GRANITE CONSTRUCTION INC - Quarter Report: 2020 June (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 June 30, 2020

☐	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 February 22, 2021.

Class		Outstanding
Common stock, $0.01 par value		45,676,827

EXPLANATORY NOTE

As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on February 22, 2021 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements. We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three and six months ended June 30, 2019 herein. See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for additional information.

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Index

EXPLANATORY NOTE
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of June 30, 2020, December 31, 2019 and June 30, 2019
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019
		Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
		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 10.1
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
EXHIBIT 104

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PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

							*As Restated*
	*June 30, 2020*			*December 31, 2019*			*June 30, 2019*
ASSETS
Current assets
Cash and cash equivalents ($93,500, $78,132, and $115,933 related to consolidated construction joint ventures (“CCJVs”))	$	288,922		$	262,273		$	144,958
Short-term marketable securities		—			27,799			41,037
Receivables, net ($31,978, $29,564 and $31,656 related to CCJVs)		596,922			547,417			564,543
Contract assets ($26,075, $25,034 and $17,371 related to CCJVs)		191,919			211,441			224,389
Inventories		105,023			88,885			101,686
Equity in construction joint ventures		183,542			193,110			220,247
Other current assets ($14,392, $13,350 and $11,440 related to CCJVs)		57,614			46,016			80,560
Total current assets		1,423,942			1,376,941			1,377,420
Property and equipment, net ($27,256, $31,136 and $31,560 related to CCJVs)		540,053			542,297			558,378
Long-term marketable securities		5,896			5,000			20,000
Investments in affiliates		74,511			84,176			82,109
Goodwill		248,690			264,279			264,107
Right of use assets		72,244			72,534			73,439
Deferred income taxes, net		40,926			50,158			28,249
Other noncurrent assets		102,392			106,703			120,915
Total assets	$	2,508,654		$	2,502,088		$	2,524,617

LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt	$	8,253		$	8,244		$	48,397
Accounts payable ($56,315, $57,795 and $50,338 related to CCJVs)		358,401			400,775			302,651
Contract liabilities ($69,688, $20,994 and $28,702 related to CCJVs)		159,818			95,737			128,443
Accrued expenses and other current liabilities ($4,179, $2,415 and $4,311 related to CCJVs)		363,128			337,300			360,231
Total current liabilities		889,600			842,056			839,722
Long-term debt		405,770			356,108			366,896
Long-term lease liabilities		56,071			58,618			60,868
Deferred income taxes, net		3,335			3,754			4,680
Other long-term liabilities		63,118			63,136			58,268
Commitments and contingencies (Note 18)
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: 45,651,914 shares as of June 30, 2020, 45,503,805 shares as of December 31, 2019 and 46,838,199 shares as of June 30, 2019		458			456			468
Additional paid-in capital		553,038			549,307			568,264
Accumulated other comprehensive loss		(5,800	)		(2,645	)		(2,187	)
Retained earnings		520,025			594,353			579,920
Total Granite Construction Incorporated shareholders’ equity		1,067,721			1,141,471			1,146,465
Non-controlling interests		23,039			36,945			47,718
Total equity		1,090,760			1,178,416			1,194,183
Total liabilities and equity	$	2,508,654		$	2,502,088		$	2,524,617

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 June 30,*						*Six Months Ended June 30,*
				*As Restated*						*As Restated*
	*2020*			*2019*			*2020*			*2019*
Revenue
Transportation	$	535,101		$	481,746		$	886,002		$	783,710
Water		109,724			112,070			211,381			211,152
Specialty		174,914			174,629			307,953			313,753
Materials		96,032			97,647			146,362			139,290
Total revenue		915,771			866,092			1,551,698			1,447,905
Cost of revenue
Transportation		503,904			481,247			829,436			799,559
Water		97,145			101,568			189,455			192,704
Specialty		149,634			152,874			293,392			278,700
Materials		76,745			83,645			127,273			129,046
Total cost of revenue		827,428			819,334			1,439,556			1,400,009
Gross profit		88,343			46,758			112,142			47,896
Selling, general and administrative expenses		91,682			70,998			170,063			151,153
Acquisition and integration expenses		—			9,177			—			11,025
Non-cash impairment charges (See Note 4)		—			—			24,413			—
Gain on sales of property and equipment		(1,190	)		(4,935	)		(1,813	)		(6,835	)
Operating loss		(2,149	)		(28,482	)		(80,521	)		(107,447	)
Other (income) expense
Interest income		(767	)		(1,728	)		(2,058	)		(4,544	)
Interest expense		6,549			4,158			11,543			8,172
Equity in income of affiliates, net		(2,016	)		(2,594	)		(2,062	)		(3,884	)
Other (income) expense, net		(3,160	)		(759	)		2,059			(2,521	)
Total other expense (income)		606			(923	)		9,482			(2,777	)
Loss before benefit from income taxes		(2,755	)		(27,559	)		(90,003	)		(104,670	)
Benefit from income taxes		(1,782	)		(5,913	)		(16,492	)		(23,263	)
Net loss		(973	)		(21,646	)		(73,511	)		(81,407	)
Amount attributable to non-controlling interests		4,378			(2,596	)		11,546			(5,305	)
Net income (loss) attributable to Granite Construction Incorporated	$	3,405		$	(24,242	)	$	(61,965	)	$	(86,712	)

Net income (loss) per share attributable to common shareholders (See Note 16)
Basic	$	0.07		$	(0.52	)	$	(1.36	)	$	(1.85	)
Diluted	$	0.07		$	(0.52	)	$	(1.36	)	$	(1.85	)
Weighted average shares of common stock
Basic		45,620			46,824			45,570			46,762
Diluted		46,281			46,824			45,570			46,762

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 June 30,*						*Six Months Ended June 30,*
				*As Restated*						*As Restated*
	*2020*			*2019*			*2020*			*2019*
Net loss	$	(973	)	$	(21,646	)	$	(73,511	)	$	(81,407	)
Other comprehensive loss, net of tax:
Net unrealized gain (loss) on derivatives	$	265		$	(2,178	)	$	(3,095	)	$	(2,776	)
Less: reclassification for net losses (gains) included in interest expense		390			(117	)		440			(290	)
Net change	$	655		$	(2,295	)	$	(2,655	)	$	(3,066	)
Foreign currency translation adjustments, net		83			1,179			(500	)		1,618
Other comprehensive income (loss)	$	738		$	(1,116	)	$	(3,155	)	$	(1,448	)
Comprehensive loss	$	(235	)	$	(22,762	)	$	(76,666	)	$	(82,855	)
Non-controlling interests in comprehensive income (loss)		4,378			(2,596	)		11,546			(5,305	)
Comprehensive income (loss) attributable to Granite Construction Incorporated	$	4,143		$	(25,358	)	$	(65,120	)	$	(88,160	)

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 March 31, 2020		45,592,292		$	457		$	551,189		$	(6,538	)	$	522,639		$	1,067,747		$	32,057		$	1,099,804
Net income (loss)		—			—			—			—			3,405			3,405			(4,378	)		(973	)
Other comprehensive income		—			—			—			738			—			738			—			738
Purchases of common stock (1)		(4,211	)		—			(73	)		—			—			(73	)		—			(73	)
Restricted Stock Units (“RSUs”) vested		29,305			1			(1	)		—			—			—			—			—
Dividends on common stock ($0.13 per share)		—			—			—			—			(5,935	)		(5,935	)		—			(5,935	)
Transactions with non-controlling interests		—			—			—			—			—			—			(4,640	)		(4,640	)
Amortized RSUs and other		34,528			—			1,923			—			(84	)		1,839			—			1,839
Balances at June 30, 2020		45,651,914		$	458		$	553,038		$	(5,800	)	$	520,025		$	1,067,721		$	23,039		$	1,090,760

Balances at March 31, 2019 (As Restated)		46,812,366		$	468		$	566,497		$	(1,081	)	$	610,302		$	1,176,186		$	48,333		$	1,224,519
Net (loss) income		—			—			—			—			(24,242	)		(24,242	)		2,596			(21,646	)
Other comprehensive loss		—			—			—			(1,116	)		—			(1,116	)		—			(1,116	)
Purchases of common stock (1)		(1,987	)		—			(81	)		—			—			(81	)		—			(81	)
RSUs vested		17,443			—			—			—			—			—			—			—
Dividends on common stock ($0.13 per share)		—			—			—			—			(6,089	)		(6,089	)		—			(6,089	)
Transactions with non-controlling interests		—			—			—			—			—			—			(3,210	)		(3,210	)
Amortized RSUs and other		10,377			—			1,848			10			(51	)		1,807			(1	)		1,806
Balances at June 30, 2019 (As Restated)		46,838,199		$	468		$	568,264		$	(2,187	)	$	579,920		$	1,146,465		$	47,718		$	1,194,183

Balances at December 31, 2019		45,503,805		$	456		$	549,307		$	(2,645	)	$	594,353		$	1,141,471		$	36,945		$	1,178,416
Net loss		—			—			—			—			(61,965	)		(61,965	)		(11,546	)		(73,511	)
Other comprehensive loss		—			—			—			(3,155	)		—			(3,155	)		—			(3,155	)
Purchases of common stock (1)		(53,921	)		—			(727	)		—			—			(727	)		—			(727	)
RSUs vested		168,360			2			(2	)		—			—			—			—			—
Dividends on common stock ($0.13 per share)		—			—			—			—			(11,862	)		(11,862	)		—			(11,862	)
Effect of adopting Topic 326 (Note 2)		—			—			—			—			(366	)		(366	)		—			(366	)
Transactions with non-controlling interests		—			—			—			—			—			—			(2,360	)		(2,360	)
Amortized RSUs and other		33,670			—			4,460			—			(135	)		4,325			—			4,325
Balances at June 30, 2020		45,651,914		$	458		$	553,038		$	(5,800	)	$	520,025		$	1,067,721		$	23,039		$	1,090,760

Balances at December 31, 2018		46,665,889		$	467		$	564,559		$	(749	)	$	679,453		$	1,243,730		$	45,624		$	1,289,354
Net (loss) income		—			—			—			—			(86,712	)		(86,712	)		5,305			(81,407	)
Other comprehensive loss		—			—			—			(1,448	)		—			(1,448	)		—			(1,448	)
Purchases of common stock (1)		(88,091	)		(1	)		(3,947	)		—			—			(3,948	)		—			(3,948	)
RSUs vested		251,393			2			—			—			—			2			—			2
Dividends on common stock ($0.13 per share)		—			—			—			—			(12,175	)		(12,175	)		—			(12,175	)
Effect of adopting Topic 842		—			—			—			—			(539	)		(539	)		—			(539	)
Transactions with non-controlling interests		—			—			—			—			—			—			(3,209	)		(3,209	)
Amortized RSUs and other		9,008			—			7,652			10			(107	)		7,555			(2	)		7,553
Balances at June 30, 2019 (As Restated)		46,838,199		$	468		$	568,264		$	(2,187	)	$	579,920		$	1,146,465		$	47,718		$	1,194,183

(1) Represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 Equity Incentive Plan.

