GRANITE CONSTRUCTION INC - Quarter Report: 2023 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2023 |
OR
o | 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. xYes o 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). xYes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 21, 2023.
Class | Outstanding | |||||||
Common stock, $0.01 par value | 43,920,177 |
TABLE OF CONTENTS
EXHIBIT 101.INS | |||||
EXHIBIT 101.SCH | |||||
EXHIBIT 101.CAL | |||||
EXHIBIT 101.DEF | |||||
EXHIBIT 101.LAB | |||||
EXHIBIT 101.PRE | |||||
EXHIBIT 104 |
2
EXPLANATORY NOTE
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed on February 21, 2023, the restatement of our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2022 is necessary to correct for (a) errors related to deferred taxes and the calculation of income tax expense in connection with the sale of the Company’s trenchless and pipe rehabilitation services business (“Inliner”), which was completed in the first quarter of 2022 and was classified within discontinued operations in the Company’s condensed consolidated statement of operations during the first and second quarters of 2022 and (b) other immaterial errors, including certain errors that had previously been adjusted for as out of period corrections.
The financial information for the three and six months ended June 30, 2022 presented herein also includes adjustments to retrospectively reclassify the results of the former Water and Mineral Services businesses from discontinued operations to continuing operations.
We have reflected the impact of the restatement and reclassification of discontinued operations on our unaudited condensed consolidated financial information as of and for the three and six months ended June 30, 2022 herein. See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for additional information.
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
June 30, 2023 | December 31, 2022 | ||||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents ($85,816 and $102,547 related to consolidated construction joint ventures (“CCJVs”)) | $ | 214,446 | $ | 293,991 | |||||||
Short-term marketable securities | 24,981 | 39,374 | |||||||||
Receivables, net ($65,446 and $39,281 related to CCJVs) | 636,797 | 463,987 | |||||||||
Contract assets ($72,912 and $80,306 related to CCJVs) | 288,349 | 241,916 | |||||||||
Inventories | 92,151 | 86,809 | |||||||||
Equity in construction joint ventures | 188,093 | 183,808 | |||||||||
Other current assets ($2,947 and $5,694 related to CCJVs) | 46,376 | 37,411 | |||||||||
Total current assets | 1,491,193 | 1,347,296 | |||||||||
Property and equipment, net ($7,772 and $7,834 related to CCJVs) | 564,077 | 509,210 | |||||||||
Long-term marketable securities | 11,575 | 26,569 | |||||||||
Investments in affiliates | 86,611 | 80,725 | |||||||||
Goodwill | 78,603 | 73,703 | |||||||||
Right of use assets | 53,509 | 49,079 | |||||||||
Deferred income taxes, net | 31,304 | 22,208 | |||||||||
Other noncurrent assets | 59,706 | 59,143 | |||||||||
Total assets | $ | 2,376,578 | $ | 2,167,933 | |||||||
LIABILITIES AND EQUITY | |||||||||||
Current liabilities | |||||||||||
Current maturities of long-term debt | $ | 1,466 | $ | 1,447 | |||||||
Accounts payable ($52,443 and $57,534 related to CCJVs) | 382,458 | 334,392 | |||||||||
Contract liabilities ($50,162 and $62,675 related to CCJVs) | 173,288 | 173,286 | |||||||||
Accrued expenses and other current liabilities ($7,336 and $8,451 related to CCJVs) | 310,022 | 288,469 | |||||||||
Total current liabilities | 867,234 | 797,594 | |||||||||
Long-term debt | 458,692 | 286,934 | |||||||||
Long-term lease liabilities | 38,397 | 32,170 | |||||||||
Deferred income taxes, net | 4,571 | 1,891 | |||||||||
Other long-term liabilities | 66,234 | 64,199 | |||||||||
Commitments and contingencies (see Note 17) | |||||||||||
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: 43,918,798 shares as of June 30, 2023 and 43,743,907 shares as of December 31, 2022 | 439 | 437 | |||||||||
Additional paid-in capital | 470,511 | 470,407 | |||||||||
Accumulated other comprehensive income | 795 | 788 | |||||||||
Retained earnings | 429,797 | 481,384 | |||||||||
Total Granite Construction Incorporated shareholders’ equity | 901,542 | 953,016 | |||||||||
Non-controlling interests | 39,908 | 32,129 | |||||||||
Total equity | 941,450 | 985,145 | |||||||||
Total liabilities and equity | $ | 2,376,578 | $ | 2,167,933 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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, | ||||||||||||||||||||||
2023 | As Restated and Recast | 2023 | As Restated and Recast | ||||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||
Revenue | |||||||||||||||||||||||
Construction | $ | 749,413 | $ | 713,221 | $ | 1,252,829 | $ | 1,291,487 | |||||||||||||||
Materials | 149,139 | 136,026 | 205,791 | 211,646 | |||||||||||||||||||
Total revenue | 898,552 | 849,247 | 1,458,620 | 1,503,133 | |||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||
Construction | 670,259 | 632,969 | 1,136,970 | 1,152,756 | |||||||||||||||||||
Materials | 125,207 | 118,712 | 186,205 | 192,719 | |||||||||||||||||||
Total cost of revenue | 795,466 | 751,681 | 1,323,175 | 1,345,475 | |||||||||||||||||||
Gross profit | 103,086 | 97,566 | 135,445 | 157,658 | |||||||||||||||||||
Selling, general and administrative expenses | 64,563 | 60,121 | 137,685 | 130,241 | |||||||||||||||||||
Other costs, net | 13,607 | 16,612 | 18,130 | 22,891 | |||||||||||||||||||
Gain on sales of property and equipment, net | (3,944) | (8,915) | (5,981) | (9,513) | |||||||||||||||||||
Operating income (loss) | 28,860 | 29,748 | (14,389) | 14,039 | |||||||||||||||||||
Other (income) expense | |||||||||||||||||||||||
Loss on debt extinguishment | 51,052 | — | 51,052 | — | |||||||||||||||||||
Interest income | (3,232) | (782) | (6,994) | (1,352) | |||||||||||||||||||
Interest expense | 4,131 | 3,899 | 7,022 | 7,484 | |||||||||||||||||||
Equity in income of affiliates, net | (7,044) | (4,876) | (12,231) | (6,165) | |||||||||||||||||||
Other (income) expense, net | (1,225) | 3,261 | (3,175) | 4,569 | |||||||||||||||||||
Total other expense, net | 43,682 | 1,502 | 35,674 | 4,536 | |||||||||||||||||||
Income (loss) before income taxes | (14,822) | 28,246 | (50,063) | 9,503 | |||||||||||||||||||
Provision for (benefit from) income taxes | 9,024 | 8,668 | (445) | 15,020 | |||||||||||||||||||
Net income (loss) | (23,846) | 19,578 | (49,618) | (5,517) | |||||||||||||||||||
Amount attributable to non-controlling interests | 6,846 | (897) | 9,595 | (2,535) | |||||||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated | $ | (17,000) | $ | 18,681 | $ | (40,023) | $ | (8,052) | |||||||||||||||
Net income (loss) per share attributable to common shareholders (see Note 15): | |||||||||||||||||||||||
Basic | $ | (0.39) | $ | 0.42 | $ | (0.91) | $ | (0.18) | |||||||||||||||
Diluted | $ | (0.39) | $ | 0.39 | $ | (0.91) | $ | (0.18) | |||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||
Basic | 43,892 | 44,534 | 43,829 | 45,128 | |||||||||||||||||||
Diluted | 43,892 | 52,295 | 43,829 | 45,128 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited - in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | As Restated | 2023 | As Restated | ||||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||
Net income (loss) | $ | (23,846) | $ | 19,578 | $ | (49,618) | $ | (5,517) | |||||||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
Net unrealized gain (loss) on cash flow hedges, net of tax | $ | (366) | $ | (377) | $ | (558) | $ | 2,059 | |||||||||||||||
Less: reclassification for net gains included in interest expense, net of tax | 112 | 1,282 | 112 | 3,042 | |||||||||||||||||||
Net change | $ | (254) | $ | 905 | $ | (446) | $ | 5,101 | |||||||||||||||
Foreign currency translation adjustments, net | 396 | (90) | 453 | 646 | |||||||||||||||||||
Other comprehensive income, net of tax | $ | 142 | $ | 815 | $ | 7 | $ | 5,747 | |||||||||||||||
Comprehensive income (loss), net of tax | $ | (23,704) | $ | 20,393 | $ | (49,611) | $ | 230 | |||||||||||||||
Non-controlling interests in comprehensive (income) loss, net of tax | 6,846 | (897) | 9,595 | (2,535) | |||||||||||||||||||
Comprehensive income (loss) attributable to Granite Construction Incorporated, net of tax | $ | (16,858) | $ | 19,496 | $ | (40,016) | $ | (2,305) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - in thousands, except share data)
Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2023 | 43,880,224 | $ | 439 | $ | 471,782 | $ | 653 | $ | 452,583 | $ | 925,457 | $ | 46,954 | $ | 972,411 | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (17,000) | (17,000) | (6,846) | (23,846) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 142 | — | 142 | — | 142 | |||||||||||||||||||||||||||||||||||||||
Repurchases of common stock (1) | (6,342) | (1) | (243) | — | — | (244) | — | (244) | |||||||||||||||||||||||||||||||||||||||
Restricted stock units (“RSUs”) vested | 37,394 | 1 | (1) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | — | 76 | — | (5,786) | (5,710) | — | (5,710) | |||||||||||||||||||||||||||||||||||||||
Capped call transactions | — | — | (39,379) | — | — | (39,379) | — | (39,379) | |||||||||||||||||||||||||||||||||||||||
Redemption of warrants | — | — | (13,201) | — | — | (13,201) | — | (13,201) | |||||||||||||||||||||||||||||||||||||||
Loss on debt extinguishment | 1,390,500 | 14 | 49,321 | — | — | 49,335 | — | 49,335 | |||||||||||||||||||||||||||||||||||||||
Exercise of bond hedge | (1,390,516) | (14) | 14 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests | — | — | — | — | — | — | (200) | (200) | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense and other | 7,538 | — | 2,142 | — | — | 2,142 | — | 2,142 | |||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2023 | 43,918,798 | $ | 439 | $ | 470,511 | $ | 795 | $ | 429,797 | $ | 901,542 | $ | 39,908 | $ | 941,450 | ||||||||||||||||||||||||||||||||
Balances at March 31, 2022 (as restated) | 45,364,137 | $ | 454 | $ | 515,262 | $ | 1,573 | $ | 388,756 | $ | 906,045 | $ | 35,844 | $ | 941,889 | ||||||||||||||||||||||||||||||||
Net income (as restated) | — | — | — | — | 18,681 | 18,681 | 897 | 19,578 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 815 | — | 815 | — | 815 | |||||||||||||||||||||||||||||||||||||||
Repurchases of common stock (1) | (1,325,706) | (13) | (50,151) | — | — | (50,164) | — | (50,164) | |||||||||||||||||||||||||||||||||||||||
RSUs vested | 30,596 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($0.13 per share) | — | — | 75 | — | (5,846) | (5,771) | — | (5,771) | |||||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests | — | — | — | — | — | — | (3,425) | (3,425) | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense and other | 9,442 | — | 1,973 | — | 76 | 2,049 | — | 2,049 | |||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 (as restated) | 44,078,469 | $ | 441 | $ | 467,159 | $ | 2,388 | $ | 401,667 | $ | 871,655 | $ | 33,316 | $ | 904,971 |
(1)This amount represents employee tax withholding for restricted stock units ("RSUs") vested under our equity incentive plans in 2022 and 2023 and stock repurchased in 2022 under the Board approved repurchase plan. During the three months ended June 30, 2023 and 2022, there were 6,342 shares and 5,138 shares, respectively, withheld related to employee taxes for RSUs. During the three months ended June 30, 2022, we also repurchased 1,320,568 shares under the share repurchase program.
