
Delaware Number: 77-0239383
Corporate Administration:
585 West Beach Street
Watsonville, California 95076
(408) 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 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
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 10, 1998.
Class Outstanding
----------------------------- -----------------
Common Stock, $0.01 par value 27,622,606 shares
This report on Form 10-Q, including all exhibits, contains 20 pages. The exhibit
index is located on page 19 of this report.
<PAGE> 2
GRANITE CONSTRUCTION INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of June 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Income for the Three Months and Six
Months Ended June 30, 1998 and 1997 . . . . . . . . . . . . 5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . 6
Notes to the Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . 7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . none
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . none
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . none
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . 16
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . none
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 17
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
3
<PAGE> 4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
===================================================================================================
JUNE 30, December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 28,768 $ 54,359
Short-term investments 25,604 18,410
Accounts receivable 183,982 168,968
Costs and estimated earnings in excess of billings 21,480 22,585
Inventories 15,389 12,251
Deferred income taxes 13,365 13,365
Equity in joint ventures 16,805 12,951
Other current assets 15,841 11,394
----------------------------
Total current assets 321,234 314,283
- ---------------------------------------------------------------------------------------------------
Property and equipment 208,667 194,339
- ---------------------------------------------------------------------------------------------------
Other assets 47,914 43,187
- ---------------------------------------------------------------------------------------------------
$ 577,815 $ 551,809
===================================================================================================
LABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 11,321 $ 12,921
Accounts payable 72,967 80,809
Billings in excess of costs and estimated earnings 46,612 51,573
Accrued expenses and other current liabilities 76,966 65,070
----------------------------
Total current liabilities 207,866 210,373
- ---------------------------------------------------------------------------------------------------
Long-term debt 73,709 58,396
- ---------------------------------------------------------------------------------------------------
Deferred income taxes 25,606 25,606
- ---------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $0.01 par value, authorized
3,000,000 shares, none outstanding -- --
Common stock, $0.01 par value, authorized 50,000,000
shares; 1998- issued and outstanding 27,617,952 shares;
1997- issued and outstanding 27,399,563 shares 276 274
Additional paid-in capital 44,058 39,745
Retained earnings 234,456 223,498
----------------------------
278,790 263,517
Unearned compensation (8,156) (6,083)
----------------------------
270,634 257,434
- ---------------------------------------------------------------------------------------------------
$ 577,815 $ 551,809
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
======================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 292,792 $ 242,576 $ 476,114 $ 389,397
Cost of revenue 250,412 211,586 414,560 342,557
- ------------------------------------------------------------------------------------------------------
GROSS PROFIT 42,380 30,990 61,554 46,840
General and administrative expenses 19,855 18,473 38,087 35,116
------------------------------------------------------------
OPERATING PROFIT 22,525 12,517 23,467 11,724
- ------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 2,358 1,208 4,858 2,688
Interest expense (2,267) (1,762) (4,169) (3,195)
Gain on sales of property
and equipment 268 1,684 877 2,304
Other, net 576 (460) 656 51
------------------------------------------------------------
935 670 2,222 1,848
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 23,460 13,187 25,689 13,572
Provision for income taxes 8,915 4,880 9,762 5,022
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 14,545 $ 8,307 $ 15,927 $ 8,550
======================================================================================================
Net income per share
Basic $ 0.55 $ 0.31 $ 0.60 $ 0.32
Diluted $ 0.54 $ 0.31 $ 0.59 $ 0.32
Weighted average shares
of common stock
Basic 26,583 26,421 26,525 26,372
Diluted 27,156 26,918 27,033 26,751
Dividends per share $ 0.05 $ 0.04 $ 0.18 $ 0.16
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED- IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
===============================================================================================
SIX MONTHS ENDED JUNE 30, 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 15,927 $ 8,550
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 18,863 19,197
Gain on sales of property and equipment (877) (2,304)
Decrease in unearned compensation 1,156 1,159
Equity in (gain) loss of affiliates (179) 1,299
Cash provided by (used in):
Accounts and notes receivable (18,411) (35,577)
Inventories (3,138) (1,233)
Equity in construction joint ventures (3,854) (16,150)
Other assets (3,359) 1,088
Accounts payable (7,842) 20,147
Billings in excess of costs and estimated earnings, net (3,844) 8,871
Accrued expenses 11,613 (3,223)
-------------------------
Net cash provided by operating activities 6,055 1,824
- -----------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (33,322) (37,762)
Proceeds from sales of property and equipment 1,493 3,032
Investment in affiliates (400) (13,311)
Additions to notes receivable (165) (117)