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)

				*As Restated*
Six Months Ended June 30,	*2020*			*2019*
Operating activities
Net loss	$	(73,511	)	$	(81,407	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		57,269			61,747
Amortization related to the 2.75% Convertible Notes (See Note 14)		4,255			—
Gain on sales of property and equipment, net		(1,813	)		(6,835	)
Stock-based compensation		3,936			7,221
Equity in net loss from unconsolidated joint ventures		30,506			72,835
Net income from affiliates		(2,062	)		(3,884	)
Non-cash impairment charges (See Note 4)		24,413			—
Other non-cash adjustments		1,832			4,627
Changes in assets and liabilities:
Receivables		(35,486	)		(79,090	)
Contract assets, net		83,065			(20,426	)
Inventories		(16,138	)		(12,329	)
Contributions to unconsolidated construction joint ventures and affiliates		(24,223	)		(45,500	)
Distributions from unconsolidated construction joint ventures and affiliates		7,146			830
Other assets, net		(14,603	)		(32,785	)
Accounts payable		(44,103	)		42,477
Accrued expenses and other current liabilities, net		12,000			(996	)
Net cash provided by (used in) operating activities		12,483			(93,515	)
Investing activities
Purchases of marketable securities		(4,996	)		—
Proceeds from called marketable securities		20,000			—
Maturities of marketable securities		10,000			5,000
Purchases of property and equipment		(52,236	)		(54,354	)
Proceeds from sales of property and equipment		7,278			7,870
Cash paid to purchase businesses, net of cash and restricted cash acquired		—			(6,227	)
Other investing activities, net		(1,453	)		(215	)
Net cash used in investing activities		(21,407	)		(47,926	)
Financing activities
Proceeds from debt		50,000			75,499
Debt principal repayments		(4,212	)		(43,842	)
Cash dividends paid		(11,842	)		(12,152	)
Repurchases of common stock		(728	)		(3,948	)
Contributions from non-controlling partners		5,500			—
Distributions to non-controlling partners		(7,860	)		(3,200	)
Other financing activities, net		392			1,238
Net cash provided by financing activities		31,250			13,595
Net increase (decrease) in cash, cash equivalents and restricted cash		22,326			(127,846	)
Cash, cash equivalents and $5,835 and $5,825 restricted cash at beginning of period		268,108			278,629
Cash, cash equivalents and $1,512 and $5,825 restricted cash at end of period	$	290,434		$	150,783
Supplementary Information
Right of use assets obtained in exchange for lease obligations	$	8,804		$	9,835
Cash paid for operating lease liabilities		10,601			8,811
Cash paid during the period for:
Interest	$	8,874		$	8,381
Income taxes		937			11,463
Non-cash investing and financing activities:
RSUs issued, net of forfeitures	$	4,834		$	8,541
Accrued cash dividends		5,935			6,089

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, 2019. 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 June 30, 2020 and 2019 and the results of our operations and cash flows for the periods presented. The December 31, 2019 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.

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 six months ended June 30, 2020 are not necessarily 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, 2020 of Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement and ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, neither of which had a material impact on our condensed consolidated financial statements. In addition, effective January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief, the impact of which is described in Note 2.

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):

Six months ended June 30,	*2020*		*2019*
Cash, cash equivalents and restricted cash, beginning of period	$	268,108	$	278,629
End of the period
Cash and cash equivalents		288,922		144,958
Restricted cash		1,512		5,825
Total cash, cash equivalents and restricted cash, end of period		290,434		150,783
Net increase (decrease) in cash, cash equivalents and restricted cash	$	22,326	$	(127,846	)

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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2. Recently Issued and Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method. The ASU is effective commencing with our quarter ended March 31, 2022, with early adoption permitted. We are currently evaluating the impact of ASU 2020-06 on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. This ASU was effective commencing with our quarter ended March 31, 2020 through December 31, 2022 and we expect to adopt in 2021. We do not expect the adoption of this ASU to have an impact on our condensed consolidated financial statements as our Credit Agreement (as defined in Note 14 below) uses the secured overnight financing rate as an alternative to LIBOR.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in May 2019 issued ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief (collectively referred to as “Topic 326”). Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted Topic 326 effective January 1, 2020, recognizing a net cumulative decrease to retained earnings of approximately $0.5 million. Topic 326 was applicable to the following financial assets: short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our condensed consolidated balance sheets. We elected to estimate the expected credit losses using a loss rate method that was applied to groups of assets categorized based on similar risk characteristics. The loss rate was based on historical losses and other information available to management. To account for the measurement of expected credit losses an allowance for credit losses was required for receivables and contract assets and was not required for any other applicable financial asset. As of June 30, 2020, $1.8 million was deducted primarily from receivables to present the net amount expected to be collected.

In connection with the adoption of Topic 326, we implemented the following accounting policy as of January 1, 2020:

Allowance for Credit Losses: Financial assets, which potentially subject us to credit losses, consist primarily of short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our consolidated balance sheets. We measure expected credit losses of financial assets based on historical loss and other information available to management using a loss rate method applied to asset groups with categorically similar risk characteristics. These expected credit losses are recorded to an allowance for credit losses valuation account that is deducted from receivables and contract assets to present the net amount expected to be collected on the financial asset on the consolidated balance sheet.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

3. Restatement

Restatement Background

As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements (the “Other Adjustments”). We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three and six months ended June 30, 2019 herein.

Description of Restatement Tables

We have presented below a reconciliation from the previously reported to the restated values as of and for the three and six months ended June 30, 2019. The previously reported values were derived from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 6, 2019 and are labeled as “As Previously Reported” in the following tables. The account balances labeled as “Investigation Adjustments” represent effects of adjustments resulting from the Investigation. The account balances labeled as “Other Adjustments” represent the effects of other adjustments, which related to revisions in estimates in projects primarily impacting revenue and cost of revenue in the Transportation segment as a result of out-of-period or uncorrected misstatements in previously filed financial statements that were not material, individually or in the aggregate, to those previously filed financial statements, balance sheet reclassifications and other immaterial adjustments.

The impacts to the condensed consolidated statements of shareholders’ equity and comprehensive (loss) income as a result of the restatement were due to the changes in net income for the three and six months ended June 30, 2019. In addition, there was no impact to net cash used in investing and financing activities for the six months ended June 30, 2019 as a result of the restatement.

The effects of the prior-period misstatements on our consolidated financial statements are as follows (in thousands, except per share data):

Consolidated Balance Sheet

June 30, 2019	*As Previously Reported*			*Investigation Adjustments*			*Other Adjustments*			*As Restated*
ASSETS
Current assets
Cash and cash equivalents	$	144,958		$	—		$	—		$	144,958
Short-term marketable securities		41,037			—			—			41,037
Receivables, net		551,958			10,567			2,018			564,543
Contract assets		257,650			(30,286	)		(2,975	)		224,389
Inventories		102,163			—			(477	)		101,686
Equity in construction joint ventures		241,786			(18,401	)		(3,138	)		220,247
Other current assets		63,056			16,919			585			80,560
Total current assets		1,402,608			(21,201	)		(3,987	)		1,377,420
Property and equipment, net		557,118			—			1,260			558,378
Long-term marketable securities		20,000			—			—			20,000
Investments in affiliates		82,109			—			—			82,109
Goodwill		264,107			—			—			264,107
Right of use assets		73,439			—			—			73,439
Deferred income taxes, net		36,055			(8,580	)		774			28,249
Other noncurrent assets		122,705			—			(1,790	)		120,915
Total assets	$	2,558,141		$	(29,781	)	$	(3,743	)	$	2,524,617

LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt	$	48,397		$	—		$	—		$	48,397
Accounts payable		303,128			—			(477	)		302,651
Contract liabilities		119,289			9,154			—			128,443
Accrued expenses and other current liabilities		339,047			21,184			—			360,231
Total current liabilities		809,861			30,338			(477	)		839,722
Long-term debt		366,896			—			—			366,896
Long-term lease liabilities		60,868			—			—			60,868
Deferred income taxes, net		4,680			—			—			4,680
Other long-term liabilities		58,268			—			—			58,268
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: 46,838,199 shares as of June 30, 2019		468			—			—			468
Additional paid-in capital		568,264			—			—			568,264
Accumulated other comprehensive (loss) income		(3,448	)		—			1,261			(2,187	)
Retained earnings		642,124			(58,719	)		(3,485	)		579,920
Total Granite Construction Incorporated shareholders’ equity		1,207,408			(58,719	)		(2,224	)		1,146,465
Non-controlling interests		50,160			(1,400	)		(1,042	)		47,718
Total equity		1,257,568			(60,119	)		(3,266	)		1,194,183
Total liabilities and equity	$	2,558,141		$	(29,781	)	$	(3,743	)	$	2,524,617

