UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________ | |
Commission File Number: 1-12911 |
GRANITE CONSTRUCTION INCORPORATED
State of Incorporation: | I.R.S. Employer Identification Number: |
Delaware | 77-0239383 |
Address of principal executive offices:
585 W. Beach Street
Watsonville, California 95076
(831) 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 |
Common stock, $0.01 par value | GVA | 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. ☒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). ☒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.
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of OctoberJuly 22, 2021.2022.
Class |
| Outstanding |
Common stock, $0.01 par value |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Item 3. | |
| Item 4. | |
| Item 1. | |
| Item 1A. | |
| Item 2. | |
| Item 4. | |
| Item 6. | |
EXHIBIT 95 | ||
EXHIBIT 101.INS | ||
EXHIBIT 101.SCH | ||
EXHIBIT 101.CAL | ||
EXHIBIT 101.DEF | ||
EXHIBIT 101.LAB |
EXHIBIT 101.PRE | ||
EXHIBIT 104 |
Item 1. | FINANCIAL STATEMENTS |
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||
Cash and cash equivalents ($119,611, $74,819 and $92,587 related to consolidated construction joint ventures (“CCJVs”)) | $ | 464,049 | $ | 436,136 | $ | 388,024 | ||||||||||||||||||
Receivables, net ($42,530, $56,147 and $32,028 related to CCJVs) | 684,822 | 540,812 | 661,948 | |||||||||||||||||||||
Contract assets ($42,792, $33,838 and $27,528 related to CCJVs) | 204,046 | 164,939 | 159,939 | |||||||||||||||||||||
Cash and cash equivalents ($77,943, $92,783 and $107,854 related to consolidated construction joint ventures (“CCJVs”)) | $ | 175,022 | $ | 395,647 | $ | 377,620 | ||||||||||||||||||
Short-term marketable securities | 45,000 | 0 | 0 | |||||||||||||||||||||
Receivables, net ($69,347, $49,534 and $49,408 related to CCJVs) | 527,277 | 464,588 | 543,914 | |||||||||||||||||||||
Contract assets ($70,453, $50,054 and $41,815 related to CCJVs) | 190,187 | 145,437 | 154,542 | |||||||||||||||||||||
Inventories | 77,412 | 82,362 | 102,111 | 78,634 | 61,965 | 66,584 | ||||||||||||||||||
Equity in construction joint ventures | 195,354 | 188,798 | 184,980 | 187,028 | 189,911 | 195,430 | ||||||||||||||||||
Other current assets ($9,954, $13,252 and $13,634 related to CCJVs) | 39,749 | 42,199 | 48,300 | |||||||||||||||||||||
Other current assets ($6,056, $8,091 and $12,142 related to CCJVs) | 167,349 | 177,210 | 44,076 | |||||||||||||||||||||
Current assets held-for-sale | 222,779 | 392,641 | 184,267 | |||||||||||||||||||||
Total current assets | 1,665,432 | 1,455,246 | 1,545,302 | 1,593,276 | 1,827,399 | 1,566,433 | ||||||||||||||||||
Property and equipment, net ($17,534, $23,704 and $25,765 related to CCJVs) | 510,658 | 527,016 | 536,256 | |||||||||||||||||||||
Property and equipment, net ($13,596, $14,920 and $20,206 related to CCJVs) | 464,593 | 433,504 | 432,896 | |||||||||||||||||||||
Long-term marketable securities | 10,600 | 5,200 | 5,700 | 21,675 | 15,600 | 10,850 | ||||||||||||||||||
Investments in affiliates | 72,415 | 75,287 | 76,464 | 23,203 | 23,368 | 25,317 | ||||||||||||||||||
Goodwill | 116,788 | 116,777 | 116,691 | 53,715 | 53,715 | 53,715 | ||||||||||||||||||
Right of use assets | 58,226 | 62,256 | 68,276 | 45,404 | 49,312 | 47,181 | ||||||||||||||||||
Deferred income taxes, net | 41,228 | 41,839 | 39,439 | 25,458 | 24,141 | 42,230 | ||||||||||||||||||
Other noncurrent assets | 86,409 | 96,375 | 100,145 | 64,008 | 67,888 | 70,148 | ||||||||||||||||||
Noncurrent assets held-for-sale | — | 0 | 230,128 | |||||||||||||||||||||
Total assets | $ | 2,561,756 | $ | 2,379,996 | $ | 2,488,273 | $ | 2,291,332 | $ | 2,494,927 | $ | 2,478,898 | ||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current maturities of long-term debt | $ | 8,718 | $ | 8,278 | $ | 8,253 | $ | 1,429 | $ | 8,727 | $ | 8,709 | ||||||||||||
Accounts payable ($62,547, $53,033 and $50,503 related to CCJVs) | 397,152 | 359,160 | 385,259 | |||||||||||||||||||||
Contract liabilities ($56,914, $79,777 and $73,426 related to CCJVs) | 195,267 | 171,321 | 189,430 | |||||||||||||||||||||
Accrued expenses and other current liabilities ($5,238, $4,410 and $4,553 related to CCJVs) | 499,214 | 404,497 | 391,651 | |||||||||||||||||||||
Accounts payable ($63,541, $55,012 and $62,117 related to CCJVs) | 331,728 | 324,313 | 334,158 | |||||||||||||||||||||
Contract liabilities ($61,868, $69,328 and $66,193 related to CCJVs) | 179,322 | 200,041 | 166,415 | |||||||||||||||||||||
Accrued expenses and other current liabilities ($8,025, $5,514 and $5,186 related to CCJVs) | 435,061 | 452,829 | 459,517 | |||||||||||||||||||||
Current liabilities held-for-sale | 46,706 | 83,408 | 79,487 | |||||||||||||||||||||
Total current liabilities | 1,100,351 | 943,256 | 974,593 | 994,246 | 1,069,318 | 1,048,286 | ||||||||||||||||||
Long-term debt | 331,192 | 330,522 | 405,644 | 286,801 | 331,191 | 331,222 | ||||||||||||||||||
Long-term lease liabilities | 39,908 | 46,769 | 51,879 | 31,182 | 32,928 | 33,577 | ||||||||||||||||||
Deferred income taxes, net | 3,168 | 3,155 | 3,417 | |||||||||||||||||||||
Other long-term liabilities | 64,783 | 64,684 | 63,741 | 61,868 | 65,927 | 66,995 | ||||||||||||||||||
Commitments and contingencies (see Note 16) | ||||||||||||||||||||||||
Long-term liabilities held-for-sale | — | 0 | 10,576 | |||||||||||||||||||||
Commitments and contingencies (see Note 18) | ||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding | 0 | 0 | 0 | |||||||||||||||||||||
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 45,826,409 shares as of September 30, 2021, 45,668,541 shares as of December 31, 2020 and 45,655,682 shares as of September 30, 2020 | 458 | 457 | 457 | |||||||||||||||||||||
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding | 0 | 0 | 0 | |||||||||||||||||||||
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 44,078,469 shares as of June 30, 2022, 45,840,260 shares as of December 31, 2021 and 45,818,719 shares as of June 30, 2021 | 441 | 458 | 458 | |||||||||||||||||||||
Additional paid-in capital | 558,121 | 555,407 | 554,303 | 467,159 | 559,752 | 556,615 | ||||||||||||||||||
Accumulated other comprehensive loss | (3,468 | ) | (5,035 | ) | (6,000 | ) | ||||||||||||||||||
Accumulated other comprehensive income (loss) | 2,388 | (3,359 | ) | (2,750 | ) | |||||||||||||||||||
Retained earnings | 430,074 | 424,835 | 422,846 | 413,931 | 410,831 | 401,061 | ||||||||||||||||||
Total Granite Construction Incorporated shareholders’ equity | 985,185 | 975,664 | 971,606 | 883,919 | 967,682 | 955,384 | ||||||||||||||||||
Non-controlling interests | 37,169 | 15,946 | 17,393 | 33,316 | 27,881 | 32,858 | ||||||||||||||||||
Total equity | 1,022,354 | 991,610 | 988,999 | 917,235 | 995,563 | 988,242 | ||||||||||||||||||
Total liabilities and equity | $ | 2,561,756 | $ | 2,379,996 | $ | 2,488,273 | $ | 2,291,332 | $ | 2,494,927 | $ | 2,478,898 |
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, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Transportation | $ | 568,186 | $ | 623,999 | $ | 1,444,450 | $ | 1,510,001 | ||||||||||||||||||||||||
Water | 121,968 | 106,599 | 335,153 | 317,980 | ||||||||||||||||||||||||||||
Specialty | 234,300 | 205,134 | 590,245 | 513,087 | ||||||||||||||||||||||||||||
Construction | $ | 632,260 | $ | 713,425 | $ | 1,107,195 | $ | 1,220,396 | ||||||||||||||||||||||||
Materials | 137,675 | 129,457 | 326,366 | 275,819 | 136,026 | 121,246 | 208,677 | 180,607 | ||||||||||||||||||||||||
Total revenue | 1,062,129 | 1,065,189 | 2,696,214 | 2,616,887 | 768,286 | 834,671 | 1,315,872 | 1,401,003 | ||||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||||||||
Transportation | 509,683 | 569,677 | 1,290,564 | 1,399,113 | ||||||||||||||||||||||||||||
Water | 112,092 | 94,042 | 306,148 | 283,497 | ||||||||||||||||||||||||||||
Specialty | 203,442 | 171,842 | 517,693 | 465,234 | ||||||||||||||||||||||||||||
Construction | 571,094 | 637,158 | 997,837 | 1,091,360 | ||||||||||||||||||||||||||||
Materials | 116,977 | 103,631 | 281,610 | 230,904 | 118,712 | 99,281 | 189,780 | 157,699 | ||||||||||||||||||||||||
Total cost of revenue | 942,194 | 939,192 | 2,396,015 | 2,378,748 | 689,806 | 736,439 | 1,187,617 | 1,249,059 | ||||||||||||||||||||||||
Gross profit | 119,935 | 125,997 | 300,199 | 238,139 | 78,480 | 98,232 | 128,255 | 151,944 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 77,603 | 72,889 | 227,400 | 224,128 | 53,162 | 58,628 | 111,663 | 119,789 | ||||||||||||||||||||||||
Non-cash impairment charges (see Note 3) | 0 | 132,277 | 0 | 156,690 | ||||||||||||||||||||||||||||
Other costs (see Note 3) | 3,759 | 9,689 | 85,547 | 28,513 | ||||||||||||||||||||||||||||
Gain on sales of property and equipment, net (see Note 12) | (5,159 | ) | (3,057 | ) | (39,349 | ) | (4,870 | ) | ||||||||||||||||||||||||
Other costs (see Note 7) | 20,177 | 5,868 | 28,391 | 80,177 | ||||||||||||||||||||||||||||
Gain on sales of property and equipment, net | (385 | ) | (1,052 | ) | (717 | ) | (3,297 | ) | ||||||||||||||||||||||||
Operating income (loss) | 43,732 | (85,801 | ) | 26,601 | (166,322 | ) | 5,526 | 34,788 | (11,082 | ) | (44,725 | ) | ||||||||||||||||||||
Other (income) expense | ||||||||||||||||||||||||||||||||
Interest income | (293 | ) | (755 | ) | (737 | ) | (2,813 | ) | (782 | ) | (162 | ) | (1,405 | ) | (395 | ) | ||||||||||||||||
Interest expense | 5,131 | 6,359 | 16,019 | 17,902 | 3,896 | 5,502 | 7,471 | 10,874 | ||||||||||||||||||||||||
Equity in income of affiliates, net | (2,539 | ) | (2,353 | ) | (10,578 | ) | (4,415 | ) | (541 | ) | (2,607 | ) | (235 | ) | (2,875 | ) | ||||||||||||||||
Other expense (income), net | 106 | (1,967 | ) | (3,018 | ) | 92 | ||||||||||||||||||||||||||
Other (income) expense, net | 3,357 | (1,800 | ) | 4,739 | (2,026 | ) | ||||||||||||||||||||||||||
Total other expense, net | 2,405 | 1,284 | 1,686 | 10,766 | 5,930 | 933 | 10,570 | 5,578 | ||||||||||||||||||||||||
Income (loss) before provision for (benefit from) income taxes | 41,327 | (87,085 | ) | 24,915 | (177,088 | ) | ||||||||||||||||||||||||||
Provision for (benefit from) income taxes | 8,904 | 11,272 | 2,068 | (5,220 | ) | |||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | (404 | ) | 33,855 | (21,652 | ) | (50,303 | ) | |||||||||||||||||||||||||
Provision for (benefit from) income taxes on continuing operations | 2,549 | 7,710 | (2,782 | ) | (14,047 | ) | ||||||||||||||||||||||||||
Net income (loss) from continuing operations | (2,953 | ) | 26,145 | (18,870 | ) | (36,256 | ) | |||||||||||||||||||||||||
Net income from discontinued operations | 19,521 | 29,602 | 25,617 | 26,680 | ||||||||||||||||||||||||||||
Net income (loss) | 32,423 | (98,357 | ) | 22,847 | (171,868 | ) | 16,568 | 55,747 | 6,747 | (9,576 | ) | |||||||||||||||||||||
Amount attributable to non-controlling interests | 2,620 | 7,195 | 462 | 18,741 | ||||||||||||||||||||||||||||
Amount attributable to non-controlling interests from continuing operations | 583 | �� | (1,286 | ) | (2,535 | ) | (2,158 | ) | ||||||||||||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated from continuing operations | (2,370 | ) | 24,859 | (21,405 | ) | (38,414 | ) | |||||||||||||||||||||||||
Net income attributable to Granite Construction Incorporated from discontinued operations | 19,521 | 29,602 | 25,617 | 26,680 | ||||||||||||||||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated | $ | 35,043 | $ | (91,162 | ) | $ | 23,309 | $ | (153,127 | ) | $ | 17,151 | $ | 54,461 | $ | 4,212 | $ | (11,734 | ) | |||||||||||||
Net income (loss) per share attributable to common shareholders (see Note 14) | ||||||||||||||||||||||||||||||||
Net income (loss) per share attributable to common shareholders (see Note 16): | ||||||||||||||||||||||||||||||||
Basic continuing operations per share | $ | (0.05 | ) | $ | 0.54 | $ | (0.47 | ) | $ | (0.84 | ) | |||||||||||||||||||||
Basic discontinued operations per share | 0.44 | 0.65 | 0.57 | 0.58 | ||||||||||||||||||||||||||||
Basic earnings (loss) per share | $ | 0.39 | $ | 1.19 | $ | 0.10 | $ | (0.26 | ) | |||||||||||||||||||||||
Diluted continuing operations per share | $ | (0.05 | ) | $ | 0.52 | $ | (0.47 | ) | $ | (0.84 | ) | |||||||||||||||||||||
Diluted discontinued operations per share | 0.44 | 0.62 | 0.57 | 0.58 | ||||||||||||||||||||||||||||
Diluted earnings (loss) per share | $ | 0.39 | $ | 1.14 | $ | 0.10 | $ | (0.26 | ) | |||||||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.76 | $ | (2.00 | ) | $ | 0.51 | $ | (3.36 | ) | 44,534 | 45,798 | 45,128 | 45,748 | ||||||||||||||||||
Diluted | $ | 0.73 | $ | (2.00 | ) | $ | 0.49 | $ | (3.36 | ) | 44,534 | 47,798 | 45,128 | 45,748 | ||||||||||||||||||
Weighted average shares of common stock | ||||||||||||||||||||||||||||||||
Basic | 45,821 | 45,654 | 45,773 | 45,598 | ||||||||||||||||||||||||||||
Diluted | 47,906 | 45,654 | 47,522 | 45,598 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited - in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Net income (loss) | $ | 32,423 | $ | (98,357 | ) | $ | 22,847 | $ | (171,868 | ) | $ | 16,568 | $ | 55,747 | $ | 6,747 | $ | (9,576 | ) | |||||||||||||
Other comprehensive (loss) income, net of tax: | ||||||||||||||||||||||||||||||||
Net unrealized (loss) gain on derivatives | $ | (945 | ) | $ | (904 | ) | $ | 282 | $ | (3,999 | ) | |||||||||||||||||||||
Less: reclassification for net losses included in interest expense | 379 | 358 | 1,557 | 798 | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||||||||
Net unrealized gain (loss) on cash flow hedges | $ | (377 | ) | $ | 293 | $ | 2,059 | $ | 1,227 | |||||||||||||||||||||||
Less: reclassification for net gains included in interest expense | 1,282 | 568 | 3,042 | 1,178 | ||||||||||||||||||||||||||||
Net change | $ | (566 | ) | $ | (546 | ) | $ | 1,839 | $ | (3,201 | ) | $ | 905 | $ | 861 | $ | 5,101 | $ | 2,405 | |||||||||||||
Foreign currency translation adjustments, net | (151 | ) | 344 | (273 | ) | (156 | ) | (90 | ) | 103 | 646 | (122 | ) | |||||||||||||||||||
Other comprehensive (loss) income | $ | (717 | ) | $ | (202 | ) | $ | 1,566 | $ | (3,357 | ) | |||||||||||||||||||||
Other comprehensive income | $ | 815 | $ | 964 | $ | 5,747 | $ | 2,283 | ||||||||||||||||||||||||
Comprehensive income (loss) | $ | 31,706 | $ | (98,559 | ) | $ | 24,413 | $ | (175,225 | ) | $ | 17,383 | $ | 56,711 | $ | 12,494 | $ | (7,293 | ) | |||||||||||||
Non-controlling interests in comprehensive income | 2,620 | 7,195 | 462 | 18,741 | ||||||||||||||||||||||||||||
Non-controlling interests in comprehensive (income) loss | 583 | (1,286 | ) | (2,535 | ) | (2,158 | ) | |||||||||||||||||||||||||
Comprehensive income (loss) attributable to Granite Construction Incorporated | $ | 34,326 | $ | (91,364 | ) | $ | 24,875 | $ | (156,484 | ) | $ | 17,966 | $ | 55,425 | $ | 9,959 | $ | (9,451 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - in thousands, except share data)
Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||
Balances at June 30, 2021 | 45,818,719 | $ | 458 | $ | 556,615 | $ | (2,750 | ) | $ | 401,061 | $ | 955,384 | $ | 32,858 | $ | 988,242 | ||||||||||||||||
Net income (loss) | — | 0 | 0 | 0 | 35,043 | 35,043 | (2,620 | ) | 32,423 | |||||||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | (717 | ) | 0 | (717 | ) | 0 | (717 | ) | |||||||||||||||||||||
Purchases of common stock (1) | (2,683 | ) | 0 | (105 | ) | 0 | 0 | (105 | ) | 0 | (105 | ) | ||||||||||||||||||||
Restricted stock units (“RSUs”) vested | 10,399 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 0 | 0 | (5,958 | ) | (5,958 | ) | 0 | (5,958 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | 6,931 | 6,931 | ||||||||||||||||||||||||
Amortized RSUs and other | (26 | ) | 0 | 1,611 | (1 | ) | (72 | ) | 1,538 | 0 | 1,538 | |||||||||||||||||||||
Balances at September 30, 2021 | 45,826,409 | $ | 458 | $ | 558,121 | $ | (3,468 | ) | $ | 430,074 | $ | 985,185 | $ | 37,169 | $ | 1,022,354 | ||||||||||||||||
Balances at June 30, 2020 | 45,651,914 | $ | 458 | $ | 553,038 | $ | (5,800 | ) | $ | 520,025 | $ | 1,067,721 | $ | 23,039 | $ | 1,090,760 | ||||||||||||||||
Net loss | — | 0 | 0 | 0 | (91,162 | ) | (91,162 | ) | (7,195 | ) | (98,357 | ) | ||||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | (202 | ) | 0 | (202 | ) | 0 | (202 | ) | |||||||||||||||||||||
Purchases of common stock (1) | (1,352 | ) | 0 | (25 | ) | 0 | 0 | (25 | ) | 0 | (25 | ) | ||||||||||||||||||||
RSUs vested | 5,133 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 0 | 0 | (5,935 | ) | (5,935 | ) | 0 | (5,935 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | 1,549 | 1,549 | ||||||||||||||||||||||||
