<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 MARCH 31, 1999
[ ] 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
(831) 724-1011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 May 10, 1999.
Class Outstanding
- ----------------------------- -----------------
Common Stock, $0.01 par value 27,177,065 shares
This report on Form 10-Q, including all exhibits, contains 22 pages. The exhibit
index is located on page 21 of this report.
1
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GRANITE CONSTRUCTION INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets as of March 31, 1999 and
December 31, 1998..................................................4
Condensed Consolidated Statements
of Income for the Three Months
Ended March 31, 1999 and 1998......................................5
Condensed Consolidated Statements
of Cash Flows for the Three Months
Ended March 31, 1999 and 1998......................................6
Notes to the Condensed Consolidated
Financial Statements............................................7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................................11-16
Item 3. Qualitative and Quantitative Disclosures about Market Risk........17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................19
Item 2. Changes in Securities.............................................19
Item 3. Defaults upon Senior Securities...................................19
Item 4. Submission of Matters to a Vote
of Security Holders...............................................19
Item 5. Other Information.................................................19
Item 6. Exhibits and Reports on Form 8-K..................................19
Exhibit Index.....................................................21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
3
<PAGE> 4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
===================================================================================================
MARCH 31, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 30,775 $ 62,470
Short-term investments 43,991 58,954
Accounts receivable 142,919 174,748
Costs and estimated earnings in excess of billings 16,417 14,677
Inventories 14,912 12,773
Deferred income taxes 15,397 15,397
Equity in joint ventures 23,259 20,020
Other current assets 9,133 11,769
----------------------------
Total current assets 296,803 370,808
- ---------------------------------------------------------------------------------------------------
Property and equipment 224,267 205,737
- ---------------------------------------------------------------------------------------------------
Other assets 48,920 50,026
- ---------------------------------------------------------------------------------------------------
$ 569,990 $ 626,571
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 10,767 $ 10,787
Accounts payable 64,463 88,194
Billings in excess of costs and estimated earnings 47,163 50,619
Accrued expenses and other current liabilities 64,225 78,760
----------------------------
Total current liabilities 186,618 228,360
- ---------------------------------------------------------------------------------------------------
Long-term debt 70,800 69,137
- ---------------------------------------------------------------------------------------------------
Deferred income taxes 27,792 27,792
- ---------------------------------------------------------------------------------------------------
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; 1999- issued and outstanding 27,277,165 shares;
1998- issued and outstanding 27,648,961 shares 273 277
Additional paid-in capital 49,564 45,080
Retained earnings 246,914 262,517
----------------------------
296,751 307,874
Unearned compensation (11,971) (6,592)
----------------------------
284,780 301,282
- ---------------------------------------------------------------------------------------------------
$ 569,990 $ 626,571
===================================================================================================
</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 MARCH 31, 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 214,804 $ 183,322
Cost of revenue 191,475 164,148
-----------------------------
GROSS PROFIT 23,329 19,174
General and administrative expenses 19,622 18,232
-----------------------------
OPERATING PROFIT 3,707 942
-----------------------------
Other income (expense)
Interest income 2,779 2,500
Interest expense (1,843) (1,902)
Gain on sales of property and equipment 299 609
Other, net (877) 80
-----------------------------
358 1,287
- --------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,065 2,229
Provision for income taxes 1,565 847
- --------------------------------------------------------------------------------
NET INCOME $ 2,500 $ 1,382
================================================================================
Net income per share
Basic $ 0.09 $ 0.05
Diluted $ 0.09 $ 0.05
Weighted average shares of common stock
Basic 26,495 26,454
Diluted 27,398 26,898
Dividends per share $ 0.19 $ 0.13
================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED- IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
=======================================================================================================
THREE MONTHS ENDED MARCH 31, 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 2,500 $ 1,382
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 9,957 9,193
Gain on sales of property and equipment (299) (609)
Decrease in unearned compensation 1,050 720
Common stock contributed to ESOP 2,146 --
Equity in loss of affiliates 1,364 357
Cash provided by (used in):
Accounts and notes receivable 30,766 33,694
Inventories (2,139) (2,468)
Equity in construction joint ventures (3,239) 2,752
Other assets 2,921 (1,644)
Accounts payable (23,731) (22,330)
Billings in excess of costs and estimated earnings, net (5,196) (15,670)
Accrued expenses (18,058) (10,403)
------------------------
Net cash used in operating activities (1,958) (5,026)
- -------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (27,564) (13,004)
Proceeds from sales of property and equipment 1,143 1,129
Purchases of short-term investments (28,036) (27,543)
Maturities of short-term investments 42,999 7,464
Other 453 (1,122)
------------------------
