-----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, PI1MuZMVZw7Gv1W05GcA8XqGp8aMP7ZC0iAA/flJbqyLBlTbk/NQJRwQTcwmgobt Qn7h5lBDbFrMyfMDHaPjkg== 0000950149-00-001169.txt : 20000516 0000950149-00-001169.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950149-00-001169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633334 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 QUARTERLY PERIOD ENDED 03/31/00 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, 2000 ( ) 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. 1-12911 GRANITE CONSTRUCTION INCORPORATED State of Incorporation: I.R.S. Employer Identification Delaware Number: 77-0239383 Corporate Administration: 525 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 9, 2000.
Class Outstanding ----------------------------- ----------------- Common Stock, $0.01 par value 27,289,616 shares
2 GRANITE CONSTRUCTION INCORPORATED INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999...........................................................4 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2000 and 1999.....................................................5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999...............................................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. Quantitative and Qualitative 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...........................................20 Exhibit Index..............................................................22
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, 2000 1999 - ----------------------------------------------------------------------------------------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 42,613 $ 61,832 Short-term investments 35,806 46,245 Accounts receivable 161,936 211,609 Costs and estimated earnings in excess of billings 15,736 14,105 Inventories 17,300 12,823 Deferred income taxes 14,885 14,885 Equity in construction joint ventures 33,837 30,611 Other current assets 8,059 10,211 ------------------------- Total current assets 330,172 402,321 - --------------------------------------------------------------------------------------------- Property and equipment 249,644 242,913 - --------------------------------------------------------------------------------------------- Other assets 46,799 34,338 - --------------------------------------------------------------------------------------------- $ 626,615 $ 679,572 ============================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 5,985 $ 5,985 Accounts payable 74,480 95,662 Billings in excess of costs and estimated earnings 50,097 66,342 Accrued expenses and other current liabilities 76,448 90,675 ------------------------- Total current liabilities 207,010 258,664 - --------------------------------------------------------------------------------------------- Long-term debt 64,813 64,853 - --------------------------------------------------------------------------------------------- Deferred income taxes 28,323 28,323 - --------------------------------------------------------------------------------------------- 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; issued and outstanding 27,284,991 shares in 2000 and 26,995,506 in 1999 273 270 Additional paid-in capital 56,304 49,817 Retained earnings 283,691 285,832 ------------------------- 340,268 335,919 Unearned compensation (13,799) (8,187) ------------------------- 326,469 327,732 - --------------------------------------------------------------------------------------------- $ 626,615 $ 679,572 =============================================================================================
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, 2000 1999 - ------------------------------------------------------------------------------- Revenue: Construction $ 193,349 $ 187,972 Material sales 23,081 26,832 --------------------------- Total revenue 216,430 214,804 --------------------------- Cost of revenue: Construction 168,448 168,338 Material sales 21,607 23,137 --------------------------- Total cost of revenue 190,055 191,475 --------------------------- GROSS PROFIT 26,375 23,329 General and administrative expenses 22,859 19,622 --------------------------- OPERATING INCOME 3,516 3,707 - ------------------------------------------------------------------------------- Other income (expense) Interest income 3,177 2,779 Interest expense (1,712) (1,843) Gain on sales of property and equipment 981 299 Other, net (232) (877) --------------------------- 2,214 358 - ------------------------------------------------------------------------------- INCOME BEFORE PROVISION FOR INCOME TAXES 5,730 4,065 Provision for income taxes 3,506 1,565 - ------------------------------------------------------------------------------- NET INCOME $ 2,224 $ 2,500 =============================================================================== Net income per share Basic $ 0.08 $ 0.09 Diluted $ 0.08 $ 0.09 Weighted average shares of common stock Basic 26,225 26,495 Diluted 26,728 27,398 Dividends per share $ 0.16 $ 0.19 ===============================================================================
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)