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - in thousands, except share data)
Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2022 | 43,743,907 | $ | 437 | $ | 470,407 | $ | 788 | $ | 481,384 | $ | 953,016 | $ | 32,129 | $ | 985,145 | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (40,023) | (40,023) | (9,595) | (49,618) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 7 | — | 7 | — | 7 | |||||||||||||||||||||||||||||||||||||||
Repurchases of common stock (1) | (93,602) | (1) | (3,766) | — | — | (3,767) | — | (3,767) | |||||||||||||||||||||||||||||||||||||||
RSUs vested | 261,362 | 3 | (3) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($0.13 per share per quarter) | — | — | 150 | — | (11,564) | (11,414) | — | (11,414) | |||||||||||||||||||||||||||||||||||||||
Capped call transactions | — | — | (39,379) | — | — | (39,379) | — | (39,379) | |||||||||||||||||||||||||||||||||||||||
Redemption of warrants | — | — | (13,201) | — | — | (13,201) | — | (13,201) | |||||||||||||||||||||||||||||||||||||||
Loss on debt extinguishment | 1,390,500 | 14 | 49,321 | — | — | 49,335 | — | 49,335 | |||||||||||||||||||||||||||||||||||||||
Exercise of bond hedge | (1,390,516) | (14) | 14 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests | — | — | — | — | — | — | 17,374 | 17,374 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense and other | 7,147 | — | 6,968 | — | — | 6,968 | — | 6,968 | |||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2023 | 43,918,798 | $ | 439 | $ | 470,511 | $ | 795 | $ | 429,797 | $ | 901,542 | $ | 39,908 | $ | 941,450 | ||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | 45,840,260 | $ | 458 | $ | 559,752 | $ | (3,359) | $ | 410,831 | $ | 967,682 | $ | 27,881 | $ | 995,563 | ||||||||||||||||||||||||||||||||
Cumulative effect of newly adopted accounting standard | — | — | (26,961) | — | 10,543 | (16,418) | — | (16,418) | |||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2022 | 45,840,260 | 458 | 532,791 | (3,359) | 421,374 | 951,264 | 27,881 | 979,145 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) (as restated) | — | — | — | — | (8,052) | (8,052) | 2,535 | (5,517) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 5,747 | — | 5,747 | — | 5,747 | |||||||||||||||||||||||||||||||||||||||
Repurchases of common stock (1) | (1,991,586) | (19) | (70,357) | — | — | (70,376) | — | (70,376) | |||||||||||||||||||||||||||||||||||||||
RSUs vested | 220,766 | 2 | (2) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($0.13 per share per quarter) | — | — | 144 | — | (11,731) | (11,587) | — | (11,587) | |||||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests | — | — | — | — | — | — | 2,900 | 2,900 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense and other | 9,029 | — | 4,583 | — | 76 | 4,659 | — | 4,659 | |||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 (as restated) | 44,078,469 | $ | 441 | $ | 467,159 | $ | 2,388 | $ | 401,667 | $ | 871,655 | $ | 33,316 | $ | 904,971 |
(1) This amount represents employee tax withholding for restricted stock units ("RSUs") vested under our equity incentive plans in 2022 and 2023 and stock repurchased in 2022 under the Board approved repurchase plan. During the six months ended June 30, 2023 and 2022, there were 93,602 shares and 60,018 shares, respectively, withheld related to employee taxes for RSUs. During the six months ended June 30, 2022, we also repurchased 1,931,568 shares under the share repurchase program.
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Six Months Ended June 30, | 2023 | As Restated | |||||||||
2022 | |||||||||||
Operating activities | |||||||||||
Net loss | $ | (49,618) | $ | (5,517) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation, depletion and amortization | 41,528 | 32,328 | |||||||||
Amortization related to long-term debt | 988 | 1,423 | |||||||||
Non-cash loss on debt extinguishment | 51,052 | — | |||||||||
Gain on sale of business | — | (6,234) | |||||||||
Gain on sales of property and equipment, net | (5,981) | (9,513) | |||||||||
Deferred income taxes | — | 2,545 | |||||||||
Stock-based compensation | 6,702 | 4,376 | |||||||||
Equity in net loss from unconsolidated joint ventures | 4,005 | 17,228 | |||||||||
Net income from affiliates | (12,231) | (6,165) | |||||||||
Other non-cash adjustments | (7) | (84) | |||||||||
Changes in assets and liabilities: | |||||||||||
Receivables | (171,469) | (69,114) | |||||||||
Contract assets, net | (46,469) | (71,282) | |||||||||
Inventories | (3,439) | (18,618) | |||||||||
Contributions to unconsolidated construction joint ventures | (14,710) | (33,563) | |||||||||
Distributions from unconsolidated construction joint ventures and affiliates | 6,246 | 6,522 | |||||||||
Other assets, net | (6,464) | 22,053 | |||||||||
Accounts payable | 51,552 | 17,983 | |||||||||
Accrual for resolution of SEC investigation | — | 12,000 | |||||||||
Accrued expenses and other liabilities, net | 29,367 | 354 | |||||||||
Net cash used in operating activities | (118,948) | (103,278) | |||||||||
Investing activities | |||||||||||
Purchases of marketable securities | — | (49,968) | |||||||||
Maturities of marketable securities | 30,000 | — | |||||||||
Purchases of property and equipment | (79,689) | (73,216) | |||||||||
Proceeds from sales of property and equipment | 10,564 | 15,289 | |||||||||
Proceeds from company owned life insurance | 1,545 | — | |||||||||
Proceeds from the sale of business | — | 142,571 | |||||||||
Acquisition of business | (26,933) | — | |||||||||
Issuance of notes receivable | — | (4,560) | |||||||||
Collection of notes receivable | 135 | 201 | |||||||||
Net cash provided by (used in) investing activities | (64,378) | 30,317 | |||||||||
Financing activities | |||||||||||
Proceeds from long-term debt | 55,000 | 50,000 | |||||||||
Debt principal repayments | (249,589) | (124,660) | |||||||||
Capped call transactions | (53,035) | — | |||||||||
Redemption of warrants | (13,201) | — | |||||||||
Proceeds from issuance of 3.75% Convertible Notes | 373,750 | — | |||||||||
Debt issuance costs | (9,806) | — | |||||||||
Cash dividends paid | (11,391) | (11,857) | |||||||||
Repurchases of common stock | (3,766) | (70,374) |
9
Contributions from non-controlling partners | 22,400 | 6,327 | |||||||||
Distributions to non-controlling partners | (6,850) | (6,700) | |||||||||
Other financing activities, net | 269 | 209 | |||||||||
Net cash provided by (used in) financing activities | 103,781 | (157,055) | |||||||||
Net decrease in cash, cash equivalents and restricted cash | (79,545) | (230,016) | |||||||||
Cash, cash equivalents and $0 and $1,512 in restricted cash at beginning of period | 293,991 | 413,655 | |||||||||
Cash, cash equivalents and $0 in restricted cash at end of period | $ | 214,446 | $ | 183,639 | |||||||
Supplementary Information | |||||||||||
Right of use assets obtained in exchange for lease obligations | $ | 19,558 | $ | 8,167 | |||||||
Cash paid during the period for: | |||||||||||
Operating lease liabilities | $ | 11,351 | $ | 11,667 | |||||||
Interest | $ | 5,531 | $ | 6,786 | |||||||
Income taxes | $ | 4,851 | $ | 1,553 | |||||||
Other non-cash operating activities: | |||||||||||
Performance guarantees | $ | (6,513) | $ | (4,678) | |||||||
Deferred taxes related to capped call transactions | $ | 13,656 | $ | — | |||||||
Non-cash investing and financing activities: | |||||||||||
RSUs issued, net of forfeitures | $ | 10,981 | $ | 7,688 | |||||||
Dividends declared but not paid | $ | 5,709 | $ | 5,730 | |||||||
Contributions from non-controlling partners | $ | 1,822 | $ | 3,274 | |||||||
Accrued equipment purchases | $ | (4,330) | $ | (5,149) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Basis of Presentation: The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at June 30, 2023 and the results of our operations and cash flows for the periods presented. The December 31, 2022 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.
