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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 10/27/22 Granite Construction Inc. 10-Q 9/30/22 93:9.2M RDG Filings/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.91M
5: EX-95 Mine-Safety Disclosure HTML 30K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 32K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 33K
4: EX-32 Certification -- §906 - SOA'02 HTML 28K
11: R1 Document And Entity Information HTML 79K
12: R2 Condensed Consolidated Balance Sheets (Current HTML 159K
Period Unaudited)
13: R3 Condensed Consolidated Balance Sheets (Current HTML 68K
Period Unaudited) (Parentheticals)
14: R4 Condensed Consolidated Statements of Operations HTML 130K
(Unaudited)
15: R5 Condensed Consolidated Statements of Comprehensive HTML 66K
Income (Unaudited)
16: R6 Condensed Consolidated Statements of Shareholders' HTML 144K
Equity (Unaudited)
17: R7 Condensed Consolidated Statements of Shareholders' HTML 27K
Equity (Unaudited) (Parentheticals)
18: R8 Condensed Consolidated Statements of Cash Flows HTML 153K
(Unaudited)
19: R9 Condensed Consolidated Statements of Cash Flows HTML 28K
(Unaudited) (Parentheticals)
20: R10 Note 1 - Basis of Presentation HTML 36K
21: R11 Note 2 - Recently Issued and Adopted Accounting HTML 46K
Pronouncements
22: R12 Note 3 - Discontinued Operations and Held-for-sale HTML 46K
23: R13 Note 4 - Revisions in Estimates HTML 57K
24: R14 Note 5 - Disaggregation of Revenue HTML 62K
25: R15 Note 6 - Unearned Revenue HTML 38K
26: R16 Note 7 - Other Costs, Net HTML 30K
27: R17 Note 8 - Contract Assets and Liabilities HTML 52K
28: R18 Note 9 - Receivables, Net HTML 47K
29: R19 Note 10 - Fair Value Measurement HTML 107K
30: R20 Note 11 - Construction Joint Ventures HTML 85K
31: R21 Note 12 - Investments in Affiliates HTML 49K
32: R22 Note 13 - Property and Equipment, Net HTML 48K
33: R23 Note 14 - Accrued Expenses and Other Current HTML 42K
Liabilities
34: R24 Note 15 - Long-term Debt and Credit Arrangements HTML 48K
35: R25 Note 16 - Weighted Average Shares Outstanding and HTML 57K
Net Income Per Share
36: R26 Note 17 - Income Taxes HTML 40K
37: R27 Note 18 - Contingencies - Legal Proceedings HTML 53K
38: R28 Note 19 - Reportable Segment Information HTML 92K
39: R29 Note 3 - Discontinued Operations and Held-for-sale HTML 42K
(Tables)
40: R30 Note 4 - Revisions in Estimates (Tables) HTML 53K
41: R31 Note 5 - Disaggregation of Revenue (Tables) HTML 61K
42: R32 Note 6 - Unearned Revenue (Tables) HTML 37K
43: R33 Note 8 - Contract Assets and Liabilities (Tables) HTML 46K
44: R34 Note 9 - Receivables, Net (Tables) HTML 45K
45: R35 Note 10 - Fair Value Measurement (Tables) HTML 101K
46: R36 Note 11 - Construction Joint Ventures (Tables) HTML 79K
47: R37 Note 12 - Investments in Affiliates (Tables) HTML 49K
48: R38 Note 13 - Property and Equipment, Net (Tables) HTML 45K
49: R39 Note 14 - Accrued Expenses and Other Current HTML 42K
Liabilities (Tables)
50: R40 Note 15 - Long-term Debt and Credit Arrangements HTML 46K
(Tables)
51: R41 Note 16 - Weighted Average Shares Outstanding and HTML 56K
Net Income Per Share (Tables)
52: R42 Note 17 - Income Taxes (Tables) HTML 36K
53: R43 Note 19 - Reportable Segment Information (Tables) HTML 89K
54: R44 Note 1 - Basis of Presentation (Details Textual) HTML 37K
55: R45 Note 2 - Recently Issued and Adopted Accounting HTML 53K
Pronouncements (Details Textual)
56: R46 Note 3 - Discontinued Operations and Held-for-sale HTML 40K
(Details Textual)
57: R47 Note 3 - Discontinued Operations - Assets and HTML 71K
Liabilities Held-for-sale (Details)
58: R48 Note 4 - Revisions in Estimates (Details Textual) HTML 34K
59: R49 Note 4 - Revisions in Estimates - Summary of HTML 86K
Impact of Revisions in Estimates to Gross Profit
(Details)
60: R50 Note 5 - Disaggregation of Revenue - Schedule of HTML 45K
Disaggregation of Revenue (Details)
61: R51 Note 6 - Unearned Revenue (Details Textual) HTML 31K
62: R52 Note 6 - Unearned Revenue - Schedule of Unearned HTML 32K
Revenue (Details)
63: R53 Note 7 - Other Costs, Net (Details Textual) HTML 34K
64: R54 Note 8 - Contract Assets and Liabilities (Details HTML 41K
Textual)
65: R55 Note 8 - Contract Assets and Liabilities - HTML 38K
Component of Contract Asset and Liability Balances
(Details)
66: R56 Note 9 - Receivables, Net (Details Textual) HTML 36K
67: R57 Note 9 - Receivables, Net - Schedule of HTML 43K
Receivables (Details)
68: R58 Note 10 - Fair Value Measurement (Details Textual) HTML 51K
69: R59 Note 10 - Fair Value Measurement - Cash and Cash HTML 59K
Equivalents (Details)
70: R60 Note 10 - Fair Value Measurement - Schedule of HTML 46K
Carrying and Fair Value Amounts (Details)
71: R61 Note 11 - Construction Joint Ventures (Details HTML 87K
Textual)
72: R62 Note 11 - Construction Joint Ventures - HTML 45K
Unconsolidated Construction Joint Ventures
Financial Information (Details)
73: R63 Note 11 - Construction Joint Ventures - Schedule HTML 56K
of Unconsolidated Construction Joint Ventures
Revenue and Costs (Details)
74: R64 Note 12 - Investments in Affiliates (Details HTML 54K
Textual)
75: R65 Note 12 - Investments in Affiliates - Equity HTML 34K
Method Investments (Details)
76: R66 Note 12 - Investments in Affiliates - Summarized HTML 85K
Balance Sheet Information for Equity Method
Investments (Details)
77: R67 Note 13 - Property and Equipment, Net (Details HTML 35K
Textual)
78: R68 Note 13 - Property and Equipment, Net - Property, HTML 43K
Plant, and Equipment (Details)
79: R69 Note 14 - Accrued Expenses and Other Current HTML 40K
Liabilities - Accrued Expenses and Other Current
Liabilities (Details)
80: R70 Note 15 - Long-term Debt and Credit Arrangements HTML 88K
(Details Textual)
81: R71 Note 15 - Long-term Debt and Credit Arrangements - HTML 43K
Schedule of Long-term Debt (Details)
82: R72 Note 15 - Long-term Debt and Credit Arrangements - HTML 30K
Schedule of Long-term Debt (Details)
(Parentheticals)
83: R73 Note 16 - Weighted Average Shares Outstanding and HTML 62K
Net Income Per Share - Reconciliation of the
Weighted Average Shares (Details)
84: R74 Note 16 - Weighted Average Shares Outstanding and HTML 30K
Net Income Per Share - Reconciliation of the
Weighted Average Shares (Details) (Parentheticals)
85: R75 Note 17 - Income Taxes - Schedule of (Benefit HTML 31K
from) Provision for Income Taxes (Details)
86: R76 Note 18 - Contingencies - Legal Proceedings HTML 67K
(Details Textual)
87: R77 Note 19 - Reportable Segment Information - Segment HTML 65K
Reporting Information (Details)
88: R78 Note 19 - Reportable Segment Information - HTML 47K
Reconciliation of Segment Gross (Loss) Profit to
Consolidated Loss (Details)
91: XML IDEA XML File -- Filing Summary XML 181K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
| i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended i September 30, 2022 |
OR
| i ☐ | 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: i 1-12911 |
GRANITE CONSTRUCTION INCORPORATED
| State of Incorporation: | I.R.S. Employer Identification Number: |
| i Delaware | i 77-0239383 |
Address of principal executive offices:
i 585 W. Beach Street
i Watsonville, i California i 95076
( i 831) i 724-1011
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| i Common stock, $0.01 par value | i GVA | i New York Stock Exchange |
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. ☒ i Yes ☐ No
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). ☒ i Yes ☐ No
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.
| i Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company i ☐ | Emerging growth company i ☐ |
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). i ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 21, 2022.
| Class |
| Outstanding |
| Common stock, $0.01 par value |
| i 43,730,055 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. | |
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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 104 |
| Item 1. |
FINANCIAL STATEMENTS |
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents ($112,524, $92,783 and $119,611 related to consolidated construction joint ventures (“CCJVs”)) | $ | i 255,084 | $ | i 395,647 | $ | i 464,049 | ||||||
| Short-term marketable securities | i 39,873 | i — | i — | |||||||||
| Receivables, net ($71,613, $49,534 and $42,530 related to CCJVs) | i 618,144 | i 464,588 | i 684,822 | |||||||||
| Contract assets ($73,404, $50,054 and $42,792 related to CCJVs) | i 241,238 | i 145,437 | i 204,046 | |||||||||
| Inventories | i 81,296 | i 61,965 | i 77,412 | |||||||||
| Equity in construction joint ventures | i 186,824 | i 189,911 | i 195,354 | |||||||||
| Other current assets ($5,213, $8,091 and $9,954 related to CCJVs) | i 157,231 | i 177,210 | i 39,749 | |||||||||
| Current assets held-for-sale | i — | i 392,641 | i — | |||||||||
| Total current assets | i 1,579,690 | i 1,827,399 | i 1,665,432 | |||||||||
| Property and equipment, net ($9,662, $14,920 and $17,534 related to CCJVs) | i 500,827 | i 433,504 | i 510,658 | |||||||||
| Long-term marketable securities | i 21,575 | i 15,600 | i 10,600 | |||||||||
| Investments in affiliates | i 78,663 | i 23,368 | i 72,415 | |||||||||
| Goodwill | i 73,704 | i 53,715 | i 116,788 | |||||||||
| Right of use assets | i 49,590 | i 49,312 | i 58,226 | |||||||||
| Deferred income taxes, net | i 45,650 | i 24,141 | i 41,228 | |||||||||
| Other noncurrent assets | i 58,265 | i 67,888 | i 86,409 | |||||||||
| Total assets | $ | i 2,407,964 | $ | i 2,494,927 | $ | i 2,561,756 | ||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Current maturities of long-term debt | $ | i 1,438 | $ | i 8,727 | $ | i 8,718 | ||||||
| Accounts payable ($71,947, $55,012 and $62,547 related to CCJVs) | i 398,285 | i 324,313 | i 397,152 | |||||||||
| Contract liabilities ($76,572, $69,328 and $56,914 related to CCJVs) | i 191,037 | i 200,041 | i 195,267 | |||||||||
| Accrued expenses and other current liabilities ($7,981, $5,514 and $5,238 related to CCJVs) | i 450,223 | i 452,829 | i 499,214 | |||||||||
| Current liabilities held-for-sale | i — | i 83,408 | i — | |||||||||
| Total current liabilities | i 1,040,983 | i 1,069,318 | i 1,100,351 | |||||||||
| Long-term debt | i 286,872 | i 331,191 | i 331,192 | |||||||||
| Long-term lease liabilities | i 32,701 | i 32,928 | i 39,908 | |||||||||
| Other long-term liabilities | i 60,664 | i 65,927 | i 67,951 | |||||||||
| Commitments and contingencies (see Note 18) | ||||||||||||
| Equity | ||||||||||||
| Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding | i — | i — | i — | |||||||||
| Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 43,723,658 shares as of September 30, 2022, 45,840,260 shares as of December 31, 2021 and 45,826,409 shares as of September 30, 2021 | i 437 | i 458 | i 458 | |||||||||
| Additional paid-in capital | i 468,662 | i 559,752 | i 558,121 | |||||||||
| Accumulated other comprehensive income (loss) | i 535 | ( i 3,359 | ) | ( i 3,468 | ) | |||||||
| Retained earnings | i 481,489 | i 410,831 | i 430,074 | |||||||||
| Total Granite Construction Incorporated shareholders’ equity | i 951,123 | i 967,682 | i 985,185 | |||||||||
| Non-controlling interests | i 35,621 | i 27,881 | i 37,169 | |||||||||
| Total equity | i 986,744 | i 995,563 | i 1,022,354 | |||||||||
| Total liabilities and equity | $ | i 2,407,964 | $ | i 2,494,927 | $ | i 2,561,756 | ||||||
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 |
2022 |
2021 |
||||||||||||||
| Revenue |
||||||||||||||||
| Construction |
$ | i 848,267 | $ | i 924,454 | $ | i 2,141,009 | $ | i 2,369,848 | ||||||||
| Materials |
i 161,539 | i 137,675 | i 373,185 | i 326,366 | ||||||||||||
| Total revenue |
i 1,009,806 | i 1,062,129 | i 2,514,194 | i 2,696,214 | ||||||||||||
| Cost of revenue |
||||||||||||||||
| Construction |
i 749,938 | i 825,217 | i 1,903,949 | i 2,114,405 | ||||||||||||
| Materials |
i 139,501 | i 116,977 | i 332,220 | i 281,610 | ||||||||||||
| Total cost of revenue |
i 889,439 | i 942,194 | i 2,236,169 | i 2,396,015 | ||||||||||||
| Gross profit |
i 120,367 | i 119,935 | i 278,025 | i 300,199 | ||||||||||||
| Selling, general and administrative expenses |
i 61,795 | i 77,603 | i 192,036 | i 227,400 | ||||||||||||
| Other costs, net (see Note 7) |
( i 490 | ) | i 3,759 | i 19,445 | i 85,547 | |||||||||||
| Gain on sales of property and equipment, net (see Note 13) |
( i 949 | ) | ( i 5,159 | ) | ( i 10,462 | ) | ( i 39,349 | ) | ||||||||
| Operating income |
i 60,011 | i 43,732 | i 77,006 | i 26,601 | ||||||||||||
| Other (income) expense |
||||||||||||||||
| Interest income |
( i 1,894 | ) | ( i 293 | ) | ( i 3,246 | ) | ( i 737 | ) | ||||||||
