UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended |
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ___________ to ___________ | |
| Commission File Number: |
GRANITE CONSTRUCTION INCORPORATED
| State of Incorporation: | I.R.S. Employer Identification Number: |
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Address of principal executive offices:
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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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 such 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. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 22, 2021.
| Class |
| Outstanding |
| Common stock, $0.01 par value |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 4. |
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Item 6. |
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| EXHIBIT 95 | ||
| EXHIBIT 101.INS |
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| EXHIBIT 101.SCH |
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| EXHIBIT 101.CAL |
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| EXHIBIT 101.DEF |
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| EXHIBIT 101.LAB |
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| EXHIBIT 101.PRE |
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| EXHIBIT 104 |
| Item 1. |
FINANCIAL STATEMENTS |
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
| September 30, 2021 | December 31, 2020 | September 30, 2020 | ||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents (, and related to consolidated construction joint ventures (“CCJVs”)) | $ | $ | $ | |||||||||
| Receivables, net (, and related to CCJVs) | ||||||||||||
| Contract assets (, and related to CCJVs) | ||||||||||||
| Inventories | ||||||||||||
| Equity in construction joint ventures | ||||||||||||
| Other current assets (, and related to CCJVs) | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment, net (, and related to CCJVs) | ||||||||||||
| Long-term marketable securities | ||||||||||||
| Investments in affiliates | ||||||||||||
| Goodwill | ||||||||||||
| Right of use assets | ||||||||||||
| Deferred income taxes, net | ||||||||||||
| Other noncurrent assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Current maturities of long-term debt | $ | $ | $ | |||||||||
| Accounts payable (, and related to CCJVs) | ||||||||||||
| Contract liabilities (, and related to CCJVs) | ||||||||||||
| Accrued expenses and other current liabilities (, and related to CCJVs) | ||||||||||||
| Total current liabilities | ||||||||||||
| Long-term debt | ||||||||||||
| Long-term lease liabilities | ||||||||||||
| Deferred income taxes, net | ||||||||||||
| Other long-term liabilities | ||||||||||||
| Commitments and contingencies (see Note 16) | ||||||||||||
| Equity | ||||||||||||
| Preferred stock, par value, authorized shares, outstanding | ||||||||||||
| Common stock, par value, authorized shares; issued and outstanding: shares as of September 30, 2021, shares as of December 31, 2020 and shares as of September 30, 2020 | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Retained earnings | ||||||||||||
| Total Granite Construction Incorporated shareholders’ equity | ||||||||||||
| Non-controlling interests | ||||||||||||
| Total equity | ||||||||||||
| Total liabilities and equity | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | ||||||||||||||||
| Transportation | $ | $ | $ | $ | ||||||||||||
| Water | ||||||||||||||||
| Specialty | ||||||||||||||||
| Materials | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Transportation | ||||||||||||||||
| Water | ||||||||||||||||
| Specialty | ||||||||||||||||
| Materials | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Non-cash impairment charges (see Note 3) | ||||||||||||||||
| Other costs (see Note 3) | ||||||||||||||||
| Gain on sales of property and equipment, net (see Note 12) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other (income) expense | ||||||||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Equity in income of affiliates, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense (income), net | ( | ) | ( | ) | ||||||||||||
| Total other expense, net | ||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for (benefit from) income taxes | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Amount attributable to non-controlling interests | ||||||||||||||||
| Net income (loss) attributable to Granite Construction Incorporated | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) per share attributable to common shareholders (see Note 14) | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average shares of common stock | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited - in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other comprehensive (loss) income, net of tax: | ||||||||||||||||
| Net unrealized (loss) gain on derivatives | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Less: reclassification for net losses included in interest expense | ||||||||||||||||
| Net change | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Foreign currency translation adjustments, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Non-controlling interests in comprehensive income | ||||||||||||||||
| Comprehensive income (loss) attributable to Granite Construction Incorporated | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - in thousands, except share data)
| Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income (loss) | — | ( | ) | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Purchases of common stock (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Restricted stock units (“RSUs”) vested | ||||||||||||||||||||||||||||||||
| Dividends on common stock ( per share) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Transactions with non-controlling interests | — | |||||||||||||||||||||||||||||||
| Amortized RSUs and other | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Balances at June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Purchases of common stock (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| RSUs vested | ||||||||||||||||||||||||||||||||
| Dividends on common stock ( per share) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Transactions with non-controlling interests | — | |||||||||||||||||||||||||||||||
| Amortized RSUs and other | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances at September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income (loss) | — | ( | ) | |||||||||||||||||||||||||||||
| Other comprehensive income | — | |||||||||||||||||||||||||||||||
| Purchases of common stock (1) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| RSUs vested | ( | ) | ||||||||||||||||||||||||||||||
| Dividends on common stock ( per share) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Transactions with non-controlling interests | — | |||||||||||||||||||||||||||||||
| Amortized RSUs and other | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Balances at December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Purchases of common stock (1) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| RSUs vested | ||||||||||||||||||||||||||||||||
| Dividends on common stock ( per share) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Effect of adopting Topic 326 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Transactions with non-controlling interests | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Amortized RSUs and other | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances at September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
| Nine Months Ended September 30, | 2021 | 2020 | ||||||
| Operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation, depletion and amortization | ||||||||
| Amortization related to the Convertible Notes (see Note 13) | ||||||||
| Gain on sales of property and equipment, net (see Note 12) | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Equity in net (income) loss from unconsolidated joint ventures | ( | ) | ||||||
| Net income from affiliates | ( | ) | ( | ) | ||||
| Non-cash impairment charges (see Note 3) | ||||||||
| Other non-cash adjustments | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accrual for legal settlement (see Note 16) | ||||||||
| Insurance receivable for legal settlement (see Note 16) | ( | ) | ||||||
| Receivables | ( | ) | ( | ) | ||||
| Contract assets, net | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Contributions to unconsolidated construction joint ventures | ( | ) | ( | ) | ||||
| Distributions from unconsolidated construction joint ventures and affiliates | ||||||||
| Other assets, net | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities, net | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Maturities of marketable securities | ||||||||
| Proceeds from called marketable securities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sales of property and equipment (see Note 12) | ||||||||
| Other investing activities, net | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from debt | ||||||||
| Debt principal repayments | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Contributions from non-controlling partners | ||||||||
| Distributions to non-controlling partners | ( | ) | ( | ) | ||||
| Other financing activities, net | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and and in restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and in restricted cash at end of each period | $ | $ | ||||||
| Supplementary Information | ||||||||
| Right of use assets obtained in exchange for lease obligations | $ | $ | ||||||
| Cash paid for operating lease liabilities | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
| Non-cash investing and financing activities: | ||||||||
| RSUs issued, net of forfeitures | $ | $ | ||||||
| Dividends declared but not paid | ||||||||
| Contributions from non-controlling partners | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at September 30, 2021 and 2020 and the results of our operations and cash flows for the periods presented. The December 31, 2020 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements. Our policy related to derivative instruments was expanded, as follows, to reflect treatment of the interest rate swap de-designation that occurred during the three months ended June 30, 2021, which is further discussed in Note 9.