Acquisition: On April 24, 2023, we completed the purchase of Coast Mountain Resources (2020) Ltd. (“CMR”) for approximately $26.9 million in cash, subject to certain adjustments. CMR is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land. CMR results are reported in the Materials segment. This acquisition did not have a material impact on our financial statements.
In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, the total purchase price and assumed liabilities were allocated based on their estimated fair values as of April 24, 2023. The tangible assets acquired and liabilities assumed were approximately $29.2 million and $7.1 million, respectively, resulting in acquired goodwill of $4.8 million. The tangible assets balance consists primarily of equipment, vehicles and the right-to-mine which are reported in Property and equipment, net. The estimated allocation is subject to revision during the measurement period, which may result in adjustments to the values presented herein. We expect to finalize these amounts within 12 months from the acquisition date.
Seasonality: Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.
2. Recently Issued and Adopted Accounting Pronouncements
We closely monitor all Accounting Standards Updates issued by the FASB and other authoritative guidance. There are currently no recently issued accounting pronouncements that are expected to have a material impact on our financial statements. No new accounting pronouncements were adopted in the six months ended June 30, 2023 that had a material impact on our financial statements.
3. Restatement and Recast
Restatement and Recast Background
As disclosed in our Annual Report, we identified errors during the preparation of the Annual Report related to deferred taxes and the calculation of income tax expense of $12.3 million in connection with the sale of Inliner, which was completed in the first quarter of 2022 and was classified within discontinued operations in our condensed consolidated financial statements during the first and second quarters of 2022 and in Other costs, net and Provision for income taxes during the third quarter of 2022. As a result, our previously issued unaudited quarterly financial information for each interim period within the nine months ended September 30, 2022 require restatement. The restated financial information also includes adjustments to correct other immaterial errors in the first three quarters of 2022, including certain errors (primarily in revenue and cost of revenue, as well as the associated tax impact) that had previously been adjusted for as out of period corrections in the periods identified.
During the fourth quarter of 2021, we concluded that the assets and liabilities of our former Water and Mineral Services operating group (“WMS”) met the criteria for classification as held for sale and the results of operations were presented as discontinued operations. This included: our trenchless and pipe rehabilitation services business (“Inliner”); our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). During the first quarter of 2022, we completed the sale of Inliner. In September 2022, we announced our decision to retain the Water Resources and Mineral Services businesses that were previously classified as held for sale and reported in discontinued operations. In connection with the reclassification of the WMS businesses from discontinued operations to continuing operations, the condensed consolidated statement of operations for the three and six months ended
11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
June 30, 2022, as previously reported, have been recast to include Inliner through the date of sale, as well as the ongoing operations of Water Resources and Mineral Services in continuing operations.
Description of Restatement and Recast Tables
We have presented below a reconciliation from the previously reported to the restated and recast amounts for the three and six months ended June 30, 2022. The amounts labeled “As Previously Reported” were derived from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed on July 28, 2022.
The impacts to the condensed consolidated statements of shareholders’ equity and comprehensive income (loss) as a result of the restatement were due to the changes in net loss for the three and six months ended June 30, 2022. In addition, there was no impact to net cash provided by (used in) investing and financing activities for the six months ended June 30, 2022 as a result of the restatement or recast.
The effects of the prior-period errors and the discontinued operations reclassification impacts on our condensed consolidated financial statements are as follows (in thousands, except per share data):
12
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS | |||||||||||||||||||||||||||||
Three months ended June 30, 2022 | As Previously Reported | Restatement Impacts | As Restated | Discontinued Operations Reclassification Impacts | As Restated and Recast | ||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||
Construction | $ | 632,260 | $ | (1,893) | $ | 630,367 | $ | 82,854 | $ | 713,221 | |||||||||||||||||||
Materials | 136,026 | — | 136,026 | — | 136,026 | ||||||||||||||||||||||||
Total revenue | 768,286 | (1,893) | 766,393 | 82,854 | 849,247 | ||||||||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||||||||
Construction | 571,094 | (6,018) | 565,076 | 67,893 | 632,969 | ||||||||||||||||||||||||
Materials | 118,712 | — | 118,712 | — | 118,712 | ||||||||||||||||||||||||
Total cost of revenue | 689,806 | (6,018) | 683,788 | 67,893 | 751,681 | ||||||||||||||||||||||||
Gross profit | 78,480 | 4,125 | 82,605 | 14,961 | 97,566 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 53,162 | — | 53,162 | 6,959 | 60,121 | ||||||||||||||||||||||||
Other costs, net | 20,177 | — | 20,177 | (3,565) | 16,612 | ||||||||||||||||||||||||
Gain on sales of property and equipment, net | (385) | — | (385) | (8,530) | (8,915) | ||||||||||||||||||||||||
Operating income | 5,526 | 4,125 | 9,651 | 20,097 | 29,748 | ||||||||||||||||||||||||
Other (income) expense | |||||||||||||||||||||||||||||
Interest income | (782) | — | (782) | — | (782) | ||||||||||||||||||||||||
Interest expense | 3,896 | — | 3,896 | 3 | 3,899 | ||||||||||||||||||||||||
Equity in income (loss) of affiliates | (541) | — | (541) | (4,335) | (4,876) | ||||||||||||||||||||||||
Other income, net | 3,357 | — | 3,357 | (96) | 3,261 | ||||||||||||||||||||||||
Total other expense, net | 5,930 | — | 5,930 | (4,428) | 1,502 | ||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | (404) | 4,125 | 3,721 | 24,525 | 28,246 | ||||||||||||||||||||||||
Provision for income taxes on continuing operations | 2,549 | 959 | 3,508 | 5,160 | 8,668 | ||||||||||||||||||||||||
Net income (loss) from continuing operations | (2,953) | 3,166 | 213 | 19,365 | 19,578 | ||||||||||||||||||||||||
Net income (loss) from discontinued operations | 19,521 | (156) | 19,365 | (19,365) | — | ||||||||||||||||||||||||
Net income | 16,568 | 3,010 | 19,578 | — | 19,578 | ||||||||||||||||||||||||
Amount attributable to non-controlling interests | 583 | (1,480) | (897) | — | (897) | ||||||||||||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated from continuing operations | (2,370) | 1,686 | (684) | 19,365 | 18,681 | ||||||||||||||||||||||||
Net income attributable to Granite Construction Incorporated from discontinued operations | 19,521 | (156) | 19,365 | (19,365) | — | ||||||||||||||||||||||||
Net income attributable to Granite Construction Incorporated | $ | 17,151 | $ | 1,530 | $ | 18,681 | $ | — | $ | 18,681 | |||||||||||||||||||
Net income (loss) per share attributable to common shareholders | |||||||||||||||||||||||||||||
Basic continuing operations per share | $ | (0.05) | $ | 0.03 | $ | (0.02) | $ | 0.44 | $ | 0.42 | |||||||||||||||||||
Basic discontinued operations per share | 0.44 | (0.01) | 0.43 | (0.43) | — | ||||||||||||||||||||||||
Basic earnings per share | $ | 0.39 | $ | 0.02 | $ | 0.41 | $ | 0.01 | $ | 0.42 | |||||||||||||||||||
Diluted continuing operations per share | $ | (0.05) | $ | 0.03 | $ | (0.02) | $ | 0.41 | $ | 0.39 | |||||||||||||||||||
Diluted discontinued operations per share | 0.44 | (0.01) | 0.43 | (0.43) | — | ||||||||||||||||||||||||
Diluted earnings per share | $ | 0.39 | $ | 0.02 | $ | 0.41 | $ | (0.02) | $ | 0.39 | |||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||
Basic | 44,534 | — | 44,534 | — | 44,534 | ||||||||||||||||||||||||
Diluted | 44,534 | — | 44,534 | — | 52,295 |
13
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Six months ended June 30, 2022 | As Previously Reported | Restatement Impacts | As Restated | Discontinued Operations Reclassification Impacts | As Restated and Recast | ||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||
Construction | $ | 1,107,195 | $ | — | $ | 1,107,195 | $ | 184,292 | $ | 1,291,487 | |||||||||||||||||||
Materials | 208,677 | — | 208,677 | 2,969 | 211,646 | ||||||||||||||||||||||||
Total revenue | 1,315,872 | — | 1,315,872 | 187,261 | 1,503,133 | ||||||||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||||||||
Construction | 997,837 | — | 997,837 | 154,919 | 1,152,756 | ||||||||||||||||||||||||
Materials | 189,780 | — | 189,780 | 2,939 | 192,719 | ||||||||||||||||||||||||
Total cost of revenue | 1,187,617 | — | 1,187,617 | 157,858 | 1,345,475 | ||||||||||||||||||||||||