Consolidated Statement of Operations

	*Three Months Ended June 30, 2019*												*Six Months Ended June 30, 2019*
	*As Previously Reported*			*Investigation Adjustments*			*Other Adjustments*			*As Restated*			*As Reported*			*Investigation Adjustments*			*Other Adjustments*			*As Restated*
Revenue
Transportation	$	403,978		$	76,255		$	1,513		$	481,746		$	742,188		$	48,233		$	(6,711	)	$	783,710
Water		112,831			(728	)		(33	)		112,070			212,086			(898	)		(36	)		211,152
Specialty		175,084			—			(455	)		174,629			315,777			—			(2,024	)		313,753
Materials		97,647			—			—			97,647			139,290			—			—			139,290
Total revenue		789,540			75,527			1,025			866,092			1,409,341			47,335			(8,771	)		1,447,905
Cost of revenue
Transportation		503,857			(22,610	)		—			481,247			820,817			(16,402	)		(4,856	)		799,559
Water		101,568			—			—			101,568			192,704			—			—			192,704
Specialty		152,874			—			—			152,874			278,700			—			—			278,700
Materials		83,645			—			—			83,645			129,046			—			—			129,046
Total cost of revenue		841,944			(22,610	)		—			819,334			1,421,267			(16,402	)		(4,856	)		1,400,009
Gross (loss) profit		(52,404	)		98,137			1,025			46,758			(11,926	)		63,737			(3,915	)		47,896
Selling, general and administrative expenses		69,998			—			1,000			70,998			151,153			—			—			151,153
Acquisition and integration expenses		9,177			—			—			9,177			12,500			—			(1,475	)		11,025
Gain on sales of property and equipment		(4,935	)		—			—			(4,935	)		(6,835	)		—			—			(6,835	)
Operating loss		(126,644	)		98,137			25			(28,482	)		(168,744	)		63,737			(2,440	)		(107,447	)
Other (income) expense
Interest income		(1,728	)		—			—			(1,728	)		(4,544	)		—			—			(4,544	)
Interest expense		4,158			—			—			4,158			8,172			—			—			8,172
Equity in income of affiliates, net		(2,594	)		—			—			(2,594	)		(3,884	)		—			—			(3,884	)
Other income, net		(759	)		—			—			(759	)		(2,521	)		—			—			(2,521	)
Total other income		(923	)		—			—			(923	)		(2,777	)		—			—			(2,777	)
Loss before benefit from income taxes		(125,721	)		98,137			25			(27,559	)		(165,967	)		63,737			(2,440	)		(104,670	)
Benefit from income taxes		(31,760	)		25,874			(27	)		(5,913	)		(40,925	)		18,247			(585	)		(23,263	)
Net loss		(93,961	)		72,263			52			(21,646	)		(125,042	)		45,490			(1,855	)		(81,407	)
Amount attributable to non-controlling interests		(3,875	)		1,341			(62	)		(2,596	)		(7,368	)		1,400			663			(5,305	)
Net loss attributable to Granite Construction Incorporated	$	(97,836	)	$	73,604		$	(10	)	$	(24,242	)	$	(132,410	)	$	46,890		$	(1,192	)	$	(86,712	)

Net loss per share attributable to common shareholders
Basic	$	(2.09	)	$	1.57		$	(0.00	)	$	(0.52	)	$	(2.83	)	$	1.00		$	(0.03	)	$	(1.85	)
Diluted	$	(2.09	)	$	1.57		$	(0.00	)	$	(0.52	)	$	(2.83	)	$	1.00		$	(0.03	)	$	(1.85	)
Weighted average shares of common stock
Basic		46,824			46,824			46,824			46,824			46,762			46,762			46,762			46,762
Diluted		46,824			46,824			46,824			46,824			46,762			46,762			46,762			46,762

Consolidated Statement of Cash Flows

Six Months Ended June 30, 2019	*As Previously Reported*			*Investigation Adjustments*			*Other Adjustments*			*As Restated*
Operating activities
Net loss	$	(125,042	)	$	45,490		$	(1,855	)	$	(81,407	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization		61,747			—			—			61,747
Gain on sales of property and equipment, net		(6,835	)		—			—			(6,835	)
Deferred income taxes		(35,192	)		35,189			—			(3	)
Stock-based compensation		7,221			—			—			7,221
Equity in net loss from unconsolidated joint ventures		105,834			(60,073	)		27,074			72,835
Net income from affiliates		(3,884	)		—			—			(3,884	)
Other non-cash adjustments		4,630			—			—			4,630
Changes in assets and liabilities:
Receivables		(78,081	)		—			(1,009	)		(79,090	)
Contract assets, net		(23,775	)		(3,687	)		7,036			(20,426	)
Inventories		(12,905	)		—			576			(12,329	)
Contributions to unconsolidated construction joint ventures		(45,500	)		—			—			(45,500	)
Distributions from unconsolidated construction joint ventures		830			—			—			830
Other assets, net		(15,361	)		(16,919	)		(505	)		(32,785	)
Accounts payable		48,230			—			(5,753	)		42,477
Accrued expenses and other current liabilities, net		24,568			—			(25,564	)		(996	)
Net cash used in operating activities	$	(93,515	)	$	—		$	—		$	(93,515	)

4. Impairment Charges

Goodwill

We performed an interim goodwill impairment test on the March 31, 2020 balances of our Water and Mineral Services Group Materials and Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation during the three months ended March 31, 2020, exasperated by economic disruption and market conditions associated with the COVID-19 pandemic. These factors led to reductions in the revenue and margin growth rates used in our quantitative goodwill tests. The goodwill impairment test resulted in a $14.8 million impairment charge during the three months ended March 31, 2020 associated with our Water and Mineral Services Group Materials reporting unit and no impairment charge associated with our Water and Minerals Services Group Specialty reporting unit as its estimated fair value exceeded its net book value (i.e., cushion) by over 15%. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment nor were interim goodwill impairment tests performed on the June 30, 2020 balances as there were no indicators of possible goodwill impairment.

Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherent in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.

Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs.

Subsequent Goodwill Impairment Charges

We performed a second interim goodwill impairment test on the September 30, 2020 balances of our Midwest Group Specialty, Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnel during the three months ended September 30, 2020. These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests. The goodwill impairment test resulted in a non-cash impairment charge of an additional $117.9 million and $14.4 million associated with our Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units, respectively, during the three months ended September 30, 2020. The goodwill impairment tests for the Midwest Group Specialty reporting unit indicated that their estimated fair values exceeded their net book value (i.e., headroom) by nearly 15%; therefore, no impairment charge was recorded. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment. We completed our 2020 annual goodwill impairment tests during the quarter ended December 31, 2020 and no additional impairment charge was recorded.

Investment in Affiliates

During the six months ended June 30, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand. The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary decline in fair value below the carrying value. Therefore, we recorded a non-cash impairment charge of $9.6 million during the six months ended June 30, 2020. The remaining carrying value of the investments of $74.5 million at June 30, 2020 represents the fair value recorded on a nonrecurring basis and is a Level 3 fair value measurement.

5. Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. 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. Other than those identified in the 2019 Annual Report on Form 10-K, we did not identify any material amounts that should have been recorded in a prior period for the three and six months ended June 30, 2019. In our review of these changes for the three and six months ended June 30, 2020, we did not identify any material amounts that should have been recorded in a prior period.

In the normal course of business, we have revisions in estimates, including estimated costs some of which are associated with unresolved affirmative claims and back charges. The estimated or actual recovery related to these estimated costs may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.

There was one project with an increase from revisions in estimates which individually had an impact of $5.0 million on gross profit in our Transportation segment during the three months ended June 30, 2019 due to estimated cost recovery from affirmative claims. There were no increases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, for the remaining periods presented.

The projects with decreases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit are summarized as follows (dollars in millions except per share data):

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
			*As Restated*				*As Restated*
	*2020*		*2019*		*2020*		*2019*
Number of projects with downward estimate changes		3		4		5		5
Range of reduction in gross profit from each project, net	$	5.8 - 16.1	$	6.4 - 37.0	$	7.4 - 19.8	$	7.7 - 37.0
Decrease to project profitability	$	30.9	$	58.1	$	69.8	$	93.5
Increase to net loss	$	22.9	$	44.6	$	51.8	$	71.8
Increase to net loss per diluted share	$	0.50	$	0.95	$	1.14	$	1.53

Other than one project in our Specialty segment during the three and six months ended June 30, 2020, all decreases were in our Transportation segment and were due to additional costs and lower productivity than originally anticipated as well as weather related costs. The decreases during the three and six months ended June 30, 2019 were in our Transportation segment and were due to increased project completion costs, schedule delays, execution of a significant amount of disputed work as well as an unfavorable court ruling on a designer back charge claim partially offset by an increase in estimated recovery from customer affirmative claims.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

6. Disaggregation of Revenue

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

Three Months Ended June 30,

2020	*Transportation*		*Water*		*Specialty*		*Materials*		*Total*
California	$	159,022		8,215	$	50,965	$	52,229	$	270,431
Federal		1,768		587		23,504		—		25,859
Heavy Civil		187,103		11,173		11,577		—		209,853
Midwest		34,942		152		38,648		—		73,742
Northwest		152,266		2,243		36,787		40,685		231,981
Water and Mineral Services		—		87,354		13,433		3,118		103,905
Total	$	535,101	$	109,724	$	174,914	$	96,032	$	915,771

2019 (As Restated)	*Transportation*		*Water*		*Specialty*		*Materials*		*Total*
California	$	138,411	$	2,634	$	42,982	$	50,962	$	234,989
Federal		50		371		18,523		—		18,944
Heavy Civil		153,760		2,620		—		—		156,380
Midwest		28,135		—		39,126		—		67,261
Northwest		161,390		1,349		48,675		40,846		252,260
Water and Mineral Services		—		105,096		25,323		5,839		136,258
Total	$	481,746	$	112,070	$	174,629	$	97,647	$	866,092

Six Months Ended June 30,

2020	*Transportation*		*Water*		*Specialty*		*Materials*		*Total*
California	$	253,954	$	13,727	$	95,453	$	85,496	$	448,630
Federal		2,166		968		49,995		—		53,129
Heavy Civil		354,529		18,275		15,071		—		387,875
Midwest		59,185		152		50,151		—		109,488
Northwest		216,168		3,900		68,400		55,138		343,606
Water and Mineral Services		—		174,359		28,883		5,728		208,970
Total	$	886,002	$	211,381	$	307,953	$	146,362	$	1,551,698

2019 (As Restated)	*Transportation*		*Water*		*Specialty*		*Materials*		*Total*
California	$	207,924	$	4,000	$	75,137	$	74,027	$	361,088
Federal		77		879		33,725		—		34,681
Heavy Civil		313,502		6,981		—		—		320,483
Midwest		46,196		84		73,447		—		119,727
Northwest		216,011		2,580		80,867		55,378		354,836
Water and Mineral Services		—		196,628		50,577		9,885		257,090
Total	$	783,710	$	211,152	$	313,753	$	139,290	$	1,447,905