Derivative Instruments: We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value using Level 2 inputs. To receive hedge accounting treatment, derivative instruments that are designated as cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. We formally document our hedge relationships at inception, including identification of the hedging instruments and the hedged items, our risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument’s effectiveness in offsetting changes in the fair value of the hedged items. The effective portion of the gain or loss on cash flow hedges is reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statements of operations when the periodic hedged cash flows are settled. Adjustments to fair value on derivatives that are not part of a designated hedging relationship are reported through the consolidated statements of operations. We do not enter into derivative instruments for speculative or trading purposes.
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.
Cash, Cash Equivalents and Restricted Cash: The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):
| Nine months ended September 30, | 2021 | 2020 | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | $ | $ | ||||||
| End of the period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash, end of period | ||||||||
| Net increase in cash, cash equivalents and restricted cash | $ | $ |
| |||||
2. Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income as we issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method for convertible debt. The ASU is effective commencing with our quarter ending March 31, 2022. We currently anticipate adopting this ASU using the modified retrospective transition approach.
Upon issuance of the
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. Also, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which provided clarification guidance to ASU 2020-04. These ASUs are effective at our option beginning with our quarter ended March 31, 2020 through December 31, 2022, and we expect to adopt in the second quarter of 2022. As our Third Amended and Restated Credit Agreement dated May 18, 2021, as subsequently amended (the “Credit Agreement”) currently incorporates the use of the secured overnight financing rate as an alternative to LIBOR, we do not expect the adoption of these ASUs to have a material impact on our condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. Impairment Charges and Other Costs
Goodwill
We perform our goodwill impairment tests annually as of November 1 and more frequently when events and circumstances occur that indicate a possible impairment of goodwill. There were no events or circumstances during the nine months ended September 30, 2021 that would indicate a possible goodwill impairment.
We performed an interim goodwill impairment test on the March 31, 2020 balances of our Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation during the three months ended March 31, 2020, exacerbated by economic disruption and market conditions associated with the COVID-19 pandemic. These factors led to reductions in the revenue and margin growth rates used in our quantitative goodwill tests. The goodwill impairment test resulted in a $
We performed a second interim goodwill impairment test on the September 30, 2020 balances of our Midwest Group Specialty, Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnel during the three months ended September 30, 2020. These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests. The goodwill impairment test resulted in a non-cash impairment charge of an additional $
Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherent in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.
Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs.
Investments in Affiliates
Investments in affiliates are evaluated for impairment using the other-than-temporary impairment model, which requires an impairment charge to be recognized if our investments’ carrying amounts exceed their fair value, and the decline in fair value is deemed to be other than temporary. There were no events or changes in circumstances which would cause us to assess our investments for impairment during the nine months ended September 30, 2021 or during the three months ended September 30, 2020.
During the three months ended March 31, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand. The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary declines in fair value below the carrying values. Therefore, we recorded a non-cash impairment charge of $
Other Costs
Other costs included on the condensed consolidated statements of operations primarily consisted of $
4. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.
When we experience significant changes in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. In our review of these changes for the three and nine months ended September 30, 2021 and 2020, we did not identify any material amounts that should have been recorded in a prior period.
There were no increases from revisions in estimates, which individually had an impact of $
Decreases for all periods presented were in our Transportation segment except for one project in the Water segment during the nine months ended September 30, 2021 and one project in the Specialty segment during each period in 2020 and the nine months ended September 30, 2021. The projects with decreases from revisions in estimates, which individually had an impact of $
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Number of projects with downward estimate changes | ||||||||||||||||
| Amount/range of reduction in gross profit from each project, net | $ | $ | $ | $ | ||||||||||||
| Decrease to project profitability | ||||||||||||||||
| Decrease to net income/increase to net loss | ||||||||||||||||
| Amounts attributable to non-controlling interests | ||||||||||||||||
| Decrease to net income/increase to net loss attributable to Granite Construction Incorporated | ||||||||||||||||
| Decrease to net income/increase to net loss per diluted share attributable to common shareholders (1) | ||||||||||||||||
(1) The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued September 30, 2020 condensed consolidated financial statements.
The decreases during the three and nine months ended September 30, 2021 were due to additional costs from acceleration of work coupled with lower productivity and higher costs than originally anticipated. The decreases during the nine months ended September 30, 2021 were also due to unfavorable weather and extended project duration. The decreases during the three and nine months ended September 30, 2020 were due to additional costs from differing site conditions, lower productivity than originally anticipated and unfavorable weather.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. Disaggregation of Revenue
The following tables present our disaggregated revenue (in thousands):
Three Months Ended September 30,
| 2021 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
| California | $ | $ | $ | $ | $ | |||||||||||||||
| Federal | ||||||||||||||||||||
| Heavy Civil | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||
| Northwest | ||||||||||||||||||||
| Water and Mineral Services | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| 2020 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
| California | $ | $ | $ | $ | $ | |||||||||||||||
| Federal | ||||||||||||||||||||
| Heavy Civil | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||
| Northwest | ||||||||||||||||||||
| Water and Mineral Services | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Nine Months Ended September 30,
| 2021 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
| California | $ | $ | $ | $ | $ | |||||||||||||||
| Federal | ||||||||||||||||||||
| Heavy Civil | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||
| Northwest | ||||||||||||||||||||
| Water and Mineral Services | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| 2020 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
| California | $ | $ | $ | $ | $ | |||||||||||||||
| Federal | ||||||||||||||||||||
| Heavy Civil | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||
| Northwest | ||||||||||||||||||||
| Water and Mineral Services | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. Unearned Revenue
The following tables present our unearned revenue as of the respective periods (in thousands):
| September 30, 2021 | Transportation | Water | Specialty | Total | ||||||||||||
| California | $ | $ | $ | $ | ||||||||||||
| Federal | ||||||||||||||||
| Heavy Civil | ||||||||||||||||
| Midwest | ||||||||||||||||
| Northwest | ||||||||||||||||
| Water and Mineral Services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| June 30, 2021 | Transportation | Water | Specialty | Total | ||||||||||||
| California | $ | $ | $ | $ | ||||||||||||
| Federal | ||||||||||||||||
| Heavy Civil | ||||||||||||||||
| Midwest | ||||||||||||||||
| Northwest | ||||||||||||||||
| Water and Mineral Services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| September 30, 2020 | Transportation | Water | Specialty | Total | ||||||||||||
| California | $ | $ | $ | $ | ||||||||||||
| Federal | ||||||||||||||||
| Heavy Civil | ||||||||||||||||
| Midwest | ||||||||||||||||
| Northwest | ||||||||||||||||
| Water and Mineral Services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Approximately $
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. Contract Assets and Liabilities
As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $
As a result of changes in contract transaction price from items such as executed or estimated change orders and resolution of contract modifications and claims, we recognized revenue of $
As of September 30, 2021, December 31, 2020 and September 30, 2020, the aggregate claim recovery estimates included in contract asset balances were $
The components of the contract asset balances as of the respective dates were as follows:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| Costs in excess of billings and estimated earnings | $ | $ | $ | |||||||||
| Contract retention | ||||||||||||
| Total contract assets | $ | $ | $ | |||||||||
As of September 30, 2021, December 31, 2020 and September 30, 2020, no contract retention receivable individually exceeded 15% of total contract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.
