<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 SEPTEMBER 30, 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 November 9, 1999.
Class Outstanding
----------------------------- -----------------
Common Stock, $0.01 par value 27,026,008 shares
<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 September 30, 1999 and
December 31, 1998.................................................4
Condensed Consolidated Statements
of Income for the Three Months and Nine
Months Ended September 30, 1999 and 1998..........................5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended September 30, 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..............11-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................20
Item 2. Changes in Securities............................................20
Item 3. Defaults upon Senior Securities..................................20
Item 4. Submission of Matters to a Vote
of Security Holders..............................................20
Item 5. Other Information................................................20
Item 6. Exhibits and Reports on Form 8-K.................................21
Exhibit Index....................................................23
</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>
==========================================================================================================
SEPTEMBER 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 37,918 $ 62,470
Short-term investments 35,171 58,954
Accounts receivable 237,197 174,748
Costs and estimated earnings in excess of billings 25,938 14,677
Inventories 14,451 12,773
Deferred income taxes 15,397 15,397
Equity in joint ventures 26,525 20,020
Other current assets 9,081 11,769
- ----------------------------------------------------------------------------------------------------------
Total current assets 401,678 370,808
- ----------------------------------------------------------------------------------------------------------
Property and equipment 236,056 205,737
- ----------------------------------------------------------------------------------------------------------
Other assets 46,035 50,026
- ----------------------------------------------------------------------------------------------------------
$ 683,769 $ 626,571
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 10,985 $ 10,787
Accounts payable 93,091 88,194
Billings in excess of costs and estimated earnings 67,034 50,619
Accrued expenses and other current liabilities 103,695 78,760
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 274,805 228,360
- ----------------------------------------------------------------------------------------------------------
Long-term debt 64,892 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 27,162,318 shares;
1998- issued and outstanding 27,648,961 shares 272 277
Additional paid-in capital 49,037 45,080
Retained earnings 276,774 262,517
--------------------------------
326,083 307,874
Unearned compensation (9,803) (6,592)
--------------------------------
316,280 301,282
- ----------------------------------------------------------------------------------------------------------
$ 683,769 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 418,703 $ 411,986 $ 962,799 $ 888,100
Cost of revenue 360,194 357,783 834,792 772,343
----------------------------------------------------------------------
GROSS PROFIT 58,509 54,203 128,007 115,757
General and administrative expenses 25,621 23,002 70,035 61,089
----------------------------------------------------------------------
OPERATING PROFIT 32,888 31,201 57,972 54,668
- ---------------------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 1,920 2,468 5,740 7,326
Interest expense (1,969) (2,206) (5,875) (6,375)
Gain on sales of property
and equipment 446 275 4,254 1,152
Other, net 616 1,360 478 2,016
----------------------------------------------------------------------
1,013 1,897 4,597 4,119
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 33,901 33,098 62,569 58,787
Provision for income taxes 13,052 12,577 24,089 22,339
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 20,849 $ 20,521 $ 38,480 $ 36,448
=====================================================================================================================
Net income per share
Basic $ 0.80 $ 0.77 $ 1.47 $ 1.37
Diluted $ 0.77 $ 0.75 $ 1.42 $ 1.33
Weighted average shares
of common stock
Basic 26,057 26,597 26,220 26,611
Diluted 27,007 27,530 27,143 27,314
Dividends per share $ 0.07 $ 0.06 $ 0.33 $ 0.24
=====================================================================================================================