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

7. Unearned Revenue

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

June 30, 2020	*Transportation*		*Water*		*Specialty*		*Total*
California	$	636,385	$	61,151	$	122,989	$	820,525
Federal		16,464		861		123,169		140,494
Heavy Civil		1,188,587		34,961		233,069		1,456,617
Midwest		214,016		—		112,298		326,314
Northwest		571,068		330		89,730		661,128
Water and Mineral Services		—		130,561		—		130,561
Total	$	2,626,520	$	227,864	$	681,255	$	3,535,639

March 31, 2020
California	$	527,971	$	52,136	$	94,006	$	674,113
Federal		18,152		957		131,569		150,678
Heavy Civil		1,321,443		41,511		240,060		1,603,014
Midwest		208,872		150		140,461		349,483
Northwest		614,653		2,868		61,680		679,201
Water and Mineral Services		—		143,539		—		143,539
Total	$	2,691,091	$	241,161	$	667,776	$	3,600,028

June 30, 2019 (As Restated)
California	$	590,641	$	14,382	$	119,152	$	724,175
Federal		80		1,350		146,516		147,946
Heavy Civil		1,805,917		14,244		—		1,820,161
Midwest		204,749		110		161,353		366,212
Northwest		374,148		710		93,411		468,269
Water and Mineral Services		—		224,720		—		224,720
Total	$	2,975,535	$	255,516	$	520,432	$	3,751,483

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8. Contract Assets and Liabilities

During the three and six months ended June 30, 2020, we recognized revenue of $18.2 million and $114.0 million, respectively, that was included in the contract liability balances at December 31, 2019. During the three and six months ended June 30, 2019, we recognized revenue of $17.5 million and $114.6 million, respectively, that was included in the contract liability balance at December 31, 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 $70.8 million and $114.7 million during the three and six months ended June 30, 2020, respectively, and $58.6 million and $97.5 million during the three and six months ended June 30, 2019, 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 June 30, 2020, December 31, 2019 and June 30, 2019, the aggregate claim recovery estimates included in contract asset and liability balances were $60.0 million, $71.1 million and $61.0 million, respectively.

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

					*As Restated*
	*June 30, 2020*		*December 31, 2019*		*June 30, 2019*
Costs in excess of billings and estimated earnings	$	73,745	$	100,761	$	128,239
Contract retention		118,174		110,680		96,150
Total contract assets	$	191,919	$	211,441	$	224,389

As of June 30, 2020, December 31, 2019 and June 30, 2019, no contract retention individually exceeded 10% of total net receivables at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.

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

					*As Restated*
	*June 30, 2020*		*December 31, 2019*		*June 30, 2019*
Billings in excess of costs and estimated earnings, net of retention	$	148,050	$	86,736	$	119,881
Provisions for losses		11,768		9,001		8,562
Total contract liabilities	$	159,818	$	95,737	$	128,443

9. Receivables, net

Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest. The following table presents major categories of receivables (in thousands):

					*As Restated*
		*June 30, 2020*		*December 31, 2019*	*June 30, 2019*
Contracts completed and in progress:
Billed	$	311,550	$	299,633	$	313,185
Unbilled		163,815		149,696		163,950
Total contracts completed and in progress		475,365		449,329		477,135
Material sales		58,514		42,936		61,204
Other		65,462		55,526		26,845
Total gross receivables		599,341		547,791		565,184
Less: allowance for credit losses		2,419		374		641
Total net receivables	$	596,922	$	547,417	$	564,543

Included in other receivables at June 30, 2020, December 31, 2019 and June 30, 2019, 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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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*
June 30, 2020	*Level 1*		*Level 2*		*Level 3*		*Total*
Cash equivalents
Money market funds	$	104,704	$	—	$	—	$	104,704
Other current assets
Commodity swap		—		598		—		598
Other noncurrent assets
Restricted cash		1,512		—		—		1,512
Total assets	$	106,216	$	598	$	—	$	106,814
Accrued and other current liabilities
Interest rate swap	$	—	$	9,058	$	—	$	9,058
Total liabilities	$	—	$	9,058	$	—	$	9,058

December 31, 2019
Cash equivalents
Money market funds	$	94,696	$	—	$	—	$	94,696
Other noncurrent assets
Restricted cash		5,835		—		—		5,835
Total assets	$	100,531	$	—	$	—	$	100,531
Accrued and other current liabilities
Interest rate swap	$	—	$	4,603	$	—	$	4,603
Total liabilities	$	—	$	4,603	$	—	$	4,603

June 30, 2019
Cash equivalents
Money market funds	$	17,790	$	—	$	—	$	17,790
Other noncurrent assets
Restricted cash		5,825		—		—		5,825
Total assets	$	23,615	$	—	$	—	$	23,615
Accrued and other current liabilities
Interest rate swap	$	—	$	4,985	$	—	$	4,985
Total liabilities	$	—	$	4,985	$	—	$	4,985

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Interest Rate Swaps

In connection with the Third Amended and Restated Credit Agreement (as discussed further in Note 14) we entered into two interest rate swaps designated as cash flow hedges with an effective date of May 2018. The two cash flow hedges had a combined initial notional amount of $150.0 million and mature in May 2023. The interest rate swaps are designed to convert the interest rate on the term loan from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 2.76% plus the same applicable margin. The interest rate swap is measured at fair value on the consolidated balance sheets using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.

Other Assets and Liabilities

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

		*June 30, 2020*				*December 31, 2019*				*June 30, 2019*
(in thousands)	*Fair Value Hierarchy*	*Carrying Value*		*Fair Value*		*Carrying Value*		*Fair Value*		*Carrying Value*		*Fair Value*
Assets:
Held-to-maturity marketable securities (1)	Level 1	$	5,896	$	5,896	$	32,799	$	32,792	$	61,037	$	60,887
Liabilities (including current maturities):
2.75% Convertible Notes (2),(3)	Level 2	$	196,946	$	184,554	$	193,696	$	249,895	$	—	$	—
Credit Agreement - term loan (2)	Level 3		135,000		137,116		138,750		139,042		142,500		143,109
Credit Agreement - revolving credit facility (2)	Level 3		75,000		76,291		25,000		25,043		220,000		220,597
2019 Notes (2)	Level 3		—		—		—		—		40,000		40,571

(1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of June 30, 2020 and December 31, 2019, and included corporate bonds as of June 30, 2019.

(2) The fair values of the 2019 Notes, Credit Agreement term loan and revolving credit facility are based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market as of June 30, 2020 and December 31, 2019. See Note 14 for definitions of, and more information about, the 2019 Notes, Credit Agreement and 2.75% Convertible Notes.

(3) Excluded from the carrying value is $33.1 and $36.3 million debt discount of as of June 30, 2020 and December 31, 2019, respectively, related to the 2.75% Convertible Notes (See note 14).

As disclosed in Note 4, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2020. During the three months ended June 30, 2020, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. During the three and six months ended June 30, 2019, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

11. Construction Joint Ventures

We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and six months ended June 30, 2020, 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 June 30, 2020, there was approximately $2.1 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.8 billion represented our share and the remaining $1.3 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 June 30, 2020, we were engaged in seven active CCJV projects with total contract values ranging from $0.7 million to $413.8 million and a combined total of $1.6 billion of which our share was $928.5 million. Our share of revenue remaining to be recognized on these CCJVs was $457.5 million and ranged between less than $0.1 million to $188.9 million. Our proportionate share of the equity in these joint ventures was between 50.0% and 65.0%. During the three and six months ended June 30, 2020 total revenue from CCJVs was $86.0 million and $140.7 million, respectively, and during the three and six months ended June 30, 2019, total revenue from CCJVs was $76.5 million and $139.5 million, respectively. During the six months ended June 30, 2020 and 2019, CCJVs provided $19.8 million and used $5.3 million of operating cash flows, respectively.

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Unconsolidated Construction Joint Ventures

As of June 30, 2020, we were engaged in ten active unconsolidated joint venture projects with total contract values ranging from $12.1 million to $3.8 billion for a combined total of $11.5 billion of which our share was $3.4 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of June 30, 2020, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $618.6 million and ranged from $1.2 million to $168.2 million.

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

					*As Restated*
(in thousands)	*June 30, 2020*		*December 31, 2019*		*June 30, 2019*
Assets
Cash, cash equivalents and marketable securities	$	213,285	$	179,049	$	225,163
Other current assets (1)		948,103		972,840		960,406
Noncurrent assets		185,866		207,584		214,238
Less partners’ interest		908,274		904,565		929,332
Granite’s interest (1),(2)		438,980		454,908		470,475
Liabilities
Current liabilities		515,113		581,199		530,654
Less partners’ interest and adjustments (3)		182,035		243,202		200,517
Granite’s interest		333,078		337,997		330,137
Equity in construction joint ventures (4)	$	105,902	$	116,911	$	140,338

(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $82.3 million, $81.9 million and $88.7 million related to performance guarantees as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

(2) Included in this balance as of June 30, 2020, December 31, 2019 and June 30, 2019, was $80.9 million, $116.8 million and $114.1 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $18.0 million, $15.9 million and $15.1 million related to Granite’s share of estimated recovery of back charge claims as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

(3) Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.

(4) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $77.6 million, $76.2 million and $79.9 million, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses, as of June 30, 2020, December 31, 2019 and June 30, 2019.

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
				*As Restated*						*As Restated*
(in thousands)		*2020*		*2019*				*2020*		*2019*
Revenue
Total	$	384,461		$	436,071		$	446,491		$	852,005
Less partners’ interest and adjustments (1)		287,639			334,500			265,967			639,918
Granite’s interest		96,822			101,571			180,524			212,087
Cost of revenue
Total		356,755			456,484			585,215			867,969
Less partners’ interest and adjustments (1)		241,560			302,604			374,303			583,031
Granite’s interest		115,195			153,880			210,912			284,938
Granite’s interest in gross loss	$	(18,373	)	$	(52,309	)	$	(30,388	)	$	(72,851	)

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

During the three and six months ended June 30, 2020, unconsolidated construction joint venture net income/(loss) was $27.5 million and $(138.5) million, respectively, of which our share was net loss of $(18.7) million and $(30.5) million, respectively. During the three and six months ended June 30, 2019, unconsolidated net loss was $(18.9) million and $(13.7) million, respectively, of which our share was net loss of $(52.5) million and $(72.8) million, respectively. The differences between our share of the joint venture net loss when compared to the joint venture net income/(loss) primarily resulted from differences between our estimated total revenue and cost of revenue when compared to that of our partners’ on five and four projects during 2020 and 2019, respectively. The differences are due to timing differences from varying accounting policies and in public company quarterly reporting requirements. These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.