Amortized RSUs and other | (13 | ) | (1 | ) | 1,290 | 2 | (82 | ) | 1,209 | 0 | 1,209 | |||||||||||||||||||||
Balances at September 30, 2020 | 45,655,682 | $ | 457 | $ | 554,303 | $ | (6,000 | ) | $ | 422,846 | $ | 971,606 | $ | 17,393 | $ | 988,999 | ||||||||||||||||
Balances at December 31, 2020 | 45,668,541 | $ | 457 | $ | 555,407 | $ | (5,035 | ) | $ | 424,835 | $ | 975,664 | $ | 15,946 | $ | 991,610 | ||||||||||||||||
Net income (loss) | — | 0 | 0 | 0 | 23,309 | 23,309 | (462 | ) | 22,847 | |||||||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 1,566 | 0 | 1,566 | 0 | 1,566 | ||||||||||||||||||||||||
Purchases of common stock (1) | (65,283 | ) | (1 | ) | (2,602 | ) | 0 | 0 | (2,603 | ) | 0 | (2,603 | ) | |||||||||||||||||||
RSUs vested | 223,966 | 2 | (2 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 0 | 0 | (17,867 | ) | (17,867 | ) | 0 | (17,867 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | 21,685 | 21,685 | ||||||||||||||||||||||||
Amortized RSUs and other | (815 | ) | 0 | 5,318 | 1 | (203 | ) | 5,116 | 0 | 5,116 | ||||||||||||||||||||||
Balances at September 30, 2021 | 45,826,409 | $ | 458 | $ | 558,121 | $ | (3,468 | ) | $ | 430,074 | $ | 985,185 | $ | 37,169 | $ | 1,022,354 | ||||||||||||||||
Balances at December 31, 2019 | 45,503,805 | $ | 456 | $ | 549,307 | $ | (2,645 | ) | $ | 594,353 | $ | 1,141,471 | $ | 36,945 | $ | 1,178,416 | ||||||||||||||||
Net loss | — | 0 | 0 | 0 | (153,127 | ) | (153,127 | ) | (18,741 | ) | (171,868 | ) | ||||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | (3,357 | ) | 0 | (3,357 | ) | 0 | (3,357 | ) | |||||||||||||||||||||
Purchases of common stock (1) | (55,273 | ) | (1 | ) | (750 | ) | 0 | 0 | (751 | ) | 0 | (751 | ) | |||||||||||||||||||
RSUs vested | 173,493 | 2 | 0 | 0 | 0 | 2 | 0 | 2 | ||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 0 | 0 | (17,797 | ) | (17,797 | ) | 0 | (17,797 | ) | |||||||||||||||||||||
Effect of adopting Topic 326 | — | 0 | 0 | 0 | (366 | ) | (366 | ) | 0 | (366 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | (810 | ) | (810 | ) | ||||||||||||||||||||||
Amortized RSUs and other | 33,657 | 0 | 5,746 | 2 | (217 | ) | 5,531 | (1 | ) | 5,530 | ||||||||||||||||||||||
Balances at September 30, 2020 | 45,655,682 | $ | 457 | $ | 554,303 | $ | (6,000 | ) | $ | 422,846 | $ | 971,606 | $ | 17,393 | $ | 988,999 |
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 March 31, 2022 | 45,364,137 | $ | 454 | $ | 515,262 | $ | 1,573 | $ | 402,550 | $ | 919,839 | $ | 37,324 | $ | 957,163 | |||||||||||||||||
Net income (loss) | — | 0 | 0 | 0 | 17,151 | 17,151 | (583 | ) | 16,568 | |||||||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 815 | 0 | 815 | 0 | 815 | ||||||||||||||||||||||||
Repurchases of common stock (1) | (1,325,706 | ) | (13 | ) | (50,151 | ) | 0 | 0 | (50,164 | ) | 0 | (50,164 | ) | |||||||||||||||||||
Restricted stock units (“RSUs”) vested | 30,596 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 75 | 0 | (5,846 | ) | (5,771 | ) | 0 | (5,771 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | (3,425 | ) | (3,425 | ) | ||||||||||||||||||||||
Stock-based compensation expense and other | 9,442 | 0 | 1,973 | 0 | 76 | 2,049 | 0 | 2,049 | ||||||||||||||||||||||||
Balances at June 30, 2022 | 44,078,469 | $ | 441 | $ | 467,159 | $ | 2,388 | $ | 413,931 | $ | 883,919 | $ | 33,316 | $ | 917,235 | |||||||||||||||||
Balances at March 31, 2021 | 45,791,712 | $ | 458 | $ | 554,186 | $ | (3,714 | ) | $ | 352,610 | $ | 903,540 | $ | 27,655 | $ | 931,195 | ||||||||||||||||
Net income | — | 0 | 0 | 0 | 54,461 | 54,461 | 1,286 | 55,747 | ||||||||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 964 | 0 | 964 | 0 | 964 | ||||||||||||||||||||||||
Repurchases of common stock (1) | (4,982 | ) | 0 | (199 | ) | 0 | 0 | (199 | ) | 0 | (199 | ) | ||||||||||||||||||||
RSUs vested | 31,992 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 0 | 0 | (5,956 | ) | (5,956 | ) | 0 | (5,956 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | 3,917 | 3,917 | ||||||||||||||||||||||||
Stock-based compensation expense and other | (3 | ) | 0 | 2,628 | 0 | (54 | ) | 2,574 | 0 | 2,574 | ||||||||||||||||||||||
Balances at June 30, 2021 | 45,818,719 | $ | 458 | $ | 556,615 | $ | (2,750 | ) | $ | 401,061 | $ | 955,384 | $ | 32,858 | $ | 988,242 | ||||||||||||||||
Balances at December 31, 2021 | 45,840,260 | $ | 458 | $ | 559,752 | $ | (3,359 | ) | $ | 410,831 | $ | 967,682 | $ | 27,881 | $ | 995,563 | ||||||||||||||||
Cumulative effect of newly adopted accounting standard (see Note 2) | — | 0 | (26,961 | ) | 0 | 10,543 | (16,418 | ) | 0 | (16,418 | ) | |||||||||||||||||||||
Balances at January 1, 2022 | 45,840,260 | 458 | 532,791 | (3,359 | ) | 421,374 | 951,264 | 27,881 | 979,145 | |||||||||||||||||||||||
Net income | — | 0 | 0 | 0 | 4,212 | 4,212 | 2,535 | 6,747 | ||||||||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 5,747 | 0 | 5,747 | 0 | 5,747 | ||||||||||||||||||||||||
Repurchases of common stock (1) | (1,991,586 | ) | (19 | ) | (70,357 | ) | 0 | 0 | (70,376 | ) | 0 | (70,376 | ) | |||||||||||||||||||
RSUs vested | 220,766 | 2 | (2 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 144 | 0 | (11,731 | ) | (11,587 | ) | 0 | (11,587 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | 2,900 | 2,900 | ||||||||||||||||||||||||
Stock-based compensation expense and other | 9,029 | 0 | 4,583 | 0 | 76 | 4,659 | 0 | 4,659 | ||||||||||||||||||||||||
Balances at June 30, 2022 | 44,078,469 | $ | 441 | $ | 467,159 | $ | 2,388 | $ | 413,931 | $ | 883,919 | $ | 33,316 | $ | 917,235 | |||||||||||||||||
Balances at December 31, 2020 | 45,668,541 | $ | 457 | $ | 555,407 | $ | (5,035 | ) | $ | 424,835 | $ | 975,664 | $ | 15,946 | $ | 991,610 | ||||||||||||||||
Net income (loss) | — | 0 | 0 | 0 | (11,734 | ) | (11,734 | ) | 2,158 | (9,576 | ) | |||||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 2,283 | 0 | 2,283 | 0 | 2,283 | ||||||||||||||||||||||||
Repurchases of common stock (1) | (62,600 | ) | (1 | ) | (2,497 | ) | 0 | 0 | (2,498 | ) | 0 | (2,498 | ) | |||||||||||||||||||
RSUs vested | 213,567 | 2 | (2 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | 0 | 0 | 0 | (11,909 | ) | (11,909 | ) | 0 | (11,909 | ) | |||||||||||||||||||||
Transactions with non-controlling interests | — | 0 | 0 | 0 | 0 | 0 | 14,754 | 14,754 | ||||||||||||||||||||||||
Stock-based compensation expense and other | (789 | ) | 0 | 3,707 | 2 | (131 | ) | 3,578 | 0 | 3,578 | ||||||||||||||||||||||
Balances at June 30, 2021 | 45,818,719 | $ | 458 | $ | 556,615 | $ | (2,750 | ) | $ | 401,061 | $ | 955,384 | $ | 32,858 | $ | 988,242 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Nine Months Ended September 30, | 2021 | 2020 | ||||||||||||||
Six Months Ended June 30, | 2022 | 2021 | ||||||||||||||
Operating activities | ||||||||||||||||
Net income (loss) | $ | 22,847 | $ | (171,868 | ) | $ | 6,747 | $ | (9,576 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||||||
Depreciation, depletion and amortization | 81,008 | 84,713 | 32,328 | 52,853 | ||||||||||||
Amortization related to the 2.75% Convertible Notes (see Note 13) | 7,038 | 6,458 | ||||||||||||||
Gain on sales of property and equipment, net (see Note 12) | (39,349 | ) | (4,870 | ) | ||||||||||||
Amortization related to long-term debt (see Note 15) | 1,423 | 4,666 | ||||||||||||||
Gain on sale of discontinued operations (see Note 3) | (6,234 | ) | 0 | |||||||||||||
Gain on sales of property and equipment, net | (9,513 | ) | (34,190 | ) | ||||||||||||
Deferred income taxes | 2,545 | 0 | ||||||||||||||
Stock-based compensation | 5,181 | 5,203 | 4,376 | 3,642 | ||||||||||||
Equity in net (income) loss from unconsolidated joint ventures | (8,027 | ) | 38,529 | 17,228 | (6,972 | ) | ||||||||||
Net income from affiliates | (10,578 | ) | (4,415 | ) | ||||||||||||
Non-cash impairment charges (see Note 3) | 0 | 156,690 | ||||||||||||||
Net loss from affiliates | (6,165 | ) | (8,039 | ) | ||||||||||||
Other non-cash adjustments | 664 | 3,067 | (84 | ) | 1,483 | |||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accrual for legal settlement (see Note 16) | 129,000 | 0 | ||||||||||||||
Insurance receivable for legal settlement (see Note 16) | (63,000 | ) | 0 | |||||||||||||
Deposit/insurance receivable for legal settlement (see Note 18) | 0 | (63,000 | ) | |||||||||||||
Receivables | (81,072 | ) | (98,118 | ) | (69,114 | ) | (48,584 | ) | ||||||||
Contract assets, net | (17,155 | ) | 144,558 | (71,282 | ) | (28,111 | ) | |||||||||
Inventories | 4,951 | (13,226 | ) | (18,618 | ) | (6,062 | ) | |||||||||
Contributions to unconsolidated construction joint ventures | (61,780 | ) | (38,044 | ) | (33,563 | ) | (47,580 | ) | ||||||||
Distributions from unconsolidated construction joint ventures and affiliates | 14,379 | 9,279 | 6,522 | 7,029 | ||||||||||||
Other assets, net | (102 | ) | (6,208 | ) | 15,627 | (7,197 | ) | |||||||||
Accounts payable | 47,223 | (16,559 | ) | 17,983 | 26,056 | |||||||||||
Accrual for expected resolution of SEC investigation (see Note 18) | 12,000 | 0 | ||||||||||||||
Accrual for legal settlement (see Note 18) | 0 | 129,000 | ||||||||||||||
Accrued expenses and other liabilities, net | 28,694 | 43,477 | (5,484 | ) | 3,578 | |||||||||||
Net cash provided by operating activities | 59,922 | 138,666 | ||||||||||||||
Net cash used in operating activities | $ | (103,278 | ) | $ | (31,004 | ) | ||||||||||
Investing activities | ||||||||||||||||
Purchases of marketable securities | (5,000 | ) | (9,996 | ) | (49,968 | ) | (5,000 | ) | ||||||||
Maturities of marketable securities | 0 | 10,000 | ||||||||||||||
Proceeds from called marketable securities | 0 | 24,996 | ||||||||||||||
Purchases of property and equipment | (72,964 | ) | (74,901 | ) | (73,216 | ) | (46,437 | ) | ||||||||
Proceeds from sales of property and equipment (see Note 12) | 58,002 | 12,283 | ||||||||||||||
Other investing activities, net | 2,581 | (4,283 | ) | |||||||||||||
Net cash used in investing activities | (17,381 | ) | (41,901 | ) | ||||||||||||
Proceeds from sales of property and equipment | 15,289 | 48,517 | ||||||||||||||
Proceeds from the sale of discontinued operations (see Note 3) | 142,571 | 0 | ||||||||||||||
Issuance of notes receivable | (4,560 | ) | 0 | |||||||||||||
Collection of notes receivable | 201 | 4,581 | ||||||||||||||
Net cash provided by investing activities | $ | 30,317 | $ | 1,661 | ||||||||||||
Financing activities | ||||||||||||||||
Proceeds from debt | 0 | 50,000 | ||||||||||||||
Proceeds from long-term debt | 50,000 | 0 | ||||||||||||||
Debt principal repayments | (6,795 | ) | (6,321 | ) | (124,660 | ) | (4,677 | ) | ||||||||
Cash dividends paid | (17,846 | ) | (17,777 | ) | (11,857 | ) | (11,890 | ) | ||||||||
Repurchases of common stock | (2,603 | ) | (753 | ) | ||||||||||||
Repurchases of common stock (See Note 1) | (70,374 | ) | (2,497 | ) | ||||||||||||
Contributions from non-controlling partners | 15,701 | 9,250 | 6,327 | 11,350 | ||||||||||||
Distributions to non-controlling partners | (3,022 | ) | (10,060 | ) | (6,700 | ) | (5,836 | ) | ||||||||
Other financing activities, net | (63 | ) | 324 | 209 | (62 | ) | ||||||||||
Net cash (used in) provided by financing activities | (14,628 | ) | 24,663 | |||||||||||||
Net increase in cash, cash equivalents and restricted cash | 27,913 | 121,428 | ||||||||||||||
Cash, cash equivalents and $1,512 and $5,835 in restricted cash at beginning of period | 437,648 | 268,108 | ||||||||||||||
Cash, cash equivalents and $1,512 in restricted cash at end of each period | $ | 465,561 | $ | 389,536 | ||||||||||||
Net cash used in financing activities | $ | (157,055 | ) | $ | (13,612 | ) | ||||||||||
Net decrease in cash, cash equivalents and restricted cash | (230,016 | ) | (42,955 | ) | ||||||||||||
Cash, cash equivalents and $1,512 in restricted cash at beginning of each period | 413,655 | 437,648 | ||||||||||||||
Cash, cash equivalents and $0 and $1,512 in restricted cash at end of each period | $ | 183,639 | $ | 394,693 | ||||||||||||
Less: Cash, cash equivalents and $0 and $1,512 in restricted cash included in current assets held-for-sale at end of each period | 8,617 | 17,073 | ||||||||||||||
Cash and cash equivalents of continuing operations at end of period | $ | 175,022 | $ | 377,620 | ||||||||||||
Supplementary Information | ||||||||||||||||
Right of use assets obtained in exchange for lease obligations | $ | 13,731 | $ | 9,486 | $ | 8,167 | $ | 7,997 | ||||||||
Cash paid for operating lease liabilities | 16,967 | 16,137 | $ | 11,667 | $ | 10,956 | ||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 9,215 | $ | 11,966 | $ | 6,786 | $ | 8,078 | ||||||||
Income taxes | 1,869 | 2,360 | $ | 1,553 | $ | 1,817 | ||||||||||
Non-cash investing and financing activities: | ||||||||||||||||
RSUs issued, net of forfeitures | $ | 7,563 | $ | 4,685 | $ | 7,688 | $ | 7,554 | ||||||||
Dividends declared but not paid | 5,957 | 5,935 | $ | 5,730 | $ | 5,956 | ||||||||||
Contributions from non-controlling partners | 9,006 | 0 | $ | 3,274 | $ | 9,240 | ||||||||||
Accrued equipment purchases | $ | (5,149 | ) | $ | 3,024 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20202021 (“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 SeptemberJune 30, 20212022 and 20202021 and the results of our operations and cash flows for the periods presented. The December 31, 20202021 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements. Our policy related to derivative instruments was expanded, as follows, to reflect treatmentstatements, 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 interest rate swap de-designation that occurred duringEffects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) and 2021-01,Reference Rate Reform (Topic848): Scope (“ASU 2021-01”), on June 30, 2022, the impacts of which are described in Note 2.
Out-of-period Adjustments: In the second quarter of 2022, we recorded immaterial out-of-period adjustments which resulted in a net $4.1 million increase to loss from continuing operations before income taxes for the three months ended June 30, 2021,2022 with no net impact on the six months ended June 30, 2022. Management has determined that these errors were not material to any of its previously issued financial statements.
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 $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. The final number of shares to be repurchased under the Accelerated Share Repurchase will be based on the average of the daily volume-weighted average price of Granite’s common stock, less a discount, during the term of the Accelerated Share Repurchase; final settlement is furtherexpected to occur in the third quarter of 2022. 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 Statement of Cash Flows.
As discussed in more detail in Note 9.3,
Derivative Instruments: We recognize derivative instruments as either assets or liabilities we concluded that our former Water and Mineral Services operating group (“WMS”) met the criteria for held for sale during the fourth quarter of 2021 and met the criteria for discontinued operation classification. As a result, WMS is presented in the consolidated balance sheets at fair value using Level 2 inputs. To receive hedge accounting treatment, derivative instruments that are designated as cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. We formally document our hedge relationships at inception, including identification of the hedging instruments and the hedged items, our risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument’s effectiveness in offsetting changes in the fair value of the hedged items. The effective portion of the gain or loss on cash flow hedges is reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified to thecondensed consolidated statements of operations whenas discontinued operations for all periods presented. Current and non-current assets and liabilities of these businesses are presented in the periodic hedged cash flows are settled. Adjustments to fair value on derivatives that are not part of a designated hedging relationship are reported through thecondensed consolidated statements of operations. We do not enter into derivative instrumentsbalance sheets as assets and liabilities held for speculative or trading purposes.sale.
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 ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results to be expected for the full year.