Gross profit | 128,255 | — | 128,255 | 29,403 | 157,658 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 111,663 | — | 111,663 | 18,578 | 130,241 | ||||||||||||||||||||||||
Other costs, net | 28,391 | — | 28,391 | (5,500) | 22,891 | ||||||||||||||||||||||||
Gain on sales of property and equipment, net | (717) | — | (717) | (8,796) | (9,513) | ||||||||||||||||||||||||
Operating income | (11,082) | — | (11,082) | 25,121 | 14,039 | ||||||||||||||||||||||||
Other (income) expense | |||||||||||||||||||||||||||||
Interest income | (1,405) | — | (1,405) | 53 | (1,352) | ||||||||||||||||||||||||
Interest expense | 7,471 | — | 7,471 | 13 | 7,484 | ||||||||||||||||||||||||
Equity in income (loss) of affiliates | (235) | — | (235) | (5,930) | (6,165) | ||||||||||||||||||||||||
Other income, net | 4,739 | — | 4,739 | (170) | 4,569 | ||||||||||||||||||||||||
Total other expense, net | 10,570 | — | 10,570 | (6,034) | 4,536 | ||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | (21,652) | — | (21,652) | 31,155 | 9,503 | ||||||||||||||||||||||||
Provision for (benefit from) income taxes on continuing operations | (2,782) | — | (2,782) | 17,802 | 15,020 | ||||||||||||||||||||||||
Net income (loss) from continuing operations | (18,870) | — | (18,870) | 13,353 | (5,517) | ||||||||||||||||||||||||
Net income from discontinued operations | 25,617 | (12,264) | 13,353 | (13,353) | — | ||||||||||||||||||||||||
Net income (loss) | 6,747 | (12,264) | (5,517) | — | (5,517) | ||||||||||||||||||||||||
Amount attributable to non-controlling interests | (2,535) | — | (2,535) | — | (2,535) | ||||||||||||||||||||||||
Net (loss) attributable to Granite Construction Incorporated from continuing operations | (21,405) | — | (21,405) | 13,353 | (8,052) | ||||||||||||||||||||||||
Net income attributable to Granite Construction Incorporated from discontinued operations | 25,617 | (12,264) | 13,353 | (13,353) | — | ||||||||||||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated | $ | 4,212 | $ | (12,264) | $ | (8,052) | $ | — | $ | (8,052) | |||||||||||||||||||
Net income (loss) per share attributable to common shareholders | |||||||||||||||||||||||||||||
Basic continuing operations per share | $ | (0.47) | $ | — | $ | (0.47) | $ | 0.29 | $ | (0.18) | |||||||||||||||||||
Basic discontinued operations per share | 0.57 | (0.27) | 0.30 | (0.30) | — | ||||||||||||||||||||||||
Basic earnings (loss) per share | $ | 0.10 | $ | (0.27) | $ | (0.17) | $ | (0.01) | $ | (0.18) | |||||||||||||||||||
Diluted continuing operations per share | $ | (0.47) | $ | — | $ | (0.47) | $ | 0.29 | $ | (0.18) | |||||||||||||||||||
Diluted discontinued operations per share | 0.57 | (0.27) | 0.30 | (0.30) | — | ||||||||||||||||||||||||
Diluted earnings (loss) per share | $ | 0.10 | $ | (0.27) | $ | (0.17) | $ | (0.01) | $ | (0.18) | |||||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||||||||
Basic | 45,128 | — | 45,128 | — | 45,128 | ||||||||||||||||||||||||
Diluted | 45,128 | — | 45,128 | — | 45,128 |
14
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | |||||||||||||||||
Six months ended June 30, 2022 | As Previously Reported | Restatement Impacts | As Restated | ||||||||||||||
Operating activities | |||||||||||||||||
Net income (loss) | $ | 6,747 | $ | (12,264) | $ | (5,517) | |||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
Depreciation, depletion and amortization | 32,328 | — | 32,328 | ||||||||||||||
Amortization related to long-term debt | 1,423 | — | 1,423 | ||||||||||||||
Gain on sale of business | (6,234) | — | (6,234) | ||||||||||||||
Gain on sales of property and equipment, net | (9,513) | — | (9,513) | ||||||||||||||
Deferred income taxes | 2,545 | — | 2,545 | ||||||||||||||
Stock-based compensation | 4,376 | — | 4,376 | ||||||||||||||
Equity in net loss from unconsolidated joint ventures | 17,228 | — | 17,228 | ||||||||||||||
Net loss from affiliates | (6,165) | — | (6,165) | ||||||||||||||
Other non-cash adjustments | (84) | — | (84) | ||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Receivables | (69,114) | — | (69,114) | ||||||||||||||
Contract assets, net | (71,282) | — | (71,282) | ||||||||||||||
Inventories | (18,618) | — | (18,618) | ||||||||||||||
Contributions to unconsolidated construction joint ventures | (33,563) | — | (33,563) | ||||||||||||||
Distributions from unconsolidated construction joint ventures and affiliates | 6,522 | — | 6,522 | ||||||||||||||
Other assets, net | 15,627 | 6,426 | 22,053 | ||||||||||||||
Accounts payable | 17,983 | — | 17,983 | ||||||||||||||
Accrual for expected resolution of SEC investigation | 12,000 | — | 12,000 | ||||||||||||||
Accrued expenses and other liabilities, net | (5,484) | 5,838 | 354 | ||||||||||||||
Net cash used in operating activities | $ | (103,278) | $ | — | $ | (103,278) |
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.
When we experience significant revisions in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future.
In our review of these changes for the three and six months ended June 30, 2023 and 2022, we did not identify any material amounts that should have been recorded in a prior period.
During the six months ended June 30, 2023, there was one project with an increase from revisions in estimates which had an impact to gross profit of $6.9 million and a reduction of net loss of $5.2 million, with $2.7 million of that amount attributable to non-controlling interests. The revision decreased the net loss per diluted share by $0.06. The increase was due to decreases in estimated costs from mitigated risks. There were no increases to revisions which individually had an impact of $5.0 million or more on gross profit during the three months ended June 30, 2023 or during the three and six months ended June 30, 2022.
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 | ||||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||
Number of projects with downward estimate changes | 1 | 3 | 2 | 5 | ||||||||||||||||||||||||||||||||||
Range of reduction in gross profit from each project, net | $ | 20.7 | $ | 5.9 - 7.6 | $ | 5.9 - 32.1 | $ | 5.6 - 10.6 | ||||||||||||||||||||||||||||||
Decrease to project profitability, net | $ | 20.7 | $ | 19.5 | $ | 38.0 | $ | 35.6 | ||||||||||||||||||||||||||||||
Decrease to net income/increase to net loss | $ | 15.8 | $ | 14.9 | $ | 29.0 | $ | 27.3 | ||||||||||||||||||||||||||||||
Amounts attributable to non-controlling interests | $ | 10.4 | $ | 3.0 | $ | 16.0 | $ | 3.0 | ||||||||||||||||||||||||||||||
Decrease to net income/increase to net loss attributable to Granite Construction Incorporated | $ | 5.4 | $ | 11.9 | $ | 13.0 | $ | 24.2 | ||||||||||||||||||||||||||||||
Decrease to net income/increase to net loss per diluted share attributable to common shareholders | $ | 0.12 | $ | 0.23 | $ | 0.30 | $ | 0.54 |
The decreases during the three and six months ended June 30, 2023 were due to additional costs related to changes in project duration and increased labor and materials costs. The decreases during the three and six months ended June 30, 2022 were due to additional costs related to extended project duration, increased labor and materials costs, and disputed work being performed where there were ongoing legal claims.
16
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. Disaggregation of Revenue
We disaggregate our revenue based on our reportable segments (see Note 18) and operating groups as these are the formats that are regularly reviewed by management. Our reportable segments are: Construction and Materials. In alphabetical order, our operating groups are: California, Central and Mountain. The following tables present our disaggregated revenue by operating group (in thousands):
Three Months Ended June 30, | |||||||||||||||||
2023 | Construction | Materials | Total | ||||||||||||||
California | $ | 232,902 | $ | 77,216 | $ | 310,118 | |||||||||||
Central | 200,486 | 12,338 | 212,824 | ||||||||||||||
Mountain | 316,025 | 59,585 | 375,610 | ||||||||||||||
Total | $ | 749,413 | $ | 149,139 | $ | 898,552 |
2022 (As Restated and Recast) | Construction | Materials | Total | ||||||||||||||
California | $ | 197,435 | $ | 71,572 | $ | 269,007 | |||||||||||
Central | 211,605 | 13,901 | 225,506 | ||||||||||||||
Mountain | 304,181 | 50,553 | 354,734 | ||||||||||||||
Total | $ | 713,221 | $ | 136,026 | $ | 849,247 |
Six Months Ended June 30, | |||||||||||||||||
2023 | Construction | Materials | Total | ||||||||||||||
California | $ | 381,849 | $ | 107,354 | $ | 489,203 | |||||||||||
Central | 371,488 | 23,894 | 395,382 | ||||||||||||||
Mountain | 499,492 | 74,543 | 574,035 | ||||||||||||||
Total | $ | 1,252,829 | $ | 205,791 | $ | 1,458,620 |
2022 (As Recast) | Construction | Materials | Total | ||||||||||||||
California | $ | 343,744 | $ | 117,259 | $ | 461,003 | |||||||||||
Central | 431,499 | 24,263 | 455,762 | ||||||||||||||
Mountain | 516,244 | 70,124 | 586,368 | ||||||||||||||
Total | $ | 1,291,487 | $ | 211,646 | $ | 1,503,133 |
6. Unearned Revenue
The following table presents our unearned revenue as of the respective periods:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
California | $ | 1,266,122 | $ | 945,971 | |||||||
Central | 1,336,341 | 1,444,983 | |||||||||
Mountain | 790,043 | 486,524 | |||||||||
Total | $ | 3,392,506 | $ | 2,877,478 |
All unearned revenue is in the Construction segment. Approximately $2.3 billion of the June 30, 2023 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.