Line Item Joint Ventures

As of June 30, 2020, we had four active line item joint venture construction projects with a total contract value of $327.8 million of which our portion was $182.8 million. As of June 30, 2020, our share of revenue remaining to be recognized on these line item joint ventures was $133.1 million. During the three and six months ended June 30, 2020, our portion of revenue from line item joint ventures was $18.4 million and $31.2 million, respectively. During the three and six months ended June 30, 2019, our portion of revenue from line item joint ventures was $11.8 million and $12.2 million, respectively.

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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)	*June 30, 2020*		*December 31, 2019*		*June 30, 2019*
Foreign	$	45,487	$	55,335	$	55,563
Real estate		16,578		17,229		17,781
Asphalt terminal		12,446		11,612		8,765
Total investments in affiliates	$	74,511	$	84,176	$	82,109

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:

(in thousands)	*June 30, 2020*		*December 31, 2019*		*June 30, 2019*
Current assets	$	122,608	$	122,348	$	138,564
Noncurrent assets		163,790		165,331		182,561
Total assets		286,398		287,679		321,125
Current liabilities		54,044		48,322		70,435
Long-term liabilities (1)		60,714		61,078		70,381
Total liabilities		114,758		109,400		140,816
Net assets		171,640		178,279		180,309
Granite’s share of net assets	$	74,511	$	84,176	$	82,109

(1)The balance primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates and debt associated with our real estate investments.

Of the $286.4 million of total affiliate assets as of June 30, 2020, we had investments in thirteen foreign entities with total assets ranging from $0.2 million to $72.2 million, three real estate entities with total assets ranging from $8.1 million to $35.1 million and the asphalt terminal entity had total assets of $28.6 million. We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25% to 50% as of June 30, 2020. During the six months ended June 30, 2020 we recorded an $9.6 million impairment charge related to our investment in foreign affiliates. See Note 4 for further discussion of the impairment charge. The equity method investments in real estate affiliates included $13.2 million, $13.6 million and $14.2 million in residential real estate in Texas as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively. Our percent ownership in the real estate entities ranged from 18% to 47% as of June 30, 2020. The remaining balances were in commercial real estate in Texas.

13. Property and Equipment, net

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

					*As Restated*
(in thousands)		*June 30, 2020*		*December 31, 2019*	*June 30, 2019*
Equipment and vehicles	$	959,083	$	947,687	$	943,456
Quarry property		196,033		188,960		191,972
Land and land improvements		135,707		132,531		135,411
Buildings and leasehold improvements		121,387		122,316		109,356
Office furniture and equipment		69,258		67,991		66,587
Property and equipment		1,481,468		1,459,485		1,446,782
Less: accumulated depreciation and depletion		941,415		917,188		888,404
Property and equipment, net	$	540,053	$	542,297	$	558,378

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14. Long-Term Debt and Credit Arrangements

(in thousands)	*June 30, 2020*		*December 31, 2019*		*June 30, 2019*
2.75% Convertible Notes	$	196,946	$	193,696	$	—
Credit Agreement - term loan		135,000		138,750		142,500
Credit Agreement - revolving credit facility		75,000		25,000		220,000
2019 Notes		—		—		40,000
Debt issuance costs and other		7,077		6,906		12,793
Total debt		414,023		364,352		415,293
Less current maturities		8,253		8,244		48,397
Total long-term debt	$	405,770	$	356,108	$	366,896

The aggregate minimum principal maturities of long-term debt related to balances at June 30, 2020 excluding debt issuance costs, including current maturities and the $33.1 million unamortized debt discount related to the 2.75% Convertible Notes are as follows: $4.2 million during the remainder of 2020; $8.5 million in 2021; $8.5 million in 2022; $192.3 million in 2023; $231.1 million in 2024; and $7.9 million in 2025 and thereafter.

Credit Agreement

On March 26, 2020, we entered into Amendment No. 3 to the Third Amended and Restated Credit Agreement, which among other things, (i) reduced the revolving credit facility from $350.0 million to $275.0 million; (ii) amended the definition of Applicable Rate; (iii) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; and (iv) modified certain financial covenants to allow for investments in certain large projects during 2020.

On June 19, 2020 and November 12, 2020, we entered into Amendments No. 4 and No. 5, respectively, to the Third Amended and Restated Credit Agreement, which, among other things, provided additional timing for the Company to deliver annual and quarterly financial statements.

On February 19, 2021, we entered into the Limited Waiver and Amendment No. 6 to the Third Amended and Restated Credit Agreement which waives any defaults or events of defaults that may have arisen in connection with the Company’s restatement during the periods covered by the restatement, the failure to comply with a financial covenant and any right of the lenders to collect interest at the default rate with respect to the waived defaults and events of default.

We refer to Third Amended and Restated Credit Agreement dated May 31, 2018 and all subsequent amendments listed above as “Credit Agreement.”

The Credit Agreement consists of a term loan and a revolving credit facility.

The term loan requires that Granite repay 1.25% of the original $150.0 million principal balance each quarter until the maturity date, at which point the remaining balance is due. As of each June 30, 2020, December 31, 2019 and June 30, 2019, $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 $127.5 million, $131.3 million and $135.0 million, respectively, was included in long-term debt.

As of June 30, 2020, the total unused availability under the Credit Agreement was $168.8 million resulting from $31.2 million in issued and outstanding letters of credit and $75.0 million drawn under the revolving credit facility. The letters of credit had expiration dates between October 2020 and December 2023.

Borrowings under the Credit Agreement bear interest at LIBOR, subject to a 75 basis point floor, 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. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was 3.00% for loans bearing interest based on LIBOR and 2.00% for loans bearing interest at the base rate at June 30, 2020. Accordingly, the effective interest rate at June 30, 2020 using three-month LIBOR and the base rate was 3.75% and 5.25%, respectively, and we elected to use LIBOR for both the term loan and the revolving credit facility.

2.75% Convertible Notes

In November 2019, we issued an aggregate principal amount of $230.0 million of convertible senior notes (the “2.75% Convertible Notes”) at an interest rate of 2.75% per annum payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020 and maturing on November 1, 2024, unless earlier converted, redeemed or repurchased.

As of June 30, 2020 and December 31, 2019, the carrying amount of the liability component was $196.9 million and $193.7 million, respectively. As of June 30, 2020 and December 31, 2019, the unamortized debt discount was $33.1 million and $36.3 million, respectively.

On October 29, 2019, in connection with the offering of our 2.75% Convertible Notes, we entered into a purchased equity derivative instrument (“Hedge Option”) and sold warrants to reduce the cost of the Hedge Option. The Hedge Option and warrants were included in additional paid-in capital on the condensed consolidated balance sheets and were $27.9 million and $11.2 million,, respectively, as of both June 30, 2020 and December 31, 2019.

On May 4, 2020, the Company notified the Trustee for the 2.75% Convertible Notes that beginning May 5, 2020 until the date on which the Company regained compliance with its filing requirements under section 4.06(d) of the indenture, the Company would pay 0.50% per annum of additional interest to the Noteholders on the November 1^st and May 1^st semi-annual coupon payment dates.

2019 Notes

As of June 30, 2019, senior notes payable in the amount of $40.0 million were due to a group of institutional holders, and had an interest rate of 6.11% per annum and were originally due in December 2019 (“2019 Notes”). On July 29, 2019, we called and redeemed the $40.0 million outstanding balance.

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of June 30, 2020, the Consolidated Leverage Ratio was 2.27, which did not exceed the maximum of 3.25. Our Consolidated Interest Coverage Ratio was 7.89, which exceeded the minimum of 4.00. To accommodate the delays in filing our financial statements, we entered into amendments with our lenders to extend the deadline for filing the 2019 Annual Report on Form 10-K and all of our 2020 Quarterly Reports on Form 10-Qs to February 28, 2021.

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15. Leases

We have leases for office and shop space, as well as for equipment primarily utilized in our construction projects. As of June 30, 2020, our lease contracts were classified as operating leases and had terms ranging from month-to-month to 23 years. As of June 30, 2020, December 31, 2019 and June 30, 2019, right of use (“ROU”) assets and long term lease liabilities were separately presented and short term lease liabilities of $19.0 million, $17.0 million and $15.6 million, respectively, were included in accrued and other current liabilities on our condensed consolidated balance sheets.

As of June 30, 2020, December 31, 2019 and June 30, 2019, we had no lease contracts that had not yet commenced but created significant rights and obligations.

Lease expense was $5.4 million and $10.6 million during the three and six months ended June 30, 2020, respectively and $4.6 million and $8.9 million during the three and six months ended June 30, 2019, respectively. As of June 30, 2020, December 31, 2019 and June 30, 2019, our weighted-average remaining lease term was 5.4 years, 5.8 years and 6.3 years, respectively, and the weighted-average discount rate was 3.90%, 3.97% and 4.08%, respectively. As of June 30, 2020, December 31, 2019 and June 30, 2019, the lease liability was equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on our secured debt, using one maturity discount rate that is updated quarterly, 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 June 30, 2020 (in thousands):

Remainder of 2020	$	11,100
2021		21,099
2022		18,752
2023		12,707
2024		7,415
2025 through 2036		13,600
Total future minimum lease payments		84,673
Less: imputed interest		(9,578	)
Total	$	75,095

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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 June 30,*					*Six Months Ended June 30,*
			*As Restated*						*As Restated*
(in thousands, except per share amounts)	*2020*		*2019*			*2020*			*2019*
*Numerator (basic and diluted)*
Net income (loss) allocated to common shareholders for basic calculation	$	3,405	$	(24,242	)	$	(61,965	)	$	(86,712	)
Denominator
Weighted average common shares outstanding, basic		45,620		46,824			45,570			46,762
Dilutive effect of RSUs and 2.75% Convertible Notes (1),(2)		661		—			—			—
Weighted average common shares outstanding, diluted		46,281		46,824			45,570			46,762
Net income (loss) per share, basic	$	0.07	$	(0.52	)	$	(1.36	)	$	(1.85	)
Net income (loss) per share, diluted	$	0.07	$	(0.52	)	$	(1.36	)	$	(1.85	)

(1) Due to the net loss, RSUs representing approximately 552,000 for the six months ended June 30, 2020, and RSUs representing approximately 375,000 and 398,000 for the three and six months ended June 30, 2019, respectively, have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.