Cash, Cash Equivalents and Restricted Cash: The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):
Nine months ended September 30, | 2021 | 2020 | ||||||
Cash, cash equivalents and restricted cash, beginning of period | $ | 437,648 | $ | 268,108 | ||||
End of the period | ||||||||
Cash and cash equivalents | 464,049 | 388,024 | ||||||
Restricted cash | 1,512 | 1,512 | ||||||
Total cash, cash equivalents and restricted cash, end of period | 465,561 | 389,536 | ||||||
Net increase in cash, cash equivalents and restricted cash | $ | 27,913 | $ | 121,428 |
|
2. Recently Issued and Adopted Accounting Pronouncements
In AugustMarch 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income as we issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method for convertible debt. The ASU is effective commencing with our quarter ending March 31, 2022. We currently anticipate adopting this ASU using the modified retrospective transition approach.
Upon issuance of the 2.75% convertible senior notes due 2024 (“2.75% Convertible Notes”), cash received was separated into a $192.6 million debt component and a $27.9 million (net of $9.5 million in taxes) equity component. We have been increasing the debt component for the difference between the principal amount and the $192.6 million (“debt discount”) with an offset to interest expense over the life of the loan using an effective interest rate. Upon adoption of ASU 2020-06, interest expense previously recorded and remaining to be recorded from the debt discount will be reversed through retained earnings with an offset to debt, net of tax. We estimate this impact to long-term debt and retained earnings to be between $20 million and $40 million. In addition, using the if-converted method as compared to the treasury stock method may have a material impact to diluted earnings per share if the Company is in a net income position.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. Also, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic848): Scope, which provided clarification guidance to ASU 2020-04. TheseWe adopted these ASUs are effective at our option beginning with ourduring the quarter ended March 31, 2020 through December 31,June 30, 2022, and we expect to adopt in the second quarter of 2022. Asconjunction with entering into our ThirdFourth Amended and Restated Credit Agreement dated(see Note May 18, 2021, 15as subsequently amended (the “Credit Agreement”), which replaced the London Interbank Offered Rate (“LIBOR”) currently incorporateswith the useSecured Overnight Financing Rate ("SOFR") administered by the Federal Reserve Bank of the secured overnight financingNew York for purposes of interest rate as an alternative to LIBOR, we do not expect thecalculation. The adoption of these ASUs todid not have a material impact on our condensed consolidated financial statements.
In August 2020,
As of June 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 $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 October 30, 2024.
The conversion rate applicable to the 2.75% Convertible Notes is 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 $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 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 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 $53.44, the exercise price of warrants.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. Impairment ChargesDiscontinued Operations
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 includes: our trenchless and Other Costs
Goodwill
pipe rehabilitation services business (“Inliner”); our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). After consideration of the relevant facts, we concluded the assets and liabilities of our WMS businesses met the criteria for classification as held for sale. We performconcluded the proposed disposal activities represented a strategic shift that would have a major effect on our goodwill impairment tests annuallyoperations 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. Accordingly, the financial results of these businesses are presented in the condensed consolidated statement of operations as discontinued operations for all periods presented. Current and non-current assets and liabilities of these businesses not sold as of November 1 the balance sheet date are presented in the condensed consolidated balance sheets as assets and more frequently when events and circumstances occur that indicate a possible impairment of goodwill. There were no events or circumstances during the nine months ended September 30,2021 that would indicate a possible goodwill impairment. liabilities held for sale for all periods presented.
We performed an interim goodwill impairment test on theOn March 16, 2022, we completed the sale of Inliner to Inland Pipe Rehabilitation LLC (“IPR”) and 31,1000097155 2020 balancesOntario Inc. (“Ontario” and together with IPR, the “Purchasers”), investment affiliates of our WaterJ.F. Lehman & Company, 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 Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units due to an adverse changewe recognized a gain of $6.2 million. The gain on sale was included in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidationnet income from discontinued operations in the condensed consolidated statements of operations during the three months ended March 31, 2020,2022. exacerbatedThe Water Resources and Mineral Services businesses continued to meet the criteria for classification as held-for-sale and the financial results remain in discontinued operations as of June 30, 2022 and are expected to be sold by economic disruptionthe end of 2022.
The following table presents summarized balance sheet information of assets and market conditions associated with the COVID-liabilities held-for-sale:
(in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||
Cash and cash equivalents | $ | 8,617 | $ | 16,496 | $ | 15,561 | ||||||
Receivables, net | 62,626 | 102,208 | 103,024 | |||||||||
Contract assets | 19,148 | 41,340 | 39,941 | |||||||||
Inventories | 12,490 | 19,625 | 21,840 | |||||||||
Other current assets | 1,142 | 1,781 | 3,901 | |||||||||
Property and equipment, net | 38,767 | 70,912 | 84,247 | |||||||||
Investments in affiliates | 53,240 | 48,675 | 50,309 | |||||||||
Goodwill | 19,985 | 63,063 | 63,124 | |||||||||
Right of use assets | 6,032 | 12,365 | 12,038 | |||||||||
Other noncurrent assets | 732 | 16,176 | 20,410 | |||||||||
Total assets classified as held-for-sale | $ | 222,779 | $ | 392,641 | $ | 414,395 | ||||||
Accounts payable | $ | 18,429 | $ | 37,997 | $ | 44,850 | ||||||
Contract liabilities | 3,466 | 7,129 | 8,435 | |||||||||
Other current liabilities | 21,737 | 27,764 | 26,202 | |||||||||
Long-term lease liabilities | 3,060 | 8,352 | 8,239 | |||||||||
Other long-term liabilities | 14 | 2,166 | 2,337 | |||||||||
Total liabilities classified as held-for-sale | $ | 46,706 | $ | 83,408 | $ | 90,063 |
The following table represents summarized statements of operations information of discontinued operations (in thousands):
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | $ | 85,554 | $ | 129,501 | $ | 188,516 | $ | 233,082 | ||||||||
Cost of revenue | 70,386 | 110,787 | 159,113 | 204,762 | ||||||||||||
Gross profit | 15,168 | 18,714 | 29,403 | 28,320 | ||||||||||||
Selling, general and administrative expenses | 6,960 | 15,440 | 18,580 | 30,008 | ||||||||||||
Other costs | (3,565 | ) | 85 | (2,223 | ) | 1,611 | ||||||||||
Gain on sale of discontinued operations | 0 | 0 | (6,234 | ) | 0 | |||||||||||
Gain on sales of property and equipment, net (1), (2) | (8,530 | ) | (30,583 | ) | (8,796 | ) | (30,893 | ) | ||||||||
Operating income | 20,303 | 33,772 | 28,076 | 27,594 | ||||||||||||
Other income, net | (4,426 | ) | (3,739 | ) | (6,034 | ) | (6,297 | ) | ||||||||
Income from discontinued operations before income taxes | 24,729 | 37,511 | 34,110 | 33,891 | ||||||||||||
Provision for income taxes | 5,208 | 7,909 | 8,493 | 7,211 | ||||||||||||
Net income from discontinued operations | $ | 19,521 | $ | 29,602 | $ | 25,617 | $ | 26,680 |
(191) In June 2021, we completed a sale-leaseback transaction for two pandemic. These factors led to reductionsproperties in the revenue and margin growth rates used in our quantitative goodwill tests.California. The goodwill impairment testsale of these properties resulted in a $14.8reduction in net property and equipment of $11.1 million impairment charge during the three months ended March 31,2020 associated with our Water and Mineral Services Group Materials reporting unita $2.4 million addition to both right of use assets and 0 impairment charge associated with our Water and Minerals Services Group Specialty reporting unit as its estimated fair value exceeded its net book value (i.e., headroom) by over 15%. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment.
We performed a second interim goodwill impairment testlease liabilities on the September 30,2020 balancesheld-for-sale balance sheets, as well as a $29.7 million gain on sales of our Midwest Group Specialty, Waterproperty and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due toequipment on the continued impact from an adverse changediscontinued operations statements of operations.
(2) In June 2022, we completed a sale-leaseback transaction on a property in the business climate, including reduced market share due to lossArizona. The sale of strategic personnel during the three months ended September 30, 2020. These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests. The goodwill impairment testthis property resulted in a non-cash impairment chargereduction in net property and equipment of an additional $117.9$3.8 million and $14.4a $1.1 million associated with our Wateraddition to both right of use assets and Mineral Services Group Waterlease liabilities on the held-for-sale balance sheets, as well as an $8.2 million gain on sales of property and Water and Mineral Services Group Materials reporting units, respectively, duringequipment on the discontinued operations statements of operations.
As required per ASC Topic three205-20, months ended September 30, 2020.Presentation of financial statements - Discontinued operations, The goodwill impairment test for the Midwest Group Specialty reporting unit indicated that its estimated fair value exceeded its net book value (i.e., headroom) by over 15%; therefore, no impairment charge was recorded. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment.
Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherentcomponents included in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.
Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs.
Investments in Affiliates
Investments in affiliates are evaluated for impairment using the other-than-temporary impairment model, which requires an impairment charge to be recognized if our investments’ carrying amounts exceed their fair value, and the decline in fair value is deemed to be other than temporary. There were no events or changes in circumstances which would cause us to assess our investments for impairment during the nine months ended September 30,2021 or during the three months ended September 30, 2020.
During the three months ended March 31,2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand. The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary declines in fair value below the carrying values. Therefore, we recorded a non-cash impairment charge of $9.6 million during the nine months ended September 30, 2020 using assumptions classified as Level 3 inputs.
Other Costs
Other costs included on the condensed consolidated statementsstatement of operations primarily consisted of $66.0 million in net settlement chargescash flows for the discontinued operations are as follows (in thousands):
Six months ended June 30, | 2022 | 2021 | ||||||
Depreciation, depletion and amortization (1) | $ | 0 | $ | 20,239 | ||||
Gain on sale of discontinued operations | $ | 6,234 | $ | 0 | ||||
Gain on sale of property and equipment | $ | 8,796 | $ | 30,893 | ||||
Purchases of property and equipment | $ | 5,597 | $ | 7,775 | ||||
Proceeds from sales of property and equipment | $ | 12,697 | $ | 44,287 | ||||
Proceeds from sale of discontinued operations | $ | 142,571 | $ | 0 |
(nine1) In accordance with ASC Topic 360, months endedProperty, 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 as of September December 31, 2021.30,2021 as further described in Note 16. Other costs also included $3.5 million and $16.9 million for the three and nine months ended September 30, 2021, respectively, and $9.7 million and $28.4 million for the three and nine months ended September 30, 2020, respectively,
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 changesrevisions 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 ninesix months ended SeptemberJune 30, 20212022 and 20202021, we did not identify any material amounts that should have been recorded in a prior period.
There were no increases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, for the periods presented.
Decreases for all periods presented were in our Transportation segment except for one project in the Water segment during the nine months ended September 30, 2021 and one project in the Specialty segment during each period in 2020 and the nine months ended September 30, 2021. The projects with decreases from revisions in estimates, which individually had an impact of $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 | 2020 | 2021 | 2020 | |||||||||||||
Number of projects with downward estimate changes | 2 | 3 | 5 | 6 | ||||||||||||
Amount/range of reduction in gross profit from each project, net | $ | 5.7 - 10.9 | $ | 7.2 - 17.8 | $ | 5.5 - 16.2 | $ | 6.5 - 37.6 | ||||||||
Decrease to project profitability | 16.6 | 32.2 | 48.2 | 107.5 | ||||||||||||
Decrease to net income/increase to net loss | 13.0 | 21.7 | 37.7 | 72.6 | ||||||||||||
Amounts attributable to non-controlling interests | 5.5 | 8.9 | 10.0 | 26.3 | ||||||||||||
Decrease to net income/increase to net loss attributable to Granite Construction Incorporated | 7.5 | 12.8 | 27.7 | 46.3 | ||||||||||||
Decrease to net income/increase to net loss per diluted share attributable to common shareholders (1) | 0.16 | 0.28 | 0.58 | 1.01 |
(1) The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued September 30, 2020 condensed consolidated financial statements.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Number of projects with downward estimate changes | 4 | 0 | 5 | 2 | ||||||||||||
Range of reduction in gross profit from each project, net | $ | 5.7 - 7.6 | $ | 0 | $ | 5.6 - 10.6 | $ | 5.3 - 6.1 | ||||||||
Decrease to project profitability | $ | 25.2 | $ | 0 | $ | 35.6 | $ | 11.4 | ||||||||
Decrease to net income/increase to net loss from continuing operations | $ | 19.3 | $ | 0 | $ | 27.3 | $ | 8.9 | ||||||||
Amounts attributable to non-controlling interests | $ | 3.0 | $ | 0 | $ | 3.0 | $ | 2.6 | ||||||||
Decrease to net income/increase to net loss attributable to Granite Construction Incorporated from continuing operations | $ | 16.3 | $ | 0 | $ | 24.2 | $ | 6.3 | ||||||||
Decrease to net income/increase to net loss per diluted share attributable to common shareholders from continuing operations | $ | 0.37 | $ | 0 | $ | 0.54 | $ | 0.14 |
The decreases during the three and ninesix months ended SeptemberJune 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 six months ended June 30, 2021 were due to additional costs from acceleration of work coupled with lower productivity and higher costs than originally anticipated. The decreases during the nine months ended September 30, 2021 were also due to unfavorable weather and extended project duration. The decreases during the three and nine months ended September 30, 2020 were due to additional costs from differing site conditions, lower productivity than originally anticipated and unfavorable weather.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 from continuing operations are: California, Central and Mountain. The following tables present our disaggregated revenue from continuing operations by operating group (in thousands):
Three Months Ended SeptemberJune 30,
2021 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
California | $ | 191,146 | $ | 8,531 | $ | 56,364 | $ | 76,029 | $ | 332,070 | ||||||||||
Federal | 4,442 | 9 | 29,347 | 0 | 33,798 | |||||||||||||||
Heavy Civil | 138,201 | 7,799 | 34,424 | 0 | 180,424 | |||||||||||||||
Midwest | 34,767 | 0 | 25,608 | 0 | 60,375 | |||||||||||||||
Northwest | 199,630 | 2,124 | 61,030 | 56,403 | 319,187 | |||||||||||||||
Water and Mineral Services | 0 | 103,505 | 27,527 | 5,243 | 136,275 | |||||||||||||||
Total | $ | 568,186 | $ | 121,968 | $ | 234,300 | $ | 137,675 | $ | 1,062,129 |
2022 | Construction | Materials | Total | |||||||||
California | $ | 199,357 | $ | 71,572 | $ | 270,929 | ||||||
Central | 207,406 | 13,901 | 221,307 | |||||||||
Mountain | 225,497 | 50,553 | 276,050 | |||||||||
Total | $ | 632,260 | $ | 136,026 | $ | 768,286 |
2020 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
California | $ | 224,636 | $ | 10,498 | $ | 62,623 | $ | 75,901 | $ | 373,658 | ||||||||||
Federal | 3,140 | 341 | 28,765 | 0 | 32,246 | |||||||||||||||
Heavy Civil | 165,434 | 9,985 | 12,892 | 0 | 188,311 | |||||||||||||||
Midwest | 43,896 | 0 | 24,392 | 0 | 68,288 | |||||||||||||||
Northwest | 186,893 | 444 | 57,247 | 48,674 | 293,258 | |||||||||||||||
Water and Mineral Services | 0 | 85,331 | 19,215 | 4,882 | 109,428 | |||||||||||||||
Total | $ | 623,999 | $ | 106,599 | $ | 205,134 | $ | 129,457 | $ | 1,065,189 |
2021 | Construction | Materials | Total | |||||||||
California | $ | 228,631 | $ | 70,490 | $ | 299,121 | ||||||
Central | 287,994 | 10,720 | 298,714 | |||||||||
Mountain | 196,800 | 40,036 | 236,836 | |||||||||
Total | $ | 713,425 | $ | 121,246 | $ | 834,671 |
Nine Months EndedSix months ended SeptemberJune 30,
2021 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
California | $ | 478,823 | $ | 27,512 | $ | 153,497 | $ | 188,475 | $ | 848,307 | ||||||||||
Federal | 9,593 | 166 | 70,280 | 0 | 80,039 | |||||||||||||||
Heavy Civil | 445,812 | 21,197 | 82,651 | 0 | 549,660 | |||||||||||||||
Midwest | 83,945 | 0 | 71,376 | 0 | 155,321 | |||||||||||||||
Northwest | 426,277 | 4,202 | 138,487 | 124,564 | 693,530 | |||||||||||||||
Water and Mineral Services | 0 | 282,076 | 73,954 | 13,327 | 369,357 | |||||||||||||||
Total | $ | 1,444,450 | $ | 335,153 | $ | 590,245 | $ | 326,366 | $ | 2,696,214 |
2022 | Construction | Materials | Total | |||||||||
California | $ | 343,744 | $ | 117,259 | $ | 461,003 | ||||||
Central | 431,499 | 24,263 | 455,762 | |||||||||
Mountain | 331,952 | 67,155 | 399,107 | |||||||||
Total | $ | 1,107,195 | $ | 208,677 | $ | 1,315,872 |
2020 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
California | $ | 478,590 | $ | 24,225 | $ | 158,076 | $ | 161,397 | $ | 822,288 | ||||||||||
Federal | 5,306 | 1,309 | 78,760 | 0 | 85,375 | |||||||||||||||
Heavy Civil | 519,963 | 28,260 | 27,963 | 0 | 576,186 | |||||||||||||||
Midwest | 103,081 | 152 | 74,543 | 0 | 177,776 | |||||||||||||||
Northwest | 403,061 | 4,344 | 125,647 | 103,812 | 636,864 | |||||||||||||||
Water and Mineral Services | 0 | 259,690 | 48,098 | 10,610 | 318,398 | |||||||||||||||
Total | $ | 1,510,001 | $ | 317,980 | $ | 513,087 | $ | 275,819 | $ | 2,616,887 |
2021 | Construction | Materials | Total | |||||||||
California | $ | 387,897 | $ | 112,446 | $ | 500,343 | ||||||
Central | 541,287 | 19,100 | 560,387 | |||||||||
Mountain | 291,212 | 49,061 | 340,273 | |||||||||
Total | $ | 1,220,396 | $ | 180,607 | $ | 1,401,003 |
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. Unearned Revenue
The following tables presenttable presents our unearned revenue from continuing operations as of the respective periods (in thousands):periods:
September 30, 2021 | Transportation | Water | Specialty | Total | ||||||||||||
California | $ | 695,445 | $ | 35,972 | $ | 114,178 | $ | 845,595 | ||||||||
Federal | 40,477 | 65 | 75,827 | 116,369 | ||||||||||||
Heavy Civil | 513,590 | 154,005 | 124,026 | 791,621 | ||||||||||||
Midwest | 85,755 | 0 | 287,144 | 372,899 | ||||||||||||
Northwest | 468,397 | 3,731 | 273,622 | 745,750 | ||||||||||||
Water and Mineral Services | 0 | 159,958 | 0 | 159,958 | ||||||||||||
Total | $ | 1,803,664 | $ | 353,731 | $ | 874,797 | $ | 3,032,192 |
(in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||
California | $ | 873,322 | $ | 771,759 | $ | 969,444 | ||||||
Central | 1,344,902 | 1,334,901 | 1,662,168 | |||||||||
Mountain | 666,652 | 488,425 | 667,359 | |||||||||
Total | $ | 2,884,876 | $ | 2,595,085 | $ | 3,298,971 |
June 30, 2021 | Transportation | Water | Specialty | Total | ||||||||||||
California | $ | 769,260 | $ | 44,066 | $ | 150,178 | $ | 963,504 | ||||||||
Federal | 7,303 | 73 | 102,972 | 110,348 | ||||||||||||
Heavy Civil | 622,491 | 161,632 | 172,818 | 956,941 | ||||||||||||
Midwest | 107,630 | 0 | 295,447 | 403,077 | ||||||||||||
Northwest | 568,814 | 3,891 | 292,395 | 865,100 | ||||||||||||
Water and Mineral Services | 0 | 153,051 | 0 | 153,051 | ||||||||||||
Total | $ | 2,075,498 | $ | 362,713 | $ | 1,013,810 | $ | 3,452,021 |
September 30, 2020 | Transportation | Water | Specialty | Total | ||||||||||||
California | $ | 562,988 | $ | 52,598 | $ | 115,748 | $ | 731,334 | ||||||||
Federal | 13,787 | 494 | 107,273 | 121,554 | ||||||||||||
Heavy Civil | 1,060,034 | 24,803 | 224,427 | 1,309,264 | ||||||||||||
Midwest | 169,538 | 0 | 106,694 | 276,232 | ||||||||||||
Northwest | 505,559 | 721 | 50,752 | 557,032 | ||||||||||||
Water and Mineral Services | 0 | 118,938 | 0 | 118,938 | ||||||||||||
Total | $ | 2,311,906 | $ | 197,554 | $ | 604,894 | $ | 3,114,354 |
All unearned revenue is in the Construction segment. Approximately $2.3$2.4 billion of the SeptemberJune 30, 20212022 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.