The components of the contract liability balances as of the respective dates were as follows:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| Billings in excess of costs and estimated earnings, net of retention | $ | $ | $ | |||||||||
| Provisions for losses | ||||||||||||
| Total contract liabilities | $ | $ | $ | |||||||||
8. Receivables, net
Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest. The following table presents major categories of receivables:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| Contracts completed and in progress: | ||||||||||||
| Billed | $ | $ | $ | |||||||||
| Unbilled | ||||||||||||
| Total contracts completed and in progress | ||||||||||||
| Material sales | ||||||||||||
| Other | ||||||||||||
| Total gross receivables | ||||||||||||
| Less: allowance for credit losses | ||||||||||||
| Total net receivables | $ | $ | $ |
Included in other receivables at September 30, 2021, December 31, 2020 and September 30, 2020, were items such as estimated recovery from insurance receivable, notes receivable and income tax refunds. Other than the $
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9. Fair Value Measurement
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
| Fair Value Measurement at Reporting Date Using | ||||||||||||||||
| September 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other noncurrent assets | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2020 | ||||||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other noncurrent assets | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ |
| September 30, 2020 | ||||||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other noncurrent assets | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ |
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Interest Rate Swaps
In connection with entering into the Credit Agreement, we entered into two interest rate swaps with an effective date of May 2018 that were designated as cash flow hedges through the three months ended March 31, 2021. These interest rate swaps had a combined initial notional amount of $
Other Assets and Liabilities
The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:
| September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||
| Assets: | |||||||||||||||||||||||||
| Held-to-maturity marketable securities (1) | Level 1 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Liabilities (including current maturities): | |||||||||||||||||||||||||
| 2.75% Convertible Notes (2),(3) | Level 2 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Credit Agreement - term loan (2) | Level 3 | ||||||||||||||||||||||||
| Credit Agreement - revolving credit facility (2) | Level 3 | ||||||||||||||||||||||||
(1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations maturing in to years.
(2) The fair value of the Convertible Notes is based on the median price of the notes in an active market. The fair value of the Credit Agreement is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 13 for more information about the 2.75% Convertible Notes and the Credit Agreement.
(3) Excluded from the carrying value is debt discount of $
During the three and nine months ended September 30, 2021, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. As disclosed in Note 3, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2020, we did not record any fair value adjustments related to nonfinancial liabilities measured at fair value on a nonrecurring basis.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. Construction Joint Ventures
We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and nine months ended September 30, 2021, we determined no change was required for existing joint ventures.
Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At September 30, 2021, there was approximately $
Consolidated Construction Joint Ventures (“CCJVs”)
At September 30, 2021, we were engaged in
Unconsolidated Construction Joint Ventures
As of September 30, 2021, we were engaged in active unconsolidated joint venture projects with total contract values ranging from $
The following is summary financial information related to our unconsolidated construction joint ventures:
| (in thousands) |
September 30, 2021 |
December 31, 2020 |
September 30, 2020 |
|||||||||
| Assets |
||||||||||||
| Cash, cash equivalents and marketable securities |
$ | $ | $ | |||||||||
| Other current assets (1) |
||||||||||||
| Noncurrent assets |
||||||||||||
| Less partners’ interest |
||||||||||||
| Granite’s interest (1),(2) |
||||||||||||
| Liabilities |
||||||||||||
| Current liabilities |
||||||||||||
| Less partners’ interest and adjustments (3) |
||||||||||||
| Granite’s interest |
||||||||||||
| Equity in construction joint ventures (4) |
$ | $ | $ | |||||||||
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $
(2) Included in this balance as of September 30, 2021, December 31, 2020 and September 30, 2020, was $
(3) Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.
(4) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Revenue |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| Less partners’ interest and adjustments (1) |
||||||||||||||||
| Granite’s interest |
||||||||||||||||
| Cost of revenue |
||||||||||||||||
| Total |
||||||||||||||||
| Less partners’ interest and adjustments (1) |
||||||||||||||||
| Granite’s interest |
||||||||||||||||
| Granite’s interest in gross profit (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
(1) Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.
During the three and nine months ended September 30, 2021, unconsolidated construction joint venture net loss was $(
During both 2021 and 2020, there were variances on five projects between our estimated total revenue and cost of revenue when compared to that of our partners’ due to timing of recognition from differing accounting policies and public company quarterly reporting requirements. These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.
Line Item Joint Ventures
As of September 30, 2021, we were engaged in active line item joint venture construction projects with a total contract value of $
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| Foreign | $ | $ | $ | |||||||||
| Real estate | ||||||||||||
| Asphalt terminal | ||||||||||||
| Total investments in affiliates | $ | $ | $ | |||||||||
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| Current assets | $ | $ | $ | |||||||||
| Noncurrent assets | ||||||||||||
| Total assets | ||||||||||||
| Current liabilities | ||||||||||||
| Long-term liabilities (1) | ||||||||||||
| Total liabilities | ||||||||||||
| Net assets | ||||||||||||
| Granite’s share of net assets | $ | $ | $ | |||||||||
(1) The balance primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates, as well as debt associated with our real estate investments.
Of the $
12. Property and Equipment, net
Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets and were as follows:
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| Equipment and vehicles | $ | $ | $ | |||||||||
| Quarry property | ||||||||||||
| Land and land improvements | ||||||||||||
| Buildings and leasehold improvements | ||||||||||||
| Office furniture and equipment | ||||||||||||
| Property and equipment | ||||||||||||
| Less: accumulated depreciation and depletion | ||||||||||||
| Property and equipment, net | $ | $ | $ | |||||||||
On June 30, 2021, we completed a sale-leaseback transaction associated with two properties in California. Sale of these properties resulted in a reduction in net property and equipment of $
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
13. Long-Term Debt and Credit Arrangements
| (in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
| 2.75% Convertible Notes | $ | $ | $ | |||||||||
| Credit Agreement - term loan | ||||||||||||
| Credit Agreement - revolving credit facility | ||||||||||||
| Debt issuance costs and other | ||||||||||||
| Total debt | ||||||||||||
| Less current maturities | ||||||||||||
| Total long-term debt | $ | $ | $ | |||||||||
As of each September 30, 2021, December 31, 2020 and September 30, 2020, $
As of September 30, 2021, the total unused availability under the Credit Agreement was $
As of September 30, 2021, the Applicable Rate was
As of September 30, 2021, the Consolidated Leverage Ratio (as defined in the Credit Agreement) was
As of September 30, 2021, December 31, 2020 and September 30, 2020, the carrying amount of the liability component of the 2.75% Convertible Notes was $
During the three months ended September 30, 2021 and 2020, we recorded $
14. Weighted Average Shares Outstanding and Net Income (Loss) Per Share
The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Numerator (basic and diluted) | ||||||||||||||||
| Net income (loss) allocated to common shareholders for basic calculation | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding, basic | ||||||||||||||||
| Dilutive effect of RSUs (1) | ||||||||||||||||
| Dilutive effect of 2.75% Convertible Notes (2) | ||||||||||||||||
| Weighted average common shares outstanding, diluted | ||||||||||||||||
| Net income (loss) per share, basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) per share, diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
(1) Due to the net losses for the three and nine months ended September 30, 2020, RSUs representing approximately
(2) The number of shares used in calculating diluted net loss per share for the three and nine months ended September 30, 2020 excluded the potential dilution from the
15. Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Provision for (benefit from) income taxes | $ | $ | $ | $ | ( | ) | ||||||||||
| Effective tax rate | % | ( | )% | % | % | |||||||||||
Our effective tax rate for the three and nine months ended September 30, 2021 increased to
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
16. Contingencies - Legal Proceedings
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition, disclosure is required when a material loss is either probable but not reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
The total liabilities recorded, net of insurance receivable, as of September 30, 2021 were $
Ordinary Course Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2020. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which often cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.