</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)
<TABLE>
<CAPTION>
===============================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 38,480 $ 36,448
Add (deduct) noncash items included in net income:
Depreciation, depletion and amortization 31,631 28,702
Gain on sales of property and equipment (4,254) (1,152)
Deferred income taxes - (1,185)
Decrease in unearned compensation 3,218 2,514
Common stock contributed to ESOP 2,146 859
Equity in loss (gain) of affiliates 1,303 (1,339)
Cash provided by (used in):
Accounts and notes receivable (64,837) (62,620)
Inventories (1,678) (4,243)
Equity in construction joint ventures (6,505) (6,980)
Other assets 682 (8,395)
Accounts payable 4,897 18,212
Billings in excess of costs and estimated earnings, net 7,144 3,848
Accrued expenses 24,693 43,917
-----------------------------
Net cash provided by operating activities 36,920 48,586
- ---------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (64,154) (45,283)
Proceeds from sales of property and equipment 8,431 3,839
Purchases of short-term investments (63,421) (48,703)
Maturities of short-term investments 87,204 36,505
Other 4,819 865
-----------------------------
Net cash used in investing activities (27,121) (52,777)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Additions to long-term debt - 60,000
Repayments of long-term debt (5,747) (46,344)
Employee stock options exercised 71 423
Repurchase of common stock (19,930) (1,607)
Dividends paid (8,745) (6,067)
-----------------------------
Net cash (used in) provided by financing activities (34,351) 6,405
- ---------------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents (24,552) 2,214
Cash and cash equivalents at beginning of period 62,470 54,359
-----------------------------
Cash and cash equivalents at end of period $ 37,918 $ 56,573
===============================================================================================================
Supplementary Information
Cash paid during the period for:
Interest $ 3,020 $ 4,218
Income taxes 10,335 14,382
Noncash investing and financing activity:
Restricted stock issued for services $ 6,429 $ 3,795
Dividends accrued but not paid 1,901 1,657
Financed acquisition of property and equipment 1,700 -
===============================================================================================================
</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 September 30, 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 nine months ended September 30, 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>
---------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1999 1998
(UNAUDITED)
---------------------------------------------------------------------------------
<S> <C> <C>
Land $ 31,709 $ 30,195
Quarry property 42,046 35,862
Buildings and leasehold improvements 21,076 20,595
Equipment and vehicles 489,456 443,095
Office furniture and equipment 4,534 4,835
------------------------------
588,821 534,582
Less accumulated depreciation,
depletion and amortization 352,765 328,845
---------------------------------------------------------------------------------
$ 236,056 $ 205,737
=================================================================================
</TABLE>
7
<PAGE> 8
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE
Net income $ 20,849 $ 20,521 $ 38,480 $ 36,448
======================================================================================================================
DENOMINATOR - BASIC EARNINGS PER SHARE
Common stock outstanding 27,173 27,622 27,322 27,618
Less restricted stock outstanding 1,116 1,025 1,102 1,007
-------------------------------------------------------------
TOTAL 26,057 26,597 26,220 26,611
-------------------------------------------------------------
Basic earnings per share $ 0.80 $ 0.77 $ 1.47 $ 1.37
======================================================================================================================
DENOMINATOR - DILUTED EARNINGS PER SHARE
Denominator - Basic Earnings per Share 26,057 26,597 26,220 26,611
Effect of Dilutive Securities:
Common stock options 40 72 42 68
Warrants 221 217 226 148
Restricted stock 689 644 655 487
-------------------------------------------------------------
TOTAL 27,007 27,530 27,143 27,314
Diluted earnings per share $ 0.77 $ 0.75 $ 1.42 $ 1.33
======================================================================================================================
</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.
7. SUBSEQUENT EVENTS: Subsequent to September 30, 1999 and through November
9, 1999, the Company repurchased 250,000 shares of its common stock for
a total purchase price of $4.6 million.
