GRANITE CONSTRUCTION INC - Quarter Report: 2019 September (Form 10-Q)

gva20190821_10q.htm

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 September 30, 2019

☐	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, 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 October 22, 2019.

Class		Outstanding
Common Stock, $0.01 par value		46,741,311

Table of Contents

Index

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of September 30, 2019, December 31, 2018 and September 30, 2018
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018
		Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
		Notes to the Condensed Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
	Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4.	Mine Safety Disclosures
	Item 6.	Exhibits
SIGNATURES
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EXHIBIT 95
EXHIBIT 101.INS
EXHIBIT 101.SCH
EXHIBIT 101.CAL
EXHIBIT 101.DEF
EXHIBIT 101.LAB
EXHIBIT 101.PRE

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - in thousands, except share and per share data)

	*September 30, 2019*			*December 31, 2018*			*September 30, 2018*
ASSETS
Current assets
Cash and cash equivalents ($77,870, $131,965 and $125,165 related to consolidated construction joint ventures (“CCJVs”))	$	184,673		$	272,804		$	230,259
Short-term marketable securities		37,918			30,002			35,010
Receivables, net ($29,108, $21,237 and $26,142 related to CCJVs)		700,387			473,246			618,070
Contract assets ($39,717, $19,699 and $20,968 related to CCJVs)		233,925			219,754			213,989
Inventories		95,442			88,623			90,789
Equity in construction joint ventures		209,765			282,229			273,993
Other current assets ($10,765, $11,744 and $11,361 related to CCJVs)		42,698			48,731			95,173
Total current assets		1,504,808			1,415,389			1,557,283
Property and equipment, net ($27,752, $34,761 and $36,061 related to CCJVs)		542,796			549,688			560,618
Long-term marketable securities		10,000			36,098			46,093
Investments in affiliates		84,914			84,354			84,840
Goodwill		264,112			259,471			244,696
Right of use assets		70,472			—			—
Deferred income taxes, net		38,443			2,918			6,408
Other noncurrent assets		118,228			128,683			143,910
Total assets	$	2,633,773		$	2,476,601		$	2,643,848

LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt	$	8,263		$	47,286		$	116,796
Accounts payable ($50,625, $37,086 and $33,426 related to CCJVs)		399,528			251,481			316,917
Contract liabilities ($21,378, $60,288 and $67,139 related to CCJVs)		106,010			105,449			117,759
Accrued expenses and other current liabilities ($4,193, $2,046 and $1,975 related to CCJVs)		342,040			273,626			296,033
Total current liabilities		855,841			677,842			847,505
Long-term debt		394,841			335,119			316,926
Lease liabilities		56,740			—			—
Deferred income taxes, net		4,652			4,317			5,589
Other long-term liabilities		58,433			61,689			67,429
Commitments and contingencies
Equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding		—			—			—
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 46,741,263 shares as of September 30, 2019, 46,665,889 shares as of December 31, 2018 and 46,897,092 shares as of September 30, 2018		468			467			469
Additional paid-in capital		567,033			564,559			572,046
Accumulated other comprehensive (loss) income		(3,282	)		(749	)		1,841
Retained earnings		656,487			787,356			786,936
Total Granite Construction Incorporated shareholders’ equity		1,220,706			1,351,633			1,361,292
Non-controlling interests		42,560			46,001			45,107
Total equity		1,263,266			1,397,634			1,406,399
Total liabilities and equity	$	2,633,773		$	2,476,601		$	2,643,848

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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,*
	*2019*			*2018*			*2019*			*2018*
Revenue
Transportation	$	598,646		$	610,847		$	1,340,834		$	1,472,703
Water		135,908			124,292			347,994			215,951
Specialty		224,457			190,836			540,234			461,149
Materials		129,099			129,616			268,389			276,286
Total revenue		1,088,110			1,055,591			2,497,451			2,426,089
Cost of revenue
Transportation		585,013			539,871			1,405,830			1,334,302
Water		120,878			100,189			313,582			174,834
Specialty		186,158			162,737			464,858			395,838
Materials		104,629			108,303			233,675			239,972
Total cost of revenue		996,678			911,100			2,417,945			2,144,946
Gross profit		91,432			144,491			79,506			281,143
Selling, general and administrative expenses		73,424			70,769			224,577			193,337
Acquisition and integration expenses		2,744			9,334			15,244			44,030
Gain on sales of property and equipment		(7,101	)		(3,018	)		(13,936	)		(5,066	)
Operating income (loss)		22,365			67,406			(146,379	)		48,842
Other (income) expense
Interest income		(1,713	)		(1,533	)		(6,257	)		(4,227	)
Interest expense		4,839			4,452			13,011			10,090
Equity in income of affiliates		(6,275	)		(1,769	)		(10,159	)		(5,527	)
Other expense (income), net		127			(1,533	)		(2,394	)		(2,205	)
Total other income		(3,022	)		(383	)		(5,799	)		(1,869	)
Income (loss) before provision for (benefit from) income taxes		25,387			67,789			(140,580	)		50,711
Provision for (benefit from) income taxes		3,474			8,692			(37,451	)		7,357
Net income (loss)		21,913			59,097			(103,129	)		43,354
Amount attributable to non-controlling interests		(1,425	)		(3,425	)		(8,793	)		(7,490	)
Net income (loss) attributable to Granite Construction Incorporated	$	20,488		$	55,672		$	(111,922	)	$	35,864

Net income (loss) per share attributable to common shareholders
Basic	$	0.44		$	1.20		$	(2.39	)	$	0.84
Diluted	$	0.43		$	1.17		$	(2.39	)	$	0.84
Weighted average shares of common stock
Basic		46,788			46,308			46,771			42,443
Diluted		47,170			47,810			46,771			42,910

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - in thousands)

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2019*			*2018*			*2019*			*2018*
Net income (loss)	$	21,913		$	59,097		$	(103,129	)	$	43,354
Other comprehensive income (loss), net of tax:
Net unrealized (loss) gain on derivatives	$	(720	)	$	2,289		$	(3,496	)	$	1,555
Less: reclassification for net gains included in interest expense		(46	)		(1,719	)		(336	)		(157	)
Net change	$	(766	)	$	570		$	(3,832	)	$	1,398
Foreign currency translation adjustments, net		932			249			1,299			(189	)
Other comprehensive income (loss)	$	166		$	819		$	(2,533	)	$	1,209
Comprehensive income (loss)	$	22,079		$	59,916		$	(105,662	)	$	44,563
Non-controlling interests in comprehensive income (loss)		(1,425	)		(3,425	)		(8,793	)		(7,490	)
Comprehensive income (loss) attributable to Granite Construction Incorporated	$	20,654		$	56,491		$	(114,455	)	$	37,073

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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, 2019		46,838,199		$	468		$	568,264		$	(3,448	)	$	642,124		$	1,207,408		$	50,160		$	1,257,568
Net income		—			—			—			—			20,488			20,488			1,425			21,913
Other comprehensive income		—			—			—			166			—			166			—			166
Purchases of common stock¹		(101,475	)		(1	)		(2,967	)		—			—			(2,968	)		—			(2,968	)
Restricted stock units (“RSUs”) vested		4,555			1			—			—			—			1			—			1
Dividends on common stock ($0.13 per share)		—			—			—			—			(6,076	)		(6,076	)		—			(6,076	)
Transactions with non-controlling interests		—			—			—			—			—			—			(9,025	)		(9,025	)
Employee Stock Purchase Plan (“ESPP”), amortized RSUs and other		(16	)		—			1,736			—			(49	)		1,687			—			1,687
Balances at September 30, 2019		46,741,263		$	468		$	567,033		$	(3,282	)	$	656,487		$	1,220,706		$	42,560		$	1,263,266

Balances at June 30, 2018	45,688,582		$	457	$	516,680		$	1,022	$	737,417		$	1,255,576		$	45,410		$	1,300,986
Net income	—			—		—			—		55,672			55,672			3,425			59,097
Other comprehensive income	—			—		—			819		—			819			—			819
Purchases of common stock¹	(3,767	)		—		(204	)		—		—			(204	)		—			(204	)
RSUs vested	8,768			—		—			—		—			—			—			—
Dividends on common stock ($0.13 per share)	—			—		—			—		(6,096	)		(6,096	)		—			(6,096	)
Issuance of Convertible Notes	1,199,869			12		53,086			—		—			53,098			—			53,098
Transactions with non-controlling interests	—			—		—			—		—			—			(3,728	)		(3,728	)
ESPP, amortized RSUs and other	3,640			—		2,484			—		(57	)		2,429			—			2,429
Balances at September 30, 2018	46,897,092		$	469	$	572,046		$	1,841	$	786,936		$	1,361,292		$	45,107		$	1,406,399

Balances at December 31, 2018	46,665,889		$	467		$	564,559		$	(749	)	$	787,356		$	1,351,633		$	46,001		$	1,397,634
Net (loss) income	—			—			—			—			(111,922	)		(111,922	)		8,793			(103,129	)
Other comprehensive loss	—			—			—			(2,533	)		—			(2,533	)		—			(2,533	)
Purchases of common stock¹	(189,566	)		(2	)		(6,914	)		—			—			(6,916	)		—			(6,916	)
RSUs vested	255,948			3			—			—			—			3			—			3
Dividends on common stock ($0.39 per share)	—			—			—			—			(18,251	)		(18,251	)		—			(18,251	)
Effect of adopting ASU Topic 842 (see Note 2)	—			—			—			—			(539	)		(539	)		—			(539	)
Transactions with non-controlling interests	—			—			—			—			—			—			(12,234	)		(12,234	)
ESPP, amortized RSUs and other	8,992			—			9,388			—			(157	)		9,231			—			9,231
Balances at September 30, 2019	46,741,263		$	468		$	567,033		$	(3,282	)	$	656,487		$	1,220,706		$	42,560		$	1,263,266