================================================================================================== THREE MONTHS ENDED MARCH 31, 2000 1999 - -------------------------------------------------------------------------------------------------- Operating Activities Net income $ 2,224 $ 2,500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 10,688 9,957 Gain on sales of property and equipment (981) (299) Decrease in unearned compensation 1,300 1,050 Common stock contributed to ESOP -- 2,146 Equity in loss of affiliates and other 812 1,364 Changes in assets and liabilities: Accounts and notes receivable 49,526 30,766 Inventories (4,477) (2,139) Equity in construction joint ventures (3,226) (3,239) Other assets (296) 2,921 Accounts payable (21,182) (23,731) Billings in excess of costs and estimated earnings, net (17,876) (5,196) Accrued expenses (16,702) (18,058) ----------------------- Net cash used by operating activities (190) (1,958) - -------------------------------------------------------------------------------------------------- Investing Activities Purchases of short-term investments (19,837) (28,036) Maturities of short-term investments 30,276 42,999 Additions to property and equipment (17,782) (27,564) Proceeds from sales of property and equipment 1,452 1,143 Investment in affiliates (13,477) -- Development and sale of land and other investing activities 2,728 453 ----------------------- Net cash used by investing activities (16,640) (11,005) - -------------------------------------------------------------------------------------------------- Financing Activities Repayments of long-term debt (40) (57) Employee stock options exercised 371 51 Repurchase of common stock (830) (17,067) Dividends paid (1,890) (1,659) ----------------------- Net cash used by financing activities (2,389) (18,732) - -------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (19,219) (31,695) Cash and cash equivalents at beginning of period 61,832 62,470 ----------------------- Cash and cash equivalents at end of period $ 42,613 $ 30,775 ================================================================================================== Supplementary Information Cash paid during the period for: Interest $ 2,017 $ 2,203 Income taxes 4,154 3,196 Noncash investing and financing activity: Restricted stock issued for services $ 6,912 $ 6,429 Dividends accrued but not paid 4,366 5,182 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, 2000 and the results of operations and cash flows for the periods presented. The December 31, 1999 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, 2000 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, 2000 1999 (UNAUDITED) - ----------------------------------------------------------------------------------- Land $ 37,451 $ 36,485 Quarry property 46,955 46,891 Buildings and leasehold improvements 36,583 33,791 Equipment and vehicles 488,042 478,990 Office furniture and equipment 7,668 7,110 ------------------------- 616,699 603,267 Less accumulated depreciation, depletion and amortization 367,055 360,354 - -------------------------------------------------------------------------------- $249,644 $242,913 ================================================================================
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, 2000 1999 - --------------------------------------------------------------------------------------------- NUMERATOR - BASIC AND DILUTED EARNINGS PER SHARE Net income $ 2,224 $ 2,500 ============================================================================================= DENOMINATOR - BASIC EARNINGS PER SHARE Common stock outstanding 27,044 27,552 Less restricted stock outstanding 819 1,057 -------------------- TOTAL 26,225 26,495 -------------------- Basic earnings per share $ 0.08 $ 0.09 ============================================================================================= DENOMINATOR - DILUTED EARNINGS PER SHARE Denominator - Basic Earnings per Share 26,225 26,495 Effect of Dilutive Securities: Common stock options 8 47 Warrants 87 240 Restricted stock 408 616 -------------------- TOTAL 26,728 27,398 -------------------- Diluted earnings per share $ 0.08 $ 0.09 =============================================================================================
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. INVESTMENT IN T.I.C. HOLDINGS, INC.: The Company currently holds a 30% minority interest in T.I.C. Holdings, Inc. ("TIC"). The Company and TIC reached an agreement under which the Company will sell its minority interest back to TIC over a three and one half-year period. Under the agreement TIC will have the opportunity to repurchase shares sooner based on an agreed to formula. 8 9 Granite Construction Incorporated NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, Except per Share Data) 8. INVESTMENT IN WILDER CONSTRUCTION: In January 2000, the Company purchased 30% of the common stock of Wilder Construction Company ("Wilder") for a purchase price of $13.1 million. The purchase agreement provides for the Company to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in 2004. Founded in 1911, Wilder is a heavy-civil construction company with regional offices located in Washington, Oregon and Alaska. Wilder has annual revenues of approximately $150 million and employs approximately 650 people throughout the Northwest and Alaska. 9. 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: - ------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, HCD BRANCH TOTAL - ------------------------------------------------------------------------------------- 2000 Revenues from external customers $ 90,029 $ 126,401 $ 216,430 Intersegment revenue transfer (3,552) 3,552 -- ---------------------------------------- Net revenue 86,477 129,953 216,430 Depreciation and amortization 1,867 7,725 9,592 Operating profit 9,327 771 10,098 Property and equipment 27,121 201,623 228,744 - ------------------------------------------------------------------------------------- 1999 Revenues from external customers $ 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 profit 2,066 7,815 9,881 Property and equipment 28,948 181,318 210,266 - -------------------------------------------------------------------------------------