Repayments of notes receivable 597 772
Additions to investments and other assets (1,768) (5,366)
Purchases of short-term investments (35,699) (13,521)
Maturities of short-term investments 28,505 35,282
------------------------
Net cash used by investing activities (40,759) (30,991)
- -----------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt 60,000 32,969
Repayments of long-term debt (46,287) (5,448)
Employee stock options exercised 380 93
Repurchase of common stock (294) (464)
Dividends paid (4,686) (4,379)
------------------------
Net cash provided by financing activities 9,113 22,771
- -----------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (25,591) (6,396)
Cash and cash equivalents at beginning of period 54,359 38,663
------------------------
Cash and cash equivalents at end of period $ 28,768 $ 32,267
===============================================================================================
Supplementary Information Cash paid during the period for:
Interest $ 3,162 $ 3,195
Income taxes 5,589 257
Noncash investing and financing activity:
Restricted stock issued for services $ 3,795 $ 3,498
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE> 7
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION: The condensed consolidated financial statements
included herein have been prepared by Granite Construction Incorporated
(the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes 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 the financial position at June 30, 1998 and
the results of operations and cash flows for the periods presented. The
December 31, 1997 condensed consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
Interim results are subject to significant seasonal variations and the
results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. INVENTORIES: Inventories consist primarily of quarry products valued at
the lower of average cost or market.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Land $ 30,893 $ 20,654
Quarry property 35,862 35,862
Buildings and leasehold improvements 19,869 17,175
Equipment and vehicles 429,981 416,073
Office furniture and equipment 4,575 5,467
-------- --------
521,180 495,231
Less accumulated depreciation,
depletion and amortization 312,513 300,892
-------- --------
$208,667 $194,339
======== ========
</TABLE>
4. LONG-TERM DEBT: In March 1998 the Company issued long-term debt in the
amount of $60.0 million to a group of institutional holders. The notes
are due in nine equal annual installments beginning in 2002 and bear
interest at 6.54% per annum. Of the proceeds of the notes, $39.0 million
was used to retire the Company's outstanding bank revolving credit
notes.
7
<PAGE> 8
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. EARNINGS PER SHARE: In accordance with the disclosure requirements of
SFAS 128, a reconciliation of the numerator and denominator of basic and
diluted earnings per share is provided as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR - BASIC AND DILUTED
EARNINGS PER SHARE
Net income $14,545 $ 8,307 $15,927 $ 8,550
======================================================================================
DENOMINATOR - BASIC EARNINGS PER
SHARE
Common stock outstanding 27,607 27,411 27,523 27,314
Less restricted stock
outstanding 1,024 990 998 942
----------------------------------------------
TOTAL 26,583 26,421 26,525 26,372
----------------------------------------------
Basic earnings per share $ 0.55 $ 0.31 $ 0.60 $ 0.32
======================================================================================
DENOMINATOR - DILUTED EARNINGS PER
SHARE
Denominator - Basic Earnings
per Share 26,583 26,421 26,525 26,372
Effect of Dilutive Securities:
Common stock options 65 77 66 79
Warrants 136 -- 114 --
Restricted stock 372 420 328 300
----------------------------------------------
TOTAL 27,156 26,918 27,033 26,751
----------------------------------------------
Diluted earnings per share $ 0.54 $ 0.31 $ 0.59 $ 0.32
======================================================================================
</TABLE>
6. CONTINGENCIES: The Company is currently a party to various claims and
legal proceedings, none of which is considered by management to be
material to the Company's financial position.
7. RECLASSIFICATIONS: Certain prior year financial statement items have
been reclassified to conform to the current year's presentation.
8. STOCK SPLIT: On July 6, 1998, the Company announced that its Board of
Directors approved a three-for-two stock split in the form of a 50%
stock dividend payable on August 7, 1998 to stockholders of record on
July 17, 1998. All references in the financial statements to number of
shares and per share amounts of the Company's common stock have been
retroactively restated to reflect the increased number of shares
outstanding.
8
<PAGE> 9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997 the FASB issued Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related Information". SFAS 131
requires publicly-held companies to report financial and other
information about key revenue-producing segments of the entity for which
such information is available and is utilized by the chief operations
decision maker. Specific information to be reported for individual
segments includes profit or loss, certain revenue and expense items and
total assets. A reconciliation of segment financial information to
amounts reported in the financial statements would be provided. SFAS 131
is effective for the Company at year-end 1998 and the impact of adoption
has not been determined.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the quarter ended June 30, 1998 was $292.8 million, bringing the six
month total to $476.1 million, an increase of $50.2 million, or 20.7%, and $86.7
million, or 22.3%, respectively, over the same periods last year. The increase
in the quarter and for the six months reflects the Company's strong backlog and
successful execution of work from both divisions as well as contributions made
from emergency work caused by severe winter weather conditions.