7.Other Costs
Other costs included in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 primarily consisted of $12 million in accrued charges related to the expected resolution of the SEC investigation as further described in Note 18. Other costs also included $4.8 million and $10.6 million for the three and six months ended June 30, 2022, respectively, of non-recurring legal fees related to the lawsuits discussed in Note 18, and $2.9 million and $5.5 million, respectively, of costs related to strategic acquisition and divestiture costs. Other costs for the six months ended June 30, 2021 primarily consisted of $66 million in net settlement charges as further described in Note 18. Other costs also included $6.2 million and $13.4 million for the three and six months ended June 30, 2021, respectively, of non-recurring legal and accounting fees related to the Audit/Compliance Committee’s independent investigation of prior-period reporting for the former Heavy Civil operating group, which was completed in early 2021.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7.8. Contract Assets and Liabilities
As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $5.8 million and $181.4 million during the three and nine months ended September 30, 2021, respectively, and $3.5 million and $117.5 million during the three and nine months ended September 30, 2020, respectively, that was included in the contract liability balances at December 31, 2020 and 2019, respectively.
As a result of changes in contract transaction price from items such as executed or estimated change orders and resolution of contract modifications and claims, we recognized revenue of $37.2 million and $153.6 million during the three and nine months ended September 30, 2021, respectively, and $55.5 million and $149.3 million during the three and nine months ended September 30, 2020, respectively, related to performance obligations that were satisfied or partially satisfied prior to the end of the periods.periods, we recognized revenue of $71.0 million and $112.1 million during the three and six months ended June 30, 2022, respectively, and $39.4 million and $100.9 million during the three and six months ended 2021, respectively. The prior period amounts have been adjusted to correct an immaterial disclosure errorchanges in the previously issued September 30, 2020 condensed consolidated financial statements.contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.
As of SeptemberJune 30, 20212022, December 31, 20202021 and SeptemberJune 30, 20202021, the aggregate claim recovery estimates included in contract asset balances were $40.4$59.1 million, $37.7$39.0 million and $29.2$47.7 million, respectively.
The components of the contract asset balances as of the respective dates were as follows:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Costs in excess of billings and estimated earnings | $ | 61,815 | $ | 39,300 | $ | 39,623 | $ | 47,184 | $ | 14,158 | $ | 46,771 | ||||||||||||
Contract retention | 142,231 | 125,639 | 120,316 | 143,003 | 131,279 | 107,771 | ||||||||||||||||||
Total contract assets | $ | 204,046 | $ | 164,939 | $ | 159,939 | $ | 190,187 | $ | 145,437 | $ | 154,542 |
As of SeptemberJune 30, 20212022, December 31, 20202021 and SeptemberJune 30, 20202021, contract retention receivable from Brightline Trains Florida LLC represented 14.2%, 17.2% and 14.0%, respectively, of total contract assets. noNo other contract retention receivable individually exceeded 15%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 $47.7 million and $207.6 million during the three and six months ended June 30, 2022, respectively, and $28.4 and $167.6 during the three and six months ended June 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, 2021 | December 31, 2020 | September 30, 2020 | |||||||||
Billings in excess of costs and estimated earnings, net of retention | $ | 166,091 | $ | 143,623 | $ | 168,383 | ||||||
Provisions for losses | 29,176 | 27,698 | 21,047 | |||||||||
Total contract liabilities | $ | 195,267 | $ | 171,321 | $ | 189,430 |
(in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||
Billings in excess of costs and estimated earnings, net of retention | $ | 159,541 | $ | 169,542 | $ | 139,327 | ||||||
Provisions for losses | 19,781 | 30,499 | 27,088 | |||||||||
Total contract liabilities | $ | 179,322 | $ | 200,041 | $ | 166,415 |
8.9. 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:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Contracts completed and in progress: | ||||||||||||||||||||||||
Billed | $ | 278,313 | $ | 293,376 | $ | 355,293 | $ | 221,084 | $ | 236,053 | $ | 187,188 | ||||||||||||
Unbilled | 217,534 | 148,159 | 167,311 | 160,336 | 126,371 | 189,332 | ||||||||||||||||||
Total contracts completed and in progress | 495,847 | 441,535 | 522,604 | 381,420 | 362,424 | 376,520 | ||||||||||||||||||
Material sales | 80,357 | 49,991 | 70,918 | |||||||||||||||||||||
Materials sales | 75,634 | 43,746 | 64,017 | |||||||||||||||||||||
Other | 110,302 | 52,736 | 71,691 | 71,352 | 59,496 | 104,756 | ||||||||||||||||||
Total gross receivables | 686,506 | 544,262 | 665,213 | 528,406 | 465,666 | 545,293 | ||||||||||||||||||
Less: allowance for credit losses | 1,684 | 3,450 | 3,265 | 1,129 | 1,078 | 1,379 | ||||||||||||||||||
Total net receivables | $ | 684,822 | $ | 540,812 | $ | 661,948 | $ | 527,277 | $ | 464,588 | $ | 543,914 |
Included in other receivables at SeptemberJune 30, 20212022, December 31, 20202021 and SeptemberJune 30, 20202021, were items such as estimated recovery from back charge claims, notes receivable, insurance receivable, notes receivablefuel tax refunds and income tax refunds. Other receivables at June 30, 2022 and December 31, 2021 also included $24.9 million and $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 3.0% per annum. Other than the $63.0 million insurance receivable recorded as of June 30, 2021 related to the settlement discussed in Note 1618, 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 SeptemberJune 30, 20212022, balance, no other receivablesreceivable individually exceeded 5%10% of total net receivables at any of these dates.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9.10. 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):
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
September 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents | ||||||||||||||||
Money market funds | $ | 61,231 | $ | 0 | $ | 0 | $ | 61,231 | ||||||||
Other noncurrent assets | ||||||||||||||||
Restricted cash | 1,512 | 0 | 0 | 1,512 | ||||||||||||
Total assets | $ | 62,743 | $ | 0 | $ | 0 | $ | 62,743 | ||||||||
Accrued and other current liabilities | ||||||||||||||||
Interest rate swap | $ | 0 | $ | 5,001 | $ | 0 | $ | 5,001 | ||||||||
Total liabilities | $ | 0 | $ | 5,001 | $ | 0 | $ | 5,001 |
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
June 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents | ||||||||||||||||
Money market funds | $ | 2,444 | $ | 0 | $ | 0 | $ | 2,444 | ||||||||
Other current assets | ||||||||||||||||
Commodity swap | 0 | 2,524 | 0 | 2,524 | ||||||||||||
Total assets | $ | 2,444 | $ | 2,524 | $ | 0 | $ | 4,968 |
December 31, 2020 | ||||||||||||||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||||||||
Cash equivalents | ||||||||||||||||||||||||||||||||
Money market funds | $ | 70,483 | $ | 0 | $ | 0 | $ | 70,483 | $ | 65,233 | $ | 0 | $ | 0 | $ | 65,233 | ||||||||||||||||
Other noncurrent assets | ||||||||||||||||||||||||||||||||
Restricted cash | 1,512 | 0 | 0 | 1,512 | ||||||||||||||||||||||||||||
Total assets | $ | 71,995 | $ | 0 | $ | 0 | $ | 71,995 | $ | 65,233 | $ | 0 | $ | 0 | $ | 65,233 | ||||||||||||||||
Accrued and other current liabilities | ||||||||||||||||||||||||||||||||
Interest rate swap | $ | 0 | $ | 7,606 | $ | 0 | $ | 7,606 | $ | 0 | $ | 3,514 | $ | 0 | $ | 3,514 | ||||||||||||||||
Total liabilities | $ | 0 | $ | 7,606 | $ | 0 | $ | 7,606 | $ | 0 | $ | 3,514 | $ | 0 | $ | 3,514 |
September 30, 2020 | ||||||||||||||||||||||||||||||||
June 30, 2021 | ||||||||||||||||||||||||||||||||
Cash equivalents | ||||||||||||||||||||||||||||||||
Money market funds | $ | 78,981 | $ | 0 | $ | 0 | $ | 78,981 | $ | 23,489 | $ | 0 | $ | 0 | $ | 23,489 | ||||||||||||||||
Other noncurrent assets | ||||||||||||||||||||||||||||||||
Restricted cash | 1,512 | 0 | 0 | 1,512 | ||||||||||||||||||||||||||||
Other current assets | ||||||||||||||||||||||||||||||||
Commodity swap | 0 | 1,550 | 0 | 1,550 | ||||||||||||||||||||||||||||
Total assets | $ | 80,493 | $ | 0 | $ | 0 | $ | 80,493 | $ | 23,489 | $ | 1,550 | $ | 0 | $ | 25,039 | ||||||||||||||||
Accrued and other current liabilities | ||||||||||||||||||||||||||||||||
Interest rate swap | $ | 0 | $ | 8,353 | $ | 0 | $ | 8,353 | $ | 0 | $ | 5,770 | $ | 0 | $ | 5,770 | ||||||||||||||||
Total liabilities | $ | 0 | $ | 8,353 | $ | 0 | $ | 8,353 | $ | 0 | $ | 5,770 | $ | 0 | $ | 5,770 |
Interest Rate Swaps
In connection with entering into the Third Amended and Restated Credit Agreement, we entered into two amortizing interest rate swaps with a combined initial notional amount of $150.0 million, with effective dates of May 2018 and maturity dates in May 2023. The interest rate swaps were designated as cash flow hedges through the three months ended March 31, 2021 and de-designated as cash flow hedges during the three months ended June 30, 2021.
During the six months ended June 30, 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 $1.5 million and $2.2 million for the three and six months ended June 30, 2022.
Commodity Swaps
As of June 30, 2022, we held commodity swaps for crude oil designated as cash flow hedges with a total outstanding notional amount of $15.0 million with a maturity date of October 31, 2022. The financial statement impact for the three and six months ended June 30, 2022 was a realized gain of $2.4 million and $2.8 million, respectively. In addition, for the three months ended June 30, 2022, the commodity swaps had an unrealized loss of $0.5 million, and for the six months ended June 30, 2022, the commodity swaps had an unrealized gain of $2.8 million. As of June 30, 2021, we held commodity swaps for crude oil that were designated as cash flow hedges with a total outstanding notional amount of $4.9 million that matured in October 2021. The total commodity swap gain for these swaps was $1.0 million.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Interest Rate Swaps
In connection with entering into the Credit Agreement, we entered into two interest rate swaps with an effective date of May 2018 that were designated as cash flow hedges through the three months ended March 31, 2021. These interest rate swaps had a combined initial notional amount of $150.0 million and mature in May 2023. The interest rate swaps are designed to convert the interest rate on the term loan from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 2.76% plus the same applicable margin. The interest rate swaps are measured at fair value on the condensed consolidated balance sheets using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. During the three months ended June 30, 2021, we determined that the interest rate swaps were no longer highly effective in offsetting changes to expected future cash flows on hedged transactions and were therefore de-designated as cash flow hedges. As a result of this de-designation, the $5.4 million unrealized loss recorded to accumulated other comprehensive loss prior to de-designation will continue to be amortized to interest expense through the maturity date of May 2023. The impact from the interest rate swap de-designation that was included in interest expense on the condensed consolidated statements of operations was immaterial for the three and nine months ended September 30, 2021.
Other Assets and Liabilities
The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:
September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Held-to-maturity marketable securities (1) | Level 1 | $ | 10,600 | $ | 10,582 | $ | 5,200 | $ | 5,200 | $ | 5,700 | $ | 5,696 | Level 1 | $ | 66,675 | $ | 65,565 | $ | 15,600 | $ | 15,459 | $ | 10,850 | $ | 10,801 | ||||||||||||||||||||||||
Liabilities (including current maturities): | ||||||||||||||||||||||||||||||||||||||||||||||||||
2.75% Convertible Notes (2),(3) | Level 2 | $ | 205,543 | $ | 326,025 | $ | 200,303 | $ | 248,400 | $ | 198,606 | $ | 184,000 | Level 2 | $ | 230,000 | $ | 253,000 | $ | 207,354 | $ | 313,785 | $ | 203,771 | $ | 333,500 | ||||||||||||||||||||||||
Credit Agreement - term loan (2) | Level 3 | 125,625 | 126,610 | 131,250 | 133,030 | 133,125 | 135,046 | |||||||||||||||||||||||||||||||||||||||||||
Credit Agreement - revolving credit facility (2) | Level 3 | 0 | 0 | 0 | 0 | 75,000 | 76,180 | |||||||||||||||||||||||||||||||||||||||||||
Third Amended and Restated Credit Agreement - term loan (2) | Level 3 | $ | 0 | $ | 0 | $ | 123,750 | $ | 124,598 | $ | 127,500 | $ | 128,639 | |||||||||||||||||||||||||||||||||||||
Fourth Amended and Restated Credit Agreement - revolver (2) | Level 3 | $ | 50,000 | $ | 50,056 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
(1) All marketable securities as of June 30, 2022, December 31, 2021 and June 30, 2021 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in onetwo months to fivethree 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 1315 for more information about the 2.75% Convertible Notes, the Third Amended and theRestated Credit Agreement and Fourth Amended and Restated Credit Agreement.
(3) Excluded from the carrying value is debt discount of $24.5 million, $29.7$22.6 million and $31.4$26.2 million as of SeptemberDecember 31, 2021 and June 30, 2021, December 31, 2020 and September 30, 2020, respectively, related to the 2.75% Convertible Notes (see NoteNotes 132 and 15).
During the three and ninesix months ended SeptemberJune 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. As disclosed in Note 3, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2020, we did not record any fair value adjustments related to nonfinancial liabilities measured at fair value on a nonrecurring basis.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10.11. 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 ninesix months ended SeptemberJune 30, 20212022, 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 theour 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 SeptemberJune 30, 20212022, there was approximately $0.8 billion$309.7 million of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.3 billion$110.3 million represented our share and the remaining $0.5 billion$199.4 million represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These 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 SeptemberJune 30, 20212022, we were engaged in 8nine active CCJV projects with total contract values ranging from $2.3$12.1 million to $437.5$439.4 million andfor a combined total of $1.6$1.8 billion of which our share was $914.8 million.$1.0 billion. As of SeptemberJune 30, 2021, 2022, our share of revenue remaining to be recognized on these CCJVs was $292.6$225.9 million and ranged from $0.8$4.7 million to $97.3$56.2 million by project. Our proportionate share of the equity in these joint ventures was between 50.0% and 70.0%. During the three and ninesix months ended SeptemberJune 30, 2022 and 2021, total revenue from CCJVs was $117.4$119.4 million, $227.0 million, $114.9 million and $314.9 million, respectively, and during the three and nine months ended September 30, 2020, total revenue from CCJVs was $79.2 million and $219.9$197.5 million, respectively. During the ninesix months ended SeptemberJune 30, 2021 and 20202022, CCJVs used $13.4 million of operating cash flows and during the six months ended June 30, 2021, CCJVs provided $17.5 million and $17.0$19.4 million of operating cash flows, respectively.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Unconsolidated Construction Joint Ventures
As of SeptemberJune 30, 20212022, we were engaged in ten8 active unconsolidated joint venture projects with total contract values ranging from $13.7$12.3 million to $3.8 billion for a combined total of $11.6$9.7 billion of which our share was $3.4$2.7 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of SeptemberJune 30, 20212022, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $225.8$110.3 million and ranged from $1.2$1.1 million to $52.8$34.8 million by project.
The following is summary financial information related to our unconsolidated construction joint ventures:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 159,187 | $ | 181,889 | $ | 211,483 | $ | 148,446 | $ | 182,891 | $ | 139,381 | ||||||||||||
Other current assets (1) | 765,319 | 767,803 | 874,396 | 672,274 | 661,342 | 795,440 | ||||||||||||||||||
Noncurrent assets | 111,981 | 164,022 | 176,195 | 85,863 | 103,579 | 140,160 | ||||||||||||||||||
Less partners’ interest | 692,226 | 751,125 | 849,213 | 602,618 | 633,634 | 716,678 | ||||||||||||||||||
Granite’s interest (1),(2) | 344,261 | 362,589 | 412,861 | $ | 303,965 | $ | 314,178 | $ | 358,303 | |||||||||||||||
Liabilities | ||||||||||||||||||||||||
Current liabilities | 396,154 | 482,562 | 514,739 | $ | 228,686 | $ | 307,674 | $ | 432,130 | |||||||||||||||
Less partners’ interest and adjustments (3) | 227,372 | 226,308 | 211,749 | 99,053 | 154,771 | 235,649 | ||||||||||||||||||
Granite’s interest | 168,782 | 256,254 | 302,990 | $ | 129,633 | $ | 152,903 | $ | 196,481 | |||||||||||||||
Equity in construction joint ventures (4) | $ | 175,479 | $ | 106,335 | $ | 109,871 | $ | 174,332 | $ | 161,275 | $ | 161,822 |
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $82.3 million as of SeptemberJune 30, 20212022, December 31, 20202021 and SeptemberJune 30, 20202021 was $77.4 million, $82.1 million and $82.3 million, respectively, related to performance guarantees.