| Interest expense |
i 2,519 | i 5,131 | i 10,003 | i 16,019 | ||||||||||||
| Equity in income of affiliates, net |
( i 3,491 | ) | ( i 2,539 | ) | ( i 9,656 | ) | ( i 10,578 | ) | ||||||||
| Other (income) expense, net |
i 77 | i 106 | i 4,646 | ( i 3,018 | ) | |||||||||||
| Total other (income) expense, net |
( i 2,789 | ) | i 2,405 | i 1,747 | i 1,686 | |||||||||||
| Income before income taxes |
i 62,800 | i 41,327 | i 75,259 | i 24,915 | ||||||||||||
| Provision for (benefit from) income taxes |
( i 6,489 | ) | i 8,904 | ( i 777 | ) | i 2,068 | ||||||||||
| Net income |
i 69,289 | i 32,423 | i 76,036 | i 22,847 | ||||||||||||
| Amount attributable to non-controlling interests |
i 4,104 | i 2,620 | i 1,569 | i 462 | ||||||||||||
| Net income attributable to Granite Construction Incorporated |
$ | i 73,393 | $ | i 35,043 | $ | i 77,605 | $ | i 23,309 | ||||||||
| Net income per share attributable to common shareholders (see Note 16): |
||||||||||||||||
| Basic earnings per share |
$ | i 1.67 | $ | i 0.76 | $ | i 1.73 | $ | i 0.51 | ||||||||
| Diluted earnings per share |
$ | i 1.44 | $ | i 0.73 | $ | i 1.56 | $ | i 0.49 | ||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
i 43,973 | i 45,821 | i 44,739 | i 45,773 | ||||||||||||
| Diluted |
i 51,863 | i 47,906 | i 52,613 | i 47,522 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - in thousands)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2021 |
2022 |
2021 |
||||||||||||||
| Net income |
$ | i 69,289 | $ | i 32,423 | $ | i 76,036 | $ | i 22,847 | ||||||||
| Other comprehensive income (loss), net of tax: |
||||||||||||||||
| Net unrealized gain (loss) on cash flow hedges, net of tax |
$ | ( i 1,906 | ) | $ | ( i 945 | ) | $ | i 153 | $ | i 282 | ||||||
| Less: reclassification for net gains included in interest expense, net of tax |
i — | i 379 | i 3,042 | i 1,557 | ||||||||||||
| Net change |
$ | ( i 1,906 | ) | $ | ( i 566 | ) | $ | i 3,195 | $ | i 1,839 | ||||||
| Foreign currency translation adjustments, net |
i 53 | ( i 151 | ) | i 699 | ( i 273 | ) | ||||||||||
| Other comprehensive income (loss), net of tax |
$ | ( i 1,853 | ) | $ | ( i 717 | ) | $ | i 3,894 | $ | i 1,566 | ||||||
| Comprehensive income, net of tax |
$ | i 67,436 | $ | i 31,706 | $ | i 79,930 | $ | i 24,413 | ||||||||
| Non-controlling interests in comprehensive income, net of tax |
i 4,104 | i 2,620 | i 1,569 | i 462 | ||||||||||||
| Comprehensive income attributable to Granite Construction Incorporated, net of tax |
$ | i 71,540 | $ | i 34,326 | $ | i 81,499 | $ | i 24,875 | ||||||||
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 Income (Loss) | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||
| Balances at June 30, 2022 | i 44,078,469 | $ | i 441 | $ | i 467,159 | $ | i 2,388 | $ | i 413,931 | $ | i 883,919 | $ | i 33,316 | $ | i 917,235 | |||||||||||||||||
| Net income (loss) | — | i — | i — | i — | i 73,393 | i 73,393 | ( i 4,104 | ) | i 69,289 | |||||||||||||||||||||||
| Other comprehensive loss | — | i — | i — | ( i 1,853 | ) | i — | ( i 1,853 | ) | i — | ( i 1,853 | ) | |||||||||||||||||||||
| Repurchases of common stock (1) | ( i 378,790 | ) | ( i 4 | ) | ( i 346 | ) | i — | i — | ( i 350 | ) | i — | ( i 350 | ) | |||||||||||||||||||
| Restricted stock units (“RSUs”) vested | i 23,994 | i — | i — | i — | i — | i — | i — | i — | ||||||||||||||||||||||||
| Dividends on common stock ($0.13 per share) | — | i — | i 74 | i — | ( i 5,759 | ) | ( i 5,685 | ) | i — | ( i 5,685 | ) | |||||||||||||||||||||
| Transactions with non-controlling interests | — | i — | i — | i — | i — | i — | i 6,409 | i 6,409 | ||||||||||||||||||||||||
| Stock-based compensation expense and other | ( i 15 | ) | i — | i 1,775 | i — | ( i 76 | ) | i 1,699 | i — | i 1,699 | ||||||||||||||||||||||
| Balances at September 30, 2022 | i 43,723,658 | $ | i 437 | $ | i 468,662 | $ | i 535 | $ | i 481,489 | $ | i 951,123 | $ | i 35,621 | $ | i 986,744 | |||||||||||||||||
| Balances at June 30, 2021 | i 45,818,719 | $ | i 458 | $ | i 556,615 | $ | ( i 2,750 | ) | $ | i 401,061 | $ | i 955,384 | $ | i 32,858 | $ | i 988,242 | ||||||||||||||||
| Net income (loss) | — | i — | i — | i — | i 35,043 | i 35,043 | ( i 2,620 | ) | i 32,423 | |||||||||||||||||||||||
| Other comprehensive loss | — | i — | i — | ( i 717 | ) | i — | ( i 717 | ) | i — | ( i 717 | ) | |||||||||||||||||||||
| Repurchases of common stock (1) | ( i 2,683 | ) | i — | ( i 105 | ) | i — | i — | ( i 105 | ) | i — | ( i 105 | ) | ||||||||||||||||||||
| RSUs vested | i 10,399 | i — | i — | i — | i — | i — | i — | i — | ||||||||||||||||||||||||
| Dividends on common stock ($0.13 per share) | — | i — | i — | i — | ( i 5,958 | ) | ( i 5,958 | ) | i — | ( i 5,958 | ) | |||||||||||||||||||||
| Transactions with non-controlling interests | — | i — | i — | i — | i — | i — | i 6,931 | i 6,931 | ||||||||||||||||||||||||
| Stock-based compensation expense and other | ( i 26 | ) | i — | i 1,611 | ( i 1 | ) | ( i 72 | ) | i 1,538 | i — | i 1,538 | |||||||||||||||||||||
| Balances at September 30, 2021 | i 45,826,409 | $ | i 458 | $ | i 558,121 | $ | ( i 3,468 | ) | $ | i 430,074 | $ | i 985,185 | $ | i 37,169 | $ | i 1,022,354 | ||||||||||||||||
| Balances at December 31, 2021 | i 45,840,260 | $ | i 458 | $ | i 559,752 | $ | ( i 3,359 | ) | $ | i 410,831 | $ | i 967,682 | $ | i 27,881 | $ | i 995,563 | ||||||||||||||||
| Cumulative effect of newly adopted accounting standard (see Note 2) | — | i — | ( i 26,961 | ) | i — | i 10,543 | ( i 16,418 | ) | i — | ( i 16,418 | ) | |||||||||||||||||||||
| Balances at January 1, 2022 | i 45,840,260 | i 458 | i 532,791 | ( i 3,359 | ) | i 421,374 | i 951,264 | i 27,881 | i 979,145 | |||||||||||||||||||||||
| Net income (loss) | — | i — | i — | i — | i 77,605 | i 77,605 | ( i 1,569 | ) | i 76,036 | |||||||||||||||||||||||
| Other comprehensive income | — | i — | i — | i 3,894 | i — | i 3,894 | i — | i 3,894 | ||||||||||||||||||||||||
| Repurchases of common stock (1) | ( i 2,370,376 | ) | ( i 23 | ) | ( i 70,703 | ) | i — | i — | ( i 70,726 | ) | i — | ( i 70,726 | ) | |||||||||||||||||||
| RSUs vested | i 244,760 | i 2 | ( i 2 | ) | i — | i — | i — | i — | i — | |||||||||||||||||||||||
| Dividends on common stock ($0.13 per share) | — | i — | i 218 | i — | ( i 17,490 | ) | ( i 17,272 | ) | i — | ( i 17,272 | ) | |||||||||||||||||||||
| Transactions with non-controlling interests | — | i — | i — | i — | i — | i — | i 9,309 | i 9,309 | ||||||||||||||||||||||||
| Stock-based compensation expense and other | i 9,014 | i — | i 6,358 | i — | i — | i 6,358 | i — | i 6,358 | ||||||||||||||||||||||||
| Balances at September 30, 2022 | i 43,723,658 | $ | i 437 | $ | i 468,662 | $ | i 535 | $ | i 481,489 | $ | i 951,123 | $ | i 35,621 | $ | i 986,744 | |||||||||||||||||
| Balances at December 31, 2020 | i 45,668,541 | $ | i 457 | $ | i 555,407 | $ | ( i 5,035 | ) | $ | i 424,835 | $ | i 975,664 | $ | i 15,946 | $ | i 991,610 | ||||||||||||||||
| Net income (loss) | — | i — | i — | i — | i 23,309 | i 23,309 | ( i 462 | ) | i 22,847 | |||||||||||||||||||||||
| Other comprehensive income | — | i — | i — | i 1,566 | i — | i 1,566 | i — | i 1,566 | ||||||||||||||||||||||||
| Repurchases of common stock (1) | ( i 65,283 | ) | ( i 1 | ) | ( i 2,602 | ) | i — | i — | ( i 2,603 | ) | i — | ( i 2,603 | ) | |||||||||||||||||||
| RSUs vested | i 223,966 | i 2 | ( i 2 | ) | i — | i — | i — | i — | i — | |||||||||||||||||||||||
| Dividends on common stock ($0.13 per share) | — | i — | i — | i — | ( i 17,867 | ) | ( i 17,867 | ) | i — | ( i 17,867 | ) | |||||||||||||||||||||
| Transactions with non-controlling interests | — | i — | i — | i — | i — | i — | i 21,685 | i 21,685 | ||||||||||||||||||||||||
| Stock-based compensation expense and other | ( i 815 | ) | i — | i 5,318 | i 1 | ( i 203 | ) | i 5,116 | i — | i 5,116 | ||||||||||||||||||||||
| Balances at September 30, 2021 | i 45,826,409 | $ | i 458 | $ | i 558,121 | $ | ( i 3,468 | ) | $ | i 430,074 | $ | i 985,185 | $ | i 37,169 | $ | i 1,022,354 | ||||||||||||||||
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, | 2022 | 2021 | ||||||
| Operating activities | ||||||||
| Net income | $ | i 76,036 | $ | i 22,847 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation, depletion and amortization | i 61,714 | i 81,008 | ||||||
| Amortization related to long-term debt (see Note 15) | i 1,901 | i 7,038 | ||||||
| Gain on sale of business (see Note 3) | ( i 6,234 | ) | i — | |||||
| Gain on sales of property and equipment, net | ( i 10,462 | ) | ( i 39,349 | ) | ||||
| Deferred income taxes | ( i 17,819 | ) | i — | |||||
| Stock-based compensation | i 6,151 | i 5,181 | ||||||
| Equity in net (income) loss from unconsolidated joint ventures | i 23,585 | ( i 8,027 | ) | |||||
| Net income from affiliates | ( i 9,656 | ) | ( i 10,578 | ) | ||||
| Other non-cash adjustments | i 38 | i 664 | ||||||
| Changes in assets and liabilities: | ||||||||
| Insurance receivable for legal settlement (see Note 18) | i — | ( i 63,000 | ) | |||||
| Receivables | ( i 94,233 | ) | ( i 81,072 | ) | ||||
| Contract assets, net | ( i 94,933 | ) | ( i 17,155 | ) | ||||
| Inventories | ( i 8,795 | ) | i 4,951 | |||||
| Contributions to unconsolidated construction joint ventures | ( i 44,667 | ) | ( i 61,780 | ) | ||||
| Distributions from unconsolidated construction joint ventures and affiliates | i 7,960 | i 14,379 | ||||||
| Other assets, net | i 30,589 | ( i 102 | ) | |||||
| Accounts payable | i 60,973 | i 47,223 | ||||||
| Accrual for legal settlement (see Note 18) | i — | i 129,000 | ||||||
| Accrued expenses and other liabilities, net | i 3,221 | i 28,694 | ||||||
| Net cash provided by (used in) operating activities | $ | ( i 14,631 | ) | $ | i 59,922 | |||
| Investing activities | ||||||||
| Purchases of marketable securities | ( i 59,810 | ) | ( i 5,000 | ) | ||||
| Maturities of marketable securities | i 15,000 | i — | ||||||
| Purchases of property and equipment | ( i 97,753 | ) | ( i 72,964 | ) | ||||
| Proceeds from sales of property and equipment | i 21,110 | i 58,002 | ||||||
| Proceeds from the sale of business (see Note 3) | i 142,571 | i — | ||||||
| Issuance of notes receivable | ( i 7,560 | ) | i — | |||||
| Collection of notes receivable | i 316 | i 2,581 | ||||||
| Net cash provided by (used in) investing activities | $ | i 13,874 | $ | ( i 17,381 | ) | |||
| Financing activities | ||||||||
| Proceeds from long-term debt | i 50,000 | i — | ||||||
| Debt principal repayments | ( i 124,911 | ) | ( i 6,795 | ) | ||||
| Cash dividends paid | ( i 17,587 | ) | ( i 17,846 | ) | ||||
| Repurchases of common stock (See Note 1) | ( i 70,724 | ) | ( i 2,603 | ) | ||||
| Contributions from non-controlling partners | i 11,925 | i 15,701 | ||||||
| Distributions to non-controlling partners | ( i 6,725 | ) | ( i 3,022 | ) | ||||
| Other financing activities, net | i 208 | ( i 63 | ) | |||||
| Net cash used in financing activities | $ | ( i 157,814 | ) | $ | ( i 14,628 | ) | ||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( i 158,571 | ) | i 27,913 | |||||
| Cash, cash equivalents and $1,512 in restricted cash at beginning of each period | i 413,655 | i 437,648 | ||||||
| Cash, cash equivalents and $0 and $1,512 in restricted cash at end of period | $ | i 255,084 | $ | i 465,561 | ||||
| Supplementary Information | ||||||||
| Right of use assets obtained in exchange for lease obligations | $ | i 12,898 | $ | i 13,731 | ||||
| Cash paid during the period for: | ||||||||
| Operating lease liabilities | $ | i 17,135 | $ | i 16,967 | ||||
| Interest | $ | i 7,397 | $ | i 9,215 | ||||
| Income taxes | $ | i 1,780 | $ | i 1,869 | ||||
| Non-cash investing and financing activities: | ||||||||
| RSUs issued, net of forfeitures | $ | i 8,258 | $ | i 7,563 | ||||
| Dividends declared but not paid | $ | i 5,685 | $ | i 5,957 | ||||
| Contributions from non-controlling partners | $ | i 4,109 | $ | i 9,006 | ||||
| Accrued equipment purchases | $ | i 897 | $ | ( i 258 | ) |
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. General
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, 2021 (“Annual Report”). 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, 2022 and 2021 and the results of our operations and cash flows for the periods presented. The December 31, 2021 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, except for the adoptions of 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”) on January 1, 2022, ASUs 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) and 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), on June 30, 2022, the impacts of which are described in Note 2.