Balances at December 31, 2017	39,871,314		$	399		$	160,376		$	634	$	783,699		$	945,108		$	47,697		$	992,805
Net income	—			—			—			—		35,864			35,864			7,490			43,354
Other comprehensive income	—			—			—			1,209		—			1,209			—			1,209
Purchases of common stock¹	(108,199	)		(1	)		(6,368	)		—		—			(6,369	)		—			(6,369	)
RSUs vested	299,089			3			—			—		—			3			—			3
Dividends on common stock ($0.39 per share)	—			—			—			—		(17,242	)		(17,242	)		—			(17,242	)
Effect of adopting Accounting Standards Codification Topic 606	—			—			—			—		(15,201	)		(15,201	)		—			(15,201	)
Issuance of common stock for Layne acquisition	5,624,021			56			321,019			—		—			321,075			48			321,123
Issuance of Convertible Notes	1,199,869			12			53,086								53,098			—			53,098
Premium on 8.0% Convertible Notes	—			—			30,702			—		—			30,702			—			30,702
Transactions with non-controlling interests	—			—			—			—		—			—			(10,128	)		(10,128	)
ESPP, amortized RSUs and other	10,998			—			13,231			2		(184	)		13,045			—			13,045
Balances at September 30, 2018	46,897,092		$	469		$	572,046		$	1,841	$	786,936		$	1,361,292		$	45,107		$	1,406,399

¹Represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 Equity Incentive Plan. Amounts are comprised primarily of amortized restricted stock units.

The accompanying notes are an integral part of these condensed consolidated financial statements

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GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

Nine Months Ended September 30,	*2019*			*2018*
Operating activities
Net (loss) income	$	(103,129	)	$	43,354
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation, depletion and amortization		92,700			77,816
Gain on sales of property and equipment, net		(13,936	)		(5,066	)
Change in deferred income taxes		(37,338	)		(2,207	)
Stock-based compensation		8,924			12,621
Equity in net loss from unconsolidated joint ventures		173,008			16,343
Net income from affiliates		(10,159	)		(5,527	)
Other non-cash adjustments		4,630			—
Changes in assets and liabilities, net of the effects of acquisitions:
Receivables		(224,475	)		(154,996	)
Contract assets, net		(13,276	)		355
Inventories		(6,178	)		(4,283	)
Contributions to unconsolidated construction joint ventures		(57,280	)		(89,000	)
Distributions from unconsolidated construction joint ventures and affiliates		13,181			30,014
Other assets, net		(1,141	)		16,295
Accounts payable		148,739			41,672
Accrued expenses and other current liabilities, net		(768	)		37,352
Net cash (used in) provided by operating activities		(26,498	)		14,743
Investing activities
Purchases of marketable securities		—			(9,952	)
Maturities of marketable securities		20,000			60,000
Purchases of property and equipment		(83,329	)		(86,131	)
Proceeds from sales of property and equipment		28,104			9,480
Cash paid to purchase businesses, net of cash and restricted cash acquired		(6,227	)		(55,030	)
Other investing activities, net		(3,756	)		320
Net cash used in investing activities		(45,208	)		(81,313	)
Financing activities
Proceeds from debt		105,574			143,250
Debt principal repayments		(86,018	)		(42,149	)
Cash dividends paid		(18,240	)		(16,328	)
Repurchases of common stock		(6,916	)		(6,369	)
Distributions to non-controlling partners, net		(12,234	)		(10,128	)
Other financing activities, net		1,242			441
Net cash (used in) provided by financing activities		(16,592	)		68,717
Net (decrease) increase in cash, cash equivalents and restricted cash		(88,298	)		2,147
Cash, cash equivalents and $5,825 and $0 in restricted cash at beginning of each period		278,629			233,711
Cash, cash equivalents and $5,658 and $5,599 in restricted cash at end of each period	$	190,331		$	235,858
Supplementary Information
Right of use assets obtained in exchange for lease obligations	$	19,005		$	—
Cash paid for operating lease liabilities		13,713			—
Cash paid during the period for:
Interest	$	13,758		$	9,029
Income taxes		11,900			8,576
Other non-cash operating activities:
Performance guarantees	$	(6,284	)	$	—
Non-cash investing and financing activities:
Common stock issued in acquisition	$	—		$	321,075
Common stock issued in conversion of 8% Convertible Notes		—			53,086
Premium on 8.0% Convertible Notes		—			30,702
RSUs issued, net of forfeitures		8,573			13,537
Accrued cash dividends		6,076			6,097
Accrued equipment purchases		674			4,783

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at September 30, 2019 and 2018 and the results of our operations and cash flows for the periods presented. The December 31, 2018 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.

Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and nine months ended September 30, 2019 are not indicative of the results to be expected for the full year.

We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements, except for the adoption during the three months ended March 31, 2019 of Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which had no material impact on our condensed consolidated financial statements. In addition, as discussed in Note 2, during the three months ended March 31, 2019, we adopted ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income and ASU No. 2016-02, Leases and subsequently issued related ASUs (“Topic 842”).

On May 22, 2019, we acquired certain assets and equipment of Lametti & Sons, Inc. a Minnesota-based company with expertise in cured-in-place pipe rehabilitation and trenchless renewal for $6.2 million cash.

Reclassifications: Certain immaterial reclassifications of prior period amounts have been made to conform to the current period presentation.

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,	*2019*			*2018*
Cash, cash equivalents and restricted cash, beginning of period	$	278,629		$	233,711
End of the period
Cash and cash equivalents		184,673			230,259
Restricted cash		5,658			5,599
Total cash, cash equivalents and restricted cash, end of period		190,331			235,858
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(88,298	)	$	2,147

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

2. Recently Issued and Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. This ASU will be effective commencing with our quarter ending March 31, 2020. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act of 2017, from accumulated other comprehensive income (“AOCI”) to retained earnings. This ASU was effective commencing with our quarter ended March 31, 2019 and we elected not to reclassify the immaterial stranded tax effects from AOCI to retained earnings. We adopted the policy that future income tax effects which are stranded in AOCI will be released under the item-by-item approach.

Effect of adopting Topic 842

The core principle of Topic 842 requires lessees to recognize operating leases as right of use (“ROU”) assets and lease liabilities on the balance sheet as described below. Prior to adoption of Topic 842, we recognized operating lease payments as an expense on a straight-line basis over the lease term on our consolidated statements of operations and did not recognize ROU assets or lease liabilities on our consolidated balance sheets.

We adopted Topic 842 using a modified retrospective transition approach with no prior-period retrospective adjustments, recognizing a net cumulative decrease to retained earnings and added ROU assets, short and long term lease liabilities of approximately $0.5 million, $72.2 million, $14.9 million and $60.4 million, respectively, as of January 1, 2019.

We applied Topic 842 to all noncancelable operating leases outstanding as of January 1, 2019 except those related to quarry properties and those that at lease commencement have an actual and intended lease term shorter than twelve months.

We elected to apply optional practical expedients which allowed us to forego reassessments of 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) the initial direct costs for any existing leases.

In connection with the adoption of Topic 842, we implemented the following accounting policy:

ROU Assets and Liabilities: A lease contract conveys the right to use an underlying asset for a period of time in exchange for consideration. At inception, we determine whether a contract contains a lease by determining if there is an identified asset and if the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time.

At lease commencement, we measure and record a lease liability equal to the present value of the remaining lease payments, generally discounted using the borrowing rate on our secured debt as the implicit rate is not readily determinable on many of our leases. We use a single maturity discount rate if it is not materially different than the discount rates applied to each of the leases in the portfolio.

On the lease commencement date, the amount of the ROU assets consist of the following:

	•	the amount of the initial measurement of the lease liability;
	•	any lease payments made at or before the commencement date, minus any lease incentives received; and

•

any initial direct costs incurred.

Most of our lease contracts do not have the option to extend or renew. We assess the option for individual leases, and we generally consider the base term to be the term of lease contracts.

On a quarterly basis, we determine if subcontractor, vendor or service provider agreements contain embedded leases by assessing if an asset is explicitly or implicitly specified in the agreement and the counterparty has the right to substitute the asset.

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3. Acquisitions

On June 14, 2018 (the “acquisition date”), we completed the acquisition of the Layne Christensen Company (“Layne”). We have finalized the purchase price accounting and there were no material measurement period adjustments during the three and nine months ended September 30, 2019. The financial information in the table below summarizes the combined results of operations of Granite and Layne, on a pro forma basis, as though the companies had been combined as of January 1, 2017 (in thousands, except per share amounts). The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2017.

	Three Months Ended		Nine Months Ended
	September 30, 2018
Revenue	$	1,087,111	$	2,638,664
Net income		39,550		81,151
Net income attributable to Granite		37,477		73,661
Basic net income per share attributable to common shareholders		0.82		1.61
Diluted net income per share attributable to common shareholders		0.80		1.60

These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of Layne to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2017. Acquisition and integration expenses related to Layne are excluded as the timing of the transaction is assumed to be January 1, 2017. The statutory tax rate of 26% was used for the pro forma adjustments.

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. When we experience significant changes in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. In our review of these changes for the three and nine months ended September 30, 2019 and 2018, we did not identify any material amounts that should have been recorded in a prior period.

For the three and nine months ended September 30, 2019, revisions in estimates, including estimated cost recovery of customer affirmative claims and back charges, that individually had an impact of $5.0 million or more on gross profit resulted in decreases to gross profit and income (loss) before provision for (benefit from) income taxes of $80.7 million and $264.1 million, respectively, and decreases in net income (loss) of $62.9 million and $200.6 million ($1.33 and $4.29 per diluted share), respectively.