Net cash used in investing activities (11,005) (33,076)
- -------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt -- 60,000
Repayments of long-term debt (57) (40,655)
Employee stock options exercised 51 266
Repurchase of common stock (17,067) (285)
Dividends paid (1,659) (1,096)
------------------------
Net cash (used in) provided by financing activities (18,732) 18,230
- -------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (31,695) (19,872)
Cash and cash equivalents at beginning of period 62,470 54,359
------------------------
Cash and cash equivalents at end of period $ 30,775 $ 34,487
=======================================================================================================
Supplementary Information
Cash paid during the period for:
Interest $ 2,203 $ 1,902
Income taxes 3,196 3,921
Noncash investing and financing activity:
Restricted stock issued for services $ 6,429 $ 3,795
Dividends accrued but not paid 5,182 3,590
Financed acquisition of property and equipment 1,700 --
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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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 March 31, 1999 and
the results of operations and cash flows for the periods presented. The
December 31, 1998 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 three months ended March 31, 1999 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>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
Land $ 29,496 $ 30,195
Quarry property 38,891 35,862
Buildings and leasehold improvements 20,006 20,595
Equipment and vehicles 467,946 443,095
Office furniture and equipment 5,037 4,835
-------- --------
561,376 534,582
Less accumulated depreciation,
depletion and amortization 337,109 328,845
-------- --------
$224,267 $205,737
======== ========
</TABLE>
7
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. 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
MARCH 31,
1999 1998
------------------------------------------------------------------------
<S> <C> <C>
NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE
Net income $ 2,500 $ 1,382
========================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 27,552 27,498
Less restricted stock outstanding 1,057 1,044
------- -------
TOTAL 26,495 26,454
------- -------
Basic earnings per share $ 0.09 $ 0.05
========================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 26,495 26,454
Effect of Dilutive Securities:
Common stock options 47 69
Warrants 240 93
Restricted stock 616 282
------- -------
TOTAL 27,398 26,898
------- -------
Diluted earnings per share $ 0.09 $ 0.05
========================================================================
</TABLE>
5. 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.
6. RECLASSIFICATIONS: Certain prior year financial statement items have
been reclassified to conform to the current year's presentation.
8
<PAGE> 9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. BUSINESS SEGMENT INFORMATION:
The Company has two reportable segments: the Branch Division and
the Heavy Construction Division (HCD). The Branch Division is comprised
of branch offices that serve local markets, while HCD pursues major
infrastructure projects throughout the nation. HCD generally has large
heavy civil projects with contract amounts in excess of $15 million and
contract durations greater than two years, while the Branch Division
projects are typically smaller in size and shorter in duration. HCD has
been the primary participant in the Company's construction joint
ventures.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating profit or loss which does not
include income taxes, interest income, interest expense or other income
(expense).
Information about Profit or Loss and Assets:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, HCD BRANCH TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Revenues from external customer $ 78,723 $136,081 $214,804
Intersegment revenue transfer (4,741) 4,741 --
-----------------------------------
Net revenue 73,982 140,822 214,804
Depreciation and amortization 1,947 7,105 9,052
Operating income 2,066 7,815 9,881
Property and equipment 28,948 181,318 210,266
- --------------------------------------------------------------------------------
1998
Revenues from external customer $ 56,598 $126,724 $183,322
Intersegment revenue transfer (3,502) 3,502 --
-----------------------------------
Net revenue 53,096 130,226 183,322
Depreciation and amortization 1,844 6,688 8,532
Operating income (loss) (2,349) 8,538 6,189
Property and equipment 25,469 164,225 189,694
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
7. BUSINESS SEGMENT INFORMATION, CONTINUED
Reconciliation of Segment Profit and Assets to the Company's
Consolidated Totals:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Profit:
Total profit for reportable segments $ 9,881 $ 6,189
Other income 358 1,287
Unallocated other corporate expenses (6,174) (5,247)
--------------------------------------------------------------------------
Income before provision for income taxes $ 4,065 $ 2,229
==========================================================================
Assets:
Total assets for reportable segments $ 210,266 $ 189,694
Assets not allocated to segments:
Cash and cash equivalents 30,775 34,487
Short-term investments 43,991 38,489
Deferred income taxes 15,397 13,365
Other current assets 206,640 199,934
Property and equipment 14,001 8,150
Other assets 48,920 45,657
--------------------------------------------------------------------------
Consolidated Total $ 569,990 $ 529,776
==========================================================================
</TABLE>
10
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING DISCLOSURE:
This report contains forward-looking statements; such as the
costs of planned year 2000 modifications and expected dates of year 2000
plan completion, the most reasonably likely worst case year 2000
scenario, and the impact of legislation, availability of highway funds
and economic conditions on the Company's future results. Additionally,
forward-looking statements include statements that can be identified by
the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," or "anticipates" or the negative thereof or
comparable terminology, or by discussions of strategy.