Stock Purchase Programs: On May 2, 2022, we entered into an accelerated share repurchase agreement (“Accelerated Share Repurchase”) with Bank of Montreal. The Accelerated Share Repurchase was entered into pursuant to the existing share repurchase program. On May 2, 2022, we paid $ i 50.0 million to the bank and received i 80% of the notional amount, or $ i 40.0 million, in shares using the closing price on the trade date. This equated to approximately i 1.32 million shares, which were immediately retired. On August 31, 2022, the reference period ended and on September 2, 2022 Granite received an additional i 0.37 million shares, which were immediately retired. The final share delivery was based on the average of the daily volume-weighted average prices of Granite’s common stock, less a discount, during the reference period. The Accelerated Share Repurchase is primarily included in Additional paid-in capital on the Condensed Consolidated Balance Sheet as well as in Repurchases of common stock on the Condensed Consolidated Statement of Shareholders’ Equity and within Financing activities on the Condensed Consolidated Statements of Cash Flows.
Discontinued Operations: During the fourth quarter of 2021, we concluded that the assets and liabilities of our former Water and Mineral Services operating group (“WMS”) met the criteria for classification as held for sale and the results of operations were presented as discontinued operations. This included: our trenchless and pipe rehabilitation services business (“Inliner”); our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). During the first quarter of 2022, we completed the sale of Inliner. As discussed in more detail in Note 3, in the third quarter of 2022, we determined that the remaining WMS businesses, Water Resources and Mineral Services, no longer met the criteria for classification as held for sale, and therefore also no longer qualified for presentation as discontinued operations. We reclassified WMS from discontinued operations to continuing operations and it is reported within the Mountain operating group. The operations of the remaining WMS businesses fall within the Construction segment. Prior periods presented in the condensed consolidated statements of operations have been conformed to the current period presentation. The assets and liabilities of WMS met the criteria for classification as held for sale as of December 31, 2021, therefore our condensed consolidated balance sheet continues to reflect these assets and liabilities as held for sale as of that date.
Seasonality: 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, 2022 are not necessarily indicative of the results to be expected for the full year.
/2. Recently Issued and Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, 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, which provided clarification guidance to ASU 2020-04. We adopted these ASUs during the quarter ended June 30, 2022, in conjunction with entering into our Fourth Amended and Restated Credit Agreement (see Note 15), which replaced the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate ("SOFR") administered by the Federal Reserve Bank of New York for purposes of setting floating interest rates. The adoption of these ASUs did not have a material impact on our condensed consolidated financial statements.
In August 2020, the FASB issued 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 and ASU 2020-06 is applicable to our i 2.75% convertible senior notes due 2024 (“2.75% Convertible Notes;” see Note 15 for further discussion on these notes). In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method for convertible debt. We adopted ASU 2020-06 effective January 1, 2022, using the modified retrospective transition approach under which financial results reported in prior periods were not adjusted. Upon adoption, we recorded a net cumulative increase to debt of approximately $ i 22.0 million and to deferred tax assets of $ i 5.6 million, offset by a decrease to additional paid-in capital and retained earnings of $ i 16.4 million.
As of September 30, 2022, the 2.75% Convertible Notes comprised our only convertible debt instrument. The 2.75% Convertible Notes were issued in November 2019 in an aggregate principal amount of $ i 230.0 million, with an interest rate of 2.75% and a maturity date of November 1, 2024, unless earlier converted, redeemed or repurchased. The 2.75% Convertible Notes are convertible at the option of the holders prior to May 1, 2024 only during certain periods and upon the occurrence of certain events. After May 1, 2024, the 2.75% Convertible Notes will be convertible at the option of the holders at any time until the second scheduled trading day immediately preceding the maturity date.
The conversion rate applicable to the 2.75% Convertible Notes is i 31.7776 shares of Granite common stock per $1,000 principal amount of 2.75% Convertible Notes, which is equivalent to a conversion price of approximately $ i 31.47 per share of Granite common stock. Upon conversion, we will pay or deliver shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2.75% Convertible Notes, (the “Indenture”) we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2.75% Convertible Notes in connection with such a make-whole fundamental change.
On or after November 7, 2022, we have the option to redeem for cash all or any portion of the 2.75% Convertible Notes if the last reported sale price of our common stock is equal to or greater than i 130% of the conversion price for a specified period of time. Upon the occurrence of a “fundamental change” as defined in the Indenture, holders may require us to repurchase for cash all or any portion of their 2.75% Convertible Notes at a price equal to i 100% of the principal amount plus any accrued and unpaid interest. In addition, as described in the Indenture, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the 2.75% Convertible Notes becoming due and payable immediately.
In connection with the adoption of ASU 2020-06, we implemented the following accounting policy as of January 1, 2022:
Computation of Earnings per Share: Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares include common share equivalents issued under the terms of the 2012 and 2021 Equity Incentive Plans and common share equivalents issuable under our 2.75% Convertible Notes using the if-converted method. Dilutive potential common shares also include common share equivalents issuable under the terms of our warrants assuming the share price of our common stock was in excess of $ i 53.44, the exercise price of warrants.
/
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. Assets and Liabilities Held for Sale
As discussed in Note 1, during the fourth quarter of 2021, our Board of Directors approved a plan to sell the businesses in WMS within the next twelve months. This included: Inliner, Water Resources and Mineral Services. After consideration of the relevant facts at the time, we concluded the assets and liabilities of our WMS businesses met the criteria for classification as held for sale. We concluded the proposed disposal activities represented a strategic shift that would have a major effect on our operations and financial results and qualified for presentation as discontinued operations in accordance with FASB Accounting Standards Codification (“ASC”) Topic 205-20, Presentation of financial statements - Discontinued operations. Additionally, beginning December 31, 2021, in accordance with ASC Topic 360, Property, Plant, and Equipment, we ceased recording depreciation and amortization for WMS property, plant and equipment, finite-lived tangible assets and right-of-use lease assets.
During the first quarter of 2022, we completed the sale of Inliner for a purchase price of $ i 159.7 million, subject to certain adjustments. As a result of the sale, we received cash proceeds of $ i 142.6 million based on preliminary post-closing adjustments and we recognized a gain of $ i 6.2 million. This gain is included in Other costs, net in the condensed consolidated statements of operations for the nine months ended September 30, 2022.
In the third quarter of 2022, we announced our decision to retain the Water Resources and Mineral Services businesses. This change to our plan of sale was due to unfavorable market conditions which undermined our efforts to secure an appropriate value for the businesses. As a result, we have reclassified WMS from discontinued operations to continuing operations for all periods presented. We recorded $ i 7.3 million of depreciation expense and $ i 0.9 million of amortization expense in the three months ended September 30, 2022, to adjust for depreciation and amortization that would have been recognized in prior quarters if the unsold businesses had been continually classified as held and used from the beginning of the year. $ i 6.9 million is included in cost of revenue for the three months ended September 20, 2022, and the remainder is in selling, general and administrative expenses. The assets and liabilities of WMS met the criteria for classification as held for sale as of December 31, 2021, therefore our condensed consolidated balance sheet continues to reflect these assets and liabilities as held for sale as of that date.
The following table presents summarized balance sheet information of assets and liabilities held for sale:
i| (in thousands) | ||||
| Cash and cash equivalents | $ | i 16,496 | ||
| Receivables, net | i 102,208 | |||
| Contract assets | i 41,340 | |||
| Inventories | i 19,625 | |||
| Other current assets | i 1,781 | |||
| Property and equipment, net | i 70,912 | |||
| Investments in affiliates | i 48,675 | |||
| Goodwill | i 63,063 | |||
| Right of use assets | i 12,365 | |||
| Other noncurrent assets | i 16,176 | |||
| Total assets classified as held-for-sale | $ | i 392,641 | ||
| Accounts payable | $ | i 37,997 | ||
| Contract liabilities | i 7,129 | |||
| Other current liabilities | i 27,764 | |||
| Long-term lease liabilities | i 8,352 | |||
| Other long-term liabilities | i 2,166 | |||
| Total liabilities classified as held-for-sale | $ | i 83,408 | ||
/
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 revisions 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, 2022 and 2021, we did not identify any material amounts that should have been recorded in a prior period.
The projects with increases from revisions in estimates, which individually had an impact of $ i 5.0 million or more on gross profit, are summarized as follows (dollars in millions, except per share data):
i| Three months ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | ||||||||||||||
| Number of projects with upward estimate changes | i 1 | i — | i 1 | i — | ||||||||||||
| Increase in gross profit, net | $ | i 8.0 | $ | i — | $ | i 5.6 | $ | i — | ||||||||
| Increase to project profitability, net | $ | i 8.0 | $ | i — | $ | i 5.6 | $ | i — | ||||||||
| Increase to net income/decrease to net loss attributable to Granite Construction Incorporated | $ | i 6.1 | $ | i — | $ | i 4.3 | $ | i — | ||||||||
| Increase to net income/decrease to net loss per diluted share attributable to common shareholders | $ | i 0.12 | $ | i — | $ | i 0.08 | $ | i — | ||||||||
The increases during the three and nine months ended September 30, 2022 were due to changes in the estimated amount of probable recovery on an outstanding claim. There were no amounts attributable to non-controlling interests for any of the periods presented.
The projects with decreases from revisions in estimates, which individually had an impact of $ i 5.0 million or more on gross profit, are summarized as follows (dollars in millions, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | ||||||||||||||
| Number of projects with downward estimate changes | 1 | 2 | i 6 | i 5 | ||||||||||||
| Range of reduction in gross profit from each project, net | $ | i 15.2 | $ | 5.7 - i 10.9 | $ | i 5.7 - i 21.2 | $ | i 5.5 - i 16.2 | ||||||||
| Decrease to project profitability, net | $ | 15.2 | $ | 16.6 | $ | i 63.2 | $ | i 48.2 | ||||||||
| Decrease to net income/increase to net loss | $ | i 11.7 | $ | i 13.0 | $ | i 48.6 | $ | i 37.7 | ||||||||
| Amounts attributable to non-controlling interests | $ | 7.6 | $ | 5.5 | $ | i 13.2 | $ | i 10.0 | ||||||||
| Decrease to net income/increase to net loss attributable to Granite Construction Incorporated | $ | i 4.1 | $ | i 7.5 | $ | i 35.4 | $ | i 27.7 | ||||||||
| Decrease to net income/increase to net loss per diluted share attributable to common shareholders | $ | i 0.08 | $ | i 0.16 | $ | i 0.67 | $ | i 0.58 | ||||||||
The decreases during the three and nine months ended September 30, 2022 were due to additional costs related to extended project duration, increased labor and materials costs, and disputed work being performed where there are ongoing legal claims. The decreases during the three and nine months ended September 30, 2021 were due to additional costs from acceleration of work and extended project duration with lower productivity than originally anticipated and weather impacts.
/GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. Disaggregation of Revenue
We disaggregate our revenue based on our reportable segments (see Note 19) and operating groups as these are the formats that are regularly reviewed by management. Our reportable segments are: Construction and Materials. In alphabetical order, our operating groups are: California, Central and Mountain. In connection with the reclassification of the WMS businesses from discontinued operations to continuing operations, the Condensed Consolidated Statements of Operations have been revised to include Inliner through the date of sale, Water Resources and Mineral Services in the Mountain operating group for all periods presented (see Note 3). The following tables present our disaggregated revenue by operating group (in thousands):
Three Months Ended September 30,
i| Construction | Materials | Total | ||||||||||
| California | $ | i 263,252 | $ | i 85,173 | $ | i 348,425 | ||||||
| Central | i 222,745 | i 9,348 | i 232,093 | |||||||||
| Mountain | i 362,270 | i 67,018 | i 429,288 | |||||||||
| Total | $ | i 848,267 | $ | i 161,539 | $ | i 1,009,806 | ||||||
| 2021 | Construction | Materials | Total | |||||||||
| California | $ | i 243,740 | $ | i 76,029 | $ | i 319,769 | ||||||
| Central | i 296,505 | i 5,640 | i 302,145 | |||||||||
| Mountain | i 384,209 | i 56,006 | i 440,215 | |||||||||
| Total | $ | i 924,454 | $ | i 137,675 | $ | i 1,062,129 | ||||||
Nine months ended September 30,
| Construction | Materials | Total | ||||||||||
| California | $ | i 607,536 | $ | i 202,371 | $ | i 809,907 | ||||||
| Central | i 654,912 | i 33,634 | i 688,546 | |||||||||
| Mountain | i 878,561 | i 137,180 | i 1,015,741 | |||||||||
| Total | $ | i 2,141,009 | $ | i 373,185 | $ | i 2,514,194 | ||||||
| 2021 | Construction | Materials | Total | |||||||||
| California | $ | i 631,637 | $ | i 188,475 | $ | i 820,112 | ||||||
| Central | i 837,792 | i 24,740 | i 862,532 | |||||||||
| Mountain | i 900,419 | i 113,151 | i 1,013,570 | |||||||||
| Total | $ | i 2,369,848 | $ | i 326,366 | $ | i 2,696,214 | ||||||
/
6. Unearned Revenue
The following table presents our unearned revenue as of the respective periods:
i| (in thousands) | ||||||||||||
| California | $ | i 801,449 | $ | i 771,759 | $ | i 855,765 | ||||||
| Central | i 1,299,281 | i 1,334,901 | i 1,468,341 | |||||||||
| Mountain | i 548,336 | i 488,425 | i 708,086 | |||||||||
| Total | $ | i 2,649,066 | $ | i 2,595,085 | $ | i 3,032,192 | ||||||
All unearned revenue is in the Construction segment. Approximately $ i 2.2 billion of the September 30, 2022 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.
/7. Other Costs, net
Other costs, net in the condensed consolidated statements of operations include a legal settlement charge, non-recurring legal fees related to lawsuits and net costs relating to the resolution of the SEC investigation, all discussed further in Note 18, as well as strategic acquisition and divestiture expenses and a gain on sale of a business. During the three months ended September 30, 2022, Other costs netted to $ i 0.5 million of income due primarily to the settlement of the shareholder derivative lawsuit and related receipt of $ i 5.0 million (see Note 18). Other costs, net for the nine months ended September 30, 2021 primarily consisted of $ i 66 million in net settlement charges as further described in Note 18.
/GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. Contract Assets and Liabilities
As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $ i 40.4 million and $ i 152.5 million during the three and nine months ended September 30, 2022, respectively, and $ i 37.2 million and $ i 153.6 million during the three and nine months ended September 30, 2021, respectively. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.
As of September 30, 2022, December 31, 2021 and September 30, 2021, the aggregate claim recovery estimates included in contract asset balances were $ i 69.6 million, $ i 35.5 million and $ i 40.4 million, respectively.
The components of the contract asset balances as of the respective dates were as follows:
i| (in thousands) | September 30, 2022 | December 31, 2021 (1) | September 30, 2021 | |||||||||
| Costs in excess of billings and estimated earnings | $ | i 83,837 | $ | i 14,158 | $ | i 61,815 | ||||||
| Contract retention | i 157,401 | i 131,279 | i 142,231 | |||||||||
| Total contract assets | $ | i 241,238 | $ | i 145,437 | $ | i 204,046 |
(1) These balances do not include amounts held for sale (see Note 3).
/As of September 30, 2022, December 31, 2021 and September 30, 2021, contract retention receivable from Brightline Trains Florida LLC represented i 11.5%, i 17.2% and i 11.5%, respectively, of total contract assets. No other contract retention receivable individually exceeded 10% 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.
As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $ i 12.7 million and $ i 220.3 million during the three and nine months ended September 30, 2022, respectively, and $ i 5.8 and $ i 181.4 million during the three and nine months ended September 30, 2021, respectively, that was included in the contract liability balances at December 31, 2021 and 2020, respectively.
The components of the contract liability balances as of the respective dates were as follows:
| (in thousands) | September 30, 2022 | December 31, 2021 (1) | September 30, 2021 | |||||||||
| Billings in excess of costs and estimated earnings, net of retention | $ | i 170,516 | $ | i 169,542 | $ | i 166,091 | ||||||
| Provisions for losses | i 20,521 | i 30,499 | i 29,176 | |||||||||
| Total contract liabilities | $ | i 191,037 | $ | i 200,041 | $ | i 195,267 |
(1) These balances do not include amounts held for sale (see Note 3).
/9. 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 generally do not bear interest. The following table presents major categories of receivables:
i| (in thousands) | ||||||||||||
| Contracts completed and in progress: | ||||||||||||
| Billed | $ | i 279,864 | $ | i 236,053 | $ | i 278,313 | ||||||
| Unbilled | i 177,299 | i 126,371 | i 217,534 | |||||||||
| Total contracts completed and in progress | i 457,163 | i 362,424 | i 495,847 | |||||||||
| Materials sales | i 87,870 | i 43,746 | i 80,357 | |||||||||
| Other | i 74,385 | i 59,496 | i 110,302 | |||||||||
| Total gross receivables | i 619,418 | i 465,666 | i 686,506 | |||||||||
| Less: allowance for credit losses | i 1,274 | i 1,078 | i 1,684 | |||||||||
| Total net receivables | $ | i 618,144 | $ | i 464,588 | $ | i 684,822 | ||||||
(1) These balances do not include amounts held for sale (see Note 3).
/Included in other receivables at September 30, 2022, December 31, 2021 and September 30, 2021, were items such as estimated recovery from back charge claims, notes receivable, insurance receivable, fuel tax refunds and income tax refunds. Other receivables at September 30, 2022 and December 31, 2021 also included $ i 24.9 million and $ i 20.4 million, respectively, of working capital contributions in the form of a loan to a partner in one of our unconsolidated joint ventures that bears interest at prime plus i 3.0% per annum. Other than the $ i 63.0 million insurance receivable recorded as of September 30, 2021 related to the settlement discussed in Note 18, which was collected in October 2021 and is in a settlement escrow account included in Other current assets in the Condensed Consolidated Balance Sheets as of September 30, 2022, no other receivable individually exceeded i 10% of total net receivables at any of these dates.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
/
10. 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):
i| Fair Value Measurement at Reporting Date Using | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | i 76,752 | $ | i — | $ | i — | $ | i 76,752 | ||||||||
| Other current assets | ||||||||||||||||
| Commodity swap | i — | ( i 43 | ) | i — | ( i 43 | ) | ||||||||||
| Total assets | $ | i 76,752 | $ | ( i 43 | ) | $ | i — | $ | i 76,709 | |||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | i 65,233 | $ | i — | $ | i — | $ | i 65,233 | ||||||||
| Total assets | $ | i 65,233 | $ | i — | $ | i — | $ | i 65,233 | ||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | i — | $ | i 3,514 | $ | i — | $ | i 3,514 | ||||||||
| Total liabilities | $ | i — | $ | i 3,514 | $ | i — | $ | i 3,514 |
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | i 61,231 | $ | i — | $ | i — | $ | i 61,231 | ||||||||
| Other current assets | ||||||||||||||||
| Restricted cash | i 1,512 | i — | i — | i 1,512 | ||||||||||||
| Total assets | $ | i 62,743 | $ | i — | $ | i — | $ | i 62,743 | ||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | i — | $ | i 5,001 | $ | i — | $ | i 5,001 | ||||||||
| Total liabilities | $ | i — | $ | i 5,001 | $ | i — | $ | i 5,001 |
Interest Rate Swaps
In connection with entering into the Third Amended and Restated Credit Agreement in May 2018, we entered into two amortizing interest rate swaps with a combined initial notional amount of $ i 150.0 million, with effective dates of May 2018 and maturity dates in May 2023.
During the second quarter of 2022, we terminated the entirety of our floating-to-fixed interest rate swaps in connection with the prepayments of our term loan (see Note 15). The impact to interest expense on the condensed consolidated statements of operations was $ i 2.2 million for the nine months ended September 30, 2022.
Commodity Swaps
As of September 30, 2022, we held commodity swaps for crude oil designated as cash flow hedges with a total outstanding notional amount of $ i 1.5 million with a maturity date of October 31, 2022. The financial statement impact for the three and nine months ended September 30, 2022 was a realized gain of $ i 1.2 million and $ i 4.0 million, respectively. In addition, for the three months ended September 30, 2022, the commodity swaps had an unrealized loss of $ i 2.6 million, and for the nine months ended September 30, 2022, the commodity swaps had an unrealized gain of $ i 0.2 million. As of September 30, 2021, we held commodity swaps for crude oil that were designated as cash flow hedges with a total outstanding notional amount of $ i 4.9 million that matured in October 2021. The total realized commodity swap gain for these swaps was $ i 2.5 million.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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:
i| (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 | $ | i 61,448 | $ | i 59,947 | $ | i 15,600 | $ | i 15,459 | $ | i 10,600 | $ | i 10,582 | ||||||||||||
| Liabilities (including current maturities): | |||||||||||||||||||||||||
| 2.75% Convertible Notes (2),(3) | Level 2 | $ | i 230,000 | $ | i 236,440 | $ | i 207,354 | $ | i 313,785 | $ | i 205,543 | $ | i 326,025 | ||||||||||||
| Third Amended and Restated Credit Agreement - term loan (2) | Level 3 | $ | i — | $ | i — | $ | i 123,750 | $ | i 124,598 | $ | i 125,625 | $ | i 126,610 | ||||||||||||
| Fourth Amended and Restated Credit Agreement - revolver (2) | Level 3 | $ | i 50,000 | $ | i 50,165 | $ | i — | $ | i — | $ | i — | $ | i — | ||||||||||||
(1) All marketable securities as of September 30, 2022, December 31, 2021 and September 30, 2021 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in two months to three years.
(2) The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market. The fair value of the Third Amended and Restated Credit Agreement and Fourth Amended and Restated Credit Agreement is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 15 for more information about the 2.75% Convertible Notes, the Third Amended and Restated Credit Agreement and Fourth Amended and Restated Credit Agreement.
(3) Excluded from the carrying value is debt discount of $ i 22.6 million and $ i 24.5 million as of December 31, 2021 and September 30, 2021, respectively, related to the 2.75% Convertible Notes (see Notes 2 and 15).
During the three and nine months ended September 30, 2022 and 2021, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
/11. 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, 2022, 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 our 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, 2022, there was approximately $ i 242.2 million of construction revenue to be recognized on unconsolidated construction joint venture contracts of which $ i 86.1 million represented our share and the remaining $ i 156.1 million represented our partners’ share. We are not able to estimate amounts that may be required beyond the current remaining forecasted cost of the work to be performed. These forecasted costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.
Consolidated Construction Joint Ventures (“CCJVs”)
At September 30, 2022, we were engaged in nine active CCJV projects with total contract values ranging from $ i 12.0 million to $ i 436.2 million for a combined total of $ i 1.8 billion of which our share was $ i 1.0 billion. As of September 30, 2022, our share of revenue remaining to be recognized on these CCJVs was $ i 166.8 million and ranged from $ i 3.0 million to $ i 38.1 million by project. Our proportionate share of the equity in these joint ventures was between i 50.0% and i 70.0%. During the three and nine months ended September 30, 2022 and 2021, total revenue from CCJVs was $ i 117.5 million, $ i 344.5 million, $ i 117.4 million and $ i 314.9 million, respectively. During the nine months ended September 30, 2022, CCJVs provided $ i 4.7 million of operating cash flows and during the nine months ended September 30, 2021, CCJVs provided $ i 17.5 million of operating cash flows, respectively.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Unconsolidated Construction Joint Ventures
As of September 30, 2022, we were engaged in seven active unconsolidated joint venture projects with total contract values ranging from $ i 12.3 million to $ i 3.8 billion for a combined total of $ i 8.9 billion of which our share was $ i 2.5 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from i 23.0% to i 50.0%. As of September 30, 2022, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ i 86.1 million and ranged from $ i 0.7 million to $ i 34.6 million by project.