9 10 Granite Construction Incorporated NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, Except per Share Data) 9. BUSINESS SEGMENT INFORMATION, CONTINUED:
Reconciliation of Segment Profit to the Company's Consolidated Totals: - -------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2000 1999 - ------------------------------------------------------------------------------- Total profit for reportable segments $ 10,098 $ 9,881 Other income 2,214 358 Unallocated other corporate expenses (6,582) (6,174) - ------------------------------------------------------------------------------- Income before provision for income taxes $ 5,730 $ 4,065 ===============================================================================
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 statements related to the impact of government regulations on the Company's operations, the existence of bidding opportunities 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," "appears, " "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; weather conditions; competition and pricing pressures; and state referendums and initiatives. RESULTS OF OPERATIONS
(In Millions) 2000 1999 CHANGE % ------ ------ ------ ------ Revenue: Branch Division ................. $129.9 $140.8 $(10.9) (7.7) Heavy Construction Division ..... 86.5 74.0 12.5 16.9 ------ ------ ------ ------ $216.4 $214.8 $ 1.6 0.8 ====== ====== ====== ======
Revenue and Backlog: Branch Division revenue from both construction and material sales decreased in the first quarter of 2000 compared to the corresponding 1999 quarter due primarily to more typical rainfall levels in the West compared to the unusually dry 1999 quarter. Heavy Construction Division ("HCD") revenue increased in the quarter over the corresponding 1999 quarter due to continued dry weather conditions in Texas and Florida and a strong portfolio of work carried forward from 1999. Revenue from private sector contracts increased to 26.0% of total revenue in the first quarter of 2000 from 23.0% of total revenue in the 1999 quarter. As further described in the "Outlook" section of this report the market for commercial and residential site development continues to be strong. 11 12
- ------------------------------------------------------------------------------------- BACKLOG BY MARKET SECTOR (IN MILLIONS) MARCH 31, MARCH 31, VARIANCE 2000 1999 AMOUNT PERCENT - ------------------------------------------------------------------------------------- CONTRACTS Federal $ 48.4 $ 17.4 $ 31.0 178.2 State 454.4 627.2 (172.8) (27.6) Local 113.7 157.0 (43.3) (27.6) ---------------------------------------------------- Total public sector 616.5 801.6 (185.1) (23.1) Private sector 161.5 112.6 48.9 43.4 - ------------------------------------------------------------------------------------- $ 778.0 $ 914.2 $ (136.2) (14.9) =====================================================================================
The Company's backlog at March 31, 2000 was $778.0 million, down $136.2 million, or 14.9% from March 31, 1999 and a decrease of $15.3 million, or 1.9% from December 31, 1999. The decrease in backlog was due primarily to the absence of HCD awards in the fourth quarter of 1999 and the first quarter 2000. New awards for the quarter totaled $201.1 million and included a $19.8 million highway contract in Utah, a $17.8 million contract in Nevada and an $11.9 million highway contract in California. Private sector backlog increased $48.9 million at March 31, 2000 as compared to March 31, 1999. This increase is due primarily to the growth in the market for commercial and residential site development, particularly in the West. Public sector backlog decreased $185.1 million at March 31, 2000 as compared to March 31, 1999, primarily due to the absence of HCD awards described above. Gross Profit: For the quarter ended March 31, 2000, gross profit reached $26.4 million, or 12.2% of revenue, as compared to $23.3 million, or 10.9% of revenue, for 1999. The increased gross profit margin is largely attributable to the successful execution of HCD projects, partially offset by decreased Branch Division margins for both construction and material sales. The lower Branch Division margins were primarily due to wetter weather conditions in the West which decreased the efficiency of resource utilization. To a lesser extent, the gross profit margin in the first quarter 2000 was positively impacted by a lower level of revenue from projects that did not meet the Company's 25% completion threshold for profit recognition compared to the corresponding 1999 quarter. The Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. Project to date revenue recognized for projects less than 25% complete was approximately $34.1 million and $53.3 million at March 31, 2000 and 1999, respectively. Cost of revenue consists of direct costs on contracts; including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance and repairs) and insurance costs. The Company has experienced some upward pressure on costs associated with labor markets and oil prices, however, the Company's gross profit margins were not significantly impacted by such changes during the first quarter of 2000. 12 13 General and Administrative Expenses: General and administrative expenses for the three months ended March 31, 2000 and 1999, respectively comprised the following (in millions):