(2) As the average price of our common stock was below $31.47 per share since the issuance date of the 2.75% Convertible Notes, the number of shares used in calculating diluted net loss per share for the three and six months ended June 30, 2020 excluded the potential dilution from the 2.75% Convertible Notes converting into shares of common stock.

17. Income Taxes

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

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
				*2019*						*2019*
(dollars in thousands)		*2020*			*As Restated*			*2020*			*As Restated*
Benefit from income taxes	$	(1,782	)	$	(5,913	)	$	(16,492	)	$	(23,263	)
Effective tax rate		64.7	%		21.5	%		18.3	%		22.2	%

Our effective tax rate for the three months ended June 30, 2020 increased to 64.7% from 21.5%, when compared to the same period in 2019. This change was primarily due to the impact of adjusting our estimate of our annual effective tax rate relative to the loss before benefit from income taxes for the three months ended June 30, 2020. Our effective tax rate for the six months ended June 30, 2020 decreased to 18.3% from 22.2%, when compared to the same period in 2019. This change was primarily due to the goodwill impairment and the investment in affiliates impairment which is discrete to the six months ended June 30, 2020 and resulted in no discrete tax benefit. See Note 4 for discussion of the impairment charges.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

18. Contingencies - 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 the consolidated balance sheets. The aggregate liabilities recorded as of June 30, 2020 and 2019 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 securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Amended 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. On May 20, 2020, the Court denied, in part, the Defendants’ Motion to Dismiss the Amended Complaint. On January 21, 2021, the Court granted Plaintiff’s motion for class certification. We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.

On October 23, 2019, a putative class action lawsuit was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer; Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint. We have filed a demurrer seeking to dismiss the amended complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of the case, which we intend to defend vigorously.

On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendants knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaint seeks monetary damages and corporate governance reforms. The Court has ordered that the lawsuit in the derivative action be stayed until further order of the Court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.

As of June 30, 2020, no liability related to above matters was recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.

In connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued us subpoenas for documents in connection with the independent Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

19. Business Segment Information

Summarized segment information is as follows (in thousands):

Three Months Ended June 30,

	*Transportation*		*Water*		*Specialty*		*Materials*			*Total*
2020
Total revenue from reportable segments	$	535,101	$	109,724	$	174,914	$	141,858		$	961,597
Elimination of intersegment revenue		—		—		—		(45,826	)		(45,826	)
Revenue from external customers		535,101		109,724		174,914		96,032			915,771
Gross profit		31,197		12,579		25,280		19,287			88,343
Depreciation, depletion and amortization		4,391		9,577		6,737		5,470			26,175

2019 (As Restated)
Total revenue from reportable segments	$	481,746	$	112,070	$	174,629	$	153,343		$	921,788
Elimination of intersegment revenue		—		—		—		(55,696	)		(55,696	)
Revenue from external customers		481,746		112,070		174,629		97,647			866,092
Gross profit		499		10,502		21,755		14,002			46,758
Depreciation, depletion and amortization		4,845		10,931		8,401		6,054			30,231

Six Months Ended June 30,

	*Transportation*		*Water*		*Specialty*		*Materials*			*Total*
2020
Total revenue from reportable segments	$	886,002	$	211,381	$	307,953	$	206,510		$	1,611,846
Elimination of intersegment revenue		—		—		—		(60,148	)		(60,148	)
Revenue from external customers		886,002		211,381		307,953		146,362			1,551,698
Gross profit		56,566		21,926		14,561		19,089			112,142
Depreciation, depletion and amortization		9,417		19,141		13,120		10,443			52,121
Segment assets		304,312		267,385		123,881		377,909			1,073,487

2019 (As Restated)
Total revenue from reportable segments	$	783,710		$	211,152	$	313,753	$	203,899		$	1,512,514
Elimination of intersegment revenue		—			—		—		(64,609	)		(64,609	)
Revenue from external customers		783,710			211,152		313,753		139,290			1,447,905
Gross (loss) profit		(15,849	)		18,448		35,053		10,244			47,896
Depreciation, depletion and amortization		8,485			21,987		14,213		11,633			56,318
Segment assets		329,140			302,143		146,346		379,648			1,157,277

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

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
				*As Restated*						*As Restated*
(in thousands)	*2020*			*2019*			*2020*			*2019*
Total gross profit from reportable segments	$	88,343		$	46,758		$	112,142		$	47,896
Selling, general and administrative expenses		91,682			70,998			170,063			151,153
Acquisition and integration expenses		—			9,177			—			11,025
Non-cash impairment charges (See Note 4)		—			—			24,413			—
Gain on sales of property and equipment		(1,190	)		(4,935	)	(1,813		)		(6,835	)
Total other expense (income)		606			(923	)		9,482			(2,777	)
Loss before benefit from income taxes	$	(2,755	)	$	(27,559	)	$	(90,003	)	$	(104,670	)

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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.” 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 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.

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Current Economic Environment and Outlook

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in substantial economic disruption for the foreseeable future. While there is optimism that the pandemic will come to an end with the prevalence of vaccines, significant uncertainty continues to exist with the resurgence of cases and the economic restrictions in many states.

With regard to the COVID-19 pandemic, our first priority is to continue to do everything we can to ensure the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Subject to that and with appropriate risk mitigation and safety practices, we are doing everything we can to carry on our operations in this unprecedented business environment in which we find ourselves.

Work on most of our projects continues as the Company performs services that are categorized under one or more of the “Essential Critical Infrastructure Sectors,” as defined by federal and state law. However, our operations in Mexico and Canada have been impacted with local COVID-19 work restrictions and travel bans, and we have experienced temporary suspensions or reduced project activities as a result of COVID-19 contributing in some cases to employee and subcontractor absences. This disruption has been most impactful to our Water and Mineral Services Group and certain operations located in Washington and Arizona.

In the face of rapidly changing market conditions, we are continually monitoring the status of our balance sheet and access to liquidity. Despite the ongoing pandemic, our balance sheet has strengthened in response to the efforts of our teams across the country. Given the uncertain market environment including the uncertain impact of reduced state and local tax receipts due to the pandemic, Granite continues to be focused on our liquidity through maximizing the return on capital investments and minimizing travel and related expenditures.

Granite’s backlog continues to be strong. This year we are seeing increased interest in best-value or alternative delivery procurement work by the state Department of Transportations, such as California and Utah, along with other state agencies. This shift will create a delay in certain project bookings in the short term, but we believe will give us the opportunity for larger future work with historically higher margins.

Funding for our public work projects, which is around 75% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, Congress on September 30, 2020 approved the one-year extension of the Fixing America’s Surface Transportation (“FAST”) Act with flat funding levels as well as a $13.6 billion infusion to the Highway Trust Fund from the general fund, providing state and local governments the visibility needed to plan for 2021 construction programs. In late December 2020, Congress approved a $10 billion relief spending bill for state departments of transportation as part of the Coronavirus Response and Relief Act to help offset pandemic-induced revenue declines. Based on estimates provided by The Federal Highway Administration, over $1.5 billion of the relief fund is apportioned to Granite Construction’s vertically-integrated states. While a permanent revenue solution for the Highway Trust Fund is not yet in place, it continues to remain a stabilizing force for transportation markets. We are optimistic that Congress and the Administration will jointly move forward in 2021 to pass a bipartisan Federal Infrastructure Bill, which we believe will meaningfully improve the programming visibility for state and local governments, starting with the 2022 construction season.

At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements. In California, our top revenue-generating state, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program. Revenue collected through SB-1 is on track to increase over the next 5 years. While we are encouraged by these funding supports, some of our core states are nevertheless experiencing financial headwinds from the pandemic, which may negatively impact transportation infrastructure spending during the first nine months of 2021. We closely monitor these funding trends and manage our pursuit pipeline accordingly.

While funding uncertainties caused by the COVID-19 pandemic disrupted the normal cadence of project bids in our water-related construction, water resources and wastewater rehabilitation businesses, market demand and local funding opportunities remain resilient. Across the Water segment’s end markets, states and municipal water authorities are weighing options for overdue water and wastewater infrastructure investment. For our wastewater rehabilitation business, this includes potential awards for infrastructure improvements mandated through consent decrees. At the federal level, Congress approved the Water Resources Development Act of 2020 and authorized spending $9.9 billion for 46 new flood control, harbor, ecosystem and lock and dam projects on waterways across the nation. This legislation unlocked the roughly $10 billion balance in the Harbor Maintenance Trust Fund including allowing access to $500 million in appropriations to the Army Corps.

For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in the 2019 Annual Report on Form 10-K.

Heavy Civil Strategic Review

Through this challenging time, the Company has not lost sight of its strategic review initiatives related to the Heavy Civil operating group to reduce enterprise exposure to large, complex projects where risks are difficult to mitigate. The Company concluded that 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 have narrowed the footprint of our Heavy Civil operating group, including the closure of our New York office in January 2021. Our focus is to pursue opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages, with strong margin expectations.

Impact of Independent Audit/Compliance Committee Investigation

As a result of our delay in filing our 2019 Annual Report on Form 10-K, there are jurisdictions across the country where we were unable to bid on public projects due to various financial statement filing requirements. This has mainly impacted certain public agency bidding opportunities. Granite teams across the country have continued to work with the various public agencies on these challenges. Through the work of Granite teams, the inability to bid in certain jurisdictions has not had a significant impact to Granite’s liquidity or results of operations.

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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. As described in the Explanatory Note, we have restated our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019, the impact of which is reflected in the tables below. 