The following is summary financial information related to unconsolidated construction joint ventures:
i| (in thousands) | ||||||||||||
| Assets | ||||||||||||
| Cash, cash equivalents and marketable securities | $ | i 151,706 | $ | i 182,891 | $ | i 159,187 | ||||||
| Other current assets (1) | i 676,675 | i 661,342 | i 765,319 | |||||||||
| Noncurrent assets | i 81,994 | i 103,579 | i 111,981 | |||||||||
| Less partners’ interest | i 609,632 | i 633,634 | i 692,226 | |||||||||
| Granite’s interest (1),(2) | $ | i 300,743 | $ | i 314,178 | $ | i 344,261 | ||||||
| Liabilities | ||||||||||||
| Current liabilities | $ | i 205,084 | $ | i 307,674 | $ | i 396,154 | ||||||
| Less partners’ interest and adjustments (3) | i 83,274 | i 154,771 | i 227,372 | |||||||||
| Granite’s interest | $ | i 121,810 | $ | i 152,903 | $ | i 168,782 | ||||||
| Equity in construction joint ventures (4) | $ | i 178,933 | $ | i 161,275 | $ | i 175,479 | ||||||
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of September 30, 2022, December 31, 2021 and September 30, 2021 was $ i 77.4 million, $ i 82.1 million and $ i 82.3 million, respectively, related to performance guarantees.
(2) Included in this balance as of September 30, 2022, December 31, 2021 and September 30, 2021, was $ i 95.8 million, $ i 103.8 million and $ i 101.9 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $ i 2.7 million, $ i 10.7 million and $ i 14.1 million related to Granite’s share of estimated recovery of back charge claims as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively.
(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 $ i 7.9 million, $ i 28.6 million and $ i 19.9 million as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.
i
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenue | ||||||||||||||||
| Total | $ | i 69,355 | $ | i 194,486 | $ | i 322,058 | $ | i 690,086 | ||||||||
| Less partners’ interest and adjustments (1) | i 44,000 | i 113,205 | i 223,858 | i 442,182 | ||||||||||||
| Granite’s interest | $ | i 25,355 | $ | i 81,281 | $ | i 98,200 | $ | i 247,904 | ||||||||
| Cost of revenue | ||||||||||||||||
| Total | $ | i 81,694 | $ | i 203,786 | $ | i 332,777 | $ | i 701,350 | ||||||||
| Less partners’ interest and adjustments (1) | i 49,882 | i 123,461 | i 211,431 | i 461,236 | ||||||||||||
| Granite’s interest | i 31,812 | i 80,325 | i 121,346 | i 240,114 | ||||||||||||
| Granite’s interest in gross profit (loss) | $ | ( i 6,457 | ) | $ | i 956 | $ | ( i 23,146 | ) | $ | i 7,790 | ||||||
| Net Income (Loss) | ||||||||||||||||
| Total | $ | ( i 11,945 | ) | $ | ( i 9,279 | ) | $ | ( i 11,649 | ) | $ | ( i 11,469 | ) | ||||
| Less partners’ interest and adjustments (1) | ( i 5,588 | ) | ( i 10,335 | ) | i 11,936 | ( i 19,496 | ) | |||||||||
| Granite’s interest in net income (loss) (2) | $ | ( i 6,357 | ) | $ | i 1,056 | $ | ( i 23,585 | ) | $ | i 8,027 | ||||||
(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 and/or actual differences.
(2) 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.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
/
12. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
i| (in thousands) | ||||||||||||
| Foreign | $ | i 55,851 | $ | i — | $ | i 49,089 | ||||||
| Real estate | i 9,141 | i 9,619 | i 9,743 | |||||||||
| Asphalt terminal | i 13,671 | i 13,749 | i 13,583 | |||||||||
| Total investments in affiliates | $ | i 78,663 | $ | i 23,368 | $ | i 72,415 | ||||||
(1) These balances do not include amounts held for sale (see Note 3).
/The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
i| (in thousands) | ||||||||||||
| Current assets | $ | i 183,637 | $ | i 34,374 | $ | i 162,503 | ||||||
| Noncurrent assets | i 173,494 | i 78,829 | i 161,700 | |||||||||
| Total assets | $ | i 357,131 | $ | i 113,203 | $ | i 324,203 | ||||||
| Current liabilities | $ | i 99,535 | $ | i 23,685 | $ | i 80,145 | ||||||
| Long-term liabilities (2) | i 61,140 | i 48,104 | i 59,501 | |||||||||
| Total liabilities | $ | i 160,675 | $ | i 71,789 | $ | i 139,646 | ||||||
| Net assets | $ | i 196,456 | $ | i 41,414 | $ | i 184,557 | ||||||
| Granite’s share of net assets | $ | i 78,663 | $ | i 23,368 | $ | i 72,415 | ||||||
(1) These balances do not include amounts held for sale (see Note 3).
(2) This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments.
Of the $ i 357.1 million of total affiliate assets as of September 30, 2022, we had investments in i two real estate entities with total assets of $ i 72.6 million, our foreign affiliates had total assets of $ i 251.0 million and the asphalt terminal entity had total assets of $ i 33.5 million. As of September 30, 2022, December 31, 2021 and September 30, 2021, all of the investments in real estate affiliates were in residential real estate in Texas. As of September 30, 2022, our percent ownership in the real estate entities ranged from i 10% to i 25% and our percent ownership in foreign affiliates ranged from i 25% to i 50%.
/13. 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 as follows:
i| (in thousands) | ||||||||||||
| Equipment and vehicles | $ | i 989,754 | $ | i 870,672 | $ | i 997,560 | ||||||
| Quarry property | i 205,369 | i 191,982 | i 188,838 | |||||||||
| Land and land improvements | i 115,308 | i 108,518 | i 126,130 | |||||||||
| Buildings and leasehold improvements | i 104,108 | i 96,180 | i 123,207 | |||||||||
| Office furniture and equipment | i 82,483 | i 75,043 | i 78,059 | |||||||||
| Property and equipment | i 1,497,022 | i 1,342,395 | i 1,513,794 | |||||||||
| Less: accumulated depreciation and depletion | i 996,195 | i 908,891 | i 1,003,136 | |||||||||
| Property and equipment, net | $ | i 500,827 | $ | i 433,504 | $ | i 510,658 | ||||||
(1) These balances do not include amounts held for sale (see Note 3).
/
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 $ i 11.1 million and a $ i 2.4 million addition to right of use assets and lease liabilities on the condensed consolidated balance sheets, as well as a $ i 29.7 million gain on sales of property and equipment on the condensed consolidated statements of operations.
/14. Accrued Expenses and Other Current Liabilities
i| (in thousands) | ||||||||||||
| Accrued insurance | $ | i 80,185 | $ | i 76,999 | $ | i 72,516 | ||||||
| Deficits in unconsolidated construction joint ventures | i 7,891 | i 28,636 | i 19,875 | |||||||||
| Payroll and related employee benefits | i 89,365 | i 87,460 | i 130,735 | |||||||||
| Performance guarantees | i 77,434 | i 82,112 | i 82,280 | |||||||||
| Accrued legal settlement (see Note 18) | i 129,000 | i 129,000 | i 129,000 | |||||||||
| Other | i 66,348 | i 48,622 | i 64,808 | |||||||||
| Total | $ | i 450,223 | $ | i 452,829 | $ | i 499,214 | ||||||
(1) These balances do not include amounts held for sale (see Note 3)
Other includes short-term lease liabilities, dividends payable, warranty reserves, asset retirement obligations, remediation reserves and other miscellaneous accruals, none of which are greater than 5% of total current liabilities.
/ /GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
15. Long-Term Debt and Credit Arrangements
i| (in thousands) | ||||||||||||
| 2.75% Convertible Notes | $ | i 230,000 | $ | i 207,354 | $ | i 205,543 | ||||||
| Third Amended and Restated Credit Agreement - term loan | i — | i 123,750 | i 125,625 | |||||||||
| Fourth Amended and Restated Credit Agreement - revolver | i 50,000 | i — | i — | |||||||||
| Debt issuance costs and other | i 8,310 | i 8,814 | i 8,742 | |||||||||
| Total debt | $ | i 288,310 | $ | i 339,918 | $ | i 339,910 | ||||||
| Less current maturities | i 1,438 | i 8,727 | i 8,718 | |||||||||
| Total long-term debt | $ | i 286,872 | $ | i 331,191 | $ | i 331,192 | ||||||
During the first half of 2022, we prepaid i 100% of our outstanding term loan and replaced the Third Amended and Restated Credit Agreement dated May 31, 2018 with the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) maturing June 2, 2027. The Credit Agreement is a $ i 350.0 million senior secured, five-year revolving facility (the “Revolver”), including an accordion feature allowing us to increase borrowings up to the greater of (a) $ i 200.0 million and (b) i 100% of twelve-month trailing EBITDA, subject to lender approval. The Credit Agreement includes a $ i 150.0 million sublimit for letters of credit ($ i 75.0 million for financial letters of credit) and a $ i 20.0 million sublimit for swingline loans.
We may borrow on the Revolver, at our option, at either (a) the SOFR term rate plus a credit adjustment spread plus applicable margin ranging from i 1.0% to i 2.0%, or (b) a base rate plus an applicable margin ranging from i 0.0% to i 1.0%. The applicable margin is based on our Consolidated Leverage Ratio (as defined in our Credit Agreement), calculated quarterly. As of September 30, 2022, the total unused availability under the Credit Agreement was $ i 267.0 million, resulting from $ i 33.0 million in issued and outstanding letters of credit and $ i 50.0 million drawn under the Revolver. The letters of credit had expiration dates between November 2022 and December 2025. As of September 30, 2022, the applicable rate was i 1.8% for loans under the Credit Agreement bearing interest based on SOFR and i 0.8% for loans bearing interest at the base rate. Accordingly, the effective interest rates at September 30, 2022 for SOFR and base rate loans were i 4.9% and i 7.0%, respectively.
The amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants include a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) of i 3.25 to 1.00 and a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of i 3.00 to 1.00. As of September 30, 2022, the Consolidated Leverage Ratio was i 1.89, which did not exceed the maximum of i 3.25. Our Consolidated Interest Coverage Ratio was i 10.15, which was above the minimum of i 3.00.
Effective January 1, 2022, we adopted ASU 2020-06 (see Note 2), which updated our accounting for the 2.75% Convertible Notes.
During the three and nine months ended September 30, 2022, we did not record amortization of the debt discount due to the implementation of ASU 2020-06, and during the three and nine months ended September 30, 2021, we recorded $ i 1.7 million and $ i 5.2 million, respectively, of amortization of the debt discount. During the three and nine months ended September 30, 2022 and 2021, we recorded $ i 0.3 million, $ i 1.0 million, $ i 0.6 million and $ i 1.8 million, respectively, of amortization related to debt issuance costs.
/16. Weighted Average Shares Outstanding and Net Income Per Share
The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income per share as well as the calculation of basic and diluted net income per share:
i| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Numerator | ||||||||||||||||
| Net income attributable to common shareholders for basic earnings per share | $ | i 73,393 | $ | i 35,043 | $ | i 77,605 | $ | i 23,309 | ||||||||
| Add back: Interest expense related to 2.75% Convertible Notes | i 1,473 | i - | i 4,418 | i - | ||||||||||||
| Net income attributable to common shareholders for diluted earnings per share | $ | i 74,866 | $ | i 35,043 | $ | i 82,023 | $ | i 23,309 | ||||||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding, basic | i 43,973 | i 45,821 | i 44,739 | i 45,773 | ||||||||||||
| Add: Dilutive effect of RSUs | i 581 | i 563 | i 565 | i 523 | ||||||||||||
| Add: Dilutive effect of 2.75% Convertible Notes | i 7,309 | i 1,522 | i 7,309 | i 1,226 | ||||||||||||
| Weighted average common shares outstanding, diluted | i 51,863 | i 47,906 | i 52,613 | i 47,522 | ||||||||||||
| Net income per share, basic | $ | i 1.67 | $ | i 0.76 | $ | i 1.73 | $ | i 0.51 | ||||||||
| Net income per share, diluted | $ | i 1.44 | $ | i 0.73 | $ | i 1.56 | $ | i 0.49 | ||||||||
Beginning in 2022, with the adoption of ASU 2020-06, we have applied the if-converted method for calculating diluted earnings per share (see Note 2).
/ /17. Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
i| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (dollars in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Provision for (benefit from) income taxes | $ | ( i 6,489 | ) | $ | i 8,904 | $ | ( i 777 | ) | $ | i 2,068 | ||||||
| Effective tax rate | ( i 10.3 | %) | i 21.5 | % | ( i 1.0 | %) | i 8.3 | % | ||||||||
Our effective tax rates for the three and nine months ended September 30, 2022 were lower than the prior year primarily due to a tax benefit associated with the reversal of deferred tax liabilities related to the Water Resources and Mineral Services businesses no longer being held for sale and the release of valuation allowances related to the utilization of capital loss carryforwards. The benefit for both items was recognized in the current quarter. For additional information on assets and liabilities no longer held for sale see discussion in Note 1 and Note 3.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
/
18. 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 previously have been reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any reporting period. Disclosure of loss contingencies is provided when a material loss is 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 range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and reasonably estimable.