All such forward looking statements are subject to risks and
uncertainties that could cause actual results of operations and
financial condition and other events to differ materially from those
expressed or implied in such forward-looking statements. Specific risk
factors include, 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; and
state referendums and initiatives. Forward-looking statements regarding
the year 2000 issue carry risk factors which include, without
limitation, the availability and cost of personnel trained in these
areas; the ability to locate and correct all relevant computer codes;
changes in consulting fees and costs to remediate or replace hardware
and software; changes in non-incremental costs resulting from
redeployment of internal resources; timely responses to and corrections
by third parties such as significant customers and suppliers; and
similar uncertainties.
RESULTS OF OPERATIONS
Revenue for the quarter ended March 31, 1999 was $214.8 million, an increase of
$31.5 million, or 17.2%, from last year. The increase for the three months is
primarily due to an increase in volume in both our Branch and Heavy Construction
Divisions which is attributed to drier weather than was experienced in 1998.
REVENUE BY MARKET SECTOR
THREE MONTHS ENDED MARCH 31
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998
------------- --------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Public 138.6 64.5% 136.3 74.3%
Private 49.4 23.0% 28.1 15.4%
Materials 26.8 12.5% 18.9 10.3%
--------------------------------
214.8 100.0% 183.3 100.0%
================================
</TABLE>
For the three months ended March 31, 1999, revenue from public sector contracts
increased $2.3 million to $138.6 million, or 64.5% of total revenue, from $136.3
million, or 74.3% of total revenue in 1998. Revenue from private sector
contracts of $49.4 million, or 23.0% of total revenue, increased $21.3 million
from $28.1 million for the three months ended March 31, 1998. The increase in
private sector revenue reflects a strong housing and commercial site development
market, particularly in the west.
Backlog at March 31, 1999 was $914.2 million, a $3.2 million decrease from March
31, 1998 and a $12.6 million increase from December 31, 1998. New awards for the
quarter totaled $227.5 million. The awards and backlog include a $32.8 million
highway project in Florida and a $28.1 million highway project in Southern
California.
11
<PAGE> 12
The private sector backlog increased to 12.3% of total backlog from 6.1% at
March 31, 1998. The increase in private sector backlog from March 31, 1998
primarily reflects a railroad project in Texas, as well as the stronger market
for housing and commercial site development.
Gross profit for the quarter ended March 31, 1999 was $23.3 million, or 10.9% of
revenue, as compared to $19.2 million, or 10.5% of revenue, for 1998. The
increased gross profit margin reflects the current favorable market conditions
as well as the benefit of the drier weather in most of our geographic areas.
AWARDS AND BACKLOG
END OF PERIOD
(IN MILLIONS)
<TABLE>
<CAPTION>
Awards Backlog
------ -------
<S> <C> <C>
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
Q3 275.5 895.9
Q4 343.7 901.6
1999
- ----
Q1 227.5 914.2
</TABLE>
General and administrative expenses for the three months ended March 31, 1999
increased $1.4 million to $19.6 million, but decreased as a percentage of
revenue to 9.1% in 1999 from 9.9% for the same quarter last year. The dollar
increase is primarily due to increased salaries and wages, burden and other
costs associated with increased volume of work and Company growth.
BACKLOG BY MARKET SECTOR
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
--------------- ---------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Public 801.7 87.7% 861.7 93.9%
Private 112.5 12.3% 55.7 6.1%
------------------------------------
914.2 100.0% 917.4 100.0%
====================================
</TABLE>
The Heavy Construction Division's contribution to operating income increased in
the first quarter of 1999 over the same period in 1998 due primarily to an
absence of the unusually wet weather conditions that impacted the 1998 quarter.
The Branch Division's contribution to operating income decreased from the 1998
quarter due primarily to the absence of El Nino related work that benefited the
1998 quarter.
Net income for the quarter ended March 31, 1999 was $2.5 million, or $0.09 per
diluted share, an increase of $1.1 million or $0.04 per diluted share from the
quarter ended March 31, 1998.