REVENUE BY MARKET SECTOR
SIX MONTHS ENDED JUNE 30,
(IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997
$ % $ %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Public 338.4 71.1% 264.5 67.9%
Private 82.3 17.3% 73.6 18.9%
Materials 55.4 11.6% 51.3 13.2%
----- ----- ----- -----
476.1 100.0% 389.4 100.0%
===== ===== ===== =====
</TABLE>
For the six months ended June 30, 1998, revenue from public sector contracts
increased $73.9 million to $338.4 million, or 71.1% of total revenue, from
$264.5 million, or 67.9% of total revenue in 1997. Revenue from private sector
contracts of $82.3 million, or 17.3% of total revenue, increased $8.7 million
from the six months ended June 30, 1997 level of $73.6 million. Revenue in the
Company's primary geographical area, California, increased in dollars to $230.3
million, but decreased as a percentage of revenue to 48.4% of total revenue,
from $206.8 million, or 53.1% of total revenue, last year.
Backlog at June 30, 1998 was $1,032.4 million, a $23.2 million increase from
June 30, 1997 and a $122.6 million increase from December 31, 1997. New awards
for the quarter totaled $407.8 million and include a $49.3 million highway
project and $36.3 million railroad project in Texas, a $16 million pipeline
project in Las Vegas, Nevada and a $16 million highway project in Florida.
AWARDS AND BACKLOG
END OF PERIOD
(IN MILLIONS)
<TABLE>
<CAPTION>
AWARDS BACKLOG
------ -------
<S> <C> <C>
1994
Q1 111.8 664.7
Q2 148.9 640.1
Q3 194.9 594.9
Q4 128.2 550.2
1995
Q1 199.5 644.4
Q2 302.9 720.6
Q3 143.1 557.2
Q4 289.2 590.1
1996
Q1 188.0 624.3
Q2 259.9 635.8
Q3 382.5 715.7
Q4 106.1 597.9
1997
Q1 483.0 934.1
Q2 317.7 1,009.2
Q3 369.7 1,050.0
Q4 169.7 909.8
1998
Q1 191.0 917.4
Q2 407.8 1,032.4
</TABLE>
10
<PAGE> 11
The private sector backlog increased to 13.0% of total backlog from 6.6% at
December 31, 1997 and 6.3% at June 30, 1997. The increase in private sector
backlog primarily reflects the railroad project in Texas, which contributed
$36.0 million to private sector backlog.
BACKLOG BY MARKET SECTOR
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
$ % $ %
------- ----- ----- -----
<S> <C> <C> <C> <C>
Public 898.5 87.0% 849.5 93.4%
Private 133.9 13.0% 60.3 6.6%
------- ----- ----- -----
1,032.4 100.0% 909.8 100.0%
======= ===== ===== =====
</TABLE>
Gross profit for the quarter ended June 30, 1998 was $42.4 million, or 14.5% of
revenue, as compared to $31.0 million, or 12.8% of revenue, for 1997. The six
month gross profit increased $14.8 million to $61.6 million, or 12.9% of revenue
versus $46.8 million or 12.0% of revenue in 1997. A component of the increased
gross profit margin was the Company's Interstate-15 rebuild project in Salt Lake
City, Utah which reached the 25% completion threshold for profit recognition
during the quarter. Revenue in an amount equal to cost incurred is recognized
prior to contracts reaching 25% completion.
General and administrative expenses for the three months ended June 30, 1998
increased $1.4 million to $19.9 million, but decreased as a percentage of
revenue to 6.8% in 1998 from 7.6% for the same quarter last year. For the six
months, general and administrative expenses increased $3.0 million to $38.1
million and decreased as a percentage of revenue to 8.0% from 9.0% last year.
The dollar increase is primarily due to higher incentive compensation and other
costs resulting from the Company's increased revenue and bidding activities
partially offset by the collection of a previously written-off bad debt.