8
<PAGE> 9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. 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 and Assets:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, HCD BRANCH TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Revenues from external customers $ 97,656 $ 321,047 $ 418,703
Intersegment revenue transfer (6,411) 6,411 -
-----------------------------------------------
Net revenue 91,245 327,458 418,703
Depreciation and amortization 3,985 14,774 18,759
Operating profit 7,842 34,768 42,610
-----------------------------------------------------------------------------------------
1998
Revenues from external customers $ 86,358 $ 325,628 $ 411,986
Intersegment revenue transfer (6,892) 6,892 -
-----------------------------------------------
Net revenue 79,466 332,520 411,986
Depreciation and amortization 3,826 13,244 17,070
Operating profit 2,847 37,137 39,984
-----------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. BUSINESS SEGMENT INFORMATION, CONTINUED:
Information about Profit and Assets, continued:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, HCD BRANCH TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Revenues from external customers $ 278,110 $ 684,689 $ 962,799
Intersegment revenue transfer (17,061) 17,061 -
-------------------------------------------------
Net revenue 261,049 701,750 962,799
Depreciation and amortization 6,045 22,450 28,495
Operating profit 22,546 60,442 82,988
Property and equipment 28,921 190,372 219,293
-------------------------------------------------------------------------------------------
1998
Revenues from external customers $ 228,717 $ 659,383 $ 888,100
Intersegment revenue transfer (20,454) 20,454 -
-------------------------------------------------
Net revenue 208,263 679,837 888,100
Depreciation and amortization 5,522 20,114 25,636
Operating profit 9,953 69,631 79,584
Property and equipment 26,830 171,897 198,727
-------------------------------------------------------------------------------------------
</TABLE>
Reconciliation of Segment Operating Profit to the Company's Consolidated
Totals:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C>
Total profit for reportable segments $ 42,610 $ 39,984
Other income 1,013 1,897
Unallocated other corporate expenses (9,722) (8,783)
-----------------------------------------------------------------------------
Income before provision for income taxes $ 33,901 $ 33,098
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C>
Total profit for reportable segments $ 82,988 $ 79,584
Other income 4,597 4,119
Unallocated other corporate expenses (25,016) (24,916)
-----------------------------------------------------------------------------
Income before provision for income taxes $ 62,569 $ 58,787
=============================================================================
</TABLE>
10
<PAGE> 11
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 September 30 was $418.7 million, bringing
the nine month total to $962.8 million, an increase of $6.7 million, or 1.6%,
and $74.7 million, or 8.4% respectively, over the same periods last year. The
increase in revenue for the quarter reflects a 14.8% increase in revenue from
the Company's Heavy Construction Division which was partially offset by a 1.5%
decrease in revenue from the Company's Branch Division. The increase for the
nine months is due to an increase in volume in both Divisions.
For the nine months ended September 30, 1999, revenue from public sector
contracts increased $6.9 million to $622.8 million, or 64.7% of total revenue,
from $615.9 million, or 69.4% of total revenue in 1998. Revenue from private
sector contracts of $218.9 million, or 22.7% of total revenue, increased $50.8
million from the nine months ended September 30, 1998 level of $168.1 million.
11
<PAGE> 12
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
REVENUE BY MARKET SECTOR
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30, VARIANCE
1999 1998 AMOUNT PERCENT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS
Federal $ 25,173 $ 36,476 $ (11,303) (31.0)
State 410,252 387,698 22,554 5.8
Local 187,403 191,719 (4,316) (2.3)
-----------------------------------------------------------------
Total public sector 622,828 615,893 6,935 1.1
Private sector 218,878 168,130 50,748 30.2
Aggregate sales 121,093 104,077 17,016 16.3
-----------------------------------------------------------------
$ 962,799 $ 888,100 $ 74,699 8.4
=======================================================================================================
</TABLE>
Backlog at September 30, 1999 was $971.2 million, a $75.3 million
increase from September 30, 1998 and a $69.6 million increase from December 31,
1998. New awards for the quarter totaled $420.5 million and included a $32.9
million tollway contract in Texas and a $48.9 million highway contract in North
Carolina.
The private sector backlog increased to 17.1% of total backlog from
12.2% at December 31, 1998 and 14.9% at September 30, 1998. The increase in
private sector backlog primarily reflects a toll road project in Texas, as well
as the stronger market for housing and commercial site development.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
BACKLOG BY MARKET SECTOR
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, VARIANCE
1999 1998 AMOUNT PERCENT
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS
Federal $ 21,722 $ 22,550 $ (828) (3.7)
State 604,205 635,833 (31,628) (5.0)
Local 178,986 133,138 45,848 34.4
-----------------------------------------------------------------
Total public sector 804,913 791,521 13,392 1.7
Private sector 166,261 110,071 56,190 51.0
----------------------------------------------------------------------------------------------------
$ 971,174 $ 901,592 $ 69,582 7.7
====================================================================================================
</TABLE>
Gross profit for the quarter ended September 30, 1999 was $58.5 million,
or 14.0% of revenue, as compared to $54.2 million, or 13.2% of revenue, for
1998. Gross profit as a percent of revenue was 13.3% for the nine months ended
September 30, 1999 and 13.0% for 1998. The third quarter 1999 gross margin
reflected our ability to successfully execute the work from a strong backlog and
continued strong margins on the Company's turn business work.