(2) Included in this balance as of SeptemberJune 30, 20212022, December 31, 20202021 and SeptemberJune 30, 20202021, was $101.9$109.5 million, $88.7$103.8 million and $86.2$96.7 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $14.1$2.9 million, $13.1$10.7 million and $13.8$14.1 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively, related to Granite’s share of estimated recovery of back charge claims.claims as of June 30, 2022, December 31, 2021 and June 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 $19.9$12.7 million, $82.5$28.6 million and $75.1$33.6 million as of SeptemberJune 30, 20212022, December 31, 20202021 and SeptemberJune 30, 20202021, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Total | $ | 194,486 | $ | 293,733 | $ | 690,086 | $ | 740,224 | $ | 91,564 | $ | 263,558 | $ | 252,703 | $ | 495,600 | ||||||||||||||||
Less partners’ interest and adjustments (1) | 113,205 | 206,032 | 442,182 | 471,999 | 68,374 | 176,657 | 179,858 | 328,977 | ||||||||||||||||||||||||
Granite’s interest | 81,281 | 87,701 | 247,904 | 268,225 | 23,190 | 86,901 | $ | 72,845 | $ | 166,623 | ||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||||||||
Total | 203,786 | 299,776 | 701,350 | 884,991 | 93,162 | 249,494 | $ | 251,083 | $ | 497,564 | ||||||||||||||||||||||
Less partners’ interest and adjustments (1) | 123,461 | 203,932 | 461,236 | 578,235 | 56,897 | 169,041 | 161,549 | 337,775 | ||||||||||||||||||||||||
Granite’s interest | 80,325 | 95,844 | 240,114 | 306,756 | 36,265 | 80,453 | $ | 89,534 | $ | 159,789 | ||||||||||||||||||||||
Granite’s interest in gross profit (loss) | $ | 956 | $ | (8,143 | ) | $ | 7,790 | $ | (38,531 | ) | $ | (13,075 | ) | $ | 6,448 | (16,689 | ) | $ | 6,834 | |||||||||||||
Net Income (Loss) | ||||||||||||||||||||||||||||||||
Total | $ | (2,871 | ) | $ | 13,813 | $ | 296 | $ | (2,190 | ) | ||||||||||||||||||||||
Less partners’ interest and adjustments (1) | 10,730 | 7,262 | 17,524 | (9,159 | ) | |||||||||||||||||||||||||||
Granite’s interest in net income (loss) (2) | $ | (13,601 | ) | $ | 6,551 | $ | (17,228 | ) | $ | 6,969 |
(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.
During the (three2 and nine months ended September 30, 2021, unconsolidated construction joint venture net loss was $(9.3) million and $(11.5) million, respectively, of which our share was net income of $1.0 million and $8.0 million, respectively. During the three and nine months ended September 30, 2020, unconsolidated construction joint venture net loss was $(6.0) million and $(144.5) million, respectively, of which our share was $(8.0) million and $(38.5) million, respectively.
During both 2021 and 2020, there were variances on five projects between our estimated total revenue and cost of revenue when compared to that of our partners’ due to timing of recognition from differing accounting policies and public company quarterly reporting requirements.) These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.
Line Item Joint Ventures
As of September 30, 2021, we were engaged in three active line item joint venture construction projects with a total contract value of $337.0 million of which our portion was $221.9 million. As of September 30, 2021, our share of revenue remaining to be recognized on these line item joint ventures was $84.6 million. During the three and nine months ended September 30, 2021,our portion of revenue from line item joint ventures was $26.3 million and $55.0 million, respectively. During the three and nine months ended September 30, 2020, our portion of revenue from line item joint ventures was $27.5 million and $58.7 million, respectively.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11.12. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Foreign | $ | 49,089 | $ | 47,650 | $ | 46,000 | ||||||||||||||||||
Real estate | 9,743 | 12,777 | 16,535 | $ | 9,619 | $ | 9,619 | $ | 11,914 | |||||||||||||||
Asphalt terminal | 13,583 | 14,860 | 13,929 | 13,584 | 13,749 | 13,403 | ||||||||||||||||||
Total investments in affiliates | $ | 72,415 | $ | 75,287 | $ | 76,464 | $ | 23,203 | $ | 23,368 | $ | 25,317 |
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Current assets | $ | 162,503 | $ | 133,882 | $ | 116,712 | $ | 34,822 | $ | 34,374 | $ | 32,528 | ||||||||||||
Noncurrent assets | 161,700 | 164,620 | 165,292 | 75,679 | 78,829 | 68,929 | ||||||||||||||||||
Total assets | 324,203 | 298,502 | 282,004 | $ | 110,501 | $ | 113,203 | $ | 101,457 | |||||||||||||||
Current liabilities | 80,145 | 52,583 | 48,478 | $ | 21,182 | $ | 23,685 | $ | 18,794 | |||||||||||||||
Long-term liabilities (1) | 59,501 | 66,108 | 55,206 | 32,364 | 48,104 | 29,596 | ||||||||||||||||||
Total liabilities | 139,646 | 118,691 | 103,684 | $ | 53,546 | $ | 71,789 | $ | 48,390 | |||||||||||||||
Net assets | 184,557 | 179,811 | 178,320 | $ | 56,955 | $ | 41,414 | $ | 53,067 | |||||||||||||||
Granite’s share of net assets | $ | 72,415 | $ | 75,287 | $ | 76,464 | $ | 23,203 | $ | 23,368 | $ | 25,317 |
(1) TheThis balance is primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates, as well as debt associated with our real estate investments.
Of the $324.2$110.5 million of total affiliate assets as of SeptemberJune 30, 20212022, we had investments in thirteen foreign entities with total assets ranging from $0.1 million to $84.4 million, two2 real estate entities with total assets of $75.5$77.4 million and the asphalt terminal entity that had total assets of $33.4$33.1 million. We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25% to 50% as of September 30, 2021. During the nine months ended September 30,2020, we recorded a $9.6 million impairment charge related to our investment in foreign affiliates. See Note 3 for further discussion of the impairment charge. As of SeptemberJune 30, 2022, December 31, 2021 and December 31, 2020June 30, 2021, all of the investments in real estate affiliates were in residential real estate in Texas. As of SeptemberJune 30, 20202022, $13.2 million of the investments in real estate affiliates was in residential real estate in Texas and the remaining balance was in commercial real estate in Texas. Ourour percent ownership in the real estate entities was betweenranged from 10% andto 25% as of September 30, 2021.
12.13. 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 and were as follows:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Equipment and vehicles | $ | 997,560 | $ | 950,416 | $ | 959,828 | $ | 908,941 | $ | 870,672 | $ | 849,011 | ||||||||||||
Quarry property | 188,838 | 206,073 | 199,677 | 206,067 | 191,982 | 195,284 | ||||||||||||||||||
Land and land improvements | 126,130 | 135,639 | 135,102 | 109,420 | 108,518 | 117,394 | ||||||||||||||||||
Buildings and leasehold improvements | 123,207 | 124,578 | 122,119 | 97,222 | 96,180 | 98,591 | ||||||||||||||||||
Office furniture and equipment | 78,059 | 73,512 | 72,675 | 77,982 | 75,043 | 73,403 | ||||||||||||||||||
Property and equipment | 1,513,794 | 1,490,218 | 1,489,401 | 1,399,632 | 1,342,395 | 1,333,683 | ||||||||||||||||||
Less: accumulated depreciation and depletion | 1,003,136 | 963,202 | 953,145 | 935,039 | 908,891 | 900,787 | ||||||||||||||||||
Property and equipment, net | $ | 510,658 | $ | 527,016 | $ | 536,256 | $ | 464,593 | $ | 433,504 | $ | 432,896 |
On June 30, 2021, we completed a sale-leaseback transaction associated with two14. properties in California. Sale of these properties resulted in a reduction in net property Accrued Expenses and equipment of $11.1 million and a $2.4 million addition to right of use assets andOther Current Liabilities
(in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||
Accrued insurance | $ | 82,538 | $ | 76,999 | $ | 77,436 | ||||||
Deficits in unconsolidated construction joint ventures | 12,696 | 28,636 | 33,608 | |||||||||
Payroll and related employee benefits | 77,582 | 87,460 | 87,096 | |||||||||
Performance guarantees | 77,434 | 82,112 | 82,280 | |||||||||
Accrual for expected resolution of SEC investigation (see Note 18) | 12,000 | 0 | 0 | |||||||||
Accrued legal settlement (see Note 18) | 129,000 | 129,000 | 129,000 | |||||||||
Other | 43,811 | 48,622 | 50,097 | |||||||||
Total | $ | 435,061 | $ | 452,829 | $ | 459,517 |
Other includes short-term lease liabilities, on the condensed consolidated balance sheets, as well as a $29.7 million gain on salesdividends payable, warranty reserves, asset retirement obligations, remediation reserves and other miscellaneous accruals, none of property and equipment on the condensed consolidated statementswhich are greater than 5% of operations.total current liabilities.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
13.15. Long-Term Debt and Credit Arrangements
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
2.75% Convertible Notes | $ | 205,543 | $ | 200,303 | $ | 198,606 | $ | 230,000 | $ | 207,354 | $ | 203,771 | ||||||||||||
Credit Agreement - term loan | 125,625 | 131,250 | 133,125 | |||||||||||||||||||||
Credit Agreement - revolving credit facility | 0 | 0 | 75,000 | |||||||||||||||||||||
Third Amended and Restated Credit Agreement - term loan | 0 | 123,750 | 127,500 | |||||||||||||||||||||
Fourth Amended and Restated Credit Agreement - revolver | 50,000 | 0 | 0 | |||||||||||||||||||||
Debt issuance costs and other | 8,742 | 7,247 | 7,166 | 8,230 | 8,814 | 8,660 | ||||||||||||||||||
Total debt | 339,910 | 338,800 | 413,897 | $ | 288,230 | $ | 339,918 | $ | 339,931 | |||||||||||||||
Less current maturities | 8,718 | 8,278 | 8,253 | 1,429 | 8,727 | 8,709 | ||||||||||||||||||
Total long-term debt | $ | 331,192 | $ | 330,522 | $ | 405,644 | $ | 286,801 | $ | 331,191 | $ | 331,222 |
AsDuring the six months ended June 30,2022, we prepaid 100% of each September 30, 2021, December 31, 2020 and September 30, 2020, $7.5 million of theour outstanding term loan portion ofand replaced the Third Amended and Restated Credit Agreement was included in current maturitiesdated 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”), including an accordion feature allowing us to increase borrowings up to the greater of long-term debt(a) $200.0 million and (b) 100% of twelve-month trailing EBITDA, subject to lender approval. The Credit Agreement includes a $150.0 million sublimit for letters of credit ($75.0 million for financial letters of credit) and a $20.0 million sublimit for swingline loans.
We may borrow on the condensed consolidated balance sheets andRevolver, at our option, at either (a) the remaining $118.1 million, $123.8 million and $125.6 million, respectively, was includedSOFR term rate plus a credit adjustment spread plus applicable margin ranging from 1.0% to 2.0%, or (b) a base rate plus an applicable margin ranging from 0.0% to 1.0%. The applicable margin is based on our Consolidated Leverage Ratio (as defined in long-term debt.
our Credit Agreement), calculated quarterly. As of SeptemberJune 30, 20212022, the total unused availability under the Credit Agreement was $227.9$267.1 million, resulting from $47.1$32.9 million in issued and outstanding letters of credit and 0 amount$50.0 million drawn under the revolving credit facility.Revolver. The letters of credit had expiration dates between October 2021August 2022 and December 20242025.
As of SeptemberJune 30, 2021, 2022, the Applicable Rateapplicable rate was 1.63%1.8% for loans under the Credit Agreement bearing interest based on LIBORSOFR and 0.63%0.8% for loans bearing interest at the Base Rate.base rate. Accordingly, the effective interest rates at SeptemberJune 30, 20212022, for LIBORSOFR and Base Ratebase rate loans were 2.38%3.4% and 3.88%5.5%, respectively. We elected
The amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants include a maximum Consolidated Leverage Ratio of 3.25 to use LIBOR for1.00 and a minimum Consolidated Interest Coverage Ratio (as defined in the term loan.
amended Credit Agreement) of 3.00 to 1.00.As of SeptemberJune 30, 20212022, the Consolidated Leverage Ratio (as defined in the Credit Agreement) was 1.73,2.57, which did not exceed the maximum of 3.00 and the3.25. Our Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) was 8.52,6.53, which exceededwas above the minimum of 4.00.3.00.
As ofEffective September 30, 2021January 1, 2022, we adopted ASU 2020-06 (see Note 2), December 31, 2020 and September 30, 2020, the carrying amount of the liability component ofwhich updated our accounting for the 2.75% Convertible Notes was $205.5 million, $200.3 million and $198.6 million, respectively. As of September 30, 2021, December 31, 2020 and September 30, 2020, the unamortized debt discount was $24.5 million, $29.7 million and $31.4 million, respectively.Notes.
During the three and sixmonths ended September June 30, 20212022, we did not record amortization of the debt discount due to the implementation of ASU 2020-06, and during the three and 2020,six months ended June 30, 2021, we recorded $1.7$1.8 million and $3.5 million, respectively, of amortization related toof the debt discount ondiscount. During the 2.75% Convertible Notes to interest expense in our condensed consolidated statements of operationsthree and $0.6six months ended June 30, 2022 and 2021, we recorded $0.4 million, $0.7 million, $0.3 million and $0.5$0.6 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. During the nine months ended September 31,2021 and 2020, we recorded $5.2 million and $4.9 million, respectively, of amortization related to the debt discount on the 2.75% Convertible Notes to interest expense in our condensed consolidated statements of operations and $1.8 million and $1.6 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. These nine-month amounts were presented as amortization related to the 2.75% Convertible Notes on our condensed consolidated statements of cash flows.costs.
14.16. Weighted Average Shares Outstanding and Net Income (Loss) Per Share
The following table presents a reconciliation of the weighted average shares outstandingof common stock used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Numerator (basic and diluted) | ||||||||||||||||
Net income (loss) allocated to common shareholders for basic calculation | $ | 35,043 | $ | (91,162 | ) | $ | 23,309 | $ | (153,127 | ) | ||||||
Denominator | ||||||||||||||||
Weighted average common shares outstanding, basic | 45,821 | 45,654 | 45,773 | 45,598 | ||||||||||||
Dilutive effect of RSUs (1) | 563 | 0 | 523 | 0 | ||||||||||||
Dilutive effect of 2.75% Convertible Notes (2) | 1,522 | 0 | 1,226 | 0 | ||||||||||||
Weighted average common shares outstanding, diluted | 47,906 | 45,654 | 47,522 | 45,598 | ||||||||||||
Net income (loss) per share, basic | $ | 0.76 | $ | (2.00 | ) | $ | 0.51 | $ | (3.36 | ) | ||||||
Net income (loss) per share, diluted | $ | 0.73 | $ | (2.00 | ) | $ | 0.49 | $ | (3.36 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Numerator (basic and diluted) | ||||||||||||||||
Net income (loss) from continuing operations allocated to common shareholders | $ | (2,370 | ) | $ | 24,859 | $ | (21,405 | ) | $ | (38,414 | ) | |||||
Net income from discontinued operations allocated to common shareholders | 19,521 | 29,602 | $ | 25,617 | $ | 26,680 | ||||||||||
Net income (loss) allocated to common shareholders | $ | 17,151 | $ | 54,461 | $ | 4,212 | $ | (11,734 | ) | |||||||
Denominator | ||||||||||||||||
Weighted average common shares outstanding, basic | 44,534 | 45,798 | 45,128 | 45,748 | ||||||||||||
Dilutive effect of RSUs and convertible notes | 0 | 454 | 0 | 0 | ||||||||||||
Dilutive effect of 2.75% Convertible Notes | 0 | 1,546 | 0 | 0 | ||||||||||||
Weighted average common shares outstanding, diluted | 44,534 | 47,798 | 45,128 | 45,748 |
Basic: | ||||||||||||||||
Net income (loss) from continuing operations per share | $ | (0.05 | ) | $ | 0.54 | $ | (0.47 | ) | $ | (0.84 | ) | |||||
Net income from discontinued operations per share | 0.44 | 0.65 | 0.57 | 0.58 | ||||||||||||
Net income (loss) per share | $ | 0.39 | $ | 1.19 | $ | 0.10 | $ | (0.26 | ) | |||||||
Diluted: | ||||||||||||||||
Net income (loss) from continuing operations per share | $ | (0.05 | ) | $ | 0.52 | $ | (0.47 | ) | $ | (0.84 | ) | |||||
Net income from discontinued operations per share | 0.44 | 0.62 | 0.57 | 0.58 | ||||||||||||
Net income (loss) per share | $ | 0.39 | $ | 1.14 | $ | 0.10 | $ | (0.26 | ) |
(1) Due to the net lossesloss from continuing operations for the three months ended June 30, 2022and the ninesix months ended SeptemberJune 30, 20202022 and 2021, RSUs representing approximately 636,000452,000, 493,000 and 580,000503,000 shares, respectively, and the potential dilution from the 2.75% Convertible Notes converting into 7,309,000, 7,309,000 and 1,066,000 shares of common stock, respectively, (see Note 1) have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would behave been antidilutive.
(2) The number of shares used in calculating diluted net loss per share for the three and nine months ended September 30, 2020 excluded the potential dilution from the 2.75% Convertible Notes converting into shares of common stock as the average price of our common stock was below $31.47 per share for those periods.
15.17. Income Taxes
The following table presents the provision for (benefit from) income taxes on continuing operations for the respective periods:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Provision for (benefit from) income taxes | $ | 8,904 | $ | 11,272 | $ | 2,068 | $ | (5,220 | ) | |||||||||||||||||||||||
Provision for (benefit from) income taxes on continuing operations | $ | 2,549 | $ | 7,710 | $ | (2,782 | ) | $ | (14,047 | ) | ||||||||||||||||||||||
Effective tax rate | 21.5 | % | (12.9 | )% | 8.3 | % | 2.9 | % | (630.9 | %) | 22.8 | % | 12.8 | % | 27.9 | % |
Our effective tax rate for the three and ninesix months ended SeptemberJune 30, 20212022 increased to 21.5% and 8.3% from (12.9)% and 2.9%, respectively, when compared towas lower than the same periods in 2020. These changes wereprior year primarily due to a $12 million accrual related to the goodwill impairments and the investment in affiliates impairments during the three months ended March 31, 2020 and September 30, 2020 which were discrete to those periods and resulted in no discrete tax benefit. See Note 3 for discussionexpected resolution of the impairment charges. The $66.0 million in settlement chargesSEC investigation discussed further in Note 1618. areThe expected payment of $12 million is non-deductible for tax purposes and is recognized as a discrete adjustment in the current quarter. The tax impact of this discrete adjustment relative to the nine months ended September 30,2021 which resultedsmall loss from continuing operations before income taxes results in a discretethe disproportionately large negative tax benefit of $17.0 million.rate for the current quarter.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
16.18. 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 bepreviously have been reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition, disclosureDisclosure of loss contingencies is requiredprovided when a material loss is either probable but not reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
The total liabilities recorded, net of insurance receivable, as of September 30, 2021 were $66.0 million and as of December 31, 2020 and June 30, 2020 were immaterial. 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 June 30, 2022 and December 31, 2021 were $129 million, $63 million of which was paid through insurance proceeds, which have been fully funded into a settlement escrow account. The balance of the reasonably estimable amountsettlement escrow account is determined.included in other current assets in the consolidated balance sheets. As of June 30, 2021, the total liabilities recorded for legal proceedings, net of insurance receivable, were $66 million. Additionally, as further discussed below, during the quarter ended June 30, 2022, we accrued $12 million relating to the expected resolution of the SEC investigation.
Ordinary Course Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2020. 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 involveinclude 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 andDerivative Lawsuits and Other Matters
On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An amended complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint iswas 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 allegesalleged 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.al. The amended complaint seekssought 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.Layne Christensen Company (“Layne”). The complaint assertsasserted causes of action under the Securities Act of 1933 and allegesalleged 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.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. The hearing on the motion has been continued to March 25, 2022 in light of the settlement proceedings in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.