7. Contract Assets and Liabilities
As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $45.5 million and $89.7 million during the three and six months ended June 30, 2023 and $79.4 million and $114.6 million during the three and six months ended June 30, 2022, respectively. The changes in contract transaction price for the three and six months ended June 30, 2023 and 2022 were from items such as executed or estimated change orders and unresolved contract modifications and claims.
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
As of June 30, 2023 and December 31, 2022, the aggregate claim recovery estimates included in contract asset and liability balances were $70.3 million and $75.8 million, respectively.
The components of the contract asset balances as of the respective dates were as follows:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Costs in excess of billings and estimated earnings | $ | 127,848 | $ | 80,357 | |||||||
Contract retention | 160,501 | 161,559 | |||||||||
Total contract assets | $ | 288,349 | $ | 241,916 |
As of June 30, 2023 and December 31, 2022, contract retention receivable from Brightline Trains Florida LLC represented 10.0% and 11.7%, respectively, of total contract assets. No other contract retention receivable individually exceeded 10% of total contract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.
As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $48.1 million and $171.1 million during the three and six months ended June 30, 2023, respectively, and $44.1 million and $210.7 million during the three and six months ended June 30, 2022, respectively, that was included in the contract liability balances at December 31, 2022 and 2021, respectively.
The components of the contract liability balances as of the respective dates were as follows:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Billings in excess of costs and estimated earnings, net of retention | $ | 153,181 | $ | 152,294 | |||||||
Provisions for losses | 20,107 | 20,992 | |||||||||
Total contract liabilities | $ | 173,288 | $ | 173,286 |
8. Receivables, net
Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and generally do not bear interest. The following table presents major categories of receivables:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Contracts completed and in progress: | |||||||||||
Billed | $ | 279,044 | $ | 220,809 | |||||||
Unbilled | 200,418 | 120,348 | |||||||||
Total contracts completed and in progress | 479,462 | 341,157 | |||||||||
Materials sales | 84,919 | 52,182 | |||||||||
Other | 73,523 | 71,790 | |||||||||
Total gross receivables | 637,904 | 465,129 | |||||||||
Less: allowance for credit losses | 1,107 | 1,142 | |||||||||
Total net receivables | $ | 636,797 | $ | 463,987 |
Included in other receivables at June 30, 2023 and December 31, 2022 were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. Other receivables at June 30, 2023 and December 31, 2022 also included $24.9 million of working capital contributions in the form of a loan to a partner in one of our unconsolidated joint ventures that bears interest at prime plus 3.0% per annum. None of our customers had a receivable balance in excess of 10% of our total net receivables as of June 30, 2023 or December 31, 2022.
18
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9. Fair Value Measurement
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
Fair Value Measurement at Reporting Date Using | |||||||||||||||||||||||
June 30, 2023 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Cash equivalents | |||||||||||||||||||||||
Money market funds | $ | 51,489 | $ | — | $ | — | $ | 51,489 | |||||||||||||||
Total assets | $ | 51,489 | $ | — | $ | — | $ | 51,489 | |||||||||||||||
Accrued and other current liabilities | |||||||||||||||||||||||
Diesel collars | $ | — | $ | 991 | $ | — | $ | 991 | |||||||||||||||
Commodity swaps | — | 479 | — | 479 | |||||||||||||||||||
Total liabilities | $ | — | $ | 1,470 | $ | — | $ | 1,470 |
December 31, 2022 | |||||||||||||||||||||||
Cash equivalents | |||||||||||||||||||||||
Money market funds | $ | 99,806 | $ | — | $ | — | $ | 99,806 | |||||||||||||||
Other current assets | |||||||||||||||||||||||
Commodity swaps | — | 121 | — | 121 | |||||||||||||||||||
Total assets | $ | 99,806 | $ | 121 | $ | — | $ | 99,927 |
Commodity Derivatives
As of June 30, 2023 and December 31, 2022, we held commodity swaps for crude oil designated as cash flow hedges with a total outstanding notional amount of $8.0 million and $7.0 million, respectively, all maturing by October 31, 2023. The realized and unrealized losses associated with commodity swaps for the three and six months ended June 30, 2023 were immaterial. The financial statement impact for the three and six months ended June 30, 2022 was a realized gain of $2.4 million and $2.8 million, respectively. In addition, for the three months ended June 30, 2022, the commodity swaps had an unrealized loss of $0.5 million, and for the six months ended June 30, 2022, the commodity swaps had an unrealized gain of $2.8 million.
In the first and second quarters of 2023, we entered into collar contracts to reduce our price exposure on diesel consumption. The collars were not designated as hedges and will be treated as a mark-to-market derivative instruments through the December 2024 maturity dates. The financial statement impact for the six months ended June 30, 2023 was an unrealized loss of $1.0 million. The unrealized loss for the three months ended June 30, 2023 was immaterial. The realized loss for the three and six months ended June 30, 2023 was immaterial.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Other Assets and Liabilities
The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:
June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
(in thousands) | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Held-to-maturity marketable securities (1) | Level 1 | $ | 36,556 | $ | 35,458 | $ | 65,943 | $ | 64,584 | ||||||||||||||||||||
Liabilities (including current maturities): | |||||||||||||||||||||||||||||
3.75% Convertible Notes (2) | Level 2 | $ | 373,750 | $ | 403,002 | $ | — | $ | — | ||||||||||||||||||||
2.75% Convertible Notes (2) | Level 2 | $ | 31,338 | $ | 41,841 | $ | 230,000 | $ | 281,365 | ||||||||||||||||||||
Credit Agreement - revolver (2) | Level 3 | $ | 55,000 | $ | 54,344 | $ | 50,000 | $ | 49,536 |
(1) All marketable securities as of June 30, 2023 and December 31, 2022 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in two months to three years.
(2) The fair values of our 2.75% convertible senior notes due 2024 (the "2.75% Convertible Notes") and the 3.75% convertible senior notes due 2028 (the "3.75% Convertible Notes") are based on the median price of the notes in an active market. The fair value of the Fourth Amended and Restated Credit Agreement (the "Credit Agreement") is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14 for more information about the 2.75% Convertible Notes, 3.75% Convertible Notes and the Credit Agreement.
During the six months ended June 30, 2023 and 2022, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
10. Construction Joint Ventures
We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and six months ended June 30, 2023, we determined no change was required for existing joint ventures.
Due to the joint and several nature of the performance obligations under the related owner contracts, if any of our partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At June 30, 2023, there was $202.4 million of remaining contract value on unconsolidated and line item construction joint venture contracts of which $96.4 million represented our share and the remaining $106.0 million represented our partners’ share. We are not able to estimate amounts that may be required beyond the current remaining forecasted cost of the work to be performed. These forecasted costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees. See Note 13 for disclosure of the performance guarantee amounts recorded in the condensed consolidated balance sheets.
Consolidated Construction Joint Ventures (“CCJVs”)
At June 30, 2023, we were engaged in eleven active CCJV projects with total contract values ranging from $17.7 million to $430.8 million for a combined total of $1.8 billion of which our share was $1.0 billion. As of June 30, 2023, our share of revenue remaining to be recognized on these CCJVs was $204.4 million and ranged from $0.5 million to $84.8 million by project. Our proportionate share of the equity in these joint ventures was between 50.0% and 70.0%. During the three and six months ended June 30, 2023 and 2022, total revenue from CCJVs was $70.8 million, $132.1 million, $122.7 million and $227.0 million, respectively. During the six months ended June 30, 2023 and 2022, CCJVs used $48.3 million and $13.4 million of operating cash flows, respectively.
Unconsolidated Construction Joint Ventures
As of June 30, 2023, we were engaged in seven active unconsolidated joint venture projects with total contract values ranging from $5.8 million to $3.8 billion for a combined total of $7.9 billion of which our share was $2.3 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 23.0% to 50.0%. As of
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
June 30, 2023, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $58.6 million and ranged from $1.6 million to $34.3 million by project.
The following is summary financial information related to unconsolidated construction joint ventures:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Assets | |||||||||||
Cash, cash equivalents and marketable securities | $ | 110,275 | $ | 130,635 | |||||||
Other current assets (1) | 694,959 | 681,221 | |||||||||
Noncurrent assets | 60,534 | 76,204 | |||||||||
Less partners’ interest | 593,218 | 604,741 | |||||||||
Granite’s interest (1),(2) | $ | 272,550 | $ | 283,319 | |||||||
Liabilities | |||||||||||
Current liabilities | $ | 209,643 | $ | 244,411 | |||||||
Less partners’ interest and adjustments (3) | 111,104 | 130,911 | |||||||||
Granite’s interest | $ | 98,539 | $ | 113,500 | |||||||
Equity in construction joint ventures (4) | $ | 174,011 | $ | 169,819 |
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 was $58.2 million and $64.7 million, respectively, related to performance guarantees (see Note 13).