12
<PAGE> 13
General and administrative expenses for the three months ended September
30, 1999 increased $2.6 million to $25.6 million or 6.1% of revenue from $23.0
million or 5.6% of revenue in the corresponding period in 1998. For the nine
months, general and administrative expenses increased $8.9 million in 1999 over
the same period in 1998 and increased as a percentage of revenue to 7.3% from
6.9% last year. The increase in both the three and nine month periods is
primarily due to increased salaries and wages, burden and other costs associated
with increased volume of work and increased profitability. Additionally, the
increase in the nine month period reflects the absence of a bad debt recovery
received in second quarter 1998.
The Heavy Construction Division's contribution to operating income
increased in the three month and nine month periods ended September 30, 1999
over the same periods in 1998 due primarily to an absence of the unusually wet
weather conditions that impacted the 1998 periods and increased volume related
to the current favorable market conditions. The Branch Division's contribution
to operating income for the three months ended September 30, 1999 decreased from
1998 due to slightly lower revenue and higher general and administrative
expenses to support expected growth. For the nine month period, the Branch
Division's contribution to operating income decreased due primarily to the
absence of the El Nino related emergency work that carried higher than normal
margins and the absence of a bad debt recovery received in the second quarter of
1998.
Other income decreased $0.9 million in the three months ended September
30, 1999 over the corresponding period in 1998 due primarily to a lower
contribution from the Company's equity method investments.
Net income for the quarter ended September 30, 1999 was $20.8 million,
or $0.77 per diluted share, an increase of $0.3 million or $0.02 per diluted
share from the quarter ended September 30, 1998. For the nine months, net income
was $38.5 million, or $1.42 per diluted share, a $2.0 million or $0.09 per
diluted share increase from the prior year.
OUTLOOK
We are entering our fourth quarter with strong revenue and margin
momentum and are in a good position to improve on our record-breaking
performance in 1998. We have a solid backlog and given ample time to build the
work, i.e. the absence of significant rainfall before the end of November and
other factors, we believe we are on track for another great year.
Looking at our private business, the California economy continues to
produce a lively private sector market. We are still seeing a steady stream of
residential site development projects coming in for review and possible bid or
negotiation. According to the Center for Continuing Study of the California
Economy, housing construction is slowly rebounding. New residential permits
reached 125,000 in 1998 and are on pace to reach 150,000 units this year with
further growth expected in 2000 and beyond, the group reported.
13
<PAGE> 14
Looking at the public side of our business, we have observed that the
increased TEA-21 funds have yet to create significant new business
opportunities. Perhaps the TEA-21 money took the various state departments of
transportation by surprise and they had not planned appropriately for the
additional expenditures. Our view is that the market will begin to see the
impact from the additional TEA-21 dollars in 2000. If that is the case, any
large projects that the Company might book next year, especially in the second
half, would not likely have an impact on our bottom line until 2001.
Moreover, California continues to wrestle with the "contracting out"
issue. As you may recall from previous communications, the state transportation
department is prohibited from using private engineering companies to help design
the additional highways and bridges the state could let out for bid with the
additional monies it receives as a result of TEA-21. The private engineering
companies had hoped to place an initiative on the March 2000 ballot to allow for
contracting out, but it now appears that the initiative will be pushed back to
the November, 2000 ballot.
The industry also suffered a minor setback on SCA 3, the constitutional
amendment that would place an initiative on the November, 2000 ballot to amend
the state constitution to allow renewal of expiring half-cent sales taxes for
transportation purposes with a simple majority for a period of 20 years. The
bill failed to garner the two-thirds majority needed for passage in the
Assembly. Granite is part of a broad-based coalition that is seeking to generate
the additional support needed to gain a two-thirds majority so that the bill can
be brought to the Assembly floor for a vote next Spring and consequently placed
on the ballot in November. Basically, as a general statement, we have observed
that the political environment is friendly and the engineering and construction
community is more politically active.