12
<PAGE> 13
OUTLOOK
Overall, not a lot has changed from what was discussed in the Outlook Section of
the Company's most recently filed Form 10-K. As we previously noted, healthy
economic conditions in many of the Company's geographic markets coupled with
record levels of public infrastructure funding are providing us with a positive
outlook for the year going forward. However, there are some updates on issues
that may or may not impact our business in the coming year.
SEASONALITY OF BUSINESS
REVENUE AND NET INCOME BY QUARTER
(IN MILLIONS)
<TABLE>
<CAPTION>
Awards Backlog
------ -------
<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
Q3 412.0 20.5
Q4 338.0 10.1
</TABLE>
In California, on a more extended basis, the California Transportation
Commission and the California Department of Transportation are racing to
complete an assessment of statewide transportation needs for the Legislature and
Gov. Gray Davis by mid-May. Meanwhile, the Governor's Commission on Building for
the 21st Century has completed its initial report. The Commission has outlined a
three-phased approach, beginning with a critical needs assessment, followed by a
prioritizing of those needs and how best to fund them and finally
recommendations on how to implement the plan.
Another current issue, but one that will affect funding in the long-term, is the
status of the so-called "self-help" counties. Eighteen counties in California
have one-half cent of their local sales taxes earmarked for transportation
improvements. Most of these initiatives will expire over the next eight years
and their renewal requires a two-thirds majority vote. We are pleased to see,
however, that a recent poll conducted by Voter/Consumer Research for
Transportation California and other groups interested in transportation issues
indicate that voters would favor a statewide measure to extend all the local
one-half cent sales tax programs for transportation for another twenty years.
This transportation coalition will use this data to formulate a political
strategy in an effort to sustain these local transportation programs for the
next several years.
Currently, the California Department of Transportation is precluded from
contracting out to private sector companies for design services. The state's
private-sector engineers have launched a campaign to place a constitutional
amendment before voters in the March 2000 election to allow state and local
governments to contract out design and engineering services on public works
projects such as highways and water facilities.
In other major states where Granite operates, such as Texas and Florida, the
combination of Transportation Equity Act for the 21st Century (TEA-21) monies
and strong economies, which are generating increased levels of state fuel tax
revenues, are prompting larger highway building programs and thus, increased
bidding opportunities. In Texas, for example, the Associated General Contractors
of Texas reports that in its current fiscal year the state has increased its
highway building program by 24% over its prior fiscal year to $2.6 billion. In
Florida, additional state fuel taxes and TEA-21 expenditures are compelling the
state to increase the number of requests for proposals for design-build
projects, in an effort to spend the increased funding more expeditiously.
13
<PAGE> 14
More immediately in the year ahead, our industry continues to be confronted by a
shortage of skilled labor. Although the shortage has not affected our ability to
take on additional work, it has affected the quality of skilled craft labor
available for hire. Recently, Granite has increased its efforts to remedy the
situation through specialized in-house training programs for all new hires,
quality incentive compensation packages and organized Career Days for high
school students.
As we have discussed recently in our Form 10-K, the opportunities that the
federal transportation bill provides for companies such as Granite are just
beginning to emerge. Because the cycle for federal money to progress from
planning to design to actual construction bids takes time, the TEA-21 bill and
subsequent appropriations bills will not translate into a significant increase
in construction work for the Company until mid-1999 at the earliest. Similarly,
we do not anticipate TEA-21-funded projects to affect our bottom line until the
year 2000 and beyond.
The Branch Division continues to witness a healthy bidding environment in both
the public and private market sectors. We anticipate that the Branch Division
should continue to benefit this year from healthy transportation budgets and
strong economies in California, Utah, Nevada and Arizona.
Additionally, the Company's Heavy Construction Division (HCD) is targeting
bidding opportunities from coast to coast, including a light-rail design build
project in Salt Lake City, Utah, a water storage facility in Massachusetts and
various highway projects in Arizona, Texas, Florida, Virginia and South
Carolina.
Going forward, we are very pleased with the success of our current operations,
the strength of our backlog and the substantial bidding opportunities ahead. We
will continue to move forward on our strategy to grow the Company both
internally and through acquisitions and to improve our financial performance in
both divisions.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents, March 31 $ 30,775 $ 34,487
Net cash provided (used) by:
Operating activities (1,958) (5,026)
Investing activities (11,005) (33,076)
Financing activities (18,732) 18,230
- --------------------------------------------------------------------------------
</TABLE>
Cash used by operating activities of $2.0 million for the three months ended
March 31, 1999 represents a $3.1 million decrease from the 1998 amount for the
same period. Changes in cash provided by operations primarily reflect seasonal
variations based on the amount and progress of work being performed.