For the three and nine months ended September 30, 2018, revisions in estimates, including estimated cost recovery of customer affirmative claims and back charges, that individually had an impact of $5.0 million or more on gross profit resulted in decreases to gross profit and income (loss) before provision for (benefit from) income taxes of $19.3 million and $57.8 million, respectively, and decreases in net income of $14.6 million and $43.7 million ($0.31 and $1.02 per diluted share), respectively.

Decreases for all periods presented were in our Transportation segment except for one project in Water segment during the nine months ended September 30, 2019 and one project in Specialty segment during both three and nine months ended September 30, 2019. There were no increases from revisions in estimates, which individually would have had an impact of $5.0 million or more on gross profit, for the periods presented.

The impact to gross profit is summarized as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
(dollars in millions)	2019		2018		2019		2018
Number of projects with downward estimate changes		6		2		9		4
Range of reduction in gross profit from each project, net	$	5.4 - 30.9	$	7.3 - 12.0	$	6.0 - 92.6	$	5.2 - 25.6
Decrease to project profitability	$	80.7	$	19.3	$	264.1	$	57.8

The decreases during the three and nine months ended September 30, 2019 were due to increased project completion costs, schedule delays, lower productivity than originally anticipated and performance of a significant amount of disputed work partially offset by an increase in estimated recovery from customer affirmative claims.The decreases during the nine months ended September 30, 2019 were also due to an unfavorable court ruling on a designer back charge claim and were impacted by a business added in the Layne acquisition last year that we exited during the quarter. The decreases during the three and nine months ended September 30, 2018 were due to additional costs and lower productivity than originally anticipated as well as additional weather related costs and a decrease in estimated recovery from customer affirmative claims.

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5. Disaggregation of Revenue

The following tables present our disaggregated revenue (in thousands):

Three Months Ended September 30,

	*Transportation*		*Water*		*Specialty*		*Materials*		*Total*
2019
California	$	197,057	$	10,390	$	60,791	$	71,251	$	339,489
Federal		56		155		23,973		—		24,184
Heavy Civil		162,608		2,159		—		—		164,767
Midwest		27,359		39		45,415		—		72,813
Northwest		211,566		1,095		70,753		51,662		335,076
Water and Mineral Services		—		122,070		23,525		6,186		151,781
Total	$	598,646	$	135,908	$	224,457	$	129,099	$	1,088,110

2018
California	$	180,163	$	12,119	$	31,713	$	74,065	$	298,060
Federal		69		480		13,363		—		13,912
Heavy Civil		224,560		5,511		—		—		230,071
Midwest		23,346		194		65,513		—		89,053
Northwest		182,709		877		46,752		46,935		277,273
Water and Mineral Services		—		105,111		33,495		8,616		147,222
Total	$	610,847	$	124,292	$	190,836	$	129,616	$	1,055,591

Nine Months Ended September 30,

	*Transportation*		*Water*		*Specialty*		*Materials*		*Total*
2019
California	$	404,981	$	14,390	$	135,928	$	145,278	$	700,577
Federal		133		1,034		57,698		—		58,865
Heavy Civil		434,588		10,074		—		—		444,662
Midwest		73,555		123		120,885		—		194,563
Northwest		427,577		3,675		151,621		107,040		689,913
Water and Mineral Services		—		318,698		74,102		16,071		408,871
Total	$	1,340,834	$	347,994	$	540,234	$	268,389	$	2,497,451

2018
California	$	453,077	$	45,711	$	104,914	$	162,247	$	765,949
Federal		427		1,598		27,620		—		29,645
Heavy Civil		596,022		15,211		—		—		611,233
Midwest		61,801		1,710		180,425		—		243,936
Northwest		361,376		3,268		114,695		103,290		582,629
Water and Mineral Services		—		148,453		33,495		10,749		192,697
Total	$	1,472,703	$	215,951	$	461,149	$	276,286	$	2,426,089

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6. Unearned Revenue

The following tables present our unearned revenue as of the respective periods (in thousands):

September 30, 2019	*Transportation*		*Water*		*Specialty*		*Total*
California	$	535,139	$	19,594	$	96,961	$	651,694
Federal		14,699		1,181		177,686		193,566
Heavy Civil		1,595,092		48,952		245,478		1,889,522
Midwest		207,555		70		137,991		345,616
Northwest		276,090		1,880		74,959		352,929
Water and Mineral Services		—		159,874		—		159,874
Total	$	2,628,575	$	231,551	$	733,075	$	3,593,201

June 30, 2019
California	$	590,641	$	14,382	$	119,152	$	724,175
Federal		80		1,350		146,516		147,946
Heavy Civil		1,751,819		12,146		—		1,763,965
Midwest		204,749		110		158,378		363,237
Northwest		374,148		710		93,411		468,269
Water and Mineral Services		—		224,720		—		224,720
Total	$	2,921,437	$	253,418	$	517,457	$	3,692,312

September 30, 2018
California	$	299,242	$	11,297	$	50,283	$	360,822
Federal		23		—		145,483		145,506
Heavy Civil		1,678,637		26,914		—		1,705,551
Midwest		91,144		405		235,190		326,739
Northwest		242,666		10		70,600		313,276
Water and Mineral Services		—		211,531		—		211,531
Total	$	2,311,712	$	250,157	$	501,556	$	3,063,425

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7. Contract Assets and Liabilities

During the three and nine months ended September 30, 2019, we recognized revenue of $13.2 million and $118.8 million, respectively, that was included in the contract liability balance at December 31, 2018. During the three and nine months ended September 30, 2018, we recognized revenue of $0.6 million and $103.3 million, respectively, that was included in the contract liability balance at January 1, 2018.

As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $32.8 million and $117.6 million during the three and nine months ended September 30, 2019, respectively, and $25.3 million and $86.2 million during the three and nine months ended September 30, 2018, respectively. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.

As of September 30, 2019, December 31, 2018 and September 30, 2018, the aggregate claim recovery estimates included in contract asset and liability balances were $60.6 million, $45.1 million and $37.2 million, respectively.

The components of the contract asset balances as of the respective dates were as follows (in thousands):

	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
Costs in excess of billings and estimated earnings	$	127,863	$	120,223	$	108,105
Contract retention		106,062		99,531		105,884
Total contract assets	$	233,925	$	219,754	$	213,989

As of September 30, 2019, December 31, 2018 and September 30, 2018, no individual contract retention balance exceeded 10% of total contract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year and there were no balances determined to be uncollectible.

The components of the contract liability balances as of the respective dates were as follows (in thousands):

	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
Billings in excess of costs and estimated earnings, net of retention	$	100,673	$	103,250	$	117,352
Provisions for losses		5,337		2,199		407
Total contract liabilities	$	106,010	$	105,449	$	117,759

8. Receivables, net

(in thousands)	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
Contracts completed and in progress:
Billed	$	417,373	$	285,521	$	351,802
Unbilled		182,762		98,755		147,950
Total contracts completed and in progress		600,135		384,276		499,752
Material sales		72,486		45,286		73,282
Other		28,674		44,195		45,125
Total gross receivables		701,295		473,757		618,159
Less: allowance for doubtful accounts		908		511		89
Total net receivables	$	700,387	$	473,246	$	618,070

Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest. Included in other receivables at September 30, 2019, December 31, 2018 and September 30, 2018 were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates.

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9. Marketable Securities

All marketable securities were classified as held-to-maturity as of the dates presented and the carrying amounts of held-to-maturity securities were as follows:

(in thousands)	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
U.S. Government and agency obligations	$	37,918	$	24,996	$	30,000
Corporate bonds		—		5,006		5,010
Total short-term marketable securities		37,918		30,002		35,010
U.S. Government and agency obligations		10,000		36,098		46,093
Total long-term marketable securities		10,000		36,098		46,093
Total marketable securities	$	47,918	$	66,100	$	81,103

Scheduled maturities of held-to-maturity investments were as follows:

(in thousands)	*September 30, 2019*
Due within one year	$	37,918
Due in one to five years		10,000
Total	$	47,918

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, 2019	*Level 1*		*Level 2*		*Level 3*		*Total*
Cash equivalents
Money market funds	$	68,579	$	—	$	—	$	68,579
Other noncurrent assets
Restricted cash		5,658		—		—		5,658
Total assets	$	74,237	$	—	$	—	$	74,237
Other current liabilities
Interest rate cash flow hedge	$	—	$	5,564	$	—	$	5,564
Total liabilities	$	—	$	5,564	$	—	$	5,564

December 31, 2018
Cash equivalents
Money market funds	$	84,613	$	—	$	—	$	84,613
Other noncurrent assets
Restricted cash		5,825		—		—		5,825
Total assets	$	90,438	$	—	$	—	$	90,438
Other current liabilities
Interest rate cash flow hedge	$	—	$	1,098	$	—	$	1,098
Total liabilities	$	—	$	1,098	$	—	$	1,098

September 30, 2018
Cash equivalents
Money market funds	$	68,765	$	—	$	—	$	68,765
Other current assets
Interest rate cash flow hedge		—		1,500		—		1,500
Other noncurrent assets
Restricted cash		5,599		—		—		5,599
Total assets	$	74,364	$	1,500	$	—	$	75,864

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Commodity Swap

In February 2019, we entered into a commodity swap designated as a cash flow hedge covering the periods from March to October 2019 with an original notional amount of $8.7 million which represented approximately 60.0% of our forecasted purchases for fixed price asphalt during these periods. The commodity swap is reported at fair value using Level 2 inputs in the condensed consolidated balance sheets. Gains or losses on the effective portion are initially reported as a component of AOCI and subsequently reclassified to cost of revenue in the condensed consolidated statements of operations when the monthly hedged commodity payment is settled. As of September 30, 2019, the fair value of the cash flow hedge was immaterial and was included in other current assets in the condensed consolidated balance sheets. During the three and nine months ended September 30, 2019, the unrealized gain, net of taxes, on the effective portion was immaterial, there was no ineffective portion, the cost of revenue reclassified from AOCI was immaterial and we estimate an immaterial amount to be reclassified from AOCI into pre-tax earnings within the next twelve months.