Securities Litigation, Derivative Lawsuits and Other Matters
On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An amended complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. After the filing of the amended complaint, this case was re-titled Police Retirement System of St. Louis v. Granite Construction Incorporated, et. al. The amended complaint seeks damages based on allegations that the defendants made false and/or misleading statements and failed to disclose material adverse facts in the Company’s SEC filings about its business, operations and prospects. On May 20, 2020, the court denied, in part, our motion to dismiss the amended complaint. On January 21, 2021, the court granted plaintiff’s motion for class certification.
On October 23, 2019, a putative class action lawsuit, titled Nasseri v. Granite Construction Incorporated, et. al., was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer, Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint. We filed a demurrer seeking to dismiss the amended complaint. On April 9, 2021, the court entered an order overruling our demurrer seeking to dismiss the amended complaint. On May 14, 2021, the plaintiff filed a motion for class certification. The hearing on the motion has been continued to March 25, 2022 in light of the settlement proceedings in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.
On April 29, 2021, we entered into a stipulation of settlement (the “Settlement Agreement”) to settle Police Retirement System of St. Louis v. Granite Construction Incorporated, et al. The Settlement Agreement also settles claims alleged in Nasseri v. Granite Construction Incorporated, et al. The settlement is subject to court approval.
Under the Settlement Agreement, the Company will pay or cause to be paid a total of $
On April 30, 2021, the class representative in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al. filed a motion for preliminary approval of the settlement. The plaintiff in Nasseri v. Granite Construction Incorporated, et al. has been permitted to intervene, although the court has denied his application to be appointed as additional lead plaintiff. On October 6, 2021, the court issued an order granting preliminary approval of the settlement. Pursuant to the terms of the Settlement Agreement, payment was made to the settlement fund after preliminary approval in October 2021. Members of the settlement class will now be provided notice of, and an opportunity to object to, the settlement at a fairness hearing to be held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered. The fairness hearing is scheduled for February 24, 2022. If the court approves the settlement, including the payment and release described above, and enters such order and final judgment, and such judgment is no longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court and the release will be effective to all members of the settlement class.
As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $
On May 6, 2020, a stockholder derivative lawsuit, titled English v. Roberts, et al., was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that allegedly occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. The court has ordered that the lawsuit in the derivative action be stayed until further order of the court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California.
On May 12, 2021, a stockholder derivative lawsuit, titled Davydov v. Roberts, et al., was filed in the Delaware Court of Chancery against James H. Roberts, Jigisha Desai, Laurel Krzeminski, Craig Hall, our Senior Vice President, General Counsel, Corporate Compliance Officer, and Secretary, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty that allegedly occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. On July 16, 2021, we filed a motion to dismiss the complaint. The plaintiff’s response is due on November 22, 2021.
We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of these cases.
As of September 30, 2021, other than the $66.0 million charge described above, we did not record any liability related to the above matters because we concluded such liabilities were not probable and the amounts of such liabilities are not reasonably estimable.
We were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages. Our subsidiary, Layne, was a subcontractor on the foundation for the Salesforce Tower office building in 2013 and 2014. Certain anomalies were discovered in March 2014 in the foundation’s structural concrete, which were remediated by the general contractor during 2015. Layne assigned any insurance claims it may have had under the project’s builder’s risk insurance policy to the general contractor. During 2014, the project owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and related damages. The claim was denied by the builder’s risk insurers. The project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy, which proceeding was then transferred by agreement to arbitration. Although we were not a party to this legal proceeding, we believe, based on court filings and developments in the arbitration, that the project owner and the general contractor asserted a claim for damages against the project’s builder’s risk insurers for approximately $
In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued us subpoenas for documents in connection with the accounting issues identified in the Investigation. We have produced documents to the SEC and will continue to cooperate with the SEC in its investigation.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
17. Business Segment Information
Summarized segment information is as follows (in thousands):
Three Months Ended September 30,
| Transportation | Water | Specialty | Materials | Total | ||||||||||||||||
| 2021 | ||||||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | $ | $ | |||||||||||||||
| Elimination of intersegment revenue | ( | ) | ( | ) | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||||||||
| 2020 | ||||||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | $ | $ | |||||||||||||||
| Elimination of intersegment revenue | ( | ) | ( | ) | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Depreciation, depletion and amortization |
Nine Months Ended September 30,
| Transportation | Water | Specialty | Materials | Total | ||||||||||||||||
| 2021 | ||||||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | $ | $ | |||||||||||||||
| Elimination of intersegment revenue | ( | ) | ( | ) | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||||||||
| Segment assets | ||||||||||||||||||||
| 2020 | ||||||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | $ | $ | |||||||||||||||
| Elimination of intersegment revenue | ( | ) | ( | ) | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||||||||
| Segment assets |
A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Total gross profit from reportable segments | $ | $ | $ | $ | ||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Non-cash impairment charges (see Note 3) | ||||||||||||||||
| Other costs (see Note 3) | ||||||||||||||||
| Gain on sales of property and equipment (see Note 12) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense, net | ||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Disclosure
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
Overview
We are one of the largest diversified infrastructure companies in the United States. We are engaged in a wide array of projects including the construction of streets, roads, highways, mass transit facilities, bridges, trenchless and underground utilities, power-related facilities, water-related facilities, well drilling, utilities, tunnels, dams, site preparation, mining services, and construction management professional services. We are also engaged in a variety of infrastructure services including those for airports, residential development, energy development, commercial and industrial sites. We have four reportable business segments: Transportation, Water, Specialty and Materials (see Note 17 of “Notes to the Condensed Consolidated Financial Statements”). In addition to business segments, we review our business by operating groups. Our operating groups are California, Federal, Heavy Civil, Northwest, Midwest and Water and Mineral Services.
The five primary economic drivers of our business are (i) the overall health of the U.S. economy; (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement.
Current Economic Environment and Outlook
While the COVID-19 pandemic continues to have a significant impact around the country and the world, Granite’s approach has been consistent led by prioritizing the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Although certain projects are periodically affected by the pandemic, our business has largely returned to pre-pandemic levels of activity. The future developments of the pandemic are highly uncertain and could adversely impact our operations and financial results in future periods. We are closely monitoring federal, state, regional and local guidelines, orders and regulations and will take necessary steps to comply with new regulations as required.
We are continually monitoring the supply and demand related to labor and supplies, including materials such as concrete and steel. During 2021, certain segments of the construction industry were adversely affected by inflation as well as supply chain and labor constraints. The actual and expected impact to Granite was limited to oil price inflation through our use of diesel fuel and liquid asphalt, which we are monitoring and pricing into our contracts accordingly.
Funding for our public work projects, which is around 75% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, public work projects benefit from a $10 billion relief spending bill for state departments of transportations approved by Congress in December 2020 as part of the Coronavirus Response and Relief Act and a $360 billion Coronavirus State and Local Fiscal Recovery Funds approved by Congress in March 2021. The Fixing America’s Surface Transportation (“FAST”) was extended for one year through September 30, 2021 with flat funding levels and for another month through October 31, 2021 as the Biden Administration and Congress work to pass a long-term solution. In late June 2021, the Biden Administration and members of a bipartisan Senate group agreed to a roughly $1.2 trillion Bipartisan Infrastructure Framework (Infrastructure Investment and Jobs Act), proposing for $579 billion in new spending which includes significant new funding proposals for roads, bridges, airports, ports and inland waterway infrastructures. We remain optimistic that Congress and the Administration will jointly move forward in 2021 to pass a long-term solution that addresses infrastructure investment, which we believe will meaningfully improve the programming visibility for state and local governments, starting in mid to late 2022 and then building in following years.