IN MILLIONS 2000 1999 - ------------------------------------------------------------------------------- Salaries and related expenses $ 11.9 $ 10.9 Incentive compensation, discretionary profit sharing and pension 2.9 2.4 Other general and administrative expenses 8.1 6.3 - ------------------------------------------------------------------------------- Total $ 22.9 $ 19.6 - ------------------------------------------------------------------------------- Percent of revenue 10.6% 9.1% ===============================================================================
Salaries and related expenses increased in 2000 over 1999 due primarily to increased staffing to support the Company's current and expected growth. Incentive compensation and discretionary profit sharing and pension costs increased slightly as a function of the Company's increased gross profit margin. Other general and administrative expenses include various costs to support its operations, none of which exceeds 10% of total general and administrative expenses. The increase in other general and administrative expenses in 2000 primarily reflects increases in costs to support the Company's growth. Operating Income: The Heavy Construction Division's contribution to operating income in 2000 increased over the 1999 contribution due to both increases in volume of work and the profit margins the Division was able to achieve as described above. The Branch Division's decreased contribution to operating income reflects decreases in revenue and gross margins as described above and increases in salaries and other costs to support expected growth. Other Income (Expenses): Other income increased $1.9 million to $2.2 million in the quarter ended March 31, 2000 over the same period in 1999. The increase is primarily the result of slightly higher interest income, increased gain on the sale of property and equipment, and decreases in loss recorded from the Company's equity method investments. Provision for Income Taxes: The Company's effective tax rate was 61.2% in first quarter 2000 compared to 38.5% in 1999. The increase reflects additional tax expense related to the Company reaching an agreement with TIC to divest its 30% investment over a three and one-half year period. The Company expects its effective tax rate for the remainder of 2000 to approximate 38.5%. 13 14 OUTLOOK Looking ahead, the Company anticipates a high level of bidding activity for the year and is optimistic that both the Branch and Heavy Construction Divisions will be able to capitalize on today's healthy construction market and transportation-related funding levels. While little has changed from what was discussed in our most recently filed Form 10-K, we would like to provide some updates to key issues that may have an impact on our business going forward. On the California front, Governor Gray Davis recently introduced his $5.2 billion four-year Traffic Congestion Relief plan. The plan is intended to "get California moving again" by way of new road construction and transit projects in some of the most congested areas of the state. Of the approximate $10.0 to $15.0 billion budget surplus in California, Davis' plan proposes using $3.0 billion of the surplus over the next four years, in addition to a $2.2 billion bond measure on the November ballot. While this plan is a step in the right direction, it is merely a down payment on the estimated $110.0 billion needed statewide for infrastructure improvements over the long term. Moreover, the contracting out initiative in California continues to gain support, receiving recently the endorsement of the state's Building and Construction Trades Council. Successful passage of the initiative in November would help break the almost $3 billion logjam of transportation projects that cannot be designed in-house by state engineers. In the Outlook section of our 1999 Form 10-K, we discussed the fact that the Company has witnessed some upward pressure on costs associated with labor markets and oil prices. However, we do not anticipate these costs to have a significant impact on the Company's 2000 year-end financial results. Looking at our private sector markets, commercial and residential site development work continues to be strong, especially in California and Arizona. As we have commented in the past, a strong private market begets a strong public sector market as it absorbs capacity from the latter, potentially leading to decreased competition and higher margins. Although Granite has not been negatively impacted to date, private development work is interest rate sensitive and any significant increase in rates could quell future development projects which then could lead to decreased bidding opportunities for site