On April 29, 2021, we entered into a stipulation of settlement (the “Settlement Agreement”) to settle Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.al. The Settlement Agreement also settlessettled claims alleged in Nasseri v. Granite Construction Incorporated, et al.al The settlement is subject to court approval.. As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $66 million in the quarter ended March 31, 2021.
Under the Settlement Agreement, the Company willagreed to pay or cause to be paid a total of $129.0$129 million in cash $63.0 million of which it expects to be paid through insurance proceeds. The payment will be paid 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 has 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.al. The Settlement Agreement containscontained 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. has beenwas permitted to intervene, although the court has denied histhe 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. Pursuantsettlement and, pursuant to the terms of the Settlement Agreement, payment$129 million was madepaid to the settlement fund after preliminary approvalescrow account. $66 million was paid by the Company and $63 million was paid through insurance proceeds. The total $129 million is included in October 2021. the condensed consolidated balance sheet as deposits and an accrued liability. Members of the settlement class will now be provided notice of, and anhad the opportunity to object to the settlement at a fairness hearing to be held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered. The fairness hearing is scheduled foroccurred on February 24, 2022. If On March 17, 2022, the court approves the settlement, including the payment and release described above, and enters such order andgranted final judgment, and such judgment is no longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court and the release will be effective to all membersapproval of the settlement, class.
Asgranted 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 resultnotice of entering into the Settlement Agreement, we recorded a pre-tax chargeappeal in Police Retirement System of approximately $66.0 million in the quarter ended March 31, 2021.St. Louis v. Granite Construction Incorporated, et al., naming Class Representative Police Retirement System of St. Louis as appellee.
On May 6, 2020, a stockholder derivative lawsuit, titled English v. Roberts, et al., was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that allegedly occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. ThePursuant to court has ordered that the lawsuit in the derivativeorder, this action bewas stayed until further order of the court or untilcourt's entry of a final judgment on March 17, 2022 in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California.
On May 12, 2021, a stockholder derivative lawsuit, titled Davydov v. Roberts, et al., was filed in the Delaware Court of Chancery against James H. Roberts, Jigisha Desai, Laurel Krzeminski, Craig Hall, our Senior Vice President, General Counsel, Corporate Compliance Officer, and Secretary, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty that allegedly occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms.
On July 16, 2021,April 14, 2022, wethe 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 that, if approved by the court in Davydov and not subject to termination under its terms, provides that (i) defendants will cause insurers to pay $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 motion to dismiss the complaint. The plaintiff’s response is due on November 22, 2021.
We areproposed scheduling order for a hearing in the preliminary stagesDelaware Court of Chancery for review of the litigation and, assettlement. 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 result, we cannot predictfairness hearing concerning its review of the outcome or consequences of these cases.settlement on July 12, 2022.
As of SeptemberJune 30, 2022, 30,December 31, 2021 and June 30, 2021, other than the $66.0 millionSettlement Agreement charge described above, we did not record any liability related to the above matters because we concluded such liabilities were not probable and the amounts of such liabilities arewere not reasonably estimable.
We were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractorOther Matters
In connection with our prior disclosure of the Salesforce Tower office building inAudit/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 has issued subpoenas for documents in connection with the accounting issues identified in the Investigation. We have produced documents to the SEC and related damages. cooperated with the SEC in its investigation.
Based upon our current estimate for the expected resolution of the SEC’s investigation, we recorded a $12 million accrual in the second quarter of 2022, which is reflected in other costs in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and in accrued expenses and other current liabilities on the condensed consolidated balance sheet as of June 30, 2022. We have not reached a final resolution of these matters with the SEC and we cannot predict when a settlement, if finally agreed, would become final, nor whether any of the proposed terms, including the penalty amount, may change in connection with a final resolution.
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. Although On July 20, 2021, we were not a party to this legal proceeding, we believe, based on court filings and developments in the arbitration, that the project owner and the general contractor asserted a claim for damages against the project’s builder’s risk insurers for approximately $100 million. In connection with our acquisitioninformed of Layne in June 2018, we assumed any potential liability relating to this project. Based on thean arbitration award denying insurance coverage for claims related to the remedial measures undertaken by the general contractor of the Salesforce Tower office building and related damages, management believes it is probable that claims could be brought against thedamages.
On February 3, 2022, a lawsuit titled Steadfast Insurance Company by the general contractor related to Layne’s involvement(“Steadfast”), a subrogee of Clark/Hathaway Dinwiddie, a Joint Venture (“CHDJV”) v. Layne Christensen Company (“Layne”) was filed in the original project.Superior Court of the State of California, County of San Francisco, seeking damages of approximately $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 $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. We believe we haveLayne has multiple defenses and counterclaims to anythe claims that are brought against us and intendat issue. Layne intends to vigorously defend against the claims and prosecute anyits counterclaims, vigorously. As of the date of this report, no action has been filed against us. Whilebut we believe a claim is probable, wecannot 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 amountrange of any liabilities relatedreasonably possible loss upon final resolution of this matter could be up to the claim are reasonably estimable at this time. Accordingly, no provision has been made in our consolidated financial statements.
In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued us subpoenas for documents in connection with the accounting issues identified in the Investigation. We have produced documents to the SEC and will continue to cooperate with the SEC in its investigation.approximately $100 million.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
17.19. BusinessReportable 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 for our continuing operations remaining unchanged. These changes have been applied retrospectively for all periods presented.
Summarized segment information is as follows (in thousands):follows:
Three Months Ended September 30,
Transportation | Water | Specialty | Materials | Total | ||||||||||||||||||||||||||||
2021 | ||||||||||||||||||||||||||||||||
Three months ended June 30, | Construction | Materials | Total | |||||||||||||||||||||||||||||
2022 | ||||||||||||||||||||||||||||||||
Total revenue from reportable segments | $ | 568,186 | $ | 121,968 | $ | 234,300 | $ | 201,419 | $ | 1,125,873 | $ | 632,260 | $ | 180,444 | $ | 812,704 | ||||||||||||||||
Elimination of intersegment revenue | 0 | 0 | 0 | (63,744 | ) | (63,744 | ) | 0 | (44,418 | ) | (44,418 | ) | ||||||||||||||||||||
Revenue from external customers | 568,186 | 121,968 | 234,300 | 137,675 | 1,062,129 | $ | 632,260 | $ | 136,026 | $ | 768,286 | |||||||||||||||||||||
Gross profit | 58,503 | 9,876 | 30,858 | 20,698 | 119,935 | $ | 61,166 | $ | 17,314 | $ | 78,480 | |||||||||||||||||||||
Depreciation, depletion and amortization | 5,513 | 7,074 | 5,643 | 7,014 | 25,244 | $ | 5,595 | $ | 6,804 | $ | 12,399 |
2020 | ||||||||||||||||||||
Total revenue from reportable segments | $ | 623,999 | $ | 106,599 | $ | 205,134 | $ | 194,298 | $ | 1,130,030 | ||||||||||
Elimination of intersegment revenue | 0 | 0 | 0 | (64,841 | ) | (64,841 | ) | |||||||||||||
Revenue from external customers | 623,999 | 106,599 | 205,134 | 129,457 | 1,065,189 | |||||||||||||||
Gross profit | 54,322 | 12,557 | 33,292 | 25,826 | 125,997 | |||||||||||||||
Depreciation, depletion and amortization | 5,268 | 8,258 | 5,046 | 6,120 | 24,692 |
Nine Months Ended September 30,
Transportation | Water | Specialty | Materials | Total | ||||||||||||||||||||||||||||
2021 | ||||||||||||||||||||||||||||||||
Total revenue from reportable segments | $ | 1,444,450 | $ | 335,153 | $ | 590,245 | $ | 457,409 | $ | 2,827,257 | $ | 713,425 | $ | 167,969 | $ | 881,394 | ||||||||||||||||
Elimination of intersegment revenue | 0 | 0 | 0 | (131,043 | ) | (131,043 | ) | 0 | (46,723 | ) | (46,723 | ) | ||||||||||||||||||||
Revenue from external customers | 1,444,450 | 335,153 | 590,245 | 326,366 | 2,696,214 | $ | 713,425 | $ | 121,246 | $ | 834,671 | |||||||||||||||||||||
Gross profit | 153,886 | 29,005 | 72,552 | 44,756 | 300,199 | $ | 76,267 | $ | 21,965 | $ | 98,232 | |||||||||||||||||||||
Depreciation, depletion and amortization | 15,595 | 21,677 | 15,894 | 19,329 | 72,495 | $ | 8,864 | $ | 6,346 | $ | 15,210 | |||||||||||||||||||||
Segment assets | 305,800 | 107,327 | 100,279 | 355,936 | 869,342 |
2020 | ||||||||||||||||||||
Total revenue from reportable segments | $ | 1,510,001 | $ | 317,980 | $ | 513,087 | $ | 400,808 | $ | 2,741,876 | ||||||||||
Elimination of intersegment revenue | 0 | 0 | 0 | (124,989 | ) | (124,989 | ) | |||||||||||||
Revenue from external customers | 1,510,001 | 317,980 | 513,087 | 275,819 | 2,616,887 | |||||||||||||||
Gross profit | 110,888 | 34,483 | 47,853 | 44,915 | 238,139 | |||||||||||||||
Depreciation, depletion and amortization | 14,685 | 27,399 | 18,166 | 16,563 | 76,813 | |||||||||||||||
Segment assets | 305,962 | 142,604 | 118,797 | 361,862 | 929,225 |
Six months ended June 30, | Construction | Materials | Total | |||||||||
2022 | ||||||||||||
Total revenue from reportable segments | $ | 1,107,195 | $ | 269,998 | $ | 1,377,193 | ||||||
Elimination of intersegment revenue | 0 | $ | (61,321 | ) | (61,321 | ) | ||||||
Revenue from external customers | $ | 1,107,195 | $ | 208,677 | $ | 1,315,872 | ||||||
Gross profit | $ | 109,358 | $ | 18,897 | $ | 128,255 | ||||||
Depreciation, depletion and amortization | $ | 13,389 | $ | 13,137 | $ | 26,526 | ||||||
Segment assets | $ | 369,160 | $ | 357,922 | $ | 727,082 |
2021 | ||||||||||||
Total revenue from reportable segments | $ | 1,220,396 | $ | 239,321 | $ | 1,459,717 | ||||||
Elimination of intersegment revenue | $ | 0 | $ | (58,714 | ) | (58,714 | ) | |||||
Revenue from external customers | $ | 1,220,396 | $ | 180,607 | $ | 1,401,003 | ||||||
Gross profit | $ | 129,036 | $ | 22,908 | $ | 151,944 | ||||||
Depreciation, depletion and amortization | $ | 15,482 | $ | 11,683 | $ | 27,165 | ||||||
Segment assets | $ | 372,952 | $ | 331,748 | $ | 704,700 |
A reconciliation of segment gross profit from continuing operations to consolidated income (loss) from continuing operations before provision for (benefit from) income taxes is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Total gross profit from continuing operations | $ | 78,480 | $ | 98,232 | $ | 128,255 | $ | 151,944 | ||||||||
Selling, general and administrative expenses | 53,162 | 58,628 | 111,663 | 119,789 | ||||||||||||
Other costs (see Note 7) | 20,177 | 5,868 | 28,391 | 80,177 | ||||||||||||
Gain on sales of property and equipment | (385 | ) | (1,052 | ) | (717 | ) | (3,297 | ) | ||||||||
Total other expense, net | 5,930 | 933 | 10,570 | 5,578 | ||||||||||||
Income (loss) from continuing operations before income taxes | $ | (404 | ) | $ | 33,855 | $ | (21,652 | ) | $ | (50,303 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Total gross profit from reportable segments | $ | 119,935 | $ | 125,997 | $ | 300,199 | $ | 238,139 | ||||||||
Selling, general and administrative expenses | 77,603 | 72,889 | 227,400 | 224,128 | ||||||||||||
Non-cash impairment charges (see Note 3) | 0 | 132,277 | 0 | 156,690 | ||||||||||||
Other costs (see Note 3) | 3,759 | 9,689 | 85,547 | 28,513 | ||||||||||||
Gain on sales of property and equipment (see Note 12) | (5,159 | ) | (3,057 | ) | (39,349 | ) | (4,870 | ) | ||||||||
Total other expense, net | 2,405 | 1,284 | 1,686 | 10,766 | ||||||||||||
Income (loss) before provision for (benefit from) income taxes | $ | 41,327 | $ | (87,085 | ) | $ | 24,915 | $ | (177,088 | ) |
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, strategic actions, the final settlement of the Accelerated Share Repurchase, the expected resolution of the SEC investigation and results,the sales of the Water Resources and Mineral Services businesses, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
Overview
We deliver infrastructure solutions for public and private clients primarily in the United States. We are one of the largest diversified infrastructure companies in the United States. We are engaged in a wide array ofWithin the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities,dams, power-related facilities, water-related facilities, well drilling, utilities, tunnels dams,and other infrastructure-related projects. Within the private sector, we perform site preparation, mining services and construction management professional services. We are also engaged in a variety of infrastructure services including those for airports, residential development, energy development, commercial and industrial sites.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 continuing business 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 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 have fouridentified 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 businesssegments, which are the same as our operating segments, were changed to two reportable segments: Transportation, Water, SpecialtyConstruction and Materials (see Note 1719 of “Notes to the Condensed Consolidated Financial Statements”). In addition to business segments, we review our business by operating groups. Our operating groups are California, Federal, Heavy Civil, Northwest, Midwest and Water and Mineral Services.
The five primary economic drivers of our business are (i) the overall health of the U.S. economy;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
While the COVID-19 pandemic continues to have a significant impact around the country and the world, Granite’s approach has been consistent led by prioritizing the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Although certain projects are periodically affected by the pandemic, our business has largely returned to pre-pandemic levels of activity. The future developments of the pandemic are highly uncertain and could adversely impact our operations and financial results in future periods. We are closely monitoring federal, state, regional and local guidelines, orders and regulations and will take necessary steps to comply with new regulations as required.
We are continually monitoring the supply and demand related to labor and supplies, including materials such as concrete and steel. During 2021, certain segments of the construction industry were adversely affected by inflation as well as supply chain and labor constraints. The actual and expected impact to Granite was limited to oil price inflation through our use of diesel fuel and liquid asphalt, which we are monitoring and pricing into our contracts accordingly.
Funding for our public work projects, which is aroundaccounts for approximately 75% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, public work projects benefit from a $10 billion relief spending bill for state departments of transportations approved by Congress in December 2020 as part of the Coronavirus Response and Relief Act and a $360 billion Coronavirus State and Local Fiscal Recovery Funds approved by Congress in March 2021. The Fixing America’s Surface Transportation (“FAST”) was extended for one year through September 30, 2021 with flat funding levels and for another month through October 31, 2021 as the Biden Administration and Congress work to pass a long-term solution. In late June 2021, the Biden Administration and members of a bipartisan Senate group agreed to a roughly $1.2 trillion Bipartisan Infrastructure Framework (Infrastructure Investment and Jobs Act), proposing for $579Act (“IIJA”) was enacted in November 2021 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 newrelated incremental funding. We continue to believe that the increased multi-year spending which includes significant new funding proposals for roads, bridges, airports, ports and inland waterway infrastructures. We remain optimistic that Congress and the Administrationcommitment will jointly move forward in 2021 to pass a long-term solution that addresses infrastructure investment, which we believe will meaningfully improve the programming visibility for state and local governments and bring meaningful impact to project lettings starting in mid to late 2022 and then buildinggrowing in following years.2023 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. InWhile each market is unique, we see a strong funding environment at the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiativeslevels currently and we expect that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements.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)(“SB-1”), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program.program without any sunset provisions. Revenue collected through SB-1 is on track to increase over the next 5 years.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 and adjustment of project schedules for constraints related to construction materials such as concrete. In June 2022, we completed the purchase of a liquid asphalt terminal in California. The facility provides 170,000 barrels of liquid asphalt storage to address oil price volatility and allows Granite to expand into new, more sustainable product offerings such as asphalt modified with recycled materials. While we are encouraged by these funding supports,actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future.
Granite’s Committed and Awarded Projects (“CAP”) continues to be strong with an increase from the first quarter of $278.9 million to $4.2 billion at the end of the second quarter. We believe the environments in our key markets are diversestrong and will continue to grow as funding from IIJA is allocated for projects beginning in the second half of 2022.
Strategic Actions
The planned divestitures of the businesses in our former Water and Mineral Services operating group (“WMS”) reflect our new strategy to focus on our core civil construction and materials businesses by using sale proceeds to invest in these two businesses. The divestitures also create opportunities to streamline operational support functions, improve overhead efficiency and better leverage efficiencies of scale. The current and projected strong demand for civil construction supports the decision to grow our vertically integrated business. Through our newly reorganized operational structure, our focus is to pursue opportunities in markets where our operating groups’ presence, capabilities and resources provide strategic advantages, with some being more impactedimproved and consistent margin expectations. The sale of our trenchless and pipe rehabilitation services business (“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. The process to sell the remaining two businesses in the former WMS operating group is proceeding as planned with completion anticipated by the pandemic. We closely monitor these funding trends in all our marketsend of the year.
Litigation and manage our pursuit pipeline accordingly.SEC Matters
As further discussed in Note 1618 of “Notes to the Condensed Consolidated Financial Statements,” we were informedour wholly owned subsidiary, Layne Christensen Company (“Layne”), has been sued for $100 million relating to Layne’s work on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages.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, we assumed any liability related to it.2018. See “Item 1A. Risk Factors - InNote 18 and "In connection with acquisitions or divestitures, we may become subject to liabilities” and “Item 1A. Risk Factors - We"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 on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report on Form 10-K”) for additional information.
Additionally, as further discussed in Note 18 of “Notes to the Condensed Consolidated Financial Statements,” we accrued $12 million relating to the expected resolution of the SEC investigation.
Results of Operations
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.