At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements. In California, our top revenue-generating state, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program. Revenue collected through SB-1 is on track to increase over the next 5 years. While we are encouraged by these funding supports, our markets are diverse with some being more impacted by the pandemic. We closely monitor these funding trends in all our markets and manage our pursuit pipeline accordingly.
As further discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,” we were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages. Layne was a subcontractor on this project and in connection with our acquisition of Layne in June 2018, we assumed any liability related to it. See “Item 1A. Risk Factors - In connection with acquisitions or divestitures, we may become subject to liabilities” and “Item 1A. Risk Factors - We are involved in lawsuits and legal proceedings in the ordinary course of our business and may in the future be subject to other litigation and legal proceedings, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report on Form 10-K”) for additional information.
Results of Operations
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.
The following table presents a financial summary for the three and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Total revenue |
$ | 1,062,129 | $ | 1,065,189 | $ | 2,696,214 | $ | 2,616,887 | ||||||||
| Gross profit |
119,935 | 125,997 | 300,199 | 238,139 | ||||||||||||
| Selling, general and administrative expenses |
77,603 | 72,889 | 227,400 | 224,128 | ||||||||||||
| Non-cash impairment charges (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”) |
— | 132,277 | — | 156,690 | ||||||||||||
| Other costs (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”) |
3,759 | 9,689 | 85,547 | 28,513 | ||||||||||||
| Gain on sales of property and equipment, net (see Note 12 of “Notes to the Condensed Consolidated Financial Statements”) |
(5,159 | ) | (3,057 | ) | (39,349 | ) | (4,870 | ) | ||||||||
| Operating income (loss) |
43,732 | (85,801 | ) | 26,601 | (166,322 | ) | ||||||||||
| Total other expense, net |
2,405 | 1,284 | 1,686 | 10,766 | ||||||||||||
| Amount attributable to non-controlling interests |
2,620 | 7,195 | 462 | 18,741 | ||||||||||||
| Net income (loss) attributable to Granite Construction Incorporated |
35,043 | (91,162 | ) | 23,309 | (153,127 | ) | ||||||||||
Revenue
Total Revenue by Segment
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||||||||||||||||||
| Transportation |
$ | 568,186 | 53.5 | % | $ | 623,999 | 58.6 | % | $ | 1,444,450 | 53.6 | % | $ | 1,510,001 | 57.7 | % | ||||||||||||||||
| Water |
121,968 | 11.5 | 106,599 | 10.0 | 335,153 | 12.4 | 317,980 | 12.2 | ||||||||||||||||||||||||
| Specialty |
234,300 | 22.1 | 205,134 | 19.3 | 590,245 | 21.9 | 513,087 | 19.6 | ||||||||||||||||||||||||
| Materials |
137,675 | 12.9 | 129,457 | 12.1 | 326,366 | 12.1 | 275,819 | 10.5 | ||||||||||||||||||||||||
| Total |
$ | 1,062,129 | 100.0 | % | $ | 1,065,189 | 100.0 | % | $ | 2,696,214 | 100.0 | % | $ | 2,616,887 | 100.0 | % | ||||||||||||||||
Transportation Revenue
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
|||||||||||||||||||||||||
| California |
$ | 191,146 | 33.7 | % | $ | 224,636 | 36.0 | % | $ | 478,823 | 33.1% |
$ | 478,590 | 31.7 | % | ||||||||||||||
| Federal |
4,442 | 0.8 | 3,140 | 0.5 | 9,593 | 0.7 |
5,306 | 0.4 | |||||||||||||||||||||
| Heavy Civil |
138,201 | 24.3 | 165,434 | 26.5 | 445,812 | 30.9 |
519,963 | 34.4 | |||||||||||||||||||||
| Midwest |
34,767 | 6.1 | 43,896 | 7.0 | 83,945 | 5.8 |
103,081 | 6.8 | |||||||||||||||||||||
| Northwest |
199,630 | 35.1 | 186,893 | 30.0 | 426,277 | 29.5 |
403,061 | 26.7 | |||||||||||||||||||||
| Total |
$ | 568,186 | 100.0 | % | $ | 623,999 | 100.0 | % | $ | 1,444,450 | 100.0% |
$ | 1,510,001 | 100.0 | % | ||||||||||||||
Transportation revenue for the three and nine months ended September 30, 2021 decreased by $55.8 million, or 8.9%, and $65.6 million, or 4.3%, respectively, when compared to 2020. These decreases were primarily driven by lower Committed and Awarded Projects (“CAP”) levels in the Heavy Civil operating group as well as certain Heavy Civil operating group projects, including those in the Old Risk Portfolio(1), nearing completion and decreases in the California operating group due to owner worksite accommodations in the third quarter of 2020 that are not present in 2021. These decreases were partially offset by a decrease in the net negative impact of revisions in estimates when compared to 2020 (see Note 4 of “Notes to the Condensed Consolidated Financial Statements” for more information). During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Transportation segment was from the public sector.
(1) Old Risk Portfolio includes projects with risk criteria that do not align with Granite's new project selection criteria for the Heavy Civil operating group.
Water Revenue
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
|||||||||||||||||||||||||
| California |
$ | 8,531 | 7.0 | % | $ | 10,498 | 9.8 | % | $ | 27,512 | 8.2% |
$ | 24,225 | 7.6 | % | ||||||||||||||
| Federal |
9 | — | 341 | 0.3 | 166 | — |
1,309 | 0.4 | |||||||||||||||||||||
| Heavy Civil |
7,799 | 6.4 | 9,985 | 9.4 | 21,197 | 6.3 |
28,260 | 8.9 | |||||||||||||||||||||
| Midwest |
— | — | — | — | — | — |
152 | — | |||||||||||||||||||||
| Northwest |
2,124 | 1.8 | 444 | 0.5 | 4,202 | 1.3 |
4,344 | 1.4 | |||||||||||||||||||||
| Water and Mineral Services |
103,505 | 84.8 | 85,331 | 80.0 | 282,076 | 84.2 |
259,690 | 81.7 | |||||||||||||||||||||
| Total |
$ | 121,968 | 100.0 | % | $ | 106,599 | 100.0 | % | $ | 335,153 | 100.0% |
$ | 317,980 | 100.0 | % | ||||||||||||||
Water revenue for the three and nine months ended September 30, 2021 increased by $15.4 million, or 14.4%, and $17.2 million, or 5.4%, respectively, when compared to 2020. The increases were primarily driven by increased demand for water supply and maintenance services, as well as lower activity levels in 2020 as a result of the COVID-19 pandemic which caused delays in awarded projects and deferrals in bidding processes. During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Water segment was from the public sector.