The total liabilities for legal proceedings recorded as of September 30, 2022 and December 31, 2021 were $ i 129 million, $ i 63 million of which was paid through insurance proceeds, which have been fully funded into a settlement escrow account. The balance of the settlement escrow account was included in other current assets in the consolidated balance sheets. As of September 30, 2021, the total liabilities recorded for legal proceedings, net of insurance receivable, were $ i 66 million.
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 our Annual Report. 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 include 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 considered 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 and Derivative Lawsuits
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 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 was 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 alleged 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 sought 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 the 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 Christensen Company (“Layne”). The complaint asserted causes of action under the Securities Act of 1933 and alleged 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 and seeks monetary damages based on the allegations. 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.
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 settled claims alleged in Nasseri v. Granite Construction Incorporated, et al. As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $ i 66 million in the quarter ended March 31, 2021.
Under the Settlement Agreement, the Company agreed to pay or cause to be paid a total of $ i 129 million in cash to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’ fees and expenses, and cash payments to members of the settlement class. The settlement class agreed to release us, the other defendants named in the lawsuits and certain of their respective related parties from any and all claims, rights, causes of action, liabilities, actions, suits, damages or demands of any kind whatsoever, that relate in any way to the purchase, acquisition, holding, sale or disposition of our common stock during the period between February 17, 2017 and October 24, 2019 that arose out of or are based upon or related to the facts alleged or the claims or allegations set forth in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al. or relate in any way to any alleged violation of the Securities Act of 1933, the Securities Exchange Act of 1934, or any other state, federal or foreign jurisdiction’s securities or other laws, any alleged misstatement, omission or disclosure (including in financial statements) or other alleged securities-related wrongdoing or misconduct, including all claims alleged in Nasseri v. Granite Construction Incorporated, et al. The Settlement Agreement contained no admission of liability, wrongdoing or responsibility by any of the parties.
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. was permitted to intervene, although the court denied the plaintiff's application to be appointed as additional lead plaintiff. On October 6, 2021, the court issued an order granting preliminary approval of the settlement and, pursuant to the terms of the Settlement Agreement, $ i 129 million was paid to the settlement escrow account. $ i 66 million was paid by the Company and $ i 63 million was paid through insurance proceeds. The total $ i 129 million is included in the condensed consolidated balance sheet as deposits and an accrued liability. Members of the settlement class had the opportunity to object to the settlement at a fairness hearing 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 occurred on February 24, 2022. On March 17, 2022, the court granted final approval of the settlement, granted the request for attorneys’ fees by class representative's counsel, granted in part and denied in part the request for attorneys’ fees by the plaintiff in Nasseri v. Granite Construction Incorporated, et al., and entered final judgment. On April 12, 2022, the plaintiff in Nasseri v. Granite Construction Incorporated, et al. requested that the Nasseri case be dismissed with prejudice in light of the final approval of the settlement. On April 15, 2022, the plaintiff in Nasseri v. Granite Construction Incorporated, et al. filed a notice of appeal in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al., naming Class Representative Police Retirement System of St. Louis as appellee. On September 8, 2022, the U.S. Court of Appeals for the Ninth Circuit granted the request for voluntary dismissal of appeal filed by the plaintiff in Nasseri v. Granite Construction Incorporated, et al.
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 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. Pursuant to court order, this action was stayed until the court's entry of final judgment on March 17, 2022 in the putative securities class action lawsuit filed in 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 April 14, 2022, the parties in Davydov v. Roberts et al., the plaintiff in English v. Roberts et al., and the Company entered into a Stipulation of Compromise and Settlement providing that (i) defendants will cause insurers to pay $ i 7.5 million, which amount, less court-awarded attorneys’ fees and expenses, will be paid to the Company, (ii) the Company shall implement agreed upon corporate governance provisions within 30 days of final approval of the settlement, and (iii) all claims that were asserted or could have been asserted against the defendants or their related persons in Davydov v. Roberts, et al., English v. Roberts, et al., or any other proceeding on behalf of the Davydov plaintiff, the English plaintiff, the Company or any Granite stockholder, will be released. On April 14, 2022, the plaintiff in Davydov v. Roberts, et al. filed the Stipulation of Compromise and Settlement and a proposed scheduling order for a hearing in the Delaware Court of Chancery for review of the settlement. The Court in English v. Roberts, et al. has entered the parties’ stipulation to stay that case in light of the settlement filed in Davydov v. Roberts, et al. The Delaware Court of Chancery held a fairness hearing concerning its review of the settlement on July 12, 2022. On July 27, 2022, the Court in Davydov v. Roberts, et al. entered an order and final judgment approving the terms of the Stipulation of Compromise and Settlement and dismissed the case with prejudice. On July 28, 2022, the Court in English v. Roberts, et al. entered a stipulation and order of dismissal that dismissed the case with prejudice. The Company received a payment of $ i 5.0 million for the settlement which was net of court-awarded attorneys' fees and expenses that was recorded in Other costs, net on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2022.
As of September 30, 2022, December 31, 2021 and September 30, 2021, other than the Settlement Agreement charge described above, we did not record any liability related to the above matters because we concluded such liabilities were resolved or not probable and the amounts of such liabilities were not reasonably estimable.
Other Matters
In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the former 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 issued subpoenas for documents in connection with the accounting issues identified in the Investigation. We produced documents to the SEC and fully cooperated with the SEC in its investigation. In the second quarter of 2022, we recorded a $ i 12 million accrual for the expected resolution of this investigation which is reflected in other costs in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022.
During the third quarter of 2022, we reached a settlement with the SEC. Under the terms of the settlement, we, without admitting or denying any allegations made by the SEC, agreed to pay a civil penalty of $ i 12 million and to be enjoined from violating specified provisions of the federal securities laws and rules promulgated thereunder. On August 25, 2022, the SEC filed a complaint against us, along with our consent to the entry of judgment in the United States District Court for the Northern District of California, and requested entry of judgment. Judgment concluding and resolving this matter in its entirety was entered on September 9, 2022, and on September 16, 2022, we paid the $ i 12 million penalty.
Our wholly-owned subsidiary, Layne, was a subcontractor on the foundation for the Salesforce Tower office building in San Francisco 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. On July 20, 2021, we were informed of an arbitration award denying insurance coverage for claims related to the remedial measures undertaken by the general contractor of the Salesforce Tower and related damages.
On February 3, 2022, a lawsuit titled Steadfast Insurance Company (“Steadfast”), a subrogee of Clark/Hathaway Dinwiddie, a Joint Venture (“CHDJV”) v. Layne Christensen Company (“Layne”) was filed in the Superior Court of the State of California, County of San Francisco, seeking damages of approximately $ i 70 million for costs incurred by Steadfast on behalf of CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower. On February 4, 2022, CHDJV submitted an arbitration demand with the American Arbitration Association against Granite Construction Incorporated seeking to recover approximately $ i 30 million for costs incurred by CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower. CHDJV subsequently dismissed Granite and added Layne as a respondent to the arbitration. On March 8, 2022, we filed a motion to dismiss the CHDJV arbitration. On April 8, 2022, we filed a demurrer seeking to dismiss the Steadfast lawsuit. On May 6, 2022, CHDJV consolidated its claims with those of Steadfast and joined as a plaintiff in the Steadfast lawsuit, and on May 16, 2022, the arbitration was stayed. On June 14, 2022, we filed a demurrer to the amended complaint seeking to dismiss the claims of both Steadfast and CHDJV. On August 24, 2022, the court overruled our demurrer. We believe Layne has multiple defenses and counterclaims to the claims at issue. Layne intends to vigorously defend against the claims and prosecute its counterclaims, but we cannot provide assurance that Layne will be successful in these efforts. We do not believe it is probable this matter will result in a material loss, however, if we are unsuccessful, we believe the range of reasonably possible loss upon final resolution of this matter could be up to approximately $ i 100 million.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
/19. Reportable Segment Information
During the fourth quarter of 2021, we updated our strategy to focus on our core business capabilities, to leverage our current geographic based home markets in the civil construction and materials business and to target expansion based upon that combined strategy. In addition, we revised the financial information our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews to allocate resources and assess our performance. This change is consistent with our new strategic plan and better aligns with our continuing civil construction and materials business. Our CODM now regularly reviews financial information regarding our two primary product lines, construction and materials as well as our operating groups. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer.
As a result of these changes, in accordance with FASB ASC Topic 280, Segment Reporting, our reportable segments, which are the same as our operating segments, were changed to: Construction and Materials. The Construction segment replaces the previous Transportation, Water and Specialty reportable segments, with the composition of our Materials segment remaining unchanged. These changes have been applied retrospectively for all periods presented. As discussed in Note 3, we have reclassified WMS from discontinued operations to continuing operations for all periods presented. The Water Resources and Mineral Services businesses are included in the Construction segment. Inliner had both Construction and Materials operations.
Summarized segment information is as follows:
i| Three months ended September 30, | Construction | Materials | Total | |||||||||
| 2022 | ||||||||||||
| Total revenue from reportable segments | $ | i 848,267 | $ | i 228,871 | $ | i 1,077,138 | ||||||
| Elimination of intersegment revenue | i — | ( i 67,332 | ) | ( i 67,332 | ) | |||||||
| Revenue from external customers | $ | i 848,267 | $ | i 161,539 | $ | i 1,009,806 | ||||||
| Gross profit | $ | i 98,329 | $ | i 22,038 | $ | i 120,367 | ||||||
| Depreciation, depletion and amortization | $ | i 10,082 | $ | i 6,870 | $ | i 16,952 |
| 2021 | ||||||||||||
| Total revenue from reportable segments | $ | i 924,454 | $ | i 201,419 | $ | i 1,125,873 | ||||||
| Elimination of intersegment revenue | i — | ( i 63,744 | ) | ( i 63,744 | ) | |||||||
| Revenue from external customers | $ | i 924,454 | $ | i 137,675 | $ | i 1,062,129 | ||||||
| Gross profit | $ | i 99,237 | $ | i 20,698 | $ | i 119,935 | ||||||
| Depreciation, depletion and amortization | $ | i 18,230 | $ | i 7,014 | $ | i 25,244 |
| Nine months ended September 30, | Construction | Materials | Total | |||||||||
| 2022 | ||||||||||||
| Total revenue from reportable segments | $ | i 2,141,009 | $ | i 506,228 | $ | i 2,647,237 | ||||||
| Elimination of intersegment revenue | i — | $ | ( i 133,043 | ) | ( i 133,043 | ) | ||||||
| Revenue from external customers | $ | i 2,141,009 | $ | i 373,185 | $ | i 2,514,194 | ||||||
| Gross profit | $ | i 237,060 | $ | i 40,965 | $ | i 278,025 | ||||||
| Depreciation, depletion and amortization | $ | i 31,651 | $ | i 20,007 | $ | i 51,658 | ||||||
| Segment assets as of period end | $ | i 434,604 | $ | i 351,520 | $ | i 786,124 | ||||||
| 2021 | ||||||||||||
| Total revenue from reportable segments | $ | i 2,369,848 | $ | i 457,409 | $ | i 2,827,257 | ||||||
| Elimination of intersegment revenue | $ | i — | $ | ( i 131,043 | ) | ( i 131,043 | ) | |||||
| Revenue from external customers | $ | i 2,369,848 | $ | i 326,366 | $ | i 2,696,214 | ||||||
| Gross profit | $ | i 255,443 | $ | i 44,756 | $ | i 300,199 | ||||||
| Depreciation, depletion and amortization | $ | i 53,166 | $ | i 19,329 | $ | i 72,495 | ||||||
| Segment assets as of period end | $ | i 513,406 | $ | i 355,936 | $ | i 869,342 |
A reconciliation of segment gross profit to consolidated income before income taxes is as follows:
i| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2022 | 2021 | ||||||||||||||
| Total gross profit from reportable segments | $ | i 120,367 | $ | i 119,935 | $ | i 278,025 | $ | i 300,199 | ||||||||
| Selling, general and administrative expenses | i 61,795 | i 77,603 | i 192,036 | i 227,400 | ||||||||||||
| Other costs, net (see Note 7) | ( i 490 | ) | i 3,759 | i 19,445 | i 85,547 | |||||||||||
| Gain on sales of property and equipment (see Note 13) | ( i 949 | ) | ( i 5,159 | ) | ( i 10,462 | ) | ( i 39,349 | ) | ||||||||
| Total other (income) expense, net | ( i 2,789 | ) | i 2,405 | i 1,747 | i 1,686 | |||||||||||
| Income before income taxes | $ | i 62,800 | $ | i 41,327 | $ | i 75,259 | $ | i 24,915 | ||||||||
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein.
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, results and strategic actions, 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, results, and strategic actions. 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 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 deliver infrastructure solutions for public and private clients. We are one of the largest diversified infrastructure companies in the United States. Within the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels, water well drilling and other infrastructure-related projects. Within the private sector, we perform site preparation, mining services and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as provide construction management professional services.
During the fourth quarter of 2021, we updated our strategy to focus on our core business capabilities, to leverage our current geographic based home markets in the civil construction and materials business and to target expansion based upon that combined strategy. Also related to our new strategic plan, during the fourth quarter of 2021, we reorganized our operating groups to improve operating efficiencies and better position the Company for long-term growth. In alphabetical order, our operating groups are California, Central and Mountain.
In addition, we revised the financial information our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews to allocate resources and assess our performance. This change is consistent with our strategic plan update and better aligns with our civil construction and materials business. Our CODM now regularly reviews financial information regarding our two primary product lines, construction and materials, as well as our operating groups. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer.