development and increased competition in the public sector. The U.S. Commerce Department reported that spending on construction projects nationwide increased by 1.4% in March, 2.0% in February and 1.2% in January, which provides further evidence of a healthy construction market. The department's first quarter figures released May 1, 2000 report a 7.0% increase over 1999's level for actual construction. This increase included a 9.0% increase in highway work for the quarter. Looking ahead, the U.S. Commerce Department's 2000 outlook is calling for an optimistic 4.0% increase in total construction, in line with the current rate of inflation. The level of bidding activity within both divisions continues to be very high with the size and scope of some of these projects, particularly for the Heavy Construction Division, being quite large. 14 15 In the private sector, especially in California, the Branch Division continues to experience a strong market, driven in our opinion, by a shortage of housing throughout the state. In the public sector, both divisions are witnessing an increase in projects being let by a number of state departments of transportation which are likely the result of the Transportation Equity Act for the 21st Century (TEA-21). As we discussed in our Form 10-K, these projects include various highway, transit/rail and design-build projects totaling in excess of $3.5 billion. The Company's Heavy Construction Division is very upbeat about both the type and amount of work to bid in the coming year and will continue to maintain their disciplined bidding philosophy going forward. In conclusion, the Company continues to focus on its strategic growth plans for both divisions through its increased emphasis on mergers and acquisitions, and by bidding in major construction markets where we do not already have a presence. LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------------------------------------- (IN MILLIONS) MARCH 31, 2000 1999 - ------------------------------------------------------------------------------- Cash and cash equivalents $ 42.6 $ 30.8 Net cash provided (used) by: Operating activities (0.2) (2.0) Investing activities (16.6) (11.0) Financing activities (2.4) (18.7) Capital expenditures 17.8 27.6 - -------------------------------------------------------------------------------
Cash used by operating activities of $0.2 million for the three months ended March 31, 2000 represents a $1.8 million decrease from the 1999 amount for the same period. Changes in cash from operating activities primarily reflects seasonal variations based on the amount and progress of work being performed. Cash used by investing activities in 2000 increased $5.6 million due to the acquisition of Wilder Construction in which the Company has a 30% equity investment offset by a decrease in property and equipment purchases. Cash used by financing activities in 2000 decreased $16.3 million from 1999 because the Company repurchased a portion of its shares in 1999. The Company has budgeted $58.0 million for capital expenditures in 2000, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of land and aggregate reserves. The Company anticipates that cash generated internally and amounts available under its existing credit facilities will be sufficient to meet its capital and other requirements, including contributions to employee benefit plans, for the foreseeable future. 15 16 The Company believes it has adequate capital resources to fund its operations at least through 2000. The Company currently has access to funds under its revolving credit agreement which allow it to borrow up to $75.0 million, of which $62.4 million was available at March 31, 2000. IMPACT OF YEAR 2000 ISSUE The Company has not incurred material costs in first quarter 2000 associated with its efforts to become year 2000 compliant. Furthermore, based on our assessment to date, we believe that any future costs associated with our year 2000 compliance efforts will not be material. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "SFAS 133", Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes methods of accounting and reporting for derivative instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal quarters of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The Company believes that adoption of this pronouncement will have no material impact on the Company's financial position and results of operations. 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, 1999. 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 19 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 27 - Financial Data Schedule b) Reports on Form 8-K None 20 21 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: May 15, 2000 By: /s/ William E. Barton -------------------- ------------------------------------------ William E. Barton Senior Vice President and Chief Financial Officer 21 22 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - ------ ----------- ---- 27 Financial Data Schedule............................. 23
22 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, 2000. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 42,613 35,806 163,425 1,489 17,300 330,172 616,699 367,055 626,615 207,010 64,813 0 0 273 326,196 626,615 216,430 216,430 190,055 212,914 0 0 1,712 5,730 3,506 2,224 0 0 0 2,224 0.08 0.08
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