(2) Included in this balance as of June 30, 2023 and December 31, 2022 was $98.1 million and $104.3 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $2.6 million and $2.7 million related to Granite’s share of estimated recovery of back charge claims as of June 30, 2023 and December 31, 2022, 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 $14.1 million and $14.0 million as of June 30, 2023 and December 31, 2022, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Revenue | |||||||||||||||||||||||
Total | $ | 25,211 | $ | 91,564 | $ | 63,385 | $ | 252,703 | |||||||||||||||
Less partners’ interest and adjustments (1) | 15,691 | 68,374 | 39,020 | 179,858 | |||||||||||||||||||
Granite’s interest | $ | 9,520 | $ | 23,190 | $ | 24,365 | $ | 72,845 | |||||||||||||||
Cost of revenue | |||||||||||||||||||||||
Total | $ | 40,564 | $ | 93,162 | $ | 84,935 | $ | 251,083 | |||||||||||||||
Less partners’ interest and adjustments (1) | 25,912 | 56,897 | 56,316 | 161,549 | |||||||||||||||||||
Granite’s interest | 14,652 | 36,265 | 28,619 | 89,534 | |||||||||||||||||||
Granite’s interest in gross loss | $ | (5,132) | $ | (13,075) | $ | (4,254) | $ | (16,689) | |||||||||||||||
Net Income (Loss) | |||||||||||||||||||||||
Total | $ | (14,574) | $ | (2,871) | $ | (20,228) | $ | 296 | |||||||||||||||
Less partners’ interest and adjustments (1) | (9,658) | 10,730 | (16,223) | 17,524 | |||||||||||||||||||
Granite’s interest in net loss (2) | $ | (4,916) | $ | (13,601) | $ | (4,005) | $ | (17,228) |
(1)Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast and/or actual differences.
(2)These joint venture net 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.
21
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Foreign | $ | 64,698 | $ | 58,579 | |||||||
Real estate | 7,460 | 8,517 | |||||||||
Asphalt terminal | 14,453 | 13,629 | |||||||||
Total investments in affiliates | $ | 86,611 | $ | 80,725 |
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, 2023 | December 31, 2022 | |||||||||
Current assets | $ | 201,508 | $ | 194,210 | |||||||
Noncurrent assets | 175,336 | 172,560 | |||||||||
Total assets | 376,844 | 366,770 | |||||||||
Current liabilities | 97,837 | 106,780 | |||||||||
Long-term liabilities (1) | 59,950 | 59,356 | |||||||||
Total liabilities | 157,787 | 166,136 | |||||||||
Net assets | 219,057 | 200,634 | |||||||||
Granite’s share of net assets | $ | 86,611 | $ | 80,725 |
(1)This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments.
Of the $376.8 million of total affiliate assets as of June 30, 2023, we had investments in two real estate entities with total assets of $67.0 million, our foreign affiliates had total assets of $276.9 million and the asphalt terminal entity had total assets of $32.9 million. As of June 30, 2023 and December 31, 2022, all of the investments in real estate affiliates were in residential real estate in Texas. As of June 30, 2023, our percent ownership in the real estate entities ranged from 10% to 25%. We have direct and indirect investments in our foreign affiliates, and our percent ownership in foreign affiliates ranged from 25% to 50% as of June 30, 2023.
12. Property and Equipment, net
Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets as follows:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Equipment and vehicles | $ | 1,051,771 | $ | 994,602 | |||||||
Quarry property | 232,117 | 219,843 | |||||||||
Land and land improvements | 108,288 | 105,733 | |||||||||
Buildings and leasehold improvements | 105,780 | 103,658 | |||||||||
Office furniture and equipment | 86,768 | 82,465 | |||||||||
Property and equipment | 1,584,724 | 1,506,301 | |||||||||
Less: accumulated depreciation and depletion | 1,020,647 | 997,091 | |||||||||
Property and equipment, net | $ | 564,077 | $ | 509,210 |
22
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
13. Accrued Expenses and Other Current Liabilities
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Accrued insurance | $ | 86,882 | $ | 78,427 | |||||||
Deficits in unconsolidated construction joint ventures | 14,082 | 13,989 | |||||||||
Payroll and related employee benefits | 79,567 | 80,910 | |||||||||
Performance guarantees | 58,190 | 64,703 | |||||||||
Short-term lease liabilities | 17,483 | 18,662 | |||||||||
Other | 53,818 | 31,778 | |||||||||
Total | $ | 310,022 | $ | 288,469 |
The decrease in performance guarantees in the current year is due to receiving customer acceptance on two unconsolidated construction joint ventures during the six months ended June 30, 2023.
Other includes dividends payable, warranty reserves, asset retirement obligations, remediation reserves, legal accruals and other miscellaneous accruals, none of which were greater than 5% of total current liabilities at any of the presented dates.
14. Long-Term Debt and Credit Arrangements
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
3.75% Convertible Notes | $ | 373,750 | $ | — | |||||||
2.75% Convertible Notes | 31,338 | 230,000 | |||||||||
Credit Agreement - revolver | 55,000 | 50,000 | |||||||||
Other, net of debt issuance costs | 70 | 8,381 | |||||||||
Total debt | $ | 460,158 | $ | 288,381 | |||||||
Less current maturities | 1,466 | 1,447 | |||||||||
Total long-term debt | $ | 458,692 | $ | 286,934 |
3.75% Convertible Notes
On May 11, 2023, we issued $373.8 million aggregate principal amount of our 3.75% Convertible Notes. The 3.75% Convertible Notes bear interest at a rate of 3.75% per annum payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2023 and mature on May 15, 2028, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 15, 2027, the 3.75% Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 3.75% Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
The initial conversion rate applicable to the 3.75% Convertible Notes is 21.6807 shares of Granite common stock per $1,000 principal amount of the 3.75% Convertible Notes, which is equivalent to an initial conversion price of approximately $46.12 per share of Granite common stock, subject to adjustment if certain events occur. Upon conversion, we will pay or deliver, as the case may be, cash, shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “fundamental change” as defined in the indenture governing the 3.75% Convertible Notes, holders may require us to repurchase for cash all or any portion of their 3.75% Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 3.75% Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If certain corporate events that constitute a “make-whole fundamental change” as set forth in the indenture governing the 3.75% Convertible Notes occur prior to the maturity date of the 3.75% Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.75% Convertible Notes in connection with such event or notice of redemption.
We will not be able to redeem the 3.75% Convertible Notes prior to May 20, 2026. On or after May 20, 2026, we have the option to redeem for cash all or any portion of the 3.75% Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130% of the conversion price for a specified period of time at a redemption price equal to 100% of the principal amount of the 3.75% Convertible Notes to be redeemed, plus any accrued but unpaid interest to, but excluding, the redemption date. In addition, as described in the indenture governing the 3.75% Convertible Notes, certain
23
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the 3.75% Convertible Notes becoming due and payable immediately.
The net proceeds from the sale of the 3.75% Convertible Notes were approximately $364.4 million, after deducting the initial purchasers’ discount. We used approximately $53.0 million of the net proceeds from the offering to pay the cost of the Capped Call Transactions (as described below). In addition, we used approximately $198.8 million of the net proceeds and issued 1,390,500 shares of Granite common stock in exchange for approximately $198.7 million aggregate principal amount of our 2.75% Convertible Notes concurrent with the offering in separate and individually negotiated transactions. We also received 1,390,516 shares from bond option counterparties for the exercise of our bond hedge, corresponding to the portion of the 2.75% Convertible Notes that were exchanged, and used approximately $13.2 million of the net proceeds to pay the cost of terminating the portion of the existing warrant transactions that correspond to the 2.75% Convertible Notes exchanged.
Capped Call Transactions
In May 2023, we entered into capped call transactions (the "Capped Call Transactions") in connection with the offering of the 3.75% Convertible Notes. The Capped Call Transactions are expected generally to reduce the potential dilution to Granite’s common stock upon conversion of the 3.75% Convertible Notes and/or offset any cash payments Granite is required to make in excess of the principal amount of converted 3.75% Convertible Notes, as the case may be. If, however, the market price per share of Granite’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions.
The cap price of the Capped Call Transactions will initially be $79.83 per share, which represents a premium of 125% over the last reported sale price of Granite’s common stock of $35.48 per share on the New York Stock Exchange on May 8, 2023, and is subject to certain adjustments under the terms of the Capped Call Transactions.
2.75% Convertible Notes
The 2.75% Convertible Notes were issued in November 2019 in an aggregate principal amount of $230.0 million, with an interest rate of 2.75% and a maturity date of November 1, 2024, unless earlier converted, redeemed or repurchased. The 2.75% Convertible Notes are convertible at the option of the holders prior to the close of business on the business day before May 1, 2024 only during certain periods and upon the occurrence of certain events. After May 1, 2024, the 2.75% Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate applicable to the 2.75% Convertible Notes is 31.7776 shares of Granite common stock per $1,000 principal amount of 2.75% Convertible Notes, which is equivalent to a conversion price of approximately $31.47 per share of Granite common stock. Upon conversion, we will pay or deliver, as the case may be, cash, shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2.75% Convertible Notes prior to the maturity date of the 2.75% Convertible Notes or if the Company delivers a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2.75% Convertible Notes in connection with such a make-whole fundamental change or notice of redemption.