Other Assets and Liabilities

The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:

		*September 30, 2019*				*December 31, 2018*				*September 30, 2018*
(in thousands)	*Fair Value Hierarchy*	*Carrying Value*		*Fair Value*		*Carrying Value*		*Fair Value*		*Carrying Value*		*Fair Value*
Assets:
Held-to-maturity marketable securities	Level 1	$	47,918	$	47,856	$	66,100	$	65,290	$	81,103	$	79,941
Liabilities (including current maturities):
2019 Notes¹	Level 3	$	—	$	—	$	40,000	$	40,484	$	80,000	$	82,191
Credit Agreement - term loan¹	Level 3		140,625		141,634		146,250		147,141		148,125		148,832
Credit Agreement - revolving credit facility¹	Level 3		250,000		251,986		197,000		197,889		137,000		137,636
Convertible notes	Level 1		—		—		—		—		69,659		69,472

¹ See Note 14 for definitions of, and more information about, the 2019 Notes and Credit Agreement.

During the three and nine months ended September 30, 2019 and 2018, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

11. Construction Joint Ventures

We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three months ended September 30, 2019, we determined no change was required for existing joint ventures.

Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At September 30, 2019, there was approximately $2.8 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $1.0 billion represented our share and the remaining $1.8 billion 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 September 30, 2019, we were engaged in seven active CCJV projects with total contract values ranging from $0.7 million to $410.5 million for a combined total of $1.2 billion. Our share of revenue remaining to be recognized on these CCJVs was $338.1 million and ranged from $0.3 million to $137.2 million. Our proportionate share of the equity in these joint ventures was between 50.0% and 65.0%. During the three and nine months ended September 30, 2019, total revenue from CCJVs was $71.1 million and $217.0 million, respectively, and during the three and nine months ended September 30, 2018, total revenue from CCJVs was $61.6 million and $173.1 million, respectively. During the nine months ended September 30, 2019 and 2018, CCJVs used $19.3 million and provided $31.5 million of operating cash flows, respectively.

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Unconsolidated Construction Joint Ventures

As of September 30, 2019, we were engaged in nine active unconsolidated joint venture projects with total contract values ranging from $85.2 million to $3.8 billion for a combined total of $11.5 billion of which our share was $3.3 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of September 30, 2019, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $812.1 million and ranged from $1.7 million to $226.0 million.

The following is summary financial information related to unconsolidated construction joint ventures:

(in thousands)	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
Assets
Cash, cash equivalents and marketable securities	$	217,279	$	229,562	$	242,028
Other current assets¹		863,182		814,979		806,104
Noncurrent assets		209,865		204,090		204,201
Less partners’ interest		858,235		822,215		810,111
Granite’s interest^1,2		432,091		426,416		442,222
Liabilities
Current liabilities		542,278		525,036		511,639
Less partners’ interest and adjustments³		254,901		369,782		331,838
Granite’s interest		287,377		155,254		179,801
Equity in construction joint ventures⁴	$	144,714	$	271,162	$	262,421

¹Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $81.9 million, $88.2 million and $88.6 million related to performance guarantees as of September 30, 2019, December 31, 2018 and September 30, 2018.

² Included in this balance as of September 30, 2019, December 31, 2018 and September 30, 2018 was $96.8 million, $78.1 million and $67.1 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $11.8 million, $15.6 million and $12.5 million related to Granite’s share of estimated recovery of back charge claims as of September 30, 2019, December 31, 2018 and September 30, 2018, 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 the condensed consolidated balance sheets were amounts related to deficits in construction joint ventures, which includes provisions for losses, that were $65.1 million, $11.5 million and $ 11.6 million as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
(in thousands)	*2019*			*2018*			*2019*			*2018*
Revenue
Total	$	421,977		$	436,093		$	1,273,982		$	1,125,530
Less partners’ interest and adjustments¹		323,999			285,064			1,006,667			746,905
Granite’s interest		97,978			151,029			267,315			378,625
Cost of revenue
Total		441,898			485,190			1,309,867			1,289,464
Less partners’ interest and adjustments¹		303,455			330,141			868,916			892,892
Granite’s interest		138,443			155,049			440,951			396,572
Granite’s interest in gross loss²	$	(40,465	)	$	(4,020	)	$	(173,636	)	$	(17,947	)

¹ Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.

² While total revenue, Granite’s interest in revenue, total cost of revenue, and total net loss were correctly stated, Granite’s interest in cost of revenue, gross loss and net loss for the three and six months ended June 30, 2019 were misstated for the quarter ended June 30, 2019. Granite’s originally reported interest in cost of revenue, gross loss and net loss was: $144.0 million, $107.2 million and $106.3 million, respectively, for the three months ended June 30, 2019 and was $275.5 million, $106.2 million and $105.8 million, respectively, for the six months ended June 30, 2019. Granite’s interest in cost of revenue, gross loss and net loss should have been: $171.0 million, $134.2 million and $133.3 million, respectively, for the three months ended June 30, 2019 and $302.5 million, $133.2 million and $132.8 million, respectively, for the six months ended June 30, 2019. The misstatements did not impact the condensed consolidated balance sheet, statements of operations, statements of comprehensive loss or statements of shareholders’ equity in any period. However, the misstatements did result in a misclassification of $27.0 million within operating activities of the condensed consolidated statements of cash flows for the six months ended June 30, 2019 to equity in net loss from unconsolidated joint ventures from accrued expenses and other current liabilities, net. There was no impact to the net cash used in operating activities for the six months ended June 30, 2019. We assessed the materiality of the errors in accordance with the SEC’s Staff Accounting Bulletin 99 and concluded that the errors were not material to either of these previously issued financial statements. Accordingly, we will revise our previously issued financial statements prospectively to correct these errors.

During the three and nine months ended September 30, 2019, unconsolidated construction joint venture net losses were $(19.6) million and $(33.3) million, respectively, of which our share were net losses of $(40.2) million and $(173.0) million, respectively. During the three and nine months ended September 30, 2018, unconsolidated construction joint venture net losses were $(47.6) million and $(162.0) million, respectively, of which our share were net losses of $(3.1) million and $(16.3) million, respectively. The differences between our share of the joint venture net loss during 2018 and 2019 when compared to the joint venture net loss primarily resulted from differences between our estimated total revenue and cost of revenue when compared to that of our partners’ on four projects. The differences are due to timing differences from varying accounting policies and in public company quarterly reporting requirements. These joint venture net 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.

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12. Investments in Affiliates

Our investments in affiliates balance consists of equity method investments in the following types of entities:

(in thousands)	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
Foreign	$	55,769	$	55,715	$	54,620
Real estate		17,670		19,676		20,930
Asphalt terminal		11,475		8,963		9,290
Total investments in affiliates	$	84,914	$	84,354	$	84,840

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, 2019*		*December 31, 2018*		*September 30, 2018*
Current assets	$	140,487	$	141,930	$	138,887
Noncurrent assets		168,715		170,172		168,402
Total assets		309,202		312,102		307,289
Current liabilities		61,738		55,816		71,940
Long-term liabilities¹		60,230		63,098		46,961
Total liabilities		121,968		118,914		118,901
Net assets		187,234		193,188		188,388
Granite’s share of net assets	$	84,914	$	84,354	$	84,840

¹ The balance primarily relates to debt associated with our real estate investments.

Of the $309.2 million in total assets as of September 30, 2019, we had investments in thirteen foreign entities with total assets ranging from $0.2 million to $69.0 million, three real estate entities with total assets ranging from $8.3 million to $43.2 million and the asphalt terminal entity had total assets of $32.5 million. We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25.0% to 50.0% as of September 30, 2019. The equity method investments in real estate affiliates included $14.1 million, $16.3 million and $17.5 million in residential real estate in Texas as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively. The remaining balances were in commercial real estate in Texas.

13. Property and Equipment, net

Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets and were as follows:

(in thousands)	*September 30, 2019*		*December 31, 2018*		*September 30, 2018*
Equipment and vehicles	$	949,577	$	906,275	$	917,186
Quarry property		185,792		180,246		180,004
Land and land improvements		134,543		142,271		138,875
Buildings and leasehold improvements		112,940		108,884		105,895
Office furniture and equipment		66,791		65,680		63,354
Property and equipment		1,449,643		1,403,356		1,405,314
Less: accumulated depreciation and depletion		906,847		853,668		844,696
Property and equipment, net	$	542,796	$	549,688	$	560,618

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14. Long-Term Debt and Credit Arrangements

(in thousands)	*September 30, 2019*		*December 31, 2018*			*September 30, 2018*
Senior notes payable	$	—	$	40,000		$	80,000
Credit Agreement term loan		140,625		146,250			148,125
Credit Agreement revolving credit loan		250,000		197,000			137,000
Convertible notes		—		—			69,659
Other		12,479		(845	)		(1,062	)
Total debt		403,104		382,405			433,722
Less current maturities		8,263		47,286			116,796
Total long-term debt	$	394,841	$	335,119		$	316,926

The aggregate minimum principal maturities of long-term debt, including current maturities and excluding debt issuance costs, related to balances at September 30, 2019 are as follows: $2.1 million during the remainder of 2019; $8.4 million in 2020; $8.5 million in 2021; $8.5 million in 2022; $367.3 in 2023 and $8.9 million in 2024 and thereafter.