Specialty Revenue
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||||||||||||||||||
| California |
$ | 56,364 | 24.1 | % | $ | 62,623 | 30.5 | % | $ | 153,497 | 26.0 |
% | $ | 158,076 | 30.8 | % | ||||||||||||||||
| Federal |
29,347 | 12.5 | 28,765 | 14.0 | 70,280 | 11.9 |
78,760 | 15.4 | ||||||||||||||||||||||||
| Heavy Civil |
34,424 | 14.7 | 12,892 | 6.3 | 82,651 | 14.0 | 27,963 | 5.4 | ||||||||||||||||||||||||
| Midwest |
25,608 | 10.9 | 24,392 | 11.9 | 71,376 | 12.1 |
74,543 | 14.5 | ||||||||||||||||||||||||
| Northwest |
61,030 | 26.1 | 57,247 | 27.9 | 138,487 | 23.5 |
125,647 | 24.5 | ||||||||||||||||||||||||
| Water and Mineral Services |
27,527 | 11.7 | 19,215 | 9.4 | 73,954 | 12.5 |
48,098 | 9.4 | ||||||||||||||||||||||||
| Total |
$ | 234,300 | 100.0 | % | $ | 205,134 | 100.0 | % | $ | 590,245 | 100.0 |
% | $ | 513,087 | 100.0 | % | ||||||||||||||||
Specialty revenue for the three and nine months ended September 30, 2021 increased by $29.2 million, or 14.2%, and $77.2 million, or 15.0%, respectively, when compared to 2020. These increases were primarily driven by project progression of a federal site development project in the Heavy Civil operating group and increased activity in the Water and Mineral Services operating group’s mineral exploration business. During the three and nine months ended September 30, 2021 and 2020, revenue earned in the Specialty segment was from both the public and private sectors.
Materials Revenue
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||||||||||||||||||
| California |
$ | 76,029 | 55.2 | % | $ | 75,901 | 58.6 | % | $ | 188,475 | 57.7 | % | $ | 161,397 | 58.6 | % | ||||||||||||||||
| Northwest |
56,403 | 41.0 | 48,674 | 37.6 | 124,564 | 38.2 |
103,812 | 37.6 | ||||||||||||||||||||||||
| Water and Mineral Services |
5,243 | 3.8 | 4,882 | 3.8 | 13,327 | 4.1 |
10,610 | 3.8 | ||||||||||||||||||||||||
| Total |
$ | 137,675 | 100.0 | % | $ | 129,457 | 100.0 | % | $ | 326,366 | 100.0 |
% | $ | 275,819 | 100.0 | % | ||||||||||||||||
Materials revenue for the three and nine months ended September 30, 2021 increased by $8.2 million, or 6.3%, and $50.5 million, or 18.3%, when compared to 2020 primarily due to an increase in volume and an increase in prices in both asphalt and aggregates.
Committed and Awarded Projects
Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog (consisting of the revenue we expect to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts) to CAP and added the general construction portion of construction management/general contractor contracts to the extent contract execution and funding is probable. This is the same presentation used in our quarterly earnings calls and press releases. Prior period amounts have been revised to reflect this change.
We generally include a project in our unearned revenue at the time a contract is awarded and to the extent we believe contract execution and funding is probable. Certain government contracts where funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. Other awards in the tables below include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively. Other awards also include the general construction portion of construction management/general contractor projects to the extent award, contract execution and funding are probable.
Total CAP by Segment
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| Transportation |
$ | 2,914,206 | 67.3 | % | $ | 2,894,115 | 65.1 | % | $ | 3,222,829 | 76.8 | % | ||||||||||||
| Water |
524,106 | 12.1 | 531,858 | 12.0 | 346,253 | 8.3 | ||||||||||||||||||
| Specialty |
889,580 | 20.6 | 1,019,318 | 22.9 | 623,452 | 14.9 | ||||||||||||||||||
| Total |
$ | 4,327,892 | 100.0 | % | $ | 4,445,291 | 100.0 | % | $ | 4,192,534 | 100.0 | % | ||||||||||||
Transportation CAP
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| Unearned revenue |
$ | 1,803,664 | 61.9 | % | $ | 2,075,498 | 71.7 | % | $ | 2,311,906 | 71.7 | % | ||||||||||||
| Other awards |
1,110,542 | 38.1 | 818,617 | 28.3 | 910,923 | 28.3 | ||||||||||||||||||
| Total |
$ | 2,914,206 | 100.0 | % | $ | 2,894,115 | 100.0 | % | $ | 3,222,829 | 100.0 | % | ||||||||||||
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| California |
$ | 1,318,822 | 45.3 | % | $ | 1,152,327 | 39.7 | % | $ | 1,116,680 | 34.6 | % | ||||||||||||
| Federal |
40,477 | 1.4 | 7,303 | 0.3 | 13,787 | 0.4 | ||||||||||||||||||
| Heavy Civil |
513,589 | 17.6 | 622,490 | 21.5 | 1,059,939 | 32.9 | ||||||||||||||||||
| Midwest |
230,696 | 7.9 | 230,184 | 8.0 | 169,538 | 5.3 | ||||||||||||||||||
| Northwest |
810,622 | 27.8 | 881,811 | 30.5 | 862,885 | 26.8 | ||||||||||||||||||
| Total |
$ | 2,914,206 | 100.0 | % | $ | 2,894,115 | 100.0 | % | $ | 3,222,829 | 100.0 | % | ||||||||||||
Transportation CAP of $2.9 billion at September 30, 2021 was $20.1 million, or 0.7%, higher than at June 30, 2021 primarily due to new awards in the California operating group and new awards in the Northwest operating group, including a $25 million airport transformation project in Arizona, partially offset by progress on existing projects and fewer awarded contracts in the Heavy Civil operating group, consistent with our strategy to narrow the footprint of this group. Non-controlling partners’ share of Transportation CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $184.1 million, $212.1 million and $282.4 million, respectively. Four contracts in our Transportation segment had total forecasted losses with remaining revenue of $252.1 million, or 8.7%, of Transportation CAP at September 30, 2021.
Water CAP
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| Unearned revenue |
$ | 353,731 | 67.5 | % | $ | 362,713 | 68.2 | % | $ | 197,554 | 57.1 | % | ||||||||||||
| Other awards |
170,375 | 32.5 | 169,145 | 31.8 | 148,699 | 42.9 | ||||||||||||||||||
| Total |
$ | 524,106 | 100.0 | % | $ | 531,858 | 100.0 | % | $ | 346,253 | 100.0 | % | ||||||||||||
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| California |
$ | 35,972 | 6.9 | % | $ | 44,066 | 8.3 | % | $ | 52,598 | 15.2 | % | ||||||||||||
| Federal |
65 | — | 73 | — | 494 | 0.1 | ||||||||||||||||||
| Heavy Civil |
163,714 | 31.2 | 161,632 | 30.4 | 24,803 | 7.2 | ||||||||||||||||||
| Northwest |
61,731 | 11.8 | 61,891 | 11.6 | 721 | 0.2 | ||||||||||||||||||
| Water and Mineral Services |
262,624 | 50.1 | 264,196 | 49.7 | 267,637 | 77.3 | ||||||||||||||||||
| Total |
$ | 524,106 | 100.0 | % | $ | 531,858 | 100.0 | % | $ | 346,253 | 100.0 | % | ||||||||||||
Water CAP of $0.5 billion as of September 30, 2021 was $7.8 million, or 1.5%, lower than at June 30, 2021 primarily due to progress on existing projects in the California operating group.