We have the option to redeem for cash all or any portion of the 2.75% Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130% of the conversion price for a specified period of time at a redemption price equal to 100% of the principal amount of the 2.75% Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of a “fundamental change” as defined in the indenture governing the 2.75% Convertible Notes, holders may require us to repurchase for cash all or any portion of their 2.75% Convertible Notes at a price equal to 100% of the principal amount of the 2.75% Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, as described in the indenture governing the 2.75% Convertible Notes, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the 2.75% Convertible Notes becoming due and payable immediately.
At June 30, 2023, $31.3 million remained outstanding of our 2.75% Convertible Notes.
Credit Agreement
In June 2022, we entered into the Credit Agreement which matures on June 2, 2027. The Credit Agreement is a $350.0 million senior secured, five-year revolving facility (the “Revolver”), including an accordion feature allowing us to increase
24
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
borrowings up to the greater of (a) $200.0 million and (b) 100% of twelve-month trailing consolidated EBITDA, subject to lender approval. The Credit Agreement includes a $150.0 million sublimit for letters of credit ($75.0 million for financial letters of credit) and a $20.0 million sublimit for swingline loans. In May 2023, we entered into Amendment No. 1 to the Credit Agreement (the "Amendment"). The Amendment amended the Credit Agreement to, among other things, permit the Company to exchange its 2.75% Convertible Notes for cash and shares of its common stock and to clarify that (i) the issuance of the 3.75% Convertible Notes was permitted under the terms of the Credit Agreement and (ii) that a Swap Contract (as defined in the Credit Agreement) does not include any Permitted Call Spread Transaction (as defined in the Credit Agreement).
As of June 30, 2023, the total unused availability under the Credit Agreement was $275.9 million, resulting from $19.1 million in issued and outstanding letters of credit and $55.0 million drawn under the revolver. The letters of credit had expiration dates between July 2023 and December 2026. As of June 30, 2023, the applicable rate was 1.50% for loans under the Credit Agreement bearing interest based on the Secured Overnight Financing Rate ("SOFR") and 0.50% for loans bearing interest at the base rate. Accordingly, the effective interest rates at June 30, 2023 for SOFR and base rate loans were 6.70% and 8.75%, respectively.
The Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants include a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) and a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement). As of June 30, 2023, we were in compliance with the covenants in the Credit Agreement.
Debt Issuance Costs
During the three and six months ended June 30, 2023, we recorded $2.1 million and $2.4 million, respectively, of amortization related to debt issuance costs. This included $1.7 million of accelerated amortization of debt issuance costs associated with the 2.75% Convertible Notes that were repaid and are included in the loss on debt extinguishment. We also capitalized $9.8 million in third party offering costs related to the issuance of the 3.75% Convertible Notes. These debt issuance costs will be amortized over the expected life of the 3.75% Convertible Notes.
During the three and six months ended June 30, 2022, we recorded $0.4 million, and $0.7 million, respectively, of amortization related to debt issuance costs.
15. Weighted Average Shares Outstanding and Net Income (Loss) Per Share
The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
As Restated | As Restated | ||||||||||||||||||||||
(in thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Numerator (basic and diluted) | |||||||||||||||||||||||
Net income (loss) attributable to common shareholders | $ | (17,000) | $ | 18,681 | $ | (40,023) | $ | (8,052) | |||||||||||||||
Add: Interest expense related to Convertible Notes | — | 1,468 | — | — | |||||||||||||||||||
Net income (loss) attributable to common shareholders for diluted earnings per share | $ | (17,000) | $ | 20,149 | $ | (40,023) | $ | (8,052) | |||||||||||||||
Denominator | |||||||||||||||||||||||
Weighted average common shares outstanding, basic | 43,892 | 44,534 | 43,829 | 45,128 | |||||||||||||||||||
Add: Dilutive effect of RSUs | — | 452 | — | — | |||||||||||||||||||
Add: Dilutive effect of Convertible Notes | — | 7,309 | — | — | |||||||||||||||||||
Weighted average common shares outstanding, diluted | 43,892 | 52,295 | 43,829 | 45,128 | |||||||||||||||||||
Net income (loss) per share, basic | $ | (0.39) | $ | 0.42 | $ | (0.91) | $ | (0.18) | |||||||||||||||
Net income (loss) per share, diluted | $ | (0.39) | $ | 0.39 | $ | (0.91) | $ | (0.18) |
25
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Due to the net losses for the three and six months ended June 30, 2023 and six months ended June 30, 2022, RSUs representing 586,000, 584,000 and 493,000 shares, respectively, and the potential dilution from the convertible notes converting into 10,095,000, 10,095,000 and 7,309,000 shares of common stock for each period, respectively, have been excluded from the number of shares used in calculating diluted earnings per share, as their inclusion would have been antidilutive. In connection with the issuance of the 3.75% Convertible Notes, we entered into Capped Calls Transactions, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
16. Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
As Restated and Recast | As Restated and Recast | ||||||||||||||||||||||
(dollars in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Provision for (benefit from) income taxes | $ | 9,024 | $ | 8,668 | $ | (445) | $ | 15,020 | |||||||||||||||
Effective tax rate | (60.9 | %) | 30.7 | % | 0.9 | % | 158.1 | % |
Our effective tax rate for the three and six months ended June 30, 2023 was lower than the prior year primarily due to a $49.3 million non-deductible expense associated with the refinancing of a portion of the Company's 2.75% Convertible Notes in the second quarter of 2023. See Note 14 for more information.
17. Contingencies - Legal Proceedings
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition, disclosure is required when a material loss is probable but not reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
The total liabilities for legal proceedings are recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheet (see Note 13). The total range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined.
Ordinary Course Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of our Annual Report. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which often cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may 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.
26
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Salesforce Tower Matter
Our wholly-owned subsidiary, Layne Christensen Company ("Layne"), was a subcontractor on the foundation for the Salesforce Tower office building in San Francisco in 2013 and 2014. Certain anomalies were discovered in March 2014 in the foundation’s structural concrete, which were remediated by the general contractor during 2015. Layne assigned any insurance claims it may have had under the project’s builder’s risk insurance policy to the general contractor. During 2014, the project owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and related damages. The claim was denied by the builder’s risk insurers. The project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy, which proceeding was then transferred by agreement to arbitration. On July 20, 2021, we were informed of an arbitration award denying insurance coverage for claims related to the remedial measures undertaken by the general contractor of the Salesforce Tower and related damages.
On February 3, 2022, a lawsuit titled Steadfast Insurance Company (“Steadfast”), a subrogee of Clark/Hathaway Dinwiddie, a Joint Venture (“CHDJV”) v. Layne Christensen Company (“Layne”), was filed in the Superior Court of the State of California, County of San Francisco, seeking damages of approximately $70 million for costs incurred by Steadfast on behalf of CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower. On February 4, 2022, CHDJV submitted an arbitration demand with the American Arbitration Association against Granite Construction Incorporated seeking to recover approximately $30 million for costs incurred by CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower. CHDJV subsequently dismissed Granite and added Layne as a respondent to the arbitration. On May 6, 2022, CHDJV consolidated its claims with those of Steadfast and joined as a plaintiff in the Steadfast lawsuit, and on May 16, 2022, the arbitration was stayed. Both Layne and CHDJV have moved for summary adjudication on potentially dispositive issues. The parties have agreed to attend a mediation on August 4, 2023, and, as a result, the hearing for the summary adjudication motions has been postponed to September 13, 2023. Layne opposes the motions filed against it and believes it has multiple defenses and counterclaims to the plaintiffs' claims. Layne intends to vigorously defend against plaintiffs' claims and prosecute its counterclaims, but we cannot provide assurance that Layne will be successful in these efforts. As of June 30, 2023, we have determined that a loss related to this matter is probable, have estimated a range of loss and recorded a liability based on the low end of the range, as there were no facts and circumstances to support a different point in the range. In the second quarter of 2023, we recorded a pre-tax charge of $12.0 million, net of estimated insurance recovery, which is reflected in other costs on the condensed consolidated statements of operations for the three and six months ended June 30, 2023.
18. Reportable Segment Information
Our reportable segments are the same as our operating segments and correspond with how our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews financial information to allocate resources and assess performance. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer. Our reportable segments are: Construction and Materials.