The following table presents a financial summary for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
				As Restated						As Restated
(in thousands)	2020			2019			2020			2019
Total revenue	$	915,771		$	866,092		$	1,551,698		$	1,447,905
Gross profit		88,343			46,758			112,142			47,896
Selling, general and administrative expenses		91,682			70,998			170,063			151,153
Non-cash impairment charges (See Note 4)		—			—			24,413			—
Operating loss		(2,149	)		(28,482	)		(80,521	)		(107,447	)
Total other expense (income)		606			(923	)		9,482			(2,777	)
Amount attributable to non-controlling interests		4,378			(2,596	)		11,546			(5,305	)
Net income (loss) attributable to Granite Construction Incorporated		3,405			(24,242	)		(61,965	)		(86,712	)

Revenue

Total Revenue by Segment

	Three Months Ended June 30,								Six Months Ended June 30,
					As Restated								As Restated
(dollars in thousands)	2020				2019				2020				2019
Transportation	$	535,101	58.4	%	$	481,746	55.6	%	$	886,002	57.2	%	$	783,710	54.1	%
Water		109,724	12.0			112,070	12.9			211,381	13.6			211,152	14.6
Specialty		174,914	19.1			174,629	20.2			307,953	19.8			313,753	21.7
Materials		96,032	10.5			97,647	11.3			146,362	9.4			139,290	9.6
Total	$	915,771	100.0	%	$	866,092	100.0	%	$	1,551,698	100.0	%	$	1,447,905	100.0	%

Transportation Revenue

	Three Months Ended June 30,								Six Months Ended June 30,
					As Restated								As Restated
(dollars in thousands)	2020				2019				2020				2019
California	$	159,022	29.7	%	$	138,411	28.8	%	$	253,954	28.7	%	$	207,924	26.5	%
Federal		1,768	0.3			50	0.1			2,166	0.2			77	0.1
Heavy Civil		187,103	35.0			153,760	31.9			354,529	40.0			313,502	39.9
Midwest		34,942	6.5			28,135	5.8			59,185	6.7			46,196	5.9
Northwest		152,266	28.5			161,390	33.4			216,168	24.4			216,011	27.6
Total	$	535,101	100.0	%	$	481,746	100.0	%	$	886,002	100.0	%	$	783,710	100.0	%

Transportation revenue for the three and six months ended June 30, 2020 increased $53.4 million, or 11.1%, and $102.3 million, or 13.1%, respectively, when compared to 2019 primarily due to increases in the Heavy Civil operating group from the decrease in the net negative impact of revisions in estimates when compared to 2019 (see Note 5 of “Notes to the Condensed Consolidated Financial Statements” for more information) as well as from an increase in the California and Midwest operating groups which began the year with higher contract backlog. During the three and six months ended June 30, 2020 and 2019 the majority of revenue earned in the Transportation segment was from the public sector.

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Water Revenue

	Three Months Ended June 30,								Six Months Ended June 30,
					As Restated								As Restated
(dollars in thousands)	2020				2019				2020				2019
California	$	8,215	7.4	%	$	2,634	2.3	%	$	13,727	6.5	%	$	4,000	1.9	%
Federal		587	0.5			371	0.3			968	0.5			879	0.4
Heavy Civil		11,173	10.2			2,620	2.3			18,275	8.6			6,981	3.3
Midwest		152	0.1			—	—			152	0.1			84	0.1
Northwest		2,243	2.1			1,349	1.2			3,900	1.8			2,580	1.2
Water and Mineral Services		87,354	79.7			105,096	93.9			174,359	82.5			196,628	93.1
Total	$	109,724	100.0	%	$	112,070	100.0	%	$	211,381	100.0	%	$	211,152	100.0	%

Water revenue for the three and six months ended June 30, 2020 decreased by $2.3 million, or 2.1%, and $0.2 million, or 0.1%, respectively, when compared to 2019 primarily due to decreases in the Water and Mineral Services operating group from delays in recently awarded projects and deferrals in bidding processes as a result of the COVID-19 pandemic. Decreases were partially offset by increases in the Heavy Civil and California operating groups from beginning the year with higher contract backlog. During the three and six months ended June 30, 2020 and 2019 the majority of revenue earned in the Water segment was from the public sector.

Specialty Revenue

	Three Months Ended June 30,								Six Months Ended June 30,
					As Restated								As Restated
(dollars in thousands)	2020				2019				2020				2019
California	$	50,965	29.1	%	$	42,982	24.6	%	$	95,453	31.0	%	$	75,137	24.0	%
Federal		23,504	13.4			18,523	10.6			49,995	16.2	%		33,725	10.7
Heavy Civil		11,577	6.6			—	—			15,071	4.9	%		—	—
Midwest		38,648	22.1			39,126	22.4			50,151	16.3			73,447	23.4
Northwest		36,787	21.1			48,675	27.9			68,400	22.2			80,867	25.8
Water and Mineral Services		13,433	7.7			25,323	14.5			28,883	9.4			50,577	16.1
Total	$	174,914	100.0	%	$	174,629	100.0	%	$	307,953	100.0	%	$	313,753	100.0	%

Specialty revenue decreased by $0.3 million, or 0.2% for the three months ended June 30, 2020 and increased by $5.8 million, or 1.8%, for the six months ended June 30, 2020 when compared to 2019. Increases during six months ended June 30, 2020 were primarily due to increases in the California and Federal operating groups which began the year with higher contract backlog as well as from new awards in 2020 in the Federal and Heavy Civil operating groups. Increases during the six months ended June 30, 2020 were partially offset by decreases in the Water and Mineral Services from reduced activities as a result of the COVID-19 pandemic and Midwest operating group which began the year with lower contract backlog. Decreases in the Water and Mineral Services from reduced activities as a result of the COVID-19 pandemic and in the Midwest operating group which began the year with lower contract backlog contributed to the changes during the three and the six months ended June 30, 2020.

During the three and six months ended June 30, 2020 and 2019 revenue earned in the Specialty segment was from both the public and private sectors.

Materials Revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(dollars in thousands)	2020				2019				2020				2019
California	$	52,229	54.4	%	$	50,962	52.2	%	$	85,496	58.4	%	$	74,027	53.1	%
Northwest		40,685	42.4			40,846	41.8			55,138	37.7			55,378	39.8
Water and Mineral Services		3,118	3.2			5,839	6.0			5,728	3.9			9,885	7.1
Total	$	96,032	100.0	%	$	97,647	100.0	%	$	146,362	100.0	%	$	139,290	100.0	%

Materials revenue for the three months ended June 30, 2020 remained relatively unchanged and increased by $7.1 million, or 5.1%, for the six months ended June 30, 2020 when compared to 2019 primarily due to an increase in volume as a result of favorable weather during 2020 in the California operating group as compared to 2019.

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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 a contract 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

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
Transportation	$	2,633,936	74.3	%	$	2,700,336	74.2	%	$	2,993,825	77.2	%
Water		232,133	6.5			241,161	6.6			320,209	8.3
Specialty		681,255	19.2			700,588	19.2			562,239	14.5
Total	$	3,547,324	100.0	%	$	3,642,085	100.0	%	$	3,876,273	100.0	%

Transportation Contract Backlog

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
Unearned revenue	$	2,626,520	99.7	%	$	2,691,091	99.7	%	$	2,975,535	99.4	%
Other awards ⁽¹⁾		7,416	0.3			9,245	0.3			18,290	0.6
Total	$	2,633,936	100.0	%	$	2,700,336	100.0	%	$	2,993,825	100.0	%

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
California	$	641,708	24.4	%	$	530,657	19.7	%	$	594,545	19.9	%
Federal		16,464	0.6			18,152	0.7			80	0.1
Heavy Civil		1,188,678	45.1			1,321,442	48.9			1,805,917	60.2
Midwest		214,016	8.1			208,872	7.7			204,749	6.8
Northwest		573,070	21.8			621,213	23.0			388,534	13.0
Total	$	2,633,936	100.0	%	$	2,700,336	100.0	%	$	2,993,825	100.0	%

Transportation contract backlog of $2.6 billion at June 30, 2020 was $66.4 million, or 2.5%, lower than at March 31, 2020 primarily due to progress on existing projects in the Heavy Civil and Northwest operating groups, partially offset by a higher success rate on bidding activity in California and Midwest operating groups. Significant new awards during the three months ended June 30, 2020 included a $79.0 million highway reconstruction project and a $10.0 million highway paving project both in California.

Non-controlling partners’ share of Transportation contract backlog as of June 30, 2020, March 31, 2020 and June 30, 2019 was $280.0 million, $295.4 million and $196.9 million, respectively. Four contracts in our Transportation segment with recorded forecasted losses had remaining revenue of $422.1 million, or 16.0%, of Transportation contract backlog at June 30, 2020.

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Water Contract Backlog

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
Unearned revenue	$	227,864	98.2	%	$	241,161	100.0	%	$	255,516	79.8	%
Other awards ⁽¹⁾		4,269	1.8			—	—			64,693	20.2
Total	$	232,133	100.0	%	$	241,161	100.0	%	$	320,209	100.0	%

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
California	$	61,151	26.3	%	$	52,136	21.6	%	$	14,382	4.5	%
Federal		861	0.4			957	0.4	%		1,350	0.4
Heavy Civil		34,961	15.1			41,511	17.2	%		53,327	16.7
Midwest		—	—			150	0.1	%		110	—
Northwest		330	0.1			2,868	1.2	%		710	0.2
Water and Mineral Services		134,830	58.1			143,539	59.5	%		250,330	78.2
Total	$	232,133	100.0	%	$	241,161	100.0	%	$	320,209	100.0	%

Water contract backlog of $232.1 million as of June 30, 2020 was $9.0 million, or 3.7%, lower than at March 31, 2020. Decreases in the Water and Mineral Services and Heavy Civil operating groups from progress on existing projects was partially offset by an increase in the California operating group from new awards.

Specialty Contract Backlog

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
Unearned revenue	$	681,255	100.0	%	$	667,776	95.2	%	$	520,432	92.6	%
Other awards ⁽¹⁾		—	—			32,812	4.8			41,807	7.4
Total	$	681,255	100.0	%	$	700,588	100.0	%	$	562,239	100.0	%

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

									As Restated
(dollars in thousands)	June 30, 2020				March 31, 2020				June 30, 2019
California	$	122,989	18.0	%	$	109,016	15.5	%	$	127,930	22.7	%
Federal		123,169	18.1			139,480	19.9			146,516	26.1
Heavy Civil		233,068	34.2			240,059	34.3			—	—
Midwest		112,299	16.5			142,680	20.4			185,886	33.1
Northwest		89,730	13.2			69,353	9.9			101,907	18.1
Total	$	681,255	100.0	%	$	700,588	100.0	%	$	562,239	100.0	%

Specialty contract backlog of $681.3 million as of June 30, 2020 was $19.3 million, or 2.8%, lower than at March 31, 2020 due to progress on existing projects in the Federal and Midwest operating groups partially offset by an increase in the Northwest operating group from a higher success rate on bidding activity.