SEASONALITY OF BUSINESS
REVENUE AND NET INCOME BY QUARTER
(IN MILLIONS)
<TABLE>
<CAPTION>
NET
REVENUE INCOME
------ ------
<S> <C> <C>
1994
Q1 106.7 (2.1)
Q2 173.6 4.6
Q3 240.2 13.6
Q4 172.9 3.3
1995
Q1 105.3 1.2
Q2 226.7 8.3
Q3 306.6 13.2
Q4 256.2 5.8
1996
Q1 153.7 0.4
Q2 248.5 9.1
Q3 302.6 15.1
Q4 223.9 2.8
1997
Q1 146.8 0.2
Q2 242.6 8.3
Q3 329.0 13.7
Q4 309.8 5.6
1998
Q1 183.3 1.4
Q2 292.8 14.5
</TABLE>
Net income for the quarter ended June 30, 1998 was $14.5 million, or $0.54 per
diluted share, an increase of $6.2 million or $0.23 per diluted share from the
quarter ended June 30, 1997. For the six months, net income was $15.9 million,
or $0.59 per diluted share, a $7.4 million, or $0.27 per diluted share increase
from the prior year.
11
<PAGE> 12
OUTLOOK
This "Outlook" section contains forward-looking statements which are made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including, without limitation, changes in the
composition of applicable federal and state legislation appropriation
committees; federal and state appropriation changes for infrastructure spending;
the general state of the economy; competition and pricing pressures; state
referendums and initiatives; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
We are very pleased with our financial performance through the first six months
of this year. We did, however, get a late start on many of our projects due to
El Nino and still face the prospect of a compressed work season. Our ability to
complete work in order to meet the expectations of the financial community may
hinge on the fourth quarter. Significant wet weather in the fourth quarter would
further compress our work season, making it very difficult to achieve those
results. If, however, we are able to work through most of the quarter, we stand
a better chance of achieving the financial results we have as our objective.
We are also very pleased with recent events in Washington. After months of
debate, Congress has approved a record-setting transportation bill that will
provide federal funding for roads, bridges, rail and transit projects through
2003. Dubbed TEA-21, the Transportation Equity Act for the 21st Century
authorizes a minimum of $204 billion over six years, including $165 billion for
highways and $36 billion for mass transit. TEA-21 funding levels represent a 40%
increase over the previous bill, the Intermodal Surface Transportation
Efficiency Act (ISTEA). Other key elements of the landmark legislation include
funding based on Highway Trust Fund receipts, with firewalls that guarantee
money won't be diverted to non-transportation purposes and a revised funding
formula assuring that all states get at least 90.5 cents in federal aid for each
$1 paid in fuel taxes. As a result, Texas will see a 60.7% increase in funding
under TEA-21. Other states where Granite has a major presence, such as Florida
and California, will see funding levels increase 57.3% and 45.6% respectively
over the levels contained in ISTEA.
Moreover, in late July, the House of Representatives passed the fiscal year 1999
transportation appropriations bill, which provides $25.5 billion highway
obligation limitation, the same amount guaranteed by TEA-21 and contained in the
Senate bill. The $25.5 billion highway obligation limitation represents a $7.5
billion, or 42% increase over the last two years.
On the political front in California, lawmakers have passed legislation placing
an initiative on the November ballot to tighten the constitution with regard to
borrowing of gas tax funds and local transit revenues for general purposes.
Proposition 2 would ensure that any monies borrowed from these accounts would
have to be repaid. It is estimated that over $1 billion in gas tax funds and
local transit revenues have been diverted for non-transportation-related
purposes this decade.
12
<PAGE> 13
Looking at the company's backlog at the end of the second quarter, it is evident
that our private marketplace is showing signs of continued improvement. We
attribute the increase in private sector activity to a strong economy, including
improved housing starts which affect the demand for site development. The
increase in our second quarter private sector backlog is also the result of our
recently awarded $36 million contract to build a railroad for a Texas utility.
Our successful effort in Texas was aided by an alliance with TIC Holdings, Inc.
This alliance underscores the strategic direction Granite believes its minority
interest in TIC will lead - increased opportunities within the private sector,
TIC's largest market.
A continuing challenge will be the shortage of labor, particularly the shortage
of craft workers. This is an industry-wide problem that could inhibit a
company's ability to take on new work. As a result, we have expanded our
training and development programs in an effort to improve worker productivity
and perhaps instill greater loyalty toward our company. We are also in the midst
of modifying our compensation programs to ensure that we can attract and retain
the best and the brightest employees. Moreover, we will be working with our
trade unions to encourage more young people to start a construction career.
Looking ahead, our Branch Division continues to benefit from an increased demand
for construction services, driven mostly by strong state highway budgets. For
the first time in many years, we are seeing situations in some of our markets
where the demand for construction services is outstripping the capacity. This
may allow for some relative margin expansion in those areas going forward.