As a result of these changes, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, our reportable segments, which are the same as our operating segments, were changed to two reportable segments: Construction and Materials (see Note 19 of “Notes to the Condensed Consolidated Financial Statements”).
The five primary economic drivers of our business are (i) the overall health of the U.S. economy including access to resources (labor, supplies and subcontractors); (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
Funding for our public work projects, which accounts for approximately 75% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, the rollout of the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) has started with the appropriation of funds included in the 2022 federal spending bill passed by the Administration in March 2022. The five-year IIJA provides the largest increase in federal highway, bridge and transit funding in more than six decades and includes $550 billion in incremental funding. We continue to believe that the increased multi-year spending commitment will improve the programming visibility for state and local governments and bring impact to project lettings starting in 2023 and then more meaningfully in 2024 and beyond. We anticipate the impact to our financial statements to gradually grow in 2023 and beyond as funds are allocated first to quicker turn projects and then later to more complex larger projects.
At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. While each market is unique, we see a strong funding environment at the state and local levels currently and we expect that environment to improve with the impact of the IIJA. 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 without any sunset provisions. Revenue collected through SB-1 is on track to increase over the next five years and supports our expected growth in the state.
Over the last year, inflation, supply chain and labor constraints have had a significant impact on the global economy including the construction industry in the United States. While it is impossible to fully eliminate the impact of these factors, we have applied proactive measures such as fixed forward purchase contracts of oil related inputs, energy surcharges, and adjustment of project schedules for constraints related to construction materials such as concrete. While we actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future.
Our Committed and Awarded Projects (“CAP”) continues to be strong with $4.1 billion at the end of the third quarter of 2022 including contributions from wins earlier in the year within the Central operating group as we continue to transform its project portfolio. We believe the environments in our key markets are strong and will continue to grow as we see meaningful funding from IIJA for projects beginning in the mid to latter part of 2023.
Strategic Actions
During the fourth quarter of 2021, we concluded that the assets and liabilities of our former Water and Mineral Services operating group (“WMS”) met the criteria for classification as held for sale and the results of operations were presented as discontinued operations. This included: our trenchless and pipe rehabilitation services business (“Inliner”); our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). The sale of Inliner was completed on March 16, 2022 for a purchase price of $159.7 million, subject to certain adjustments. As a result of the sale, we received cash proceeds of $142.6 million based on preliminary post-closing adjustments and we recognized a gain of $6.2 million.
In September 2022, we announced our decision to retain the Water Resources and Mineral Services businesses that were previously classified as held for sale and reported in discontinued operations. This change to our plan of sale was due to unfavorable market conditions which undermined our efforts to secure an appropriate value for the businesses. In connection with the reclassification of the WMS businesses from discontinued operations to continuing operations, the Condensed Consolidated Statements of Operations have been revised to include Inliner through the date of sale, Water Resources and Mineral Services in the Mountain operating group for all periods presented. The Water Resources and Mineral Services businesses are included in the Construction segment. Inliner had both Construction and Materials operations. See Note 1 and Note 3 of “Notes to the Condensed Consolidated Financial Statements” for further information.
Litigation Matter
As further discussed in Note 18 of “Notes to the Condensed Consolidated Financial Statements,” our wholly owned subsidiary, Layne Christensen Company (“Layne”), has been sued for $100 million relating to Layne’s work on the Salesforce Tower foundation. Layne was a subcontractor on this project and potential liability for this project remained with Layne in connection with our acquisition of Layne in June 2018. See Note 18 and "In connection with acquisitions or divestitures, we may become subject to liabilities” and "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 Item 1A. Risk Factors in our Annual Report for additional information.
Results of Operations
Our operations are typically affected more by inclement 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, 2022 and 2021:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Total revenue |
$ | 1,009,806 | $ | 1,062,129 | $ | 2,514,194 | $ | 2,696,214 | ||||||||
| Gross profit |
$ | 120,367 | $ | 119,935 | $ | 278,025 | $ | 300,199 | ||||||||
| Selling, general and administrative expenses |
$ | 61,795 | $ | 77,603 | $ | 192,036 | $ | 227,400 | ||||||||
| Other costs, net (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”) |
$ | (490 | ) | $ | 3,759 | $ | 19,445 | $ | 85,547 | |||||||
| Gain on sales of property and equipment, net (see Note 13 of “Notes to the Consolidated Financial Statements”) |
$ | (949 | ) | $ | (5,159 | ) | $ | (10,462 | ) | $ | (39,349 | ) | ||||
| Operating income |
$ | 60,011 | $ | 43,732 | $ | 77,006 | $ | 26,601 | ||||||||
| Total other (income) expense, net |
$ | (2,789 | ) | $ | 2,405 | $ | 1,747 | $ | 1,686 | |||||||
| Amount attributable to non-controlling interests |
$ | 4,104 | $ | 2,620 | $ | 1,569 | $ | 462 | ||||||||
| Net income attributable to Granite Construction Incorporated |
$ | 73,393 | $ | 35,043 | $ | 77,605 | $ | 23,309 | ||||||||
Revenue
Total Revenue by Segment
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||||||||||||||||||
| Construction |
$ | 848,267 | 84.1 | % | $ | 924,454 | 87.1 | % | $ | 2,141,009 | 85.2 | % | $ | 2,369,848 | 87.9 | % | ||||||||||||||||
| Materials |
161,539 | 15.9 | 137,675 | 12.9 | 373,185 | 14.8 | 326,366 | 12.1 | ||||||||||||||||||||||||
| Total |
$ | 1,009,806 | 100.0 | % | $ | 1,062,129 | 100.0 | % | $ | 2,514,194 | 100.0 | % | $ | 2,696,214 | 100.0 | % | ||||||||||||||||
Construction Revenue
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||||||||||||||||||
| California |
$ | 263,252 | 31.0 | % | $ | 243,740 | 26.4 | % | $ | 607,536 | 28.4 | % | $ | 631,637 | 26.6 | % | ||||||||||||||||
| Central |
222,745 | 26.3 | 296,505 | 32.0 | 654,912 | 30.6 | 837,792 | 35.4 | ||||||||||||||||||||||||
| Mountain |
362,270 | 42.7 | 384,209 | 41.6 | 878,561 | 41.0 | 900,419 | 38.0 | ||||||||||||||||||||||||
| Total |
$ | 848,267 | 100.0 | % | $ | 924,454 | 100.0 | % | $ | 2,141,009 | 100.0 | % | $ | 2,369,848 | 100.0 | % | ||||||||||||||||
Construction revenue for the three and nine months ended September 30, 2022 decreased by $76.2 million and $228.8 million, or 8.2% and 9.7%, respectively, when compared to 2021. These decreases were primarily driven by the wind down of several large projects in the Central operating group, as well as the sale of Inliner in the first quarter of 2022. Comparable revenue from the Mountain operating group, which excludes revenue attributable to Inliner (which was sold on March 16, 2022) increased $38.4 million and $105.8 million, or 11.9% and 14.3%, for the three and nine months ended September 30, 2022, respectfully, due to higher beginning CAP levels including several new solar projects and driven by stronger market conditions in the current year. California operating group revenue increased $19.5 million during the three months ended September 30, 2022 due to record high CAP levels at the beginning of the current quarter. California operating group revenue decreased $24.1 million during the nine months ended September 30, 2022, mainly due to delayed project awards and slower progress on existing projects due to supply chain disruptions in the first half of the year and less favorable weather conditions in the first quarter of 2022. During the three and nine months ended September 30, 2022 and 2021, the majority of revenue earned in the Construction segment was from the public sector.
Materials Revenue
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||||||||||||||||||
| California |
$ | 85,173 | 52.7 | % | $ | 76,029 | 55.2 | % | $ | 202,371 | 54.2 | % | $ | 188,475 | 57.7 | % | ||||||||||||||||
| Central |
9,348 | 5.8 | 5,640 | 4.1 | 33,634 | 9.0 | 24,740 | 7.6 | ||||||||||||||||||||||||
| Mountain |
67,018 | 41.5 | 56,006 | 40.7 | 137,180 | 36.8 | 113,151 | 34.7 | ||||||||||||||||||||||||
| Total |
$ | 161,539 | 100.0 | % | $ | 137,675 | 100.0 | % | $ | 373,185 | 100.0 | % | $ | 326,366 | 100.0 | % | ||||||||||||||||
Materials revenue for the three and nine months ended September 30, 2022 increased by $23.9 million and $46.8 million, or 17.3% and 14.3%, respectively, when compared to 2021 driven by price increases inclusive of energy surcharges and overall market demands driving higher sales volumes of aggregates, slightly offset by decreased sales volumes for asphalt.
Committed and Awarded Projects
CAP consists of two components: (1) unearned revenue and (2) other awards. Unearned revenue includes the revenue we expect to record in the future on executed contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. 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.
Other awards include the general construction portion of construction management/general contractor (“CM/GC”) contracts and awarded contracts with unexercised contract options or unissued task orders. The general construction portion of CM/GC contracts are included in other awards to the extent contract execution and funding is probable. Contracts with unexercised contract options or unissued task orders are included in other awards to the extent option exercise or task order issuance is probable. In line with the revised reportable segments, all CAP is now in the Construction segment.
| (dollars in thousands) |
September 30, 2022 | June 30, 2022 | September 30, 2021 | |||||||||||||||||||||
| Unearned revenue |
$ | 2,649,066 | 65.0 | % | $ | 2,884,876 | 68.5 | % | $ | 3,032,192 | 70.1 | % | ||||||||||||
| Other awards |
1,429,268 | 35.0 | 1,328,784 | 31.5 | 1,295,700 | 29.9 | ||||||||||||||||||
| Total |
$ | 4,078,334 | 100.0 | % | $ | 4,213,660 | 100.0 | % | $ | 4,327,892 | 100.0 | % | ||||||||||||
| (dollars in thousands) |
September 30, 2022 | June 30, 2022 | September 30, 2021 | |||||||||||||||||||||
| California |
$ | 1,555,977 | 38.2 | % | $ | 1,629,765 | 38.7 | % | $ | 1,493,015 | 34.5 | % | ||||||||||||
| Central |
1,525,672 | 37.4 | 1,518,970 | 36.0 | 1,755,779 | 40.6 | ||||||||||||||||||
| Mountain |
996,685 | 24.4 | 1,064,925 | 25.3 | 1,079,098 | 24.9 | ||||||||||||||||||
| Total |
$ | 4,078,334 | 100.0 | % | $ | 4,213,660 | 100.0 | % | $ | 4,327,892 | 100.0 | % | ||||||||||||
CAP of $4.1 billion at September 30, 2022 decreased $0.1 billion when compared to June 30, 2022 due to progress on existing projects during our seasonally busiest quarter of the year. Significant new awards during the three months ended September 30, 2022 included $145 million for highway work in Texas, a $17 million dam project in California, $14 million for bridge work in Illinois, $12 million for raceway work in California, $11 million for bridge work in California and an $11 million bikeway project in California.
Non-controlling partners’ share of CAP as of September 30, 2022, December 31, 2021 and September 30, 2021 was $118.4 million, $214.3 million and $230.1 million, respectively. At September 30, 2022, six contracts had total forecasted losses with remaining revenue of $140.6 million, or 3.4%, of total CAP.
Gross Profit
The following table presents gross profit by reportable segment for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (dollars in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Construction |
$ | 98,329 | $ | 99,237 | $ | 237,060 | $ | 255,443 | ||||||||
| Percent of segment revenue |
11.6 | % |
10.7 | % |
11.1 | % |
10.8 | % |
||||||||
| Materials |
22,038 | 20,698 | 40,965 | 44,756 | ||||||||||||
| Percent of segment revenue |
13.6 | % |
15.0 | % |
11.0 | % |
13.7 | % |
||||||||
| Total gross profit |
$ | 120,367 | $ | 119,935 | $ | 278,025 | $ | 300,199 | ||||||||
| Percent of total revenue |
11.9 | % |
11.3 | % |
11.1 | % |
11.1 | % |
||||||||
Construction gross profit for the three and nine months ended September 30, 2022 decreased by $0.9 million and $18.4, or 0.9% and 7.2%, respectively, when compared to 2021 primarily due to an increase in the negative net impact from revisions in estimates in our Central operating group (see Note 4 of "Notes to the Consolidated Financial Statements"). These decreases were partially offset by improved performance in the vertically integrated California and Mountain operating groups.
Materials gross profit for the three and nine months ended September 30, 2022 increased by $1.3 million and decreased by $3.8 million, or an increase of 6.5% and a decrease of 8.5%, respectively, when compared to 2021. The increase in materials revenue drove a gross profit increase during the three months ended September 30, 2022 while materials gross profit margin decreased due to the impact of higher energy costs. Materials gross profit was down during the nine months ended September 30, 2022 primarily due to the impact of higher fuel and liquid asphalt costs. We implemented energy surcharges in the second quarter of 2022 to cover increased fuel costs, however contracts we had in place early in the year without energy surcharge clauses or prior to our surcharge taking effect were still being fulfilled into the third quarter at the lower sales price.
