-----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, EzAW/ExvEzVhoFm007TCCQmoWIawdAYWV2iNt/55EZ0ih0FQqTLF3NpnmewPKRNg cwWzrRnxxoZo/c6BDYCFiQ== 0000950149-99-000985.txt : 19990518 0000950149-99-000985.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950149-99-000985 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99627273 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 FOR THE QUARTER ENDED MARCH 31, 1999 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 2 GRANITE CONSTRUCTION INCORPORATED INDEX
Page ---- 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
2 3 PART I. FINANCIAL INFORMATION 3 4 GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
=================================================================================================== MARCH 31, December 31, 1999 1998 - --------------------------------------------------------------------------------------------------- (UNAUDITED) 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 ===================================================================================================
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 MARCH 31, 1999 1998 - -------------------------------------------------------------------------------- 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 ================================================================================
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)
======================================================================================================= THREE MONTHS ENDED MARCH 31, 1999 1998 - ------------------------------------------------------------------------------------------------------- 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 -- =======================================================================================================
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 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:
March 31, December 31, 1999 1998 --------- ------------ (Unaudited) 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 ======== ========
7 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:
------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, 1999 1998 ------------------------------------------------------------------------ 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 ========================================================================
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 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:
- -------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, HCD BRANCH TOTAL - -------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------
9 10 7. BUSINESS SEGMENT INFORMATION, CONTINUED Reconciliation of Segment Profit and Assets to the Company's Consolidated Totals:
-------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 1999 1998 -------------------------------------------------------------------------- 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 ==========================================================================
10 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 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)
1999 1998 ------------- -------------- $ % $ % - - - - 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% ================================
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 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)
Awards Backlog ------ ------- 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
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)
March 31, 1999 March 31, 1998 --------------- --------------- $ % $ % - - - - 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% ====================================
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 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)
Awards Backlog ------ ------- 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
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 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 15 LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------- DOLLARS IN THOUSANDS 1999 1998 - -------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------
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 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 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 18 PART II. OTHER INFORMATION 18 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 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 21 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - ------ ----------- ---- 27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . 22
BEN 21 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, MARCH 31, 1999. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 30,775 43,991 143,731 812 14,912 296,803 561,376 337,109 569,990 186,618 70,800 0 0 273 284,507 569,990 214,804 214,804 191,475 211,097 0 0 1,843 4,065 1,565 2,500 0 0 0 2,500 0.09 0.09
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