Specialty CAP
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| Unearned revenue |
$ | 874,797 | 98.3 | % | $ | 1,013,810 | 99.5 | % | $ | 604,894 | 97.0 | % | ||||||||||||
| Other awards |
14,783 | 1.7 | 5,508 | 0.5 | 18,558 | 3.0 | ||||||||||||||||||
| Total |
$ | 889,580 | 100.0 | % | $ | 1,019,318 | 100.0 | % | $ | 623,452 | 100.0 | % | ||||||||||||
| (dollars in thousands) |
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
| California |
$ | 128,961 | 14.5 | % | $ | 155,686 | 15.3 | % | $ | 134,306 | 21.6 | % | ||||||||||||
| Federal |
75,827 | 8.5 | 102,972 | 10.1 | 107,273 | 17.2 | ||||||||||||||||||
| Heavy Civil |
124,026 | 13.9 | 172,819 | 17.0 | 224,427 | 36.0 | ||||||||||||||||||
| Midwest |
287,144 | 32.3 | 295,446 | 28.9 | 106,694 | 17.1 | ||||||||||||||||||
| Northwest |
273,622 | 30.8 | 292,395 | 28.7 | 50,752 | 8.1 | ||||||||||||||||||
| Total |
$ | 889,580 | 100.0 | % | $ | 1,019,318 | 100.0 | % | $ | 623,452 | 100.0 | % | ||||||||||||
Specialty CAP of $0.9 billion as of September 30, 2021 was $129.7 million, or 12.7%, lower than at June 30, 2021 due to progress on existing projects in all operating groups. Non-controlling partners’ share of Specialty CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $46.0 million, $61.5 million and $64.8 million, respectively.
Gross Profit
The following table presents gross profit by business segment for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Transportation |
$ | 58,503 | $ | 54,322 | $ | 153,886 | $ | 110,888 | ||||||||
| Percent of segment revenue |
10.3 | % |
8.7 | % |
10.7 | % |
7.3 | % |
||||||||
| Water |
9,876 | 12,557 | 29,005 | 34,483 | ||||||||||||
| Percent of segment revenue |
8.1 | 11.8 | 8.7 | 10.8 | ||||||||||||
| Specialty |
30,858 | 33,292 | 72,552 | 47,853 | ||||||||||||
| Percent of segment revenue |
13.2 | 16.2 | 12.3 | 9.3 | ||||||||||||
| Materials |
20,698 | 25,826 | 44,756 | 44,915 | ||||||||||||
| Percent of segment revenue |
15.0 | 19.9 | 13.7 | 16.3 | ||||||||||||
| Total gross profit |
$ | 119,935 | $ | 125,997 | $ | 300,199 | $ | 238,139 | ||||||||
| Percent of total revenue |
11.3 | % |
11.8 | % |
11.1 | % |
9.1 | % |
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Transportation gross profit for the three and nine months ended September 30, 2021 increased by $4.2 million, or 7.7%, and $43.0 million, or 38.8%, respectively, when compared to 2020 primarily due to a decrease in the negative net impact from revisions in estimates in our Heavy Civil operating group Old Risk Portfolio (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).
Water gross profit for the three and nine months ended September 30, 2021 decreased by $2.7 million, or 21.4%, and $5.5 million, or 15.9%, respectively, when compared to 2020. This decrease is primarily due to the increase in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).
Specialty gross profit for the three and nine months ended September 30, 2021 decreased by $2.4 million, or 7.3%, and increased by $24.7 million, or 51.6%, respectively, when compared to 2020. The year-to-date increase was primarily due to increased revenue from project progression in the Heavy Civil operating group, increased activity in the Water and Mineral Services operating group’s mineral exploration business and a decrease in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).
Materials gross profit for the three months ended September 30, 2021 decreased by $5.0 million, or 19.5% when compared to 2020 as rising fuel and liquid asphalt costs were not able to be fully mitigated during the quarter.
Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
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| Selling |
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| Salaries and related expenses |
$ | 14,799 | $ | 17,225 | $ | 49,440 | $ | 51,142 | ||||||||
| Restricted stock unit amortization |
225 | 264 | 1,251 | 1,002 | ||||||||||||
| Other selling expenses |
3,154 | 2,907 | 5,403 | 9,478 | ||||||||||||
| Total selling |
18,178 | 20,396 | 56,094 | 61,622 | ||||||||||||
| General and administrative |
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| Salaries and related expenses |
26,002 | 26,257 | 83,515 | 81,171 | ||||||||||||
| Restricted stock unit amortization |
795 | 690 | 3,126 | 2,812 | ||||||||||||
| Other general and administrative expenses |
32,628 | 25,546 | 84,665 | 78,523 | ||||||||||||
| Total general and administrative |
59,425 | 52,493 | 171,306 | 162,506 | ||||||||||||
| Total selling, general and administrative |
$ | 77,603 | $ | 72,889 | $ | 227,400 | $ | 224,128 | ||||||||
| Percent of revenue |
7.3 | % |
6.8 | % |
8.4 | % |
8.6 | % |
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Selling Expenses
Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses for the three and nine months ended September 30, 2021 decreased by $2.2 million, or 10.9%, and $5.5 million, or 9.0%, respectively, when compared to 2020 from reduced estimating and bidding costs, which impacted other selling expenses for the nine months, and salaries and related expenses for both periods.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses for the three and nine months ended September 30, 2021 increased by $7.2 million, or 13.8%, and $9.1 million, or 5.6%, respectively, when compared to 2020, primarily due to increases in other general and administrative expenses from increases in incentive compensation as a result of improved financial performance.
Gain on Sales of Property and Equipment, net
The following table presents the gain on sales of property and equipment, net for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (dollars in thousands) |
2021 | 2020 | 2021 | 2020 | ||||||||||||
| Gain on sales of property and equipment, net |
$ | (5,159 | ) | $ | (3,057 | ) | $ | (39,349 | ) | $ | (4,870 | ) | ||||
Gain on sales of property and equipment, net for the three and nine months ended September 30, 2021 increased by $2.1 million and $34.5 million, respectively, when compared to 2020. The increase during the nine months was primarily due to the sale of two properties in California as part of our ongoing asset optimization plan. See Note 12 of “Notes to the Condensed Consolidated Financial Statements” for more information.
Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (dollars in thousands) |
2021 |
2020 |
2021 |
2020 |
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| Provision for (benefit from) income taxes |
$ | 8,904 | $ | 11,272 | $ | 2,068 | $ | (5,220 | ) | |||||||
| Effective tax rate |
21.5 | % | (12.9 | )% | 8.3 | % | 2.9 | % | ||||||||
We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our income (loss) before provision for (benefit from) income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 15 of “Notes to the Condensed Consolidated Financial Statements” for more information.
Certain Legal Proceedings
As discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,” under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash generated from operations. We may also from time to time issue and sell equity, debt or hybrid securities, engage in other capital markets transactions or sell one or more business units, divisions or assets. As of September 30, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and our marketable securities consisted of U.S. Government and agency obligations. Our credit facility consists of a term loan and a revolving credit facility. Of the $275.0 million revolving credit facility capacity, $227.9 million was available for borrowing at September 30, 2021. This difference between capacity and amount available for borrowing is due to letters of credit taken out primarily for insurance; see Note 13 of “Notes to the Condensed Consolidated Financial Statements” for further discussion regarding our credit facility.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected operating requirements for the next twelve months from the date of this filing. This includes the payment that was made pursuant to the terms of the settlement agreement to the settlement fund after preliminary approval in October 2021, as discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements.” There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.