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, |
|||||||||||||||
| (dollars in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Selling |
||||||||||||||||
| Salaries and related expenses |
$ | 12,720 | $ | 14,799 | $ | 44,348 | $ | 49,440 | ||||||||
| Restricted stock unit amortization |
194 | 225 | 1,052 | 1,251 | ||||||||||||
| Other selling expenses |
2,839 | 3,154 | 7,820 | 5,403 | ||||||||||||
| Total selling |
15,753 | 18,178 | 53,220 | 56,094 | ||||||||||||
| General and administrative |
||||||||||||||||
| Salaries and related expenses |
23,262 | 26,002 | 76,839 | 83,515 | ||||||||||||
| Restricted stock unit amortization |
1,068 | 795 | 4,175 | 3,126 | ||||||||||||
| Other general and administrative expenses |
21,712 | 32,628 | 57,802 | 84,665 | ||||||||||||
| Total general and administrative |
46,042 | 59,425 | 138,816 | 171,306 | ||||||||||||
| Total selling, general and administrative |
$ | 61,795 | $ | 77,603 | $ | 192,036 | $ | 227,400 | ||||||||
| Percent of revenue |
6.1 | % | 7.3 | % | 7.6 | % |
8.4 | % |
||||||||
Selling Expenses
Selling expenses include the costs for estimating and bidding including offsetting 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 months ended September 30, 2022 decreased by $2.4 million, or 13.3%, and for the nine months ended September 30, 2022 decreased by $2.9 million, or 5.1%, when compared to 2021, primarily due to the sale of Inliner on March 16, 2022.
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 months ended September 30, 2022 decreased by $13.4 million, or 22.5%, primarily due to the sale of Inliner on March 16, 2022 and a decrease in incentive compensation expense. Total general and administrative expenses for the nine months ended September 30, 2022 decreased by $32.5 million, or 19.0%, when compared to 2021, also due to the sale of Inliner and a decrease in incentive compensation expense as well as decreases in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is mostly offset in other (income) expense, net, through our own company-owned life insurance policy.
Other Costs, net
The following table presents other costs, net for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Other costs, net |
$ | (490 | ) | $ | 3,759 | $ | 19,445 | $ | 85,547 |
|
||||||
During the three months ended September 30, 2022, Other costs, net (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”) decreased $4.2 million due primarily to the settlement of the shareholder derivative lawsuit and related receipt of $5.0 million (see Note 18 of “Notes to the Condensed Consolidated Financial Statements”). During the nine months ended September 30, 2022, Other costs, net decreased $66.1 million primarily due to the securities litigation settlement charge of $66 million that occurred in 2021 (see Note 18 of “Notes to the Condensed Consolidated Financial Statements”).
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, |
|||||||||||||||
| (in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Gain on sales of property and equipment, net |
$ | (949 | ) | $ | (5,159 | ) | $ | (10,462 | ) | $ | (39,349 | ) | ||||
Gain on sales of property and equipment, net for the three and nine months ended September 30, 2022 decreased by $4.2 million and $28.9 million, respectively, compared to prior year. The gain in the nine months ended September 30, 2021 includes the sale of certain properties in California.
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) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Provision for (benefit from) income taxes |
$ | (6,489 | ) | $ | 8,904 | $ | (777 | ) | $ | 2,068 | ||||||
| Effective tax rate |
(10.3 | %) | 21.5 | % | (1.0 | %) | 8.3 | % | ||||||||
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 net income before tax expense. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. Our effective tax rates for the three and nine months ended September 30, 2022 were lower than the prior year primarily due to a tax benefit associated with the reversal of deferred tax liabilities related to the Water Resources and Mineral Services businesses no longer being held for sale and the release of valuation allowances related to the utilization of capital loss carryforwards. The benefit for both items was recognized in the current quarter. For additional information on assets and liabilities no longer held for sale see discussion in Note 1 and Note 3 of “Notes to the Condensed Consolidated Financial Statements.”
Amount Attributable to Non-controlling Interests
The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Amount attributable to non-controlling interests |
$ | 4,104 | $ | 2,620 | $ | 1,569 | $ | 462 | ||||||||
The amount attributable to non-controlling interests represents the non-controlling owners’ share of the income or loss of our consolidated construction joint ventures. The amounts for the three and nine months ended September 30, 2022 increased $1.5 million and $1.1 million, respectively, primarily due to net negative impacts from revisions in estimates, partially offset by new joint venture contracts in 2022.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, investments, available borrowing capacity and cash generated from operations. We may also from time-to-time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions or sell one or more business units, divisions or assets.
Our material cash requirements include 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, repurchase shares of our common stock or acquire assets or businesses that are complementary to our operations.
We believe our primary sources of liquidity will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments and other liquidity requirements associated with our existing operations for the next twelve months. We also believe our primary sources of liquidity, access to debt and equity capital markets and cash expected to be generated from operations will be sufficient to meet our long-term requirements and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.
As of September 30, 2022, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisting primarily of U.S. Government and agency obligations and corporate commercial paper.
At the end of the second quarter of 2022, we had $16.5 million of past due receivables and $27.1 million of contract retention receivable from Brightline Trains Florida LLC ("Brightline") and they were experiencing delays in securing additional funding at that time. During the third quarter of 2022, Brightline obtained additional funding and paid their past due receivables balances. As of September 30, 2022, we had $3.6 million of receivables and $27.8 million of contract retention receivable from Brightline (see Note 8 of “Notes to the Condensed Consolidated Financial Statements”). These balances were current as of September 30, 2022, however because Brightline has experienced delays in securing additional funding in the past, the timing and probability of future payments may be affected and our liquidity impacted if Brightline faces additional funding difficulties.
During the first half of 2022, we prepaid 100% of our outstanding term loan and replaced the Third Amended and Restated Credit Agreement dated May 31, 2018 with the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) maturing June 2, 2027. The Credit Agreement is a $350.0 million senior secured, five-year revolving facility (the “Revolver”). As of September 30, 2022, the total unused availability under the Credit Agreement was $267.0 million, resulting from $33.0 million in issued and outstanding letters of credit and $50.0 million drawn under the Revolver. See Note 15 of “Notes to the Condensed Consolidated Financial Statements” for further discussion regarding the Revolver.
In evaluating our liquidity position and needs, we also 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) |
||||||||||||
| Cash and cash equivalents excluding CCJVs |
$ | 142,560 | $ | 302,864 | $ | 344,438 | ||||||
| CCJV cash and cash equivalents (1) |
112,524 | 92,783 | 119,611 | |||||||||
| Total consolidated cash and cash equivalents |
255,084 | 395,647 | 464,049 | |||||||||
| Short-term and long-term marketable securities (2) |
61,448 | 15,600 | 10,600 | |||||||||
| Total cash, cash equivalents and marketable securities |
$ | 316,532 | $ | 411,247 | $ | 474,649 | ||||||
(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 and corporate commercial paper as of all periods presented.
Granite’s portion of CCJV cash and cash equivalents was $66.7 million, $54.4 million and $69.2 million as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively. Excluded from the table above is:
| • | $47.3 million, $56.5 million and $48.0 million as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively, in Granite’s portion of unconsolidated construction joint venture cash and cash equivalents; and | |
| • | $16.5 million as of December 31, 2021 that was included in current assets held-for-sale. |
Capital Expenditures
Cash Flows
| Nine months ended September 30, |
||||||||
| (in thousands) |
2022 |
2021 |
||||||
| Net cash provided by (used in): |
||||||||
| Operating activities |
$ | (14,631 | ) | $ | 59,922 | |||
| Investing activities |
$ | 13,874 | $ | (17,381 | ) | |||
| Financing activities |
$ | (157,814 | ) | $ | (14,628 | ) | ||
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 project progression 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.
Related to the litigation settlements discussed in Note 18 of “Notes to the Condensed Consolidated Financial Statements,” we have separately presented the $129 million liability and the associated $63 million insurance receivable in the condensed consolidated statement of cash flows for the nine months ended September 30, 2021. The insurance receivable was collected and the liability was paid to the court in October 2021; therefore, the impact on operating cash flow occurred in the fourth quarter of 2021 and there was no impact during the nine months ended September 30, 2022 and 2021.
Investing activities
Cash provided by investing activities of $13.9 million for the nine months ended September 30, 2022 represents a $31.3 million increase when compared to 2021. The change was primarily due to proceeds from the sale of the Inliner business in March 2022, partially offset by increased purchases of marketable securities and property and equipment and a decrease in proceeds from sales of property and equipment in the current year.
Financing activities
Cash used in financing activities of $157.8 million for the nine months ended September 30, 2022 represents a $143.2 million increase when compared to 2021. The change was primarily due to the prepayment of our term loan of $123.8 million in the first half of 2022 and repurchases of common stock (inclusive of our accelerated share repurchase) of $70.7 million, partially offset by $50.0 million drawn on our Revolver. The net debt paydown was completed at the time the Credit Agreement was entered (see Note 15 to “Notes to the Condensed Consolidated Financial Statements” for further information), to bring our cash balance in line with projected cash needs for the rest of 2022.
Derivatives
We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs. See Note 10 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, 2022, approximately $2.3 billion of our $4.1 billion 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 12 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, the 2.75% Convertible Notes are governed by the terms and conditions of the indenture. 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 2.75% Convertible Notes indenture 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 2.75% Convertible Notes indenture 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, 2022, the Consolidated Leverage Ratio was 1.89, which did not exceed the maximum of 3.25. Our Consolidated Interest Coverage Ratio was 10.15, which was above the minimum of 3.00.
Share Repurchase Program
As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”).
On May 2, 2022, we entered into an accelerated share repurchase transaction with Bank of Montreal. The Accelerated Share Repurchase was entered into pursuant to the existing share repurchase program. On May 2, 2022, we paid $50.0 million to the bank and received 80% of the notional amount, or $40.0 million, in shares using the closing price on the trade date. This equated to approximately 1.32 million shares, which were immediately retired. On August 31, 2022, the reference period ended and on September 2, 2022 we received an additional 0.37 million shares, which were immediately retired. The final share delivery was based on the average of the daily volume-weighted average price of Granite's common stock, less a discount, during the reference period.
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 any 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 Annual Report.
| CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| LEGAL PROCEEDINGS |
The description of the matters set forth in Part I, Item I of this Report under Note 18 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 Annual Report.
| 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, 2022:
| 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, 2022 through July 31, 2022 |
6,232 | $29.15 | — | $241,535,405 | ||||||||||||
| August 1, 2022 through August 31, 2022 |
180 | $30.81 | — | $241,535,405 | ||||||||||||
| September 1, 2022 through September 30, 2022 |
370,014 | $27.28 | 366,785 | $231,535,405 | ||||||||||||
| 376,426 | $27.31 | 366,785 | ||||||||||||||
(1) Includes 6,232, 180 and 3,229 shares purchased during July, August and September, respectively, in connection with employee tax withholding for restricted stock units vested under our equity incentive plans.
(2) As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”). In September 2022, we purchased approximately 0.37 million shares under the 2022 authorization in the accelerated share repurchase. As of September 30, 2022, $231.5 million of the 2022 authorization remained available. The specific timing and amount of any future purchases 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 |
| 31.1 |
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| 95 | † | Mine Safety Disclosure | ||
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Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document) |
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Inline XBRL Taxonomy Extension Label Linkbase |
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Inline XBRL Taxonomy Extension Presentation Linkbase |
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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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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) |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
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| 6/2/27 | ||||
| 11/1/24 | ||||
| 5/1/24 | ||||
| 11/7/22 | ||||
| 10/31/22 | ||||
| Filed on: | 10/27/22 | 8-K | ||
| 10/21/22 | ||||
| For Period end: | 9/30/22 | |||
| 9/20/22 | ||||
| 9/16/22 | ||||
| 9/9/22 | ||||
| 9/8/22 | ||||
| 9/2/22 | ||||
| 9/1/22 | ||||
| 8/31/22 | 8-K | |||
| 8/25/22 | 8-K | |||
| 8/24/22 | ||||
| 8/1/22 | ||||
| 7/31/22 | ||||
| 7/28/22 | 10-Q, 8-K | |||
| 7/27/22 | ||||
| 7/12/22 | ||||
| 7/1/22 | ||||
| 6/30/22 | 10-Q | |||
| 6/14/22 | 8-K | |||
| 5/16/22 | ||||
| 5/6/22 | 4 | |||
| 5/2/22 | ||||
| 4/15/22 | ||||
| 4/14/22 | ||||
| 4/12/22 | ||||
| 4/8/22 | ||||
| 3/17/22 | ||||
| 3/16/22 | 4, 8-K | |||
| 3/8/22 | ||||
| 2/24/22 | ||||
| 2/4/22 | ||||
| 2/3/22 | 8-K | |||
| 2/1/22 | ||||
| 1/1/22 | 3, 8-K | |||
| 12/31/21 | 10-K, 11-K | |||
| 10/6/21 | ||||
| 9/30/21 | 10-Q | |||
| 7/20/21 | ||||
| 6/30/21 | 10-Q | |||
| 5/14/21 | ||||
| 5/12/21 | ||||
| 4/30/21 | 8-K | |||
| 4/29/21 | 8-K | |||
| 4/9/21 | ||||
| 3/31/21 | 10-Q | |||
| 1/21/21 | ||||
| 12/31/20 | 10-K, 11-K, NT 10-K | |||
| 9/16/20 | ||||
| 8/10/20 | 8-K | |||
| 5/20/20 | ||||
| 5/6/20 | ||||
| 2/20/20 | ||||
| 10/24/19 | ||||
| 10/23/19 | ||||
| 8/13/19 | ||||
| 5/31/18 | 8-K | |||
| 4/30/18 | 10-Q, 8-K, CORRESP, S-4/A | |||
| 2/17/17 | 10-K, 3, 8-K | |||
| List all Filings | ||||