Senior Notes Payable

Senior notes payable as of December 31, 2018 and September 30, 2018 of $40.0 million and $80.0 million, respectively, were due to a group of institutional holders and had an interest rate of 6.11% per annum (“2019 Notes”). As of December 31, 2018, all of the $40.0 million was included in current maturities of long-term debt on the condensed consolidated balance sheets. As of September 30, 2018, $40.0 million of the outstanding balance was included in each of current maturities of long-term debt and long-term debt in the condensed consolidated balance sheets. On July 29, 2019, we called and redeemed the $40.0 million outstanding balance which were originally due in December 2019.

Credit Agreement

Granite entered into the Third Amended and Restated Credit Agreement dated May 31, 2018. The credit agreement provided for a $150.0 million term loan, of which $140.6 million was outstanding on September 30, 2019, and a $350.0 million revolving credit facility. We entered into Amendment No. 1 to Third Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) dated July 29, 2019 as discussed below.

The term loan requires that Granite repay 1.25% of the principal balance each quarter until the maturity date, at which point the remaining balance is due. As of each September 30, 2019, December 31, 2018 and September 30, 2018, $7.5 million of the term loan balance was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $133.1 million, $138.8 million and $140.6 million, respectively, was included in long-term debt.

As of September 30, 2019, the total stated amount of all issued and outstanding letters of credit under the Credit Agreement was $32.3 million. As of September 30, 2019, December 31, 2018 and September 30, 2018, $250.0 million, $197.0 million and $137.0 million, respectively, was outstanding under the revolving credit facility. As of September 30, 2019, the total unused availability under the Credit Agreement was $67.7 million. The letters of credit will expire between October 2019 and June 2020.

Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at our option), plus an applicable margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement) calculated quarterly. The applicable margin was 2.00% for loans bearing interest based on LIBOR and 1.00% for loans bearing interest at the base rate at September 30, 2019. Accordingly, the effective interest rate using three-month LIBOR and base rate was 4.09% and 6.00%, respectively, at September 30, 2019 and we elected to use LIBOR for both the term loan and the revolving credit facility.

As of September 30, 2019, the conditions for the exercise of our right under Credit Agreement to have liens released were not satisfied.

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Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the Credit Agreement. As of September 30, 2019, we were compliant with the financial covenants contained in the Credit Agreement.

15. Leases

We have leases for office and shop space, as well as for equipment primarily utilized in our construction projects. As of September 30, 2019, our lease contracts were classified as operating leases and had terms ranging from month-to-month to 29 years. As of September 30, 2019, our operating leases were included in ROU assets, accrued and other current liabilities and lease liabilities on our condensed consolidated balance sheets and were $70.5 million, $16.0 million and $56.7 million, respectively. As of September 30, 2019, we had no lease contracts that had not yet commenced but created significant rights and obligations.

Lease expense was $5.0 million and $13.9 million during the three and nine months ended September 30, 2019, which included operating lease costs related to short-term leases and variable lease costs.

As of September 30, 2019, our weighted-average remaining lease term was 6.0 years and the weighted-average discount rate was 3.99%.

As of September 30, 2019, the lease liability is equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on our secured debt using a single maturity discount rate as it is not materially different than the discount rates applied to each of the leases in the portfolio.

The following table summarizes our undiscounted lease liabilities outstanding as of September 30, 2019 (in thousands):

Remainder of 2019	$	4,827
2020		18,886
2021		17,630
2022		15,489
2023		10,358
2024 through 2035		19,067
Total future minimum lease payments	$	86,257
Less: imputed interest		13,554
Total	$	72,703

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16. Weighted Average Shares Outstanding and Net Income (Loss) Per Share

The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
(in thousands, except per share amounts)	*2019*		*2018*		*2019*			*2018*
*Numerator (basic and diluted)*
Net income (loss) allocated to common shareholders for basic calculation	$	20,488	$	55,672	$	(111,922	)	$	35,864
Effect of dilutive convertible notes		—		296		—			—
Net income (loss) allocated to common shareholders for basic calculation		20,488		55,968		(111,922	)		35,864
Denominator
Weighted average common shares outstanding, basic		46,788		46,308		46,771			42,443
Dilutive effect of RSUs and convertible notes ¹		382		1,502		—			467
Weighted average common shares outstanding, diluted		47,170		47,810		46,771			42,910
Net income (loss) per share, basic	$	0.44	$	1.20	$	(2.39	)	$	0.84
Net income (loss) per share, diluted	$	0.43	$	1.17	$	(2.39	)	$	0.84

¹ Due to the net loss for the nine months ended September 30, 2019, RSUs representing approximately 393,000 shares have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.

² Weighted average shares of approximately 1.1 million have been included in the number of shares used in calculating diluted net income per share for the three months ended September 30, 2018 based on the assumption that the 8% Convertible Notes were converted to Granite shares as of July 1, 2018 through their conversion on August 15, 2018. The shares have been excluded from the nine months ended September 30, 2018 as their inclusion would be antidilutive.

17. Income Taxes

The following table presents the provision for (benefit from) income taxes for the respective periods:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
(dollars in thousands)	*2019*			*2018*			*2019*			*2018*
Provision for (benefit from) income taxes	$	3,474		$	8,692		$	(37,451	)	$	7,357
Effective tax rate		13.7	%		12.8	%		26.6	%		14.5	%

Our effective tax rate remained relatively unchanged for the three months ended September 30, 2019 when compared to the same period in 2018 due to the impact of discrete items relative to income (loss) before provision for (benefit from) income taxes. Our effective tax rate increased to 26.6% for the nine months ended September 30, 2019 from 14.5% when compared to the same period in 2018. This change was primarily due to a $37.0 million discrete tax benefit recorded in 2019 on the decrease to project profitability as it relates to four legacy, unconsolidated heavy civil joint venture projects compared to a net $3.5 million discrete tax benefit recorded in 2018 due to adjustments to provisional amounts related to the U.S. Tax Cuts and Jobs Act of 2017 which was partially offset by a discrete tax expense on one-time nondeductible acquisition and integration expenses

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18. 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 cannot be predicted with certainty. 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 cannot be predicted with certainty.

Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.

Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.

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 our condensed consolidated balance sheets. The aggregate liabilities recorded as of September 30, 2019, December 31, 2018 and September 30, 2018 related to these matters were immaterial. The aggregate 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 the reasonably estimable amount is determined.

On August 13, 2019, a putative securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our President and Chief Executive Officer, and Jigisha Desai, our Senior Vice President and Chief Financial Officer. The complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between October 26, 2018 and August 1, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks damages based on allegations that in the Company’s SEC filings the defendants made false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations and prospects. We are in the preliminary stages of reviewing the allegations made in the complaint and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.

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19. Business Segment Information

Summarized segment information is as follows (in thousands):

Three Months Ended September 30,

	*Transportation*		*Water*		*Specialty*		*Materials*			*Total*
2019
Total revenue from reportable segments	$	598,646	$	135,908	$	224,457	$	210,216		$	1,169,227
Elimination of intersegment revenue		—		—		—		(81,117	)		(81,117	)
Revenue from external customers		598,646		135,908		224,457		129,099			1,088,110
Gross profit		13,633		15,030		38,299		24,470			91,432
Depreciation, depletion and amortization		4,096		9,272		7,747		6,784			27,899

2018
Total revenue from reportable segments	$	610,847	$	124,292	$	190,836	$	194,586		$	1,120,561
Elimination of intersegment revenue		—		—		—		(64,970	)		(64,970	)
Revenue from external customers		610,847		124,292		190,836		129,616			1,055,591
Gross profit		70,976		24,103		28,099		21,313			144,491
Depreciation, depletion and amortization		7,592		11,191		7,569		6,496			32,848

Nine Months Ended September 30,

	*Transportation*			*Water*		*Specialty*		*Materials*			*Total*
2019
Total revenue from reportable segments	$	1,340,834		$	347,994	$	540,234	$	402,459		$	2,631,521
Elimination of intersegment revenue		—			—		—		(134,070	)		(134,070	)
Revenue from external customers		1,340,834			347,994		540,234		268,389			2,497,451
Gross (loss) profit		(64,996	)		34,412		75,376		34,714			79,506
Depreciation, depletion and amortization		12,581			31,259		21,960		18,417			84,217
Segment assets		314,361			294,211		140,192		367,944			1,116,708

2018
Total revenue from reportable segments	$	1,472,703	$	215,951	$	461,149	$	392,633		$	2,542,436
Elimination of intersegment revenue		—		—		—		(116,347	)		(116,347	)
Revenue from external customers		1,472,703		215,951		461,149		276,286			2,426,089
Gross profit		138,401		41,117		65,311		36,314			281,143
Depreciation, depletion and amortization		17,920		16,075		18,908		17,980			70,883
Segment assets		394,981		308,964		150,437		375,016			1,229,398

A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
(in thousands)	*2019*			*2018*			*2019*			*2018*
Total gross profit from reportable segments	$	91,432		$	144,491		$	79,506		$	281,143
Selling, general and administrative expenses		73,424			70,769			224,577			193,337
Acquisition and integration expenses		2,744			9,334			15,244			44,030
Gain on sales of property and equipment		(7,101	)		(3,018	)		(13,936	)		(5,066	)
Total other income		(3,022	)		(383	)		(5,799	)		(1,869	)
Income (loss) before provision for (benefit from) income taxes	$	25,387		$	67,789		$	(140,580	)	$	50,711

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Disclosure

From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, backlog, and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, backlog, 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 and in this Quarterly Report Form 10-Q under "Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.