The following table presents a financial summary for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Total revenue | $ | 1,062,129 | $ | 1,065,189 | $ | 2,696,214 | $ | 2,616,887 | $ | 768,286 | $ | 834,671 | $ | 1,315,872 | $ | 1,401,003 | ||||||||||||||||
Gross profit | 119,935 | 125,997 | 300,199 | 238,139 | $ | 78,480 | $ | 98,232 | $ | 128,255 | $ | 151,944 | ||||||||||||||||||||
Selling, general and administrative expenses | 77,603 | 72,889 | 227,400 | 224,128 | $ | 53,162 | $ | 58,628 | $ | 111,663 | $ | 119,789 | ||||||||||||||||||||
Non-cash impairment charges (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”) | — | 132,277 | — | 156,690 | ||||||||||||||||||||||||||||
Other costs (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”) | 3,759 | 9,689 | 85,547 | 28,513 | ||||||||||||||||||||||||||||
Gain on sales of property and equipment, net (see Note 12 of “Notes to the Condensed Consolidated Financial Statements”) | (5,159 | ) | (3,057 | ) | (39,349 | ) | (4,870 | ) | ||||||||||||||||||||||||
Other costs (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”) | $ | 20,177 | $ | 5,868 | $ | 28,391 | $ | 80,177 | ||||||||||||||||||||||||
Operating income (loss) | 43,732 | (85,801 | ) | 26,601 | (166,322 | ) | $ | 5,526 | $ | 34,788 | $ | (11,082 | ) | $ | (44,725 | ) | ||||||||||||||||
Total other expense, net | 2,405 | 1,284 | 1,686 | 10,766 | $ | 5,930 | $ | 933 | $ | 10,570 | $ | 5,578 | ||||||||||||||||||||
Amount attributable to non-controlling interests | 2,620 | 7,195 | 462 | 18,741 | ||||||||||||||||||||||||||||
Net income (loss) from continuing operations | $ | (2,953 | ) | $ | 26,145 | $ | (18,870 | ) | $ | (36,256 | ) | |||||||||||||||||||||
Net income from discontinued operations (see Note 3 of "Notes to the Condensed Consolidated Financial Statements") | $ | 19,521 | $ | 29,602 | $ | 25,617 | $ | 26,680 | ||||||||||||||||||||||||
Amount attributable to non-controlling interests from continuing operations | $ | 583 | $ | (1,286 | ) | $ | (2,535 | ) | $ | (2,158 | ) | |||||||||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated | 35,043 | (91,162 | ) | 23,309 | (153,127 | ) | $ | 17,151 | $ | 54,461 | $ | 4,212 | $ | (11,734 | ) |
Revenue
Total Revenue by Segment
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transportation | $ | 568,186 | 53.5 | % | $ | 623,999 | 58.6 | % | $ | 1,444,450 | 53.6 | % | $ | 1,510,001 | 57.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Water | 121,968 | 11.5 | 106,599 | 10.0 | 335,153 | 12.4 | 317,980 | 12.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Specialty | 234,300 | 22.1 | 205,134 | 19.3 | 590,245 | 21.9 | 513,087 | 19.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | $ | 632,260 | 82.3 | % | $ | 713,425 | 85.5 | % | $ | 1,107,195 | 84.2 | % | $ | 1,220,396 | 87.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Materials | 137,675 | 12.9 | 129,457 | 12.1 | 326,366 | 12.1 | 275,819 | 10.5 | 136,026 | 17.7 | 121,246 | 14.5 | 208,677 | 15.8 | 180,607 | 12.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,062,129 | 100.0 | % | $ | 1,065,189 | 100.0 | % | $ | 2,696,214 | 100.0 | % | $ | 2,616,887 | 100.0 | % | $ | 768,286 | 100.0 | % | $ | 834,671 | 100.0 | % | $ | 1,315,872 | 100.0 | % | $ | 1,401,003 | 100.0 | % |
TransportationConstruction Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
California | $ | 191,146 | 33.7 | % | $ | 224,636 | 36.0 | % | $ | 478,823 | 33.1% | $ | 478,590 | 31.7 | % | ||||||||||||||
Federal | 4,442 | 0.8 | 3,140 | 0.5 | 9,593 | 0.7 | 5,306 | 0.4 | |||||||||||||||||||||
Heavy Civil | 138,201 | 24.3 | 165,434 | 26.5 | 445,812 | 30.9 | 519,963 | 34.4 | |||||||||||||||||||||
Midwest | 34,767 | 6.1 | 43,896 | 7.0 | 83,945 | 5.8 | 103,081 | 6.8 | |||||||||||||||||||||
Northwest | 199,630 | 35.1 | 186,893 | 30.0 | 426,277 | 29.5 | 403,061 | 26.7 | |||||||||||||||||||||
Total | $ | 568,186 | 100.0 | % | $ | 623,999 | 100.0 | % | $ | 1,444,450 | 100.0% | $ | 1,510,001 | 100.0 | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
(dollars in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
California | $ | 199,357 | 31.5 | % | $ | 228,631 | 32.0 | % | $ | 343,744 | 31.0 | % | $ | 387,897 | 31.7 | % | ||||||||||||||||
Central | 207,406 | 32.8 | 287,994 | 40.4 | 431,499 | 39.0 | 541,287 | 44.4 | ||||||||||||||||||||||||
Mountain | 225,497 | 35.7 | 196,800 | 27.6 | 331,952 | 30.0 | 291,212 | 23.9 | ||||||||||||||||||||||||
Total | $ | 632,260 | 100.0 | % | $ | 713,425 | 100.0 | % | $ | 1,107,195 | 100.0 | % | $ | 1,220,396 | 100.0 | % |
TransportationConstruction revenue for the three and ninesix months ended SeptemberJune 30, 20212022 decreased by $55.8$81.2 million and $113.2 million, or 8.9%,11.4% and $65.6 million, or 4.3%9.3%, respectively, when compared to 2020.2021. These decreases were primarily driven by lower Committed and Awarded Projects (“CAP”) levelsthe wind down of several large projects in the Heavy CivilCentral operating group, as well as certain Heavy Civil operating groupdelayed project awards, slower progress on existing projects including thosedue to supply chain disruptions in the Old Risk Portfolio(1), nearing completioncurrent year and decreasesless favorable weather conditions in the first quarter of 2022 in the California operating group due to owner worksite accommodations in the third quarter of 2020 that are not present in 2021.group. These decreases were partially offset by a decreaseincreased revenue in the net negative impact of revisions in estimates when compared to 2020 (see Note 4 of “Notes to the Condensed Consolidated Financial Statements” for more information).Mountain operating group. During the three and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the majority of revenue earned in the TransportationConstruction segment was from the public sector.
(1) Old Risk Portfolio includes projects with risk criteria that do not align with Granite's new project selection criteria for the Heavy Civil operating group.
Water Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
California | $ | 8,531 | 7.0 | % | $ | 10,498 | 9.8 | % | $ | 27,512 | 8.2% | $ | 24,225 | 7.6 | % | ||||||||||||||
Federal | 9 | — | 341 | 0.3 | 166 | — | 1,309 | 0.4 | |||||||||||||||||||||
Heavy Civil | 7,799 | 6.4 | 9,985 | 9.4 | 21,197 | 6.3 | 28,260 | 8.9 | |||||||||||||||||||||
Midwest | — | — | — | — | — | — | 152 | — | |||||||||||||||||||||
Northwest | 2,124 | 1.8 | 444 | 0.5 | 4,202 | 1.3 | 4,344 | 1.4 | |||||||||||||||||||||
Water and Mineral Services | 103,505 | 84.8 | 85,331 | 80.0 | 282,076 | 84.2 | 259,690 | 81.7 | |||||||||||||||||||||
Total | $ | 121,968 | 100.0 | % | $ | 106,599 | 100.0 | % | $ | 335,153 | 100.0% | $ | 317,980 | 100.0 | % |
Water revenue for the three and nine months ended September 30, 2021 increased by $15.4 million, or 14.4%, and $17.2 million, or 5.4%, respectively, when compared to 2020. The increases were primarily driven by increased demand for water supply and maintenance services, as well as lower activity levels in 2020 as a result of the COVID-19 pandemic which caused delays in awarded projects and deferrals in bidding processes. During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Water segment was from the public sector.
Specialty Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||
California | $ | 56,364 | 24.1 | % | $ | 62,623 | 30.5 | % | $ | 153,497 | 26.0 | % | $ | 158,076 | 30.8 | % | ||||||||||||||||
Federal | 29,347 | 12.5 | 28,765 | 14.0 | 70,280 | 11.9 | 78,760 | 15.4 | ||||||||||||||||||||||||
Heavy Civil | 34,424 | 14.7 | 12,892 | 6.3 | 82,651 | 14.0 | 27,963 | 5.4 | ||||||||||||||||||||||||
Midwest | 25,608 | 10.9 | 24,392 | 11.9 | 71,376 | 12.1 | 74,543 | 14.5 | ||||||||||||||||||||||||
Northwest | 61,030 | 26.1 | 57,247 | 27.9 | 138,487 | 23.5 | 125,647 | 24.5 | ||||||||||||||||||||||||
Water and Mineral Services | 27,527 | 11.7 | 19,215 | 9.4 | 73,954 | 12.5 | 48,098 | 9.4 | ||||||||||||||||||||||||
Total | $ | 234,300 | 100.0 | % | $ | 205,134 | 100.0 | % | $ | 590,245 | 100.0 | % | $ | 513,087 | 100.0 | % |
Specialty revenue for the three and nine months ended September 30, 2021 increased by $29.2 million, or 14.2%, and $77.2 million, or 15.0%, respectively, when compared to 2020. These increases were primarily driven by project progression of a federal site development project in the Heavy Civil operating group and increased activity in the Water and Mineral Services operating group’s mineral exploration business. During the three and nine months ended September 30, 2021 and 2020, revenue earned in the Specialty segment was from both the public and private sectors.
Materials Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
California | $ | 76,029 | 55.2 | % | $ | 75,901 | 58.6 | % | $ | 188,475 | 57.7 | % | $ | 161,397 | 58.6 | % | $ | 71,572 | 52.6 | % | $ | 70,490 | 58.2 | % | $ | 117,259 | 56.2 | % | $ | 112,446 | 62.2 | % | ||||||||||||||||||||||||||||||||
Northwest | 56,403 | 41.0 | 48,674 | 37.6 | 124,564 | 38.2 | 103,812 | 37.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Water and Mineral Services | 5,243 | 3.8 | 4,882 | 3.8 | 13,327 | 4.1 | 10,610 | 3.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central | 13,901 | 10.2 | 10,720 | 8.8 | 24,263 | 11.6 | 19,100 | 10.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mountain | 50,553 | 37.2 | 40,036 | 33.0 | 67,155 | 32.2 | 49,061 | 27.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 137,675 | 100.0 | % | $ | 129,457 | 100.0 | % | $ | 326,366 | 100.0 | % | $ | 275,819 | 100.0 | % | $ | 136,026 | 100.0 | % | $ | 121,246 | 100.0 | % | $ | 208,677 | 100.0 | % | $ | 180,607 | 100.0 | % |
Materials revenue for the three and ninesix months ended SeptemberJune 30, 20212022 increased by $8.2$14.8 million and $28.1 million, or 6.3%12.2% and 15.5%, and $50.5 million, or 18.3%,respectively, when compared to 2020 primarily due to an increase in volume2021 driven by overall market demands driving higher sales volumes with both aggregates and an increase in prices in both asphalt, and aggregates.in the second quarter of 2022 we implemented energy surcharges to cover cost increases.
Committed and Awarded Projects
Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog (consistingCAP consists of two components: (1) unearned revenue and (2) other awards. Unearned revenue includes the revenue we expect to record in the future on awardedexecuted contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts) to CAP and added the general construction portion of construction management/general contractor contracts to the extent contract execution and funding is probable. This is the same presentation used in our quarterly earnings calls and press releases. Prior period amounts have been revised to reflect this change.
contracts. We generally include a project in our unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe contract execution and 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. Contract options and task orders are included in unearned revenue when exercised or issued, respectively.
Other awards ininclude the tables below includegeneral 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, respectively. Other awards also includeprobable. In line with the general construction portion of construction management/general contractor projects torevised reportable segments, all CAP is now in the extent award, contract execution and funding are probable.Construction segment.
Total CAP by Segment
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
Transportation | $ | 2,914,206 | 67.3 | % | $ | 2,894,115 | 65.1 | % | $ | 3,222,829 | 76.8 | % | ||||||||||||
Water | 524,106 | 12.1 | 531,858 | 12.0 | 346,253 | 8.3 | ||||||||||||||||||
Specialty | 889,580 | 20.6 | 1,019,318 | 22.9 | 623,452 | 14.9 | ||||||||||||||||||
Total | $ | 4,327,892 | 100.0 | % | $ | 4,445,291 | 100.0 | % | $ | 4,192,534 | 100.0 | % |
Transportation CAP
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | June 30, 2022 | March 31, 2022 | June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||
Unearned revenue | $ | 1,803,664 | 61.9 | % | $ | 2,075,498 | 71.7 | % | $ | 2,311,906 | 71.7 | % | $ | 2,884,876 | 68.5 | % | $ | 2,491,537 | 63.3 | % | $ | 3,298,971 | 78.9 | % | ||||||||||||||||||||||||
Other awards | 1,110,542 | 38.1 | 818,617 | 28.3 | 910,923 | 28.3 | 1,328,784 | 31.5 | 1,443,190 | 36.7 | 882,125 | 21.1 | ||||||||||||||||||||||||||||||||||||
Total | $ | 2,914,206 | 100.0 | % | $ | 2,894,115 | 100.0 | % | $ | 3,222,829 | 100.0 | % | $ | 4,213,660 | 100.0 | % | $ | 3,934,727 | 100.0 | % | $ | 4,181,096 | 100.0 | % |
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
California | $ | 1,318,822 | 45.3 | % | $ | 1,152,327 | 39.7 | % | $ | 1,116,680 | 34.6 | % | ||||||||||||
Federal | 40,477 | 1.4 | 7,303 | 0.3 | 13,787 | 0.4 | ||||||||||||||||||
Heavy Civil | 513,589 | 17.6 | 622,490 | 21.5 | 1,059,939 | 32.9 | ||||||||||||||||||
Midwest | 230,696 | 7.9 | 230,184 | 8.0 | 169,538 | 5.3 | ||||||||||||||||||
Northwest | 810,622 | 27.8 | 881,811 | 30.5 | 862,885 | 26.8 | ||||||||||||||||||
Total | $ | 2,914,206 | 100.0 | % | $ | 2,894,115 | 100.0 | % | $ | 3,222,829 | 100.0 | % |
(dollars in thousands) | June 30, 2022 | March 31, 2022 | June 30, 2021 | |||||||||||||||||||||
California | $ | 1,629,765 | 38.7 | % | $ | 1,480,950 | 37.7 | % | $ | 1,358,018 | 32.5 | % | ||||||||||||
Central | 1,518,970 | 36.0 | 1,426,255 | 36.2 | 1,919,386 | 45.9 | ||||||||||||||||||
Mountain | 1,064,925 | 25.3 | 1,027,522 | 26.1 | 903,692 | 21.6 | ||||||||||||||||||
Total | $ | 4,213,660 | 100.0 | % | $ | 3,934,727 | 100.0 | % | $ | 4,181,096 | 100.0 | % |
Transportation CAP of $2.9$4.2 billion at September 30, 2021 was $20.1 million, or 0.7%, higher than at June 30, 2021 primarily due2022 increased $0.3 billion when compared to March 31, 2022. Significant new awards during the three months ended June 30, 2022 included a $200 million award for street work in the California operating group and new awards in the Northwest operating group, includingIllinois, a $25$55 million airport transformationroad improvement project in Arizona, partially offset by progress on existingAlaska, $38 million for rehabilitation, construction improvements and bridge replacement projects in California, a $36 million infrastructure project in Guam, a $15 million restoration project in California, a $13 million resurfacing project in Alaska and fewer awarded contractsa $10 million highway median fill project in the Heavy Civil operating group, consistent with our strategy to narrow the footprint of this group. California.
Non-controlling partners’ share of Transportation CAP as of SeptemberJune 30, 2022, December 31, 2021 and June 30, 2021 and September 30, 2020 was $184.1$165.2 million, $212.1$214.3 million and $282.4$273.6 million, respectively. FourAt June 30, 2022, six contracts in our Transportation segment had total forecasted losses with remaining revenue of $252.1$178.5 million, or 8.7%4.2%, of Transportation CAP at September 30, 2021.total CAP.
Water CAP
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
Unearned revenue | $ | 353,731 | 67.5 | % | $ | 362,713 | 68.2 | % | $ | 197,554 | 57.1 | % | ||||||||||||
Other awards | 170,375 | 32.5 | 169,145 | 31.8 | 148,699 | 42.9 | ||||||||||||||||||
Total | $ | 524,106 | 100.0 | % | $ | 531,858 | 100.0 | % | $ | 346,253 | 100.0 | % |
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
California | $ | 35,972 | 6.9 | % | $ | 44,066 | 8.3 | % | $ | 52,598 | 15.2 | % | ||||||||||||
Federal | 65 | — | 73 | — | 494 | 0.1 | ||||||||||||||||||
Heavy Civil | 163,714 | 31.2 | 161,632 | 30.4 | 24,803 | 7.2 | ||||||||||||||||||
Northwest | 61,731 | 11.8 | 61,891 | 11.6 | 721 | 0.2 | ||||||||||||||||||
Water and Mineral Services | 262,624 | 50.1 | 264,196 | 49.7 | 267,637 | 77.3 | ||||||||||||||||||
Total | $ | 524,106 | 100.0 | % | $ | 531,858 | 100.0 | % | $ | 346,253 | 100.0 | % |
Water CAP of $0.5 billion as of September 30, 2021 was $7.8 million, or 1.5%, lower than at June 30, 2021 primarily due to progress on existing projects in the California operating group.
Specialty CAP
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
Unearned revenue | $ | 874,797 | 98.3 | % | $ | 1,013,810 | 99.5 | % | $ | 604,894 | 97.0 | % | ||||||||||||
Other awards | 14,783 | 1.7 | 5,508 | 0.5 | 18,558 | 3.0 | ||||||||||||||||||
Total | $ | 889,580 | 100.0 | % | $ | 1,019,318 | 100.0 | % | $ | 623,452 | 100.0 | % |
(dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||
California | $ | 128,961 | 14.5 | % | $ | 155,686 | 15.3 | % | $ | 134,306 | 21.6 | % | ||||||||||||
Federal | 75,827 | 8.5 | 102,972 | 10.1 | 107,273 | 17.2 | ||||||||||||||||||
Heavy Civil | 124,026 | 13.9 | 172,819 | 17.0 | 224,427 | 36.0 | ||||||||||||||||||
Midwest | 287,144 | 32.3 | 295,446 | 28.9 | 106,694 | 17.1 | ||||||||||||||||||
Northwest | 273,622 | 30.8 | 292,395 | 28.7 | 50,752 | 8.1 | ||||||||||||||||||
Total | $ | 889,580 | 100.0 | % | $ | 1,019,318 | 100.0 | % | $ | 623,452 | 100.0 | % |
Specialty CAP of $0.9 billion as of September 30, 2021 was $129.7 million, or 12.7%, lower than at June 30, 2021 due to progress on existing projects in all operating groups. Non-controlling partners’ share of Specialty CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $46.0 million, $61.5 million and $64.8 million, respectively.
Gross Profit
The following table presents gross profit by businessreportable segment for the respective periods:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Transportation | $ | 58,503 | $ | 54,322 | $ | 153,886 | $ | 110,888 | ||||||||||||||||||||||||
Percent of segment revenue | 10.3 | % | 8.7 | % | 10.7 | % | 7.3 | % | ||||||||||||||||||||||||
Water | 9,876 | 12,557 | 29,005 | 34,483 | ||||||||||||||||||||||||||||
Percent of segment revenue | 8.1 | 11.8 | 8.7 | 10.8 | ||||||||||||||||||||||||||||
Specialty | 30,858 | 33,292 | 72,552 | 47,853 | ||||||||||||||||||||||||||||
Construction | $ | 61,166 | $ | 76,267 | $ | 109,358 | $ | 129,036 | ||||||||||||||||||||||||
Percent of segment revenue | 13.2 | 16.2 | 12.3 | 9.3 | 9.7 | % | 10.7 | % | 9.9 | % | 10.6 | % | ||||||||||||||||||||
Materials | 20,698 | 25,826 | 44,756 | 44,915 | 17,314 | 21,965 | 18,897 | 22,908 | ||||||||||||||||||||||||
Percent of segment revenue | 15.0 | 19.9 | 13.7 | 16.3 | 12.7 | 18.1 | 9.1 | 12.7 | ||||||||||||||||||||||||
Total gross profit | $ | 119,935 | $ | 125,997 | $ | 300,199 | $ | 238,139 | $ | 78,480 | $ | 98,232 | $ | 128,255 | $ | 151,944 | ||||||||||||||||
Percent of total revenue | 11.3 | % | 11.8 | % | 11.1 | % | 9.1 | % | 10.2 | % | 11.8 | % | 9.7 | % | 10.8 | % |
TransportationConstruction gross profit for the three and ninesix months ended SeptemberJune 30, 2021 increased2022 decreased by $4.2$15.1 million and $19.7, or 7.7%,19.8% and $43.0 million, or 38.8%15.3%, respectively, when compared to 20202021 primarily due to a decreasean increase in the negative net impact from revisions in estimates in our Heavy CivilCentral operating group Old Risk Portfolio (see Note 4 of “Notes"Notes to the Condensed Consolidated Financial Statements”).