Bidding activity is also very active. The year 2000 should render eight
to ten large design-build projects for possible award during the year. Our Heavy
Construction Division (HCD) is setting its design-build sites on a monorail
project in Las Vegas, two large bridge projects in Florida, a light-rail project
in Minneapolis and several large highway projects in California, Texas and
Massachusetts. HCD also anticipates very robust bidding activity in its core
markets of Texas, Florida and the Southeast.
The Company's Branch Division also anticipates a strong bidding
environment next year, given the strength of the private sector and the flow of
TEA-21 dollars. Demand for construction materials is expected to stay strong in
2000 and the division will continue to look for acquisition opportunities to
either expand to areas contiguous to its existing network or fill-in an existing
market.
14
<PAGE> 15
In summary, our expectations for 2000 are for backlog to build, and
based on our initial forecast, revenue and earnings to be flat in 2000. This is
however, a conservative view, as there are a number of variables that are
unknown to us at this time, including timing of project awards, weather and
general economic conditions. As some of these variables become known, we will
get a better sense of how our year portends, and we will communicate this
information with our shareholders in a fair and timely manner.
We are very proud of our bidding and building teams as they have ramped
up to take advantage of an excellent market. We are excited about our business,
and plan to take the momentum we've generated in 1999 into the new millennium to
create yet another very successful year.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents, September 30 $ 37,918 $ 56,573
Net cash provided by (used in):
Operating activities 36,920 48,586
Investing activities (27,121) (52,777)
Financing activities (34,351) 6,405
- -----------------------------------------------------------------------------------
</TABLE>
Cash provided by operating activities of $36.9 million for the nine
months ended September 30, 1999 represents a $11.7 million decrease from the
1998 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 1999 decreased $25.7 million 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. Subsequent to September 30, 1999 and through November 9, 1999, the Company
repurchased 250,000 shares of its common stock for a total purchase price of
$4.6 million.
The Company's current borrowing capacity under its revolving line of
credit is $75 million of which $61.7 was available on September 30, 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 at least through 2000.
15
<PAGE> 16
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 ready and the
Company has completed its testing to verify that this is the case and the
testing plan and results have been reviewed by a third party. The Company is in
the process of addressing the Year 2000 readiness of other software and
hardware, including embedded chips, being used in its business. The Company is
utilizing a seven step process in addressing readiness 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 the fourth quarter of 1999.
The Company has identified and has made 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 continued
review and inquiry of 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
16
<PAGE> 17
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 $865,000, 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 $845,000 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.
17
<PAGE> 18
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.
18
<PAGE> 19
PART II. OTHER INFORMATION
19
<PAGE> 20
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
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
None
21
<PAGE> 22
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
Date: November 12, 1999 By: /s/ William E. Barton
------------------- ------------------------------------------
William E. Barton
Senior Vice President and Chief Financial
Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule .............................. 24
</TABLE>
23
<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, SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 37,918
<SECURITIES> 35,171
<RECEIVABLES> 237,967
<ALLOWANCES> 770
<INVENTORY> 14,451
<CURRENT-ASSETS> 401,678
<PP&E> 588,821
<DEPRECIATION> 352,765
<TOTAL-ASSETS> 683,769
<CURRENT-LIABILITIES> 274,805
<BONDS> 64,892
0
0
<COMMON> 272
<OTHER-SE> 316,008
<TOTAL-LIABILITY-AND-EQUITY> 683,769
<SALES> 962,799
<TOTAL-REVENUES> 962,799
<CGS> 834,792
<TOTAL-COSTS> 904,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,875
<INCOME-PRETAX> 62,569
<INCOME-TAX> 24,089
<INCOME-CONTINUING> 38,480
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,480
<EPS-BASIC> 1.47
<EPS-DILUTED> 1.42
</TABLE>