Overview

We are one of the largest diversified infrastructure companies in the United States, engaged in heavy-civil infrastructure projects including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, power-related facilities, water-related facilities, well drilling, utilities, tunnels, dams and other infrastructure-related projects, site preparation, mining services, and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as construction management professional services. We have four reportable business segments: Transportation, Water, Specialty and Materials (see Note 19 of “Notes to the Condensed Consolidated Financial Statements”). In addition to business segments, we review our business by operating groups. Our operating groups are California, Federal, Heavy Civil, Northwest, Midwest and Water and Mineral Services.

The five primary economic drivers of our business are (i) the overall health of the U.S. economy; (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement.

In the first half of 2018, we completed the acquisition of the Layne Christensen Company (“Layne”), a water and mining infrastructure services and drilling company, as well as LiquiForce, a regional company in Canada and the Midwest providing lateral and mainline pipe lining services in the water and wastewater markets. In addition, on May 22, 2019, we acquired certain assets and equipment of Lametti & Sons, Inc. a Minnesota-based company with cured-in-place pipe rehabilitation and trenchless renewal experience for $6.2 million in cash.

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Current Economic Environment and Outlook

Granite, America’s Infrastructure Company, provides solutions to the Transportation, Water, Specialty and Materials end-markets. We are one of the largest diversified construction and construction materials companies in the United States and are positioned to leverage opportunities across end markets and geographies. As we execute our strategy, we remain committed to creating consistent value for Granite’s stakeholders.

Through May of this year, we experienced inclement weather across most of the U.S. which negatively impacted our operations. Beginning in June, weather improved for much of the U.S., and our teams have been working through our strong backlog. The Company’s continued focus on bidding discipline and end-market diversification positions the Company well, with solid contract backlog of $3.6 billion and an additional $1.0 billion of construction manager/general contractor and alternative procurement projects. We expect the additional $1.0 billion of construction manager/general contractor and alternative procurement projects to enter backlog as task orders are issued this year, and in future years. As of September 30, 2019, our Committed and Awarded Projects (“CAP”) totaled nearly $4.6 billion and comprises an increasingly strategic portfolio of stored energy for the Company. Public and private market demand remains robust across Granite’s end markets. Private-market activity is a key growth and diversification driver across our business, particularly in our Specialty segment, spurring expansion in our mining, site development and power sectors. Public infrastructure investment is growing at state, regional, and local levels, and this multi-year public-spending investment will benefit our Transportation, Water and Materials segments. It also provides our industry with steady visibility into funding.

At the National level, while we have not seen recent movement on the federal infrastructure initiative to provide a permanent revenue solution for the federal Highway Trust Fund, the Fixing America’s Surface Transportation (“FAST”) Act remains a stabilizing force for transportation markets. The federal government is providing smaller, targeted funding, as is illustrated by the September 2019 U.S. Department of Transportation announcement of an emergency relief fund totaling $871.2 million for roads and bridges impacted by severe weather events. At the state level, 31 states and the District of Colombia have enacted legislation to increase their state motor fuel taxes since 2013, with some states including annual fuel tax indexing provisions. This includes California’s 10-year, $54.2 billion Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017. SB-1 continues to spur increased bidding and project lettings where we have seen a meaningful increase of award value when compared to the same prior year period. Other state and local-led program expansions, coupled with Federal and private-sector stability, are key contributors to robust market activity and multi-year funding visibility.

Market demand remains strong in the water-related construction, water resources and wastewater rehabilitation markets. Here, market and funding dynamics position our legacy and acquired businesses included in the Water segment for significant growth. Across the Water segment’s end markets, states and municipal water authorities weigh options for overdue water and wastewater infrastructure investment. For our wastewater rehabilitation business, this includes potential awards for infrastructure improvements mandated through consent decrees issued by municipalities. At the federal level, Congress approved the America’s Water Infrastructure Act of 2018, which includes $4.4 billion for the Environmental Protection Agency's drinking water program. This legislation also creates the Water Resources Development Act, which authorizes $3.7 billion of federal funds for U.S. Army Corps of Engineers' flood-protection and other projects.

The Company announced this quarter that it has completed its strategic review of the Heavy Civil operating group and that it is taking additional steps to reduce risk and exposure to large, complex projects where the trend has been for risks that are difficult to mitigate in the current contracting environment. The historical industry pricing and associated risk for this type of work does not align with the Company’s stakeholder expectations. Under a new management team, we will narrow the footprint of our Heavy Civil operating group and align our Heavy Civil Group and Construction and Materials operations teams across the Transportation segment. This expands the opportunity to align the Heavy Civil group processes more closely with our successful vertically integrated construction and materials model. Our focus will be to pursue opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages.

Granite continues to emphasize lower-risk, smaller-scope projects, particularly negotiated work, construction management/general contractor, construction management at-risk and other best-value procurement methods. Across end-markets, our focus on bottom and top-line improvement continues to emphasize managing risks and pricing appropriately for the complex skills and resources required to build America’s infrastructure projects. We are focused on pursuing and executing work with appropriate returns relative to risks for Granite’s stakeholders.

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Results of Operations

Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.

The following table presents a financial summary for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Total revenue	$	1,088,110		$	1,055,591		$	2,497,451		$	2,426,089
Gross profit		91,432			144,491			79,506			281,143
Selling, general and administrative expenses		73,424			70,769			224,577			193,337
Acquisition and integration expenses		2,744			9,334			15,244			44,030
Operating income (loss)		22,365			67,406			(146,379	)		48,842
Total other income		(3,022	)		(383	)		(5,799	)		(1,869	)
Amount attributable to non-controlling interests		(1,425	)		(3,425	)		(8,793	)		(7,490	)
Net income (loss) attributable to Granite Construction Incorporated		20,488			55,672			(111,922	)		35,864

Revenue

Total Revenue by Segment

	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018
Transportation	$	598,646	55.0	%	$	610,847	57.8	%	$	1,340,834	53.8	%	$	1,472,703	60.7	%
Water		135,908	12.5			124,292	11.8			347,994	13.9			215,951	8.9
Specialty		224,457	20.6			190,836	18.1			540,234	21.6			461,149	19.0
Materials		129,099	11.9			129,616	12.3			268,389	10.7			276,286	11.4
Total	$	1,088,110	100.0	%	$	1,055,591	100.0	%	$	2,497,451	100.0	%	$	2,426,089	100.0	%

Transportation Revenue

	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018
California	$	197,057	32.9	%	$	180,163	29.5	%	$	404,981	30.2	%	$	453,077	30.8	%
Federal		56	—			69	—			133	—			427	—
Heavy Civil		162,608	27.2			224,560	36.8			434,588	32.4			596,022	40.5
Midwest		27,359	4.6			23,346	3.8			73,555	5.5			61,801	4.2
Northwest		211,566	35.3			182,709	29.9			427,577	31.9			361,376	24.5
Total	$	598,646	100.0	%	$	610,847	100.0	%	$	1,340,834	100.0	%	$	1,472,703	100.0	%

Transportation revenue for the three and nine months ended September 30, 2019 decreased $12.2 million, or 2.0%, and $131.9 million, or 9.0%, respectively, when compared to 2018 primarily due to a decrease in the Heavy Civil operating group from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements” for more information) and in the California operating group from unfavorable weather during the first half of 2019, partially offset by increases in the Northwest operating group from beginning the year with higher contract backlog as well as progress on existing projects. During the three and nine months ended September 30, 2019 and 2018 the majority of revenue earned in the Transportation segment was from the public sector.

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Water Revenue

	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018
California	$	10,390	7.7	%	$	12,119	9.8	%	$	14,390	4.1	%	$	45,711	21.2	%
Federal		155	0.1			480	0.4			1,034	0.3			1,598	0.7
Heavy Civil		2,159	1.6			5,511	4.4			10,074	2.9			15,211	7.0
Midwest		39	—			194	0.2			123	—			1,710	0.8
Northwest		1,095	0.8			877	0.7			3,675	1.1			3,268	1.5
Water and Mineral Services		122,070	89.8			105,111	84.5			318,698	91.6			148,453	68.8
Total	$	135,908	100.0	%	$	124,292	100.0	%	$	347,994	100.0	%	$	215,951	100.0	%

Water revenue for the three and nine months ended September 30, 2019 increased by $11.6 million, or 9.3%, and $132.0 million, or 61.1%, respectively, when compared to 2018 primarily due to increases in the Water and Mineral Services operating group due to progress on existing projects for the three months ended September 30, 2019. The acquisitions of Layne and LiquiForce in the second quarter of 2018 also contributed to the increases during the nine months ended September 30, 2019, which were partially offset by decreases in the California operating group from unfavorable weather conditions during 2019. During the three and nine months ended September 30, 2019 and 2018 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)	2019				2018				2019				2018
California	$	60,791	27.1	%	$	31,713	16.6	%	$	135,928	25.1	%	$	104,914	22.8	%
Federal		23,973	10.7			13,363	7.0			57,698	10.7			27,620	6.0
Midwest		45,415	20.2			65,513	34.3			120,885	22.4			180,425	39.0
Northwest		70,753	31.5			46,752	24.5			151,621	28.1			114,695	24.9
Water and Mineral Services		23,525	10.5			33,495	17.6			74,102	13.7			33,495	7.3
Total	$	224,457	100.0	%	$	190,836	100.0	%	$	540,234	100.0	%	$	461,149	100.0	%

Specialty revenue for the three and nine months ended September 30, 2019 increased $33.6 million, or 17.6%, and $79.1 million, or 17.1%, respectively, when compared to 2018 primarily due to increases in the California, Federal and Northwest operating groups from beginning the periods with higher contract backlog, progress on existing projects and from new awards in 2019 partially offset by decreases in the Midwest operating group from beginning the periods with lower contract backlog. In addition, revenue for the nine months ended September 30, 2019 increased in the Water and Mineral Services operating group as a result of our acquisition of Layne. During the three and nine months ended September 30, 2019 and 2018 revenue earned in the Specialty segment was from both the public and private sectors.