Cash used by investing activities in 1999 decreased $22.1 million over the same
period in 1998 due to a higher level of short-term investment maturities
partially offset by increased property and equipment purchases.
Cash used by financing activities in 1999 primarily reflects the repurchase of
the Company's common stock on the open market and the absence of the long-term
debt additions relating to the issuance of the Senior Notes in 1998.
The Company's current borrowing capacity under its revolving line of credit is
$75 million of which $71.3 was available on March 31, 1999. 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 1999.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The issue arises if
date-sensitive software recognizes a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
The Company's information technology systems consist primarily of hardware and
software purchased from outside parties. The vendor for the Company's
enterprise-wide software has informed the Company that the version of its
software that the Company is currently utilizing is Year 2000 compliant and the
Company has completed its testing to verify that this is the case and will have
its testing reviewed by a third party during the first half of 1999. The Company
is in the process of addressing the Year 2000 compliance of other software and
hardware, including embedded chips, being used in its business. The Company is
utilizing a seven step process in addressing compliance of these other systems:
(1) awareness; (2) inventory of all systems and documentation; (3) assessment to
identify any areas of noncompliance; (4) remediation/renovation of any
noncompliant systems; (5) verification of compliance through testing and/or
vendor certification; (6) implementation of any necessary changes revealed
during verifications; and (7) monitoring of the results of implementation. The
Company expects to have completed this process for its non-enterprise software
and hardware in mid 1999.
15
<PAGE> 16
The Company has begun the process of identifying and making inquiries of its
significant suppliers and large public and private sector customers to determine
the extent to which the Company is vulnerable to those third parties' failure to
solve their own Year 2000 issues. The Company expects that the process of making
inquiries to these significant suppliers and customers will be ongoing through
the end of 1999. However, there can be no guarantee that the systems of other
companies or public agencies with which the Company does business will be timely
converted, or that failure to convert by another company or public agency would
not have a material adverse effect on the Company.
The Company's most reasonably likely worst case Year 2000 scenario would be an
interruption in work or cash flow resulting from unanticipated problems
encountered with the information systems of the Company, or of any of the
significant third parties with whom the Company does business. The Company
believes that the risk of significant business interruption due to unanticipated
problems with its own systems is low based on the progress of the Year 2000
project to date. If unforeseen internal disruptions occur, the Company believes
that its existing disaster recovery program, which includes the manual
processing of certain key transactions, would significantly mitigate the impact.
The Company's highest risk relates to significant suppliers or customers failing
to remediate their Year 2000 issues in a timely manner. Relating to its
suppliers, the Company has identified and will continue to identify alternative
suppliers. The Company's suppliers are generally locally or regionally based,
which tends to lessen the Company's exposure from the lack of readiness of any
single supplier. The risk relating to the Company's customers relates primarily
to any delay in receipt of payment due to a customer's unresolved Year 2000
issue. The Company's existing financial resources will help to mitigate such an
impact and the Company will continue to assess this risk as it receives
communications about the Year 2000 status of its customers.
The Company estimates that costs to address the Year 2000 issue will total
approximately $500,000, including costs already incurred. These estimated costs
include consulting fees and costs to remediate or replace hardware and software
as well as non-incremental costs resulting from redeployment of internal
resources. To date, approximately $450,000 has been incurred and expensed
related to the Year 2000 issue. The Company's Year 2000 costs will be funded
from its operating cash flows. The Company does not expect its Year 2000 efforts
to have any significant impact on other information technology projects.
16
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk since
December 31, 1998.
17
<PAGE> 18
PART II. OTHER INFORMATION
18
<PAGE> 19
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
None
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
19
<PAGE> 20
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: May 12, 1999 ------------------------------------------
William E. Barton
Vice President and Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . 22
</TABLE>
BEN
21
<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, MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 30,775
<SECURITIES> 43,991
<RECEIVABLES> 143,731
<ALLOWANCES> 812
<INVENTORY> 14,912
<CURRENT-ASSETS> 296,803
<PP&E> 561,376
<DEPRECIATION> 337,109
<TOTAL-ASSETS> 569,990
<CURRENT-LIABILITIES> 186,618
<BONDS> 70,800
0
0
<COMMON> 273
<OTHER-SE> 284,507
<TOTAL-LIABILITY-AND-EQUITY> 569,990
<SALES> 214,804
<TOTAL-REVENUES> 214,804
<CGS> 191,475
<TOTAL-COSTS> 211,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,843
<INCOME-PRETAX> 4,065
<INCOME-TAX> 1,565
<INCOME-CONTINUING> 2,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,500
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