Non-controlling partners’ share of Specialty contract backlog as of June 30, 2020, March 31, 2020 and June 30, 2019 was $71.0 million, $84.3 million and $94.6 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 June 30,						Six Months Ended June 30,
				As Restated			2020			As Restated
(dollars in thousands)	2020			2019						2019
Transportation	$	31,197		$	499		$	56,566		$	(15,849	)
Percent of segment revenue		5.8	%		0.1	%		6.4	%		(2.0	)%
Water		12,579			10,502			21,926			18,448
Percent of segment revenue		11.5			9.4			10.4			8.7
Specialty		25,280			21,755			14,561			35,053
Percent of segment revenue		14.5			12.5			4.7			11.2
Materials		19,287			14,002			19,089			10,244
Percent of segment revenue	20.1				14.3			13.0			7.4
Total gross profit (loss)	$	88,343		$	46,758		$	112,142		$	47,896
Percent of total revenue		9.6	%		5.4	%		7.2	%		3.3	%

Transportation gross profit for the three and six months ended June 30, 2020 increased by $30.7 million, or more than 100%, and $72.4 million, or more than 100%, respectively, when compared to gross loss in 2019 primarily due to a decrease in the negative net impact from revisions in estimates in our Heavy Civil operating group (see Note 5 of “Notes to the Condensed Consolidated Financial Statements”).

Water gross profit for the three and six months ended June 30, 2020 increased by $2.1 million, or 19.8%, and $3.5 million, or 18.9%, respectively, when compared to 2019 primarily due to reduction in cost from lower volume.

Specialty gross profit for the three months ended June 30, 2020 increased by $3.5 million, or 16.2% and $20.5 million, or 58.5%, for the six months ended June 30, 2020 when compared to 2019 primarily from the net negative impact from revisions in estimates during the six months ended June 30, 2020 on a tunnel project (see Note 5 of “Notes to the Condensed Consolidated Financial Statements”).

Materials gross profit for the three and six months ended June 30, 2020 increased by $5.3 million, or 37.7%, and $8.8 million, or 86.3%, respectively, when compared to 2019 due to an increase in volume from favorable weather during 2020 as compared to 2019.

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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 June 30,						Six Months Ended June 30,
				As Restated
(dollars in thousands)	2020			2019			2020			2019
Selling
Salaries and related expenses	$	17,351		$	15,466		$	33,917		$	32,454
Restricted stock unit amortization		306			237			738			1,346
Other selling expenses		1,861			3,993			6,571			7,092
Total selling		19,518			19,696			41,226			40,892
General and administrative
Salaries and related expenses		26,779			24,972			54,914			50,916
Restricted stock unit amortization		703			658			2,122			5,479
Non-recurring legal and accounting fees		13,549			—			18,714			—
Other general and administrative expenses		31,133			25,672			53,087			53,866
Total general and administrative		72,164			51,302			128,837			110,261
Total selling, general and administrative	$	91,682		$	70,998		$	170,063		$	151,153
Percent of revenue		10.0	%		8.2	%		11.0	%		10.4	%

Selling Expenses

Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e. stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses remained relatively unchanged during both the three and six months ended June 30, 2020 when compared to 2019.

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 six months ended June 30, 2020 increased $20.9 million, or 40.7%, and $18.6 million, or 16.8%, respectively, when compared to 2019 due to legal and accounting fees incurred during the six months ended June 30, 2020 that were related to the independent Investigation undertaken by the Audit Committee starting in February 2020.

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Income Taxes

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

	Three Months Ended June 30,						Six Months Ended June 30,
				2019						2019
(dollars in thousands)		2020			As Restated			2020			As Restated
Benefit from income taxes	$	(1,782	)	$	(5,913	)	$	(16,492	)	$	(23,263	)
Effective tax rate		64.7	%		21.5	%		18.3	%		22.2	%

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

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations. We may also from time to time access our revolving credit facility, issue and sell equity, debt or hybrid securities or engage in other capital markets transactions. As of June 30, 2020, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisted of U.S. Government and agency obligations. Our credit facility consists of a term loan and a revolving credit facility. Of the $275.0 million revolving credit facility capacity, $168.8 million was available for borrowing at June 30, 2020. See Note 14 of “Notes to the Condensed Consolidated Financial Statements” for further discussion regarding our credit facility.

Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected operating requirements for the next twelve months from the date of this filing. There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.

In evaluating our liquidity position and needs, we consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:

(in thousands)	June 30, 2020		December 31, 2019		June 30, 2019
Cash and cash equivalents excluding CCJVs	$	195,422	$	184,141	$	29,025
CCJV cash and cash equivalents (1)		93,500		78,132		115,933
Total consolidated cash and cash equivalents		288,922		262,273		144,958
Short-term and long-term marketable securities (2)		5,896		32,799		61,037
Total cash, cash equivalents and marketable securities	$	294,818	$	295,072	$	205,995

(1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2) All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations as of all periods presented.

Granite’s portion of CCJV cash and cash equivalents was $55.1 million, $44.3 million and $67.4 million as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $65.6 million, $60.4 million and $69.4 million as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

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Cash Flows

	Six Months Ended June 30,
				As Restated
(in thousands)	2020			2019
Net cash provided by (used in):
Operating activities	$	12,483		$	(93,515	)
Investing activities		(21,407	)		(47,926	)
Financing activities		31,250			13,595

Operating activities

As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, our projects’ progressions toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts.

Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.

Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer which can cause fluctuations in operating cash flows.

Cash provided by operating activities of $12.5 million for the six months ended June 30, 2020 represents a $106.0 million increase when compared to cash used in operating activities in 2019. The change was primarily due to a $87.9 million increase in cash provided by working capital, a $27.6 million decrease in net contributions to unconsolidated joint ventures and affiliates and a $9.5 million increase in cash provided by net loss after adjusting for non-cash items. The increase in cash provided by working capital was primarily due to increases from CCJVs.

Investing activities

Cash used in investing activities of $21.4 million for the six months ended June 30, 2020 represents a $26.5 million increase when compared to 2019 primarily due to an increase in maturities of marketable securities.

Financing activities

Cash provided by financing activities of $31.3 million for the six months ended June 30, 2020 represents a $17.7 million increase when compared to 2019. The change was primarily due to an increase in debt proceeds, net of payments.

Capital Expenditures

During the six months ended June 30, 2020, we had capital expenditures of $52.2 million compared to $54.4 million during 2019. 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. During the year ended December 31, 2020, capital expenditures were approximately $90.0 million.

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Derivatives

We recognize interest rate and commodity swap derivative instruments as either assets or liabilities at fair value using Level 2 inputs in the condensed consolidated balance sheets. See Note 10 to “Notes to the Condensed Consolidated Financial Statements” for further information. The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds. See Note 14 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 June 30, 2020, approximately $3.3

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. Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 12 of “Notes to the Condensed Consolidated Financial Statements.”

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of June 30, 2020, the Consolidated Leverage Ratio was 2.27, which did not exceed the maximum of 3.25. Our Consolidated Interest Coverage Ratio was 7.89, which exceeded the minimum of 4.00. To accommodate the delays in filing our financial statements, we entered into amendments with our lenders to extend the deadline for filing the 2019 Annual Report on Form 10-K and all of our 2020 Quarterly Reports on Form 10-Qs to February 28, 2021.

Share Repurchase Program

As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization we have established a plan to facilitate common stock repurchases. As of June 30, 2020, $157.2 million of the authorization remained available. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

Website Access

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

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in our exposure to market risk when compared to those disclosed in our 2019 Annual Report on Form 10-K.

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Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) were not effective due to material weaknesses previously disclosed in our 2019 Annual Report on Form 10-K. In light of the material weaknesses in our internal control over financial reporting, we performed extensive additional analysis and other procedures to validate that our financial information contained in this Form 10-Q was prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Following such additional analysis and procedures, our management, including our principal executive officer and principal financial officer, has concluded that our financial statements state fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Form 10-Q, in conformity with U.S. GAAP.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the quarter ended June 30, 2020 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

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 the consolidated balance sheets. The aggregate liabilities recorded as of June 30, 2020 and 2019 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 securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Amended 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. On May 20, 2020, the Court denied, in part, the Defendants’ Motion to Dismiss the Amended Complaint. On January 21, 2021, the Court granted Plaintiff’s motion for class certification. We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.

On October 23, 2019, a putative class action lawsuit was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer; Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint asserting causes of action under the Securities Act of 1933 against the previously named defendants and PricewaterhouseCoopers LLP. We have filed a demurrer seeking to dismiss the amended complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of the case, which we intend to defend vigorously.

On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendants knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaint seeks monetary damages and corporate governance reforms. The Court has ordered that the lawsuit in the derivative action be stayed until further order of the Court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.

As of June 30, 2020, no liability related to above matters was recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.

In connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding that Investigation. The SEC has issued us subpoenas for documents in connection with the independent Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.

Item 1A.

RISK FACTORS

There have been no material changes in 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, 2019.

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 June 30, 2020:

Period	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
April 1, 2020 through April 30, 2020		1,499	$	16.37		—	$	157,165,044
May 1, 2020 through May 31, 2020		706	$	15.96		—	$	157,165,044
June 1, 2020 through June 30, 2020		2,006	$	18.15		—	$	157,165,044
		4,211	$	17.15		—

(1) The 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. As part of this authorization we have established a share repurchase program to facilitate common stock repurchases. We did not purchase shares under the share repurchase plan in any of the periods presented. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

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.

Table of Contents

Item 6.

EXHIBITS

10.1	†	Amendment No. 4 to Third Amended and Restated Credit Agreement, dated June 19, 2020, 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
31.1	†	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	†	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	††	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted 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:	February 25, 2021	By:	/s/ Elizabeth L. Curtis
			Elizabeth L. Curtis
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)