Materials Revenue

	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018
California	$	71,251	55.2	%	$	74,065	57.2	%	$	145,278	54.1	%	$	162,247	58.7	%
Northwest		51,662	40.0			46,935	36.2			107,040	39.9			103,290	37.4
Water and Mineral Services		6,186	4.8			8,616	6.6			16,071	6.0			10,749	3.9
Total	$	129,099	100.0	%	$	129,616	100.0	%	$	268,389	100.0	%	$	276,286	100.0	%

Materials revenue for the three months ended September 30, 2019 remained relatively unchanged and decreased by $7.9 million, or 2.9%, for the nine months ended September 30, 2019 when compared to 2018 primarily due to the decreases in the California operating group from reduced volume due to unfavorable weather conditions in the first half of the year partially offset by increases in the Water and Mineral Services operating group as a result of our acquisition of Layne.

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Contract Backlog

Our contract backlog consists of the revenue we expect to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in our contract backlog at the time it is awarded and to the extent we believe contract execution and funding is probable. Awarded contracts that include unexercised contract options or unissued task orders are included in contract backlog to the extent option exercise or task order issuance is probable. Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past.

Total Contract Backlog by Segment

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
Transportation	$	2,653,799	72.8	%	$	2,939,727	77.0	%	$	2,311,712	71.3	%
Water		244,857	6.7			318,111	8.3			364,772	11.3
Specialty		746,562	20.5			559,264	14.7			564,651	17.4
Total	$	3,645,218	100.0	%	$	3,817,102	100.0	%	$	3,241,135	100.0	%

Transportation Contract Backlog

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
Unearned revenue	$	2,628,575	99.0	%	$	2,921,437	99.4	%	$	2,311,712	100.0	%
Other awards¹		25,224	1.0			18,290	0.6			—	—
Total	$	2,653,799	100.0	%	$	2,939,727	100.0	%	$	2,311,712	100.0	%

¹ Other awards include unissued task orders and unexercised contract options to the extent their issuance or exercise is probable as well as contract awards to the extent we believe contract execution and funding is probable.

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
California	$	546,438	20.6	%	$	594,545	20.2	%	$	296,640	12.8	%
Federal		14,699	0.6			80	—			139	—
Heavy Civil		1,595,092	60.1			1,751,819	59.6			1,654,053	71.6
Midwest		221,480	8.3			204,749	7.0			91,182	3.9
Northwest		276,090	10.4			388,534	13.2			269,698	11.7
Total	$	2,653,799	100.0	%	$	2,939,727	100.0	%	$	2,311,712	100.0	%

Transportation contract backlog of $2.7 billion at September 30, 2019 was $285.9 million, or 9.7%, lower than at June 30, 2019 primarily due to progress on existing projects partially offset by increases from new awards. Significant new awards during the three months ended September 30, 2019 included a $37 million interstate expansion project in Wisconsin and a $20 million runway rehabilitation project in Washington. As noted in the Current Economic Environment and Outlook section above, the $1.0 billion in project wins that are not yet included in our contract backlog are expected to be added to Transportation segment contract backlog this year, and in future years.

Non-controlling partners’ share of Transportation contract backlog as of September 30, 2019, June 30, 2019 and September 30, 2018 was $179.3 million, $195.1 million and $191.5 million, respectively.

Four contracts in our Transportation segment had total forecasted losses with remaining revenue of $298.8 million, or 11.3%, of Transportation contract backlog at September 30, 2019.

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Water Contract Backlog

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
Unearned revenue	$	231,551	94.6	%	$	253,418	79.7	%	$	250,157	68.6	%
Other awards¹		13,306	5.4			64,693	20.3			114,615	31.4
Total	$	244,857	100.0	%	$	318,111	100.0	%	$	364,772	100.0	%

¹Other awards include unissued task orders and unexercised contract options to the extent their issuance or exercise is probable as well as contract awards to the extent we believe contract execution and funding is probable.

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
California	$	19,593	8.0	%	$	14,382	4.5	%	$	11,308	3.1	%
Federal		1,181	0.5			1,350	0.4			2,688	0.8
Heavy Civil		48,952	20.0			51,229	16.1			24,215	6.6
Midwest		70	—			110	—			404	0.1
Northwest		1,880	0.8			710	0.2			10	—
Water and Mineral Services		173,181	70.7			250,330	78.8			326,147	89.4
Total	$	244,857	100.0	%	$	318,111	100.0	%	$	364,772	100.0	%

Water contract backlog of $244.9 million as of September 30, 2019 was $73.3 million, or 23.0%, lower than at June 30, 2019. The decrease in Water and Mineral Services operating group due to progress on existing projects was partially offset by increases in the California operating group due to new awards during the three months ended September 30, 2019.

Specialty Contract Backlog

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
Unearned revenue	$	733,075	98.2	%	$	517,457	92.5	%	$	501,556	88.8	%
Other awards¹		13,487	1.8			41,807	7.5			63,095	11.2
Total	$	746,562	100.0	%	$	559,264	100.0	%	$	564,651	100.0	%

¹Other awards include unissued task orders and unexercised contract options to the extent their issuance or exercise is probable as well as contract awards to the extent we believe contract execution and funding is probable.

(dollars in thousands)	September 30, 2019				June 30, 2019				September 30, 2018
California	$	103,263	14.0	%	$	127,930	22.9	%	$	74,672	13.2	%
Federal		177,686	23.8			146,516	26.2			138,020	24.4
Heavy Civil		245,478	32.9			—	—			—	—
Midwest		145,176	19.3			182,911	32.7			280,327	49.7
Northwest		74,959	10.0			101,907	18.2			71,632	12.7
Total	$	746,562	100.0	%	$	559,264	100.0	%	$	564,651	100.0	%

Specialty contract backlog of $746.6 million as of September 30, 2019 was $187.3 million, or 33.5%, higher than at June 30, 2019 due to increases in the Heavy Civil and Federal operating groups from increased success rate on bidding activity partially offset by decreases in the California, Northwest and Midwest operating groups from progress on existing projects. Significant new awards during the three months ended September 30, 2019 included a $22 million site development project and a $10 million airfield improvement project in California.

Non-controlling partners’ share of Specialty contract backlog as of September 30, 2019, June 30, 2019 and September 30, 2018 was $99.5 million, $93.6 million and $133.4 million, respectively.

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Gross Profit (Loss)

The following table presents gross profit (loss) by business segment for the respective periods:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2019			2018			2019			2018
Transportation	$	13,633		$	70,976		$	(64,996	)	$	138,401
Percent of segment revenue		2.3	%		11.6	%		(4.8	)%		9.4	%
Water		15,030			24,103			34,412			41,117
Percent of segment revenue		11.1			19.4			9.9			19.0
Specialty		38,299			28,099			75,376			65,311
Percent of segment revenue		17.1			14.7			14.0			14.2
Materials		24,470			21,313			34,714			36,314
Percent of segment revenue	19.0				16.4			12.9			13.1
Total gross profit	$	91,432		$	144,491		$	79,506		$	281,143
Percent of total revenue		8.4	%		13.7	%		3.2	%		11.6	%

Transportation gross profit (loss) for the three and nine months ended September 30, 2019 decreased by $57.3 million, or 80.8%, and $203.4 million, or over 100%, respectively, when compared to 2018 primarily due to an increase in negative net impact from revisions in estimates in our Heavy Civil operating group (See Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Water gross profit for the three and nine months ended September 30, 2019 decreased by $9.1 million, or 37.6%, and $6.7 million, or 16.3%, respectively, when compared to 2018. Gross profit as a percentage of segment revenue for the three and nine months ended September 30, 2019 decreased to 11.1% from 19.4% and to 9.9% from 19.0%, respectively, when compared to 2018. Decreases were primarily due to decreased revenue volume in our California operating group due to unfavorable weather, from emergency work performed in early 2018 that was not repeated in 2019 and an increase in negative net impact from revisions in estimates for the three months ended September 30, 2019 in our Water and Mineral Services operating group (See Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Specialty gross profit for the three and nine months ended September 30, 2019 increased by $10.2 million, or 36.3%, and $10.1 million, or 15.4%, respectively, when compared to 2018 primarily due to increased revenue volume.

Materials gross profit for the three months ended September 30, 2019 increased by $3.2 million, or 14.8%, when compared to 2018 due to increased revenue volume in our Northwest operating group and decreased by $1.6 million, or 4.4%, for the nine months ended September 30, 2019 due to decreased revenue in the California operating group from unfavorable weather conditions.

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Selling, General and Administrative Expenses

The following table presents the components of selling, general and administrative expenses for the respective periods:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2019			2018			2019			2018
Selling
Salaries and related expenses	$	14,842		$	14,967		$	47,296		$	42,778
Restricted stock unit amortization		232			451			1,578			2,235
Other selling expenses		2,694			3,042			9,786			10,924
Total selling		17,768			18,460			58,660			55,937
General and administrative
Salaries and related expenses		27,073			26,099			78,682			66,791
Restricted stock unit amortization		739			1,065			6,218			9,418
Other general and administrative expenses		27,844			25,145			81,017			61,191
Total general and administrative		55,656			52,309			165,917			137,400
Total selling, general and administrative	$	73,424		$	70,769		$	224,577		$	193,337
Percent of revenue		6.7	%		6.7	%		9.0	%		8.0	%

Selling, general and administrative expenses for the three and nine months ended September 30, 2019 increased $2.7 million, or 3.8%, and $31.2 million, or 16.2%, respectively, when compared to 2018. Selling, general and administrative expenses as a percent of revenue for the three months ended September 30, 2019 remained unchanged and increased to 9.0% from 8.0% for the nine months ended September 30, 2019 when compared to 2018.

