-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EzQf9OHmrQDPyomBENkiN5bhUhK89UjsXs8f+VoC7KkpPHBSHLwBulhAwCzW4Upk opNN8i8CDyoQKVrrjlfhhA== 0000950149-98-001481.txt : 19980817 0000950149-98-001481.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950149-98-001481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRANITE CONSTRUCTION INC CENTRAL INDEX KEY: 0000861459 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 770239383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12911 FILM NUMBER: 98688879 BUSINESS ADDRESS: STREET 1: 585 WEST BEACH ST CITY: WATSONVILLE STATE: CA ZIP: 95076 BUSINESS PHONE: 4087241011 MAIL ADDRESS: STREET 1: 585 WEST BEACH ST CITY: WATSONVILLE STATE: CA ZIP: 95076 10-Q 1 FORM 10-Q PERIOD ENDED 06/30/1998 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. 2 GRANITE CONSTRUCTION INCORPORATED INDEX
Page ---- 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
2 3 PART I. FINANCIAL INFORMATION 3 4 GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
=================================================================================================== JUNE 30, December 31, 1998 1997 - --------------------------------------------------------------------------------------------------- (UNAUDITED) ASSETS 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 ===================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
====================================================================================================== THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------ 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 ======================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED- IN THOUSANDS, EXCEPT PER SHARE DATA)
=============================================================================================== SIX MONTHS ENDED JUNE 30, 1998 1997 - ----------------------------------------------------------------------------------------------- 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 ===============================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 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:
JUNE 30, December 31, 1998 1997 ----------- ------------ (UNAUDITED) 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 ======== ========
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 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:
-------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 -------------------------------------------------------------------------------------- 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 ======================================================================================
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 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 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)
1998 1997 $ % $ % ----- ----- ----- ----- 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% ===== ===== ===== =====
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)
AWARDS BACKLOG ------ ------- 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
10 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)
JUNE 30, 1998 DECEMBER 31, 1997 $ % $ % ------- ----- ----- ----- 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% ======= ===== ===== =====
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)
NET REVENUE INCOME ------ ------ 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
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 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 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 14 LIQUIDITY AND CAPITAL RESOURCES
---------------------------------------------------------------------------------- DOLLARS IN THOUSANDS 1998 1997 ================================================================================== 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 ----------------------------------------------------------------------------------
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 15 PART II. OTHER INFORMATION 15 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:
AFFIRMATIVE NEGATIVE VOTES WITHHELD VOTES VOTES ABSTAINED NONVOTE ----- ----- --------- ------- Rebecca A. McDonald 12,950,769 - 1,097,443 4,361,199 Brian C. Kelly 13,620,475 - 427,737 4,361,199
The following proposals were approved at the Company's Annual Meeting:
AFFIRMATIVE NEGATIVE VOTES WITHHELD VOTES VOTES ABSTAINED NONVOTE ----- ----- --------- ------- 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
16 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 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 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - ------ ----------- ---- 27 Financial Data Schedule . . . . . . . . . . . . . . . . 20
19 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 28,768 25,604 185,681 1,699 15,389 321,234 521,180 312,513 577,815 207,866 73,709 0 0 185 270,449 577,815 476,114 476,114 414,560 452,647 0 0 4,169 25,689 9,762 15,927 0 0 0 15,927 0.60 0.59
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