Water gross profit for the three and nine months ended September 30, 2021 decreased by $2.7 million, or 21.4%, and $5.5 million, or 15.9%, respectively, when compared to 2020. This decrease is primarily due to the increase in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).
Specialty gross profit for the three and nine months ended September 30, 2021 decreased by $2.4 million, or 7.3%, and increased by $24.7 million, or 51.6%, respectively, when compared to 2020. The year-to-date increase was primarily due to increased revenue from project progression in the Heavy Civil operating group, increased activity in the Water and Mineral Services operating group’s mineral exploration business and a decrease in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”Statements").
Materials gross profit for the three and six months ended SeptemberJune 30, 20212022 decreased by $5.0$4.7 million and $4.0 million, or 19.5%21.2% and 17.5%, respectively, when compared to 2020 as rising2021 primarily due to lower asphalt volumes in California and overall higher fuel and liquid asphaltcosts. Although we implemented energy surcharges in the second quarter of 2022 to cover increased fuel costs, were not ablecontracts we had in place without energy surcharge clauses or prior to be fully mitigated duringour surcharge taking effect are still being burned through at the quarter.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, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Selling | ||||||||||||||||||||||||||||||||
Salaries and related expenses | $ | 14,799 | $ | 17,225 | $ | 49,440 | $ | 51,142 | $ | 12,802 | $ | 15,044 | $ | 27,950 | $ | 30,668 | ||||||||||||||||
Restricted stock unit amortization | 225 | 264 | 1,251 | 1,002 | 213 | 338 | 846 | 991 | ||||||||||||||||||||||||
Other selling expenses | 3,154 | 2,907 | 5,403 | 9,478 | 2,923 | (92 | ) | 4,398 | 974 | |||||||||||||||||||||||
Total selling | 18,178 | 20,396 | 56,094 | 61,622 | 15,938 | 15,290 | 33,194 | 32,633 | ||||||||||||||||||||||||
General and administrative | ||||||||||||||||||||||||||||||||
Salaries and related expenses | 26,002 | 26,257 | 83,515 | 81,171 | 21,469 | 21,949 | 45,614 | 45,227 | ||||||||||||||||||||||||
Restricted stock unit amortization | 795 | 690 | 3,126 | 2,812 | 1,106 | 798 | 2,761 | 1,863 | ||||||||||||||||||||||||
Other general and administrative expenses | 32,628 | 25,546 | 84,665 | 78,523 | 14,649 | 20,591 | 30,094 | 40,066 | ||||||||||||||||||||||||
Total general and administrative | 59,425 | 52,493 | 171,306 | 162,506 | 37,224 | 43,338 | 78,469 | 87,156 | ||||||||||||||||||||||||
Total selling, general and administrative | $ | 77,603 | $ | 72,889 | $ | 227,400 | $ | 224,128 | $ | 53,162 | $ | 58,628 | $ | 111,663 | $ | 119,789 | ||||||||||||||||
Percent of revenue | 7.3 | % | 6.8 | % | 8.4 | % | 8.6 | % | 6.9 | % | 7.0 | % | 8.5 | % | 8.6 | % |
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 and ninesix months ended SeptemberJune 30, 2021 decreased by $2.2 million, or 10.9%, and $5.5 million, or 9.0%, respectively,2022 remained relatively unchanged when compared to 2020 from reduced estimating and bidding costs, which impacted other selling expenses for the nine months, and salaries and related expenses for both periods.2021.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses for the three and nine months ended SeptemberJune 30, 2021 increased2022 decreased by $7.2$6.1 million, or 13.8%14.1%, and $9.1for the six months ended June 30, 2022 decreased by $8.7 million, or 5.6%10.0%, respectively, when compared to 2020,2021, primarily due to increasesdecreases in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is offset in other general and administrative expenses from increases in incentive compensation as a result of improved financial performance.(income) expense, net, through our own company-owned life insurance policy.
Gain on Sales of Property and Equipment, netOther Costs
The following table presents the gain on sales of property and equipment, netother costs for the respective periods:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Gain on sales of property and equipment, net | $ | (5,159 | ) | $ | (3,057 | ) | $ | (39,349 | ) | $ | (4,870 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Other costs | $ | 20,177 | $ | 5,868 | $ | 28,391 | $ | 80,177 |
Gain on sales of property and equipment, net for the three and nine months ended September 30, 2021 increased by $2.1 million and $34.5 million, respectively, when compared to 2020. The increase during the nine months was primarily due to the sale of two properties in California as part of our ongoing asset optimization plan. SeeOther costs (see Note 127 of “Notes to the Condensed Consolidated Financial Statements”) for more information.the three and six months ended June 30, 2022 increased $14.3 million and decreased $51.8 million when compared to 2021, respectively. The three months ended June 30, 2022 includes an accrual of $12 million for the expected resolution of the SEC investigation. The six months ended June 30, 2021 includes a $66 million legal settlement charge.
Income Taxes
The following table presents the provision for (benefit from) income taxes on continuing operations for the respective periods:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
(dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Provision for (benefit from) income taxes | $ | 8,904 | $ | 11,272 | $ | 2,068 | $ | (5,220 | ) | |||||||||||||||||||||||
Provision for (benefit from) income taxes on continuing operations | $ | 2,549 | $ | 7,710 | $ | (2,782 | ) | $ | (14,047 | ) | ||||||||||||||||||||||
Effective tax rate | 21.5 | % | (12.9 | )% | 8.3 | % | 2.9 | % | (630.9 | %) | 22.8 | % | 12.8 | % | 27.9 | % |
We calculate our income tax provision for continuing operations at the end of each interim period by estimating our annual effective tax rate and applying that rate to our income (loss)loss before provision for (benefit from)benefit from income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 1517 of “Notes to the Condensed Consolidated Financial Statements” for more information.
Certain Legal ProceedingsAmount Attributable to Non-controlling Interests
As discussedThe following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Amount attributable to non-controlling interests | $ | 583 | $ | (1,286 | ) | $ | (2,535 | ) | $ | (2,158 | ) |
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 six months ended June 30, 2022 decreased $1.9 million and increased $0.4 million, respectively, primarily due to impacts from revisions in estimates.
Net Income (Loss) from Discontinued Operations
Net income (loss) from discontinued operations for the three and six months ended June 30, 2022 decreased $10.1 million and $1.1 million, respectively, when compared to the same periods in 2021 primarily due to lower gains on sales of property in the current year and removal of Inliner's results due to the sale of Inliner in March 2022. These decreases were partially offset by the gain on sale of Inliner during the six months ended June 30, 2022 as well as ceasing depreciation and amortization on property, plant and equipment, finite-lived intangible assets and right-of-use lease assets in 2022 due to the classification of these assets as held-for-sale beginning December 31, 2021 (see Note 163 of “Notes to the Condensed Consolidated Financial Statements,” under certain circumstances the resolutionStatements”).
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash generated from operations. We may also from time to timetime-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. As of September 30, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and our marketable securities consisted of U.S. Government and agency obligations. Our credit facility consists of a term loan and a revolving credit facility. Ofassets including the $275.0 million revolving credit facility capacity, $227.9 million was available for borrowing at September 30, 2021. This difference between capacity and amount available for borrowing is due to letters of credit taken out primarily for insurance; see Note 13 of “Notes to the Condensed Consolidated Financial Statements” for further discussion regarding our credit facility.WMS businesses.
Our principal uses of liquidity arematerial 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, andrepurchase 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 cash equivalents, short-term investments, available borrowing capacityother 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, proceeds from the sales of the WMS businesses and cash expected to be generated from operations will be sufficient to meet our expected operatinglong-term requirements for the next twelve months from the date of this filing. This includes the payment that was made pursuant to the terms of the settlement agreement to the settlement fund after preliminary approval in October 2021, as discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements.” Thereand plans. However, there can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.
As of June 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.
As of June 30, 2022, we had $19.9 million of receivables and $27.1 million of contract retention receivable from Brightline Trains Florida LLC (“Brightline”) (see Note 8 of “Notes to the Condensed Consolidated Financial Statements”). Brightline is currently experiencing delays in securing additional funding, and as a result, $16.5 million of the receivable balance was past due as of June 30, 2022. We did not deem these balances uncollectible as of June 30, 2022, however we have taken steps to mitigate the risk of non-payment and preserve our rights under our contract with Brightline. We received $6.0 million from Brightline on July 1, 2022, however the timing and probability of future payments is uncertain and if Brightline does not pay the outstanding balances, our liquidity could decrease.
During the six months ended June 30, 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 June 30, 2022, the total unused availability under the Credit Agreement was $267.1 million, resulting from $32.9 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, for continuing operations as of the respective dates:
(in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||
Cash and cash equivalents excluding CCJVs | $ | 344,438 | $ | 361,317 | $ | 295,437 | $ | 97,079 | $ | 302,864 | $ | 269,766 | ||||||||||||
CCJV cash and cash equivalents (1) | 119,611 | 74,819 | 92,587 | 77,943 | 92,783 | 107,854 | ||||||||||||||||||
Total consolidated cash and cash equivalents | 464,049 | 436,136 | 388,024 | 175,022 | 395,647 | 377,620 | ||||||||||||||||||
Short-term and long-term marketable securities (2) | 10,600 | 5,200 | 5,700 | 66,675 | 15,600 | 10,850 | ||||||||||||||||||
Total cash, cash equivalents and marketable securities | $ | 474,649 | $ | 441,336 | $ | 393,724 | $ | 241,697 | $ | 411,247 | $ | 388,470 |
(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 $69.2$45.8 million, $42.6$54.4 million and $53.4$62.3 million as of SeptemberJune 30, 2021,2022, December 31, 20202021 and SeptemberJune 30, 2020,2021, respectively. Excluded from the table above is:
• | $45.1 million, $56.5 million and $47.5 million as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively, in Granite’s portion of unconsolidated construction joint venture cash and cash equivalents | |
• | $8.6 million, $16.5 million and $15.6 million as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively, that is included in current assets held-for-sale |
Capital Expenditures
Cash Flows
Nine Months Ended September 30, | Six months ended June 30, | |||||||||||||||
(in thousands) | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Net cash provided by (used in): | ||||||||||||||||
Operating activities | $ | 59,922 | $ | 138,666 | $ | (103,278 | ) | $ | (31,004 | ) | ||||||
Investing activities | (17,381 | ) | (41,901 | ) | $ | 30,317 | $ | 1,661 | ||||||||
Financing activities | (14,628 | ) | 24,663 | $ | (157,055 | ) | $ | (13,612 | ) |
Operating activitiesactivities.
As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, our projects’ progressionsproject 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 which can cause fluctuations in operating cash flows.customer.
Related to the securities litigation settlement,settlements discussed in Note 1618 of “Notes to the Condensed Consolidated Financial Statements,” we have separately presented the $129.0$129 million liability and the associated $63.0$63 million insurance receivable in the condensed consolidated statement of cash flows.flows for the six months ended June 30, 2021. The insurance receivable was collected and the liability was paid andto the receivable was collectedCourt in October 2021; therefore, the impact on operating cash flow will occuroccurred in the fourth quarter of 2021 and there was no impact during the ninesix months ended SeptemberJune 30, 2022 and 2021.
Investing activities
Cash used inprovided by investing activities of $17.4$30.3 million for the ninesix months ended SeptemberJune 30, 20212022 represents a $24.5$28.7 million decrease from cash used in investing activitiesincrease when compared to 2021. The change was primarily due to proceeds from the same periodsale of 2020 primarily fromthe Inliner business, partially offset by purchases of marketable securities and property and equipment and a decrease in proceeds from maturitiessales of property and proceeds from called, marketable securities, partially offset by proceeds from the sale of two properties in California.equipment.
Financing activities
Cash used in financing activities of $14.6$157.1 million for the ninesix months ended SeptemberJune 30, 20212022 represents a $39.3$143.4 million decreaseincrease when compared to cash provided by financing activities in the same period of 20202021. The change was primarily due to a draw onthe prepayment of our revolverterm loan of $50$124.7 million in the prior year,and repurchases of common stock (inclusive of our accelerated share repurchase) of $70.4 million, partially offset by an increase$50.0 million drawn on our Revolver. The net debt paydown was undertaken 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 contributions from non-controlling partners, net of distributions.
Capital Expenditures
During the nine months ended September 30, 2021, we had capital expenditures of $73.0 million compared to $74.9 million during 2020. Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. We currently anticipate 2021 capital expenditures to be approximately $100 millionline with projected cash needs for the full year.second half of 2022.
Derivatives
We recognize interest rate and commodity swap derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs in the condensed consolidated balance sheets.inputs. See Note 910 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 SeptemberJune 30, 2021,2022, approximately $2.6$2.5 billion of our $4.2 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 1112 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, ourthe 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 indenture governing our 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 indenture governing our 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 SeptemberJune 30, 2021,2022, the Consolidated Leverage Ratio was 1.73,2.57, which did not exceed the maximum of 3.00.3.25. Our Consolidated Interest Coverage Ratio was 8.52,6.53, which exceededwas above the minimum of 4.00.3.00.
Share Repurchase Program
As announced on April 29, 2016,February 3, 2022, on April 7, 2016,February 1, 2022, the Board of Directors authorized us to repurchasepurchase up to $200.0$300.0 million of our common stock at management’s discretion. As partdiscretion (the “2022 authorization”).
On May 2, 2022, we entered into an accelerated share repurchase transaction with Bank of this authorization, we have established a planMontreal. We paid $50.0 million to facilitatethe 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. The final number of shares to be repurchased under the accelerated share repurchase will be based on the average of the daily volume-weighted average price of Granite’s common stock, repurchases. As of September 30, 2021, $157.2 millionless a discount, during the term of the authorization remained available. The specific timing and amountaccelerated share repurchase; final settlement is expected to occur in the third quarter of any future repurchases will vary based on market conditions, securities law limitations and other factors.2022.
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 allany amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There has been no material change in our exposure to market risk from what was previously disclosed in our 2020 Annual Report on Form 10-K.Report.
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Based on their evaluationOur 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) orand 15d-15(e) ofunder the Exchange Act) as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2022. Based on that evaluation, our principal executive officerChief Executive Officer and principal financial officer haveChief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were not effective as ofto provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the end ofExchange Act is recorded, processed, summarized and reported within the period covered by this report due to material weaknesses previously disclosed in our 2020 Annual Report on Form 10-K (the “material weaknesses”). In light of the material weaknesses in our internal control over financial reporting, we performed additional analysis and other procedures to validate that our financial information contained in this Form 10-Q was prepared in accordance with accounting principles generally acceptedtime periods specified in the United States of America (“U.S. GAAP”). Following such additional analysisSEC rules and procedures,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 principal executive officerChief Executive Officer and principal financial officer, has concluded that our financial statements state fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Form 10-Q, in conformity with U.S. GAAP.
Remediation Plan and Status
As disclosed in our 2020 Annual Report on Form 10-K, Company management, with the assistance of outside consultants, began reviewing and revising our internal control over financial reporting in 2020 in responseChief Financial Officer, as appropriate to the material weaknesses identified in connection with the Audit/Compliance Committee’s independent Investigation. Management has evaluated the impact of the material weaknesses and has developed and implemented a plan to remediate the control deficiencies that contributed to the material weaknesses. To date, we have taken the following actions to remediate the material weaknesses:
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We will continue to execute and monitor these programs, processes and controls that were implemented as part of our remediation plan. However, the material weaknesses described in our 2020 Annual Report on Form 10-K will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Additionally, we may take additional measures to address the control deficiencies or modify the remediation plan described above.allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Except for the changes implemented as part of our remediation plan discussed above, thereThere were no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended September 30, 2021. reporting.
LEGAL PROCEEDINGS |
The description of the matters set forth in Part I, Item I of this Report under Note 1618 of “Notes to the Condensed Consolidated Financial Statements” is incorporated herein by reference.
RISK FACTORS |
There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our 2020 Annual Report on Form 10-K.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 SeptemberJune 30, 2021:2022:
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) | ||||||||||||
July 1, 2021 through July 31, 2021 | 931 | $ | 37.45 | 34,867 | $ | 157,165,044 | ||||||||||
August 1, 2021 through August 31, 2021 | 223 | $ | 40.55 | 9,042 | $ | 157,165,044 | ||||||||||
September 1, 2021 through September 30, 2021 | 1,529 | $ | 40.38 | 61,740 | $ | 157,165,044 | ||||||||||
2,683 | $ | 39.38 | 105,649 |
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) | ||||||||||||
April 1, 2022 through April 30, 2022 | 203 | $31.51 | — | $281,535,405 | ||||||||||||
May 1, 2022 through May 31, 2022 | 1,320,568 | $30.29 | 1,320,568 | $241,535,405 | ||||||||||||
June 1, 2022 through June 30, 2022 | 4,935 | $32.11 | — | $241,535,405 | ||||||||||||
1,325,706 | $30.30 | 1,320,568 |
(1) On June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan, which replaced the AmendedIncludes 203 and Restated 2012 Equity Incentive Plan. The number of4,935 shares purchased isduring April and June, respectively, in connection with employee tax withholding for restricted stock units vested under our 2012 and 2021 Equity Incentive Plans.equity incentive plans.
(2) As announced on April 29, 2016,February 3, 2022, on April 7, 2016,February 1, 2022, the Board of Directors authorized us to repurchasepurchase up to $200.0$300.0 million of our common stock at management’s discretion. As part of this authorizationdiscretion (the “2022 authorization”). In May 2022, we have established a share repurchase program to facilitate common stock repurchases. We did not purchasepurchased approximately 1.32 million shares under the 2022 authorization in the accelerated share repurchase plan in anyrepurchase. As of June 30, 2022, $241.5 million of the periods presented.2022 authorization remained available; however, approximately $10 million of this amount is restricted for the accelerated share repurchase. The specific timing and amount of any future repurchasespurchases 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 |
10.1 | * | Fourth Amended and Restated Credit Agreement, dated June 2, 2022, by and among Granite Construction Incorporated, Granite Construction Company, GILC Incorporated, Bank of America, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, and the lenders and other parties thereto [Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 6, 2022]. | ||
10.2 | * | Fourth Amended and Restated Guaranty Agreement, dated June 2, 2022, by and among Granite Construction Incorporated, the guarantors party thereto and Bank of America, N.A., as Administrative Agent [Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 6, 2022]. | ||
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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) |