Selling Expenses

Selling expenses include the costs for estimating and bidding, 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 were relatively flat during the three months ended September 30, 2019 and increased $2.7 million, or 4.9%, during the nine months ended September 30, 2019 when compared to 2018 primarily due to the increase in salaries and related expenses as a result of our acquisitions of Layne and LiquiForce.

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, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses during the three and nine months ended September 30, 2019 increased $3.3 million, or 6.4%, and $28.5 million, or 20.8%, respectively, when compared to 2018 due to an increase in other general and administrative expenses from a change in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is offset in other income, net, as well as increases during the nine months ended September 30, 2019 in salaries and other general and administrative expenses primarily as a result of our acquisitions of Layne and LiquiForce.

Acquisition and Integration expenses

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2019		2018		2019		2018
Acquisition and integration expenses	$	2,744	$	9,334	$	15,244	$	44,030

These costs were primarily associated with the acquisition and integration of Layne and LiquiForce and decreased during the three and nine months ended September 30, 2019 when compared to the same periods in 2018 due to a reduction in acquisition expenses as 2019 expenses are primarily related to integration.

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Income Taxes

The following table presents the provision for (benefit from) income taxes for the respective periods:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2019			2018			2019			2018
Provision for (benefit from) income taxes	$	3,474		$	8,692		$	(37,451	)	$	7,357
Effective tax rate		13.7	%		12.8	%		26.6	%		14.5	%

We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our income (loss) before provision for (benefit from) income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 17 of “Notes to the Condensed Consolidated Financial Statements” for more information.

Certain Legal Proceedings

As discussed in Note 17 of “Notes to the Condensed Consolidated Financial Statements,” under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.

Liquidity and Capital Resources

The timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital. We believe our cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments, and other liquidity requirements associated with our existing operations for the next twelve months. To provide capital needs to fund growth opportunities, either internal or generated through acquisitions, we maintain a collateralized credit facility that consists of a term loan and a revolving credit facility with an original value of $500.0 million, of which $67.7 million was available for borrowing under the revolving credit facility at September 30, 2019 and an uncommitted option to increase the facility by $200.0 million subject to the lenders providing the additional commitments. See Note 14 of “Notes to the Condensed Consolidated Financial Statements” for definitions and further discussion regarding our 2019 Notes and Credit Agreement. If we experience a prolonged change in our business operating results or make a significant acquisition, we may need additional sources of financing, which, even if available, may be limited by the terms of our existing debt covenants, or may require the amendment of our existing debt agreements. 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.

Our revenue, gross profit and the resulting cash flows can differ significantly from period to period due to a variety of factors, including our projects’ progressions toward completion, outstanding contract change orders and affirmative claims and the payment terms of our contracts. 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.

The following table presents our cash, cash equivalents and marketable securities, including amounts from our consolidated construction joint ventures (“CCJVs”), as of the respective dates:

(in thousands)	September 30, 2019		December 31, 2018		September 30, 2018
Cash and cash equivalents excluding CCJVs	$	106,803	$	140,839	$	105,094
CCJV cash and cash equivalents¹		77,870		131,965		125,165
Total consolidated cash and cash equivalents		184,673		272,804		230,259
Short-term and long-term marketable securities²		47,918		66,100		81,103
Total cash, cash equivalents and marketable securities	$	232,591	$	338,904	$	311,362

¹ The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. These funds generally are not available for the working capital or other liquidity needs of Granite until distributed.

² See Note 9 of “Notes to the Condensed Consolidated Financial Statements” for the composition of our marketable securities.

Our primary sources of liquidity are cash and cash equivalents, marketable securities and cash generated from operations. We may also from time to time access our credit facility, issue and sell equity, debt or hybrid securities or engage in other capital markets transactions.

Our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Marketable securities consisted of U.S. Government and agency obligations and corporate bonds.

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Granite’s portion of CCJV cash and cash equivalents was $44.4 million, $75.5 million and $72.0 million as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $70.5 million, $68.3 million and $75.2 million as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively. 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.

Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations.

Cash Flows

	Nine Months Ended September 30,
(in thousands)	2019			2018
Net cash (used in) provided by:
Operating activities	$	(26,498	)	$	14,743
Investing activities		(45,208	)		(81,313	)
Financing activities		(16,592	)		68,717

As a large infrastructure contractor and construction materials producer, our operating cash flows are subject to seasonal cycles, as well as the cycles associated with winning, performing and closing projects. 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.

Cash used in operating activities of $26.5 million for the nine months ended September 30, 2019 represents a $41.2 million decrease when compared to 2018. The change was primarily due to a $22.6 million decrease in cash provided by net loss after adjusting for non-cash items and a $33.5 million increase in cash used in working capital primarily due to increases from CCJVs, partially offset by $14.9 million decrease in net contributions to unconsolidated joint ventures and affiliates.

Cash used in investing activities of $45.2 million for the nine months ended September 30, 2019 represents a $36.1 million decrease when compared to 2018. The change was primarily due to cash paid for the Layne and LiquiForce acquisitions in 2018 in addition to a decrease in purchases, net of sales proceeds, of property and equipment (see Capital Expenditures discussion below) partially offset by a decrease in maturities, net of purchases, of marketable securities.

Cash used in financing activities of $16.6 million for the nine months ended September 30, 2019 represents a $85.3 million increase when compared to 2018. The change was primarily due to an increase in payments on the revolving credit facility during 2019 and a decrease in proceeds from long term debt associated with $105.0 million revolving credit facility draws that were made to fund portions of the Layne and LiquiForce acquisitions in 2018.

Capital Expenditures

During the nine months ended September 30, 2019, we had capital expenditures of $83.3 million compared to $86.1 million during 2018. 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 2019 capital expenditures to be between $90.0 million and $100.0 million for the full year.

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Derivatives

We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs. See Note 10 to “Notes to the Condensed Consolidated Financial Statements” for further information.

Surety Bonds and Real Estate Mortgages

We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At September 30, 2019, approximately $3.1 billion of our contract backlog 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.

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the Credit Agreement. As of September 30, 2019, we were compliant with the financial covenants contained in the Credit Agreement. We called and redeemed the $40.0 million outstanding balance of the 2019 Notes on July 29, 2019 which were originally due in December 2019.

Share Repurchase Program

As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion, which replaced the former authorization including the amount available. As part of this authorization we have established a plan to facilitate common stock repurchases. During the third quarter of 2019, we purchased approximately 100,000 shares at an average price of $29.10 per share for $2.9 million.

As of September 30, 2019, $187.1 million of the authorization remained available. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

Website Access

Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in our exposure to market risks since December 31, 2018.

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Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures

Our management carried out, as of September 30, 2019, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2019,there were no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

The description of the matters set forth in Part I, Item 1 of this Report under Note 18 of “Notes to the Condensed Consolidated Financial Statements” is incorporated herein by reference.

Item 1A.

RISK FACTORS

Except as set forth below, there has been no material changes to the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018:

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.

Any litigation or other legal proceedings could result in an unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, either of which could adversely affect our business, financial conditions and results of operations. We could also suffer an adverse impact on our reputation and a diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.

Our financial position could be impacted by worse than anticipated results in our Heavy Civil operating group.

We completed our previously announced strategic review of our Heavy Civil operating group and have taken actions that we believe will be beneficial to us and our stockholders. However, the results of our planned actions, and the timing of expected benefits, remain uncertain. In addition, it is possible that we may elect to undertake additional actions related to our Heavy Civil operating group. Our results of operations, cash flows and liquidity could be materially impacted by underperformance in our Heavy Civil operating group.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended September 30, 2019:

Period	Total number of shares purchased¹		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 programs²
July 1, 2019 through July 31, 2019		951	$	43.35		—	$	190,000,029
August 1, 2019 through August 31, 2019		168	$	32.39		100,000	$	187,090,044
September 1, 2019 through September 30, 2019		356	$	32.82		—	$	187,090,044
		1,475	$	39.56		100,000

¹The number of shares purchased is in connection with employee tax withholding for restricted stock units vested under our 2012 Equity Incentive Plan.

² As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion, which replaced the former authorization including the amount available. As part of this authorization we have established a share repurchase program to facilitate common stock repurchases. During the third quarter of 2019, we purchased approximately 100,000 shares at an average price of $29.10 per share for $2.9 million. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

Item 4.

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.

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Item 6.

EXHIBITS

10.1	†	Amendment No 1 to Third Amended and Restated Credit Agreement, dated July 29, 2019, by and among the Company, Granite Construction Company, and GILC Incorporated, as borrowers, Bank of America, N.A., as Administrative Agent, and the lenders party thereto [Exhibit 10.1 to the Company’s Form 8-K filed on August 2, 2019]
31.1	†	Certification of Principal Executive Officer
31.2	†	Certification of Principal Financial Officer
32	††	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95	†	Mine Safety Disclosure
101.INS	†	Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)
101.SCH	†	Inline XBRL Taxonomy Extension Schema
101.CAL	†	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	†	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	†	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	†	Inline XBRL Taxonomy Extension Presentation Linkbase
104	†	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		†		Filed herewith
		††		Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			GRANITE CONSTRUCTION INCORPORATED

Date:	October 25, 2019	By:	/s/ Jigisha Desai
			Jigisha Desai
			Senior Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)