Our Heavy Construction Division (HCD) is witnessing a very good bidding
environment across the country. HCD is taking aim at new market opportunities in
Pennsylvania and Virginia and will continue to pursue projects in its core
geographic marketplaces in Texas and Florida. There are also several
mega-projects HCD has its sights on, including the San Francisco Bay area bridge
retrofit projects. In addition, current HCD projects such as Interstate 15 in
Salt Lake City, Utah, Interstate 4 in Tampa, Florida and US 75 Central
Expressway in Dallas, Texas continue to proceed according to schedule.
In summary, federal and state funding are at all time highs and the economy and
private work remain strong, especially in our key market areas such as
California, Florida and Texas. As a result, we are seeing an increased demand
for construction services, including labor, that is beginning to outstrip the
supply in various markets. Regardless of labor-shortage concerns, we believe
that the strength of our current workforce should provide Granite with a
competitive advantage as we continue to bid the large volumes of work available.
As always, adverse weather and the seasonality of our business must remain a key
factor in forecasting the remainder of the year.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997
==================================================================================
<S> <C> <C>
Cash and cash equivalents, June 30 $ 28,768 $ 32,267
Net cash provided (used) by:
Operating activities 6,055 1,824
Investing activities (40,759) (30,991)
Financing activities 9,113 22,771
----------------------------------------------------------------------------------
</TABLE>
Cash provided by operating activities of $6.1 million for the six months ended
June 30, 1998 represents a $4.2 million increase from the 1997 amount for the
same period. Changes in cash provided from operations reflect seasonal
variations based on the amount and progress of work being performed.
Cash used by investing activities in 1998 increased $9.8 million which reflects
a higher level of short-term investments partially offset by the absence of the
investment in TIC Holdings, Inc. which occurred in May 1997.
Cash provided by financing activities decreased $13.7 million primarily
reflecting the issuance of long-term debt in March 1998 in the amount of $60
million to a group of institutional holders. The notes are due in nine equal
annual installments beginning in 2002 and bear interest at 6.54% per annum. Of
the proceeds of the debt, $39.0 million was used to retire existing debt.
The Company's current borrowing capacity under its revolving line of credit is
$75 million of which $72.3 was available on June 30, 1998. The Company believes
that its current cash balances combined with cash flows from operations and cash
available under its revolving credit agreements will be sufficient to meet its
operating needs, anticipated capital expenditure plans and other financial
commitments as least through 1998.
14
<PAGE> 15
PART II. OTHER INFORMATION
15
<PAGE> 16
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on May 18, 1998, the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES WITHHELD
VOTES VOTES ABSTAINED NONVOTE
----- ----- --------- -------
<S> <C> <C> <C> <C>
Rebecca A. McDonald 12,950,769 - 1,097,443 4,361,199
Brian C. Kelly 13,620,475 - 427,737 4,361,199
</TABLE>
The following proposals were approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES WITHHELD
VOTES VOTES ABSTAINED NONVOTE
----- ----- --------- -------
<S> <C> <C> <C> <C>
To amend the certificate of
incorporation to increase
authorized common stock to
50,000,000 shares 11,959,885 2,004,460 83,867 4,361,199
To ratify the appointment
of Coopers & Lybrand,
L.L.P. as the independent
accountants of the Company
for the fiscal year ending
December 31, 1998 13,593,198 238,623 216,391 4,361,199
</TABLE>
16
<PAGE> 17
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
17
<PAGE> 18
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.
GRANITE CONSTRUCTION INCORPORATED
By: /s/ William E. Barton
--------------------------------------
Date: August 12, 1998 William E. Barton
------------------ Vice President and Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
27 Financial Data Schedule . . . . . . . . . . . . . . . . 20
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENTS OF INCOME, AND
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q, JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,768
<SECURITIES> 25,604
<RECEIVABLES> 185,681
<ALLOWANCES> 1,699
<INVENTORY> 15,389
<CURRENT-ASSETS> 321,234
<PP&E> 521,180
<DEPRECIATION> 312,513
<TOTAL-ASSETS> 577,815
<CURRENT-LIABILITIES> 207,866
<BONDS> 73,709
0
0
<COMMON> 185
<OTHER-SE> 270,449
<TOTAL-LIABILITY-AND-EQUITY> 577,815
<SALES> 476,114
<TOTAL-REVENUES> 476,114
<CGS> 414,560
<TOTAL-COSTS> 452,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,169
<INCOME-PRETAX> 25,689
<INCOME-TAX> 9,762
<INCOME-CONTINUING> 15,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,927
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.59
</TABLE>