In evaluating our liquidity position and needs, we consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:
| (in thousands) |
September 30, 2021 |
December 31, 2020 |
September 30, 2020 |
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| Cash and cash equivalents excluding CCJVs |
$ | 344,438 | $ | 361,317 | $ | 295,437 | ||||||
| CCJV cash and cash equivalents (1) |
119,611 | 74,819 | 92,587 | |||||||||
| Total consolidated cash and cash equivalents |
464,049 | 436,136 | 388,024 | |||||||||
| Short-term and long-term marketable securities (2) |
10,600 | 5,200 | 5,700 | |||||||||
| Total cash, cash equivalents and marketable securities |
$ | 474,649 | $ | 441,336 | $ | 393,724 | ||||||
(1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2) All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations as of all periods presented.
Granite’s portion of CCJV cash and cash equivalents was $69.2 million, $42.6 million and $53.4 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $48.0 million, $58.9 million and $66.2 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively.
Cash Flows
| Nine Months Ended September 30, |
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| (in thousands) |
2021 |
2020 |
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| Net cash provided by (used in): |
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| Operating activities |
$ | 59,922 | $ | 138,666 | ||||
| Investing activities |
(17,381 | ) | (41,901 | ) | ||||
| Financing activities |
(14,628 | ) | 24,663 | |||||
Operating activities
As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, our projects’ progressions toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements. Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer which can cause fluctuations in operating cash flows.
Related to the securities litigation settlement, discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,” we have separately presented the $129.0 million liability and the associated $63.0 million insurance receivable in the condensed consolidated statement of cash flows. The liability was paid and the receivable was collected in October 2021; therefore, the impact on operating cash flow will occur in the fourth quarter of 2021 and there was no impact during the nine months ended September 30, 2021.
Investing activities
Cash used in investing activities of $17.4 million for the nine months ended September 30, 2021 represents a $24.5 million decrease from cash used in investing activities when compared to the same period of 2020 primarily from a decrease in proceeds from maturities of, and proceeds from called, marketable securities, partially offset by proceeds from the sale of two properties in California.
Financing activities
Cash used in financing activities of $14.6 million for the nine months ended September 30, 2021 represents a $39.3 million decrease when compared to cash provided by financing activities in the same period of 2020 primarily due to a draw on our revolver of $50 million in the prior year, partially offset by an increase in contributions from non-controlling partners, net of distributions.
Capital Expenditures
During the nine months ended September 30, 2021, we had capital expenditures of $73.0 million compared to $74.9 million during 2020. Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. We currently anticipate 2021 capital expenditures to be approximately $100 million for the full year.
Derivatives
We recognize interest rate and commodity swap derivative instruments as either assets or liabilities at fair value using Level 2 inputs in the condensed consolidated balance sheets. See Note 9 to “Notes to the Condensed Consolidated Financial Statements” for further information. The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds.
Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At September 30, 2021, approximately $2.6 billion of our CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.
Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 11 of “Notes to the Condensed Consolidated Financial Statements.”
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of September 30, 2021, the Consolidated Leverage Ratio was 1.73, which did not exceed the maximum of 3.00. Our Consolidated Interest Coverage Ratio was 8.52, which exceeded the minimum of 4.00.
Share Repurchase Program
As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization, we have established a plan to facilitate common stock repurchases. As of September 30, 2021, $157.2 million of the authorization remained available. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.
Website Access
Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There has been no material change in our exposure to market risk from what was previously disclosed in our 2020 Annual Report on Form 10-K.
| CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to material weaknesses previously disclosed in our 2020 Annual Report on Form 10-K (the “material weaknesses”). In light of the material weaknesses in our internal control over financial reporting, we performed additional analysis and other procedures to validate that our financial information contained in this Form 10-Q was prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Following such additional analysis and procedures, our management, including our principal executive officer and principal financial officer, has concluded that our financial statements state fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Form 10-Q, in conformity with U.S. GAAP.
Remediation Plan and Status
As disclosed in our 2020 Annual Report on Form 10-K, Company management, with the assistance of outside consultants, began reviewing and revising our internal control over financial reporting in 2020 in response to the material weaknesses identified in connection with the Audit/Compliance Committee’s independent Investigation. Management has evaluated the impact of the material weaknesses and has developed and implemented a plan to remediate the control deficiencies that contributed to the material weaknesses. To date, we have taken the following actions to remediate the material weaknesses:
| ● | we implemented oversight, training and communication programs to reinforce: (1) our ethical standards and Code of Conduct across the Company, which emphasized, among other things, the purpose and availability of the anonymous whistleblower hotline, (2) the responsibilities and obligations of public company officers, (3) our cost forecasting processes and policies, including proper and contemporaneous documentation to support cost forecast adjustments, (4) the principles and requirements of each cost forecasting control and (5) reporting communication protocols for internal audit reports; | |
| ● | we implemented additional internal controls related to cost forecasts including reviews from individuals who are independent of the operating group; and | |
| ● |
we took appropriate personnel actions, including separations, dismissals and changes in leadership and/or responsibilities and implemented other organizational changes, including changes in reporting structures. |
We will continue to execute and monitor these programs, processes and controls that were implemented as part of our remediation plan. However, the material weaknesses described in our 2020 Annual Report on Form 10-K will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Additionally, we may take additional measures to address the control deficiencies or modify the remediation plan described above.
Changes in Internal Control Over Financial Reporting
Except for the changes implemented as part of our remediation plan discussed above, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended September 30, 2021.
| LEGAL PROCEEDINGS |
The description of the matters set forth in Part I, Item I of this Report under Note 16 of “Notes to the Condensed Consolidated Financial Statements” is incorporated herein by reference.
| RISK FACTORS |
There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our 2020 Annual Report on Form 10-K.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended September 30, 2021:
| Period |
Total number of shares purchased (1) |
Average price paid per share |
Total number of shares purchased as part of publicly announced plans or programs |
Approximate dollar value of shares that may yet be purchased under the plans or programs (2) |
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| July 1, 2021 through July 31, 2021 |
931 | $ | 37.45 | 34,867 | $ | 157,165,044 | ||||||||||
| August 1, 2021 through August 31, 2021 |
223 | $ | 40.55 | 9,042 | $ | 157,165,044 | ||||||||||
| September 1, 2021 through September 30, 2021 |
1,529 | $ | 40.38 | 61,740 | $ | 157,165,044 | ||||||||||
| 2,683 | $ | 39.38 | 105,649 | |||||||||||||
(1) On June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan, which replaced the Amended and Restated 2012 Equity Incentive Plan. The number of shares purchased is in connection with employee tax withholding for restricted stock units vested under our 2012 and 2021 Equity Incentive Plans.
(2) As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization we have established a share repurchase program to facilitate common stock repurchases. We did not purchase shares under the share repurchase plan in any of the periods presented. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.
| MINE SAFETY DISCLOSURES |
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
| EXHIBITS |
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Filed herewith |
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Furnished herewith |
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.
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GRANITE CONSTRUCTION INCORPORATED |
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| Date: |
October 28, 2021 |
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/s/ Elizabeth L. Curtis |
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Elizabeth L. Curtis |
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Executive Vice President and Chief Financial Officer |
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(Duly Authorized Officer and Principal Financial Officer) |