Summarized segment information is as follows (in thousands):
Three months ended June 30, | Construction | Materials | Total | ||||||||||||||
2023 | |||||||||||||||||
Total revenue from reportable segments | $ | 749,413 | $ | 206,832 | $ | 956,245 | |||||||||||
Elimination of intersegment revenue | — | (57,693) | (57,693) | ||||||||||||||
Revenue from external customers | $ | 749,413 | $ | 149,139 | $ | 898,552 | |||||||||||
Gross profit | $ | 79,154 | $ | 23,932 | $ | 103,086 | |||||||||||
Depreciation, depletion and amortization | $ | 10,238 | $ | 7,090 | $ | 17,328 | |||||||||||
2022 (As Restated and Recast) | |||||||||||||||||
Total revenue from reportable segments | $ | 713,221 | $ | 180,444 | $ | 893,665 | |||||||||||
Elimination of intersegment revenue | — | (44,418) | (44,418) | ||||||||||||||
Revenue from external customers | $ | 713,221 | $ | 136,026 | $ | 849,247 | |||||||||||
Gross profit | $ | 80,252 | $ | 17,314 | $ | 97,566 | |||||||||||
Depreciation, depletion and amortization | $ | 5,595 | $ | 6,804 | $ | 12,399 | |||||||||||
27
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Six Months Ended June 30, | Construction | Materials | Total | ||||||||||||||
2023 | |||||||||||||||||
Total revenue from reportable segments | $ | 1,252,829 | $ | 278,752 | $ | 1,531,581 | |||||||||||
Elimination of intersegment revenue | — | (72,961) | (72,961) | ||||||||||||||
Revenue from external customers | $ | 1,252,829 | $ | 205,791 | $ | 1,458,620 | |||||||||||
Gross profit | $ | 115,859 | $ | 19,586 | $ | 135,445 | |||||||||||
Depreciation, depletion and amortization | $ | 19,993 | $ | 13,213 | $ | 33,206 | |||||||||||
Segment assets as of period end | $ | 443,112 | $ | 414,858 | $ | 857,970 | |||||||||||
2022 (As Recast) | |||||||||||||||||
Total revenue from reportable segments | $ | 1,291,487 | $ | 272,967 | $ | 1,564,454 | |||||||||||
Elimination of intersegment revenue | — | (61,321) | (61,321) | ||||||||||||||
Revenue from external customers | $ | 1,291,487 | $ | 211,646 | $ | 1,503,133 | |||||||||||
Gross profit | $ | 138,731 | $ | 18,927 | $ | 157,658 | |||||||||||
Depreciation, depletion and amortization | $ | 13,389 | $ | 13,137 | $ | 26,526 | |||||||||||
Segment assets as of period end | $ | 369,160 | $ | 357,922 | $ | 727,082 |
A reconciliation of segment gross profit to consolidated income (loss) before income taxes is as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
As Restated and Recast | As Recast | ||||||||||||||||||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Total gross profit from reportable segments | $ | 103,086 | $ | 97,566 | $ | 135,445 | $ | 157,658 | |||||||||||||||
Selling, general and administrative expenses | 64,563 | 60,121 | 137,685 | 130,241 | |||||||||||||||||||
Other costs, net | 13,607 | 16,612 | 18,130 | 22,891 | |||||||||||||||||||
Gain on sales of property and equipment | (3,944) | (8,915) | (5,981) | (9,513) | |||||||||||||||||||
Total other (income) expense, net | 43,682 | 1,502 | 35,674 | 4,536 | |||||||||||||||||||
Income (loss) before income taxes | $ | (14,822) | $ | 28,246 | $ | (50,063) | $ | 9,503 |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein.
Forward-Looking Disclosure
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, results and strategic actions, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, results, and strategic actions. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report under “Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
Overview
We deliver infrastructure solutions for public and private clients primarily in the United States. We are one of the largest diversified infrastructure companies in the United States. Within the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels, water well drilling and other infrastructure-related projects. Within the private sector, we perform various services such as site preparation, mining services and infrastructure services for commercial and industrial sites, railways, residential development, energy development, as well as provide construction management professional services.
The five primary economic drivers of our business are (i) the overall health of the U.S. economy including access to resources (labor, supplies and subcontractors); (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement.
Current Economic Environment and Outlook
Funding for our public work projects, which accounts for approximately 65% of our work, is dependent on federal, state, regional and local revenues. At the federal level, the rollout of the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) is ongoing with states receiving and allocating funds to projects. The five-year IIJA provides the largest increase in federal highway, bridge and transit funding in more than six decades and includes $550 billion in incremental funding. In October 2022, the U.S. Department of Transportation announced that it released $59.9 billion in Fiscal Year 2023 apportionments directly to all 50 states, all of which is available for states to authorize following the passing of the Fiscal Year 2023 omnibus appropriations bill in December 2022. We continue to believe that the increased multi-year spending commitment will improve the programming visibility for state and local governments. We are seeing projects funded by the IIJA for bid and believe there will be an increase in project lettings throughout 2023 and then more meaningfully in 2024 and beyond.
At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. While each market is unique, we see a strong funding environment at the state and local levels currently and we expect that environment to improve with the impact of the IIJA. In California, our top revenue-generating state, a
29
significant part of the state infrastructure spend is funded through Senate Bill 1 ("SB-1"), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program without any sunset provisions.
Over the recent years, inflation, supply chain and labor constraints have had a significant impact on the global economy including the construction industry in the United States. While it is impossible to fully eliminate the impact of these factors, we have applied proactive measures such as fixed forward purchase contracts of oil related inputs, energy surcharges, and adjustment of project schedules for constraints related to construction materials such as concrete. While we actively work to mitigate the impacts of inflation, further price increases may adversely impact us in the future.
Our Committed and Awarded Projects (“CAP”) continue to be strong at $5.4 billion at the end of the second quarter of 2023. Our CAP is supported by a positive public funding environment and resilient private market which we believe will provide further opportunities in 2023 to continue to grow CAP.
Acquisition
On April 24, 2023, we completed the purchase of Coast Mountain Resources (2020) Ltd. (“CMR”) for approximately $26.9 million in cash, subject to certain adjustments. CMR is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land. CMR results are reported in the Materials segment. This acquisition is not expected to have a material impact on our results of operations.
Litigation Matter
As further discussed in Note 17 of “Notes to the Condensed Consolidated Financial Statements,” our wholly owned subsidiary, Layne Christensen Company (“Layne”), has been sued for approximately $100 million relating to Layne’s work on the Salesforce Tower foundation. Layne was a subcontractor on this project and potential liability for this project remained with Layne in connection with our acquisition of Layne in June 2018. During the second quarter of 2023, we recorded a pre-tax charge of $12.0 million, net of estimated insurance recovery, which is reflected in other costs on the condensed consolidated statements of operations for the three and six months ended June 30, 2023. For additional information, see “Item 1A. Risk Factors - In connection with acquisitions or divestitures, we may become subject to liabilities” and “Item 1A. Risk Factors - We are involved in lawsuits, legal proceedings and indemnity claims in the ordinary course of our business and may in the future be subject to other litigation, legal proceedings and claims, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations” in our Annual Report.
Results of Operations
Our operations are typically affected more by inclement weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.
The following table presents a financial summary for the three and six months ended June 30, 2023 and 2022:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2023 | As Restated and Recast | 2023 | As Restated and Recast | |||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||
Total revenue | $ | 898,552 | $ | 849,247 | $ | 1,458,620 | $ | 1,503,133 | |||||||||||||||
Gross profit | $ | 103,086 | $ | 97,566 | $ | 135,445 | $ | 157,658 | |||||||||||||||
Selling, general and administrative expenses | $ | 64,563 | $ | 60,121 | $ | 137,685 | $ | 130,241 | |||||||||||||||
Operating income (loss) | $ | 28,860 | $ | 29,748 | $ | (14,389) | $ | 14,039 | |||||||||||||||
Amount attributable to non-controlling interests | $ | 6,846 | $ | (897) | $ | 9,595 | $ | (2,535) | |||||||||||||||
Net income (loss) attributable to Granite Construction Incorporated | $ | (17,000) | $ | 18,681 | $ | (40,023) | $ | (8,052) |
30
Revenue
Total Revenue by Segment
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2023 | As Restated and Recast | 2023 | As Recast | |||||||||||||||||||||||||||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
Construction | $ | 749,413 | 83.4 | % | $ | 713,221 | 84.0 | % | $ | 1,252,829 | 85.9 | % | $ | 1,291,487 | 85.9 | % | |||||||||||||||||||||||||||||||
Materials | 149,139 | 16.6 | 136,026 | 16.0 | 205,791 | 14.1 | 211,646 | 14.1 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 898,552 | 100.0 | % | $ | 849,247 | 100.0 | % | $ | 1,458,620 | 100.0 | % | $ | 1,503,133 | 100.0 | % |
Construction Revenue
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2023 | As Restated and Recast | 2023 | As Recast | |||||||||||||||||||||||||||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
California | $ | 232,902 | 31.1 | % | $ | 197,435 | 27.7 | % | $ | 381,849 | 30.5 | % | $ | 343,744 | 26.6 | % | |||||||||||||||||||||||||||||||
Central | 200,486 | 26.8 | 211,605 | 29.7 | 371,488 | 29.7 | 431,499 | 33.4 | |||||||||||||||||||||||||||||||||||||||
Mountain | 316,025 | 42.1 | 304,181 | 42.6 | 499,492 | 39.8 | 516,244 | 40.0 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 749,413 | 100.0 | % | $ | 713,221 | 100.0 | % | $ | 1,252,829 | 100.0 | % | $ | 1,291,487 | 100.0 | % |
Construction revenue for the three months ended June 30, 2023 increased by $36.2 million, or 5.1%, when compared to 2022. Construction revenue from the California and Mountain operating groups increased $35.5 million and $11.8 million, respectively, which were driven by higher levels of CAP going into the quarter. The Central operating group's construction revenue decreased by $11.1 million primarily due to the wind down of several large projects.
Construction revenue for the six months ended June 30, 2023 decreased by $38.7 million, or 3.0%, when compared to the six months ended June 30, 2022. This decrease was primarily driven by a $60.0 million decrease in the Central operating group due to the wind down of several large projects. Revenue from the Mountain operating group decreased $16.8 million mainly due to the sale of Inliner which contributed $33.2 million in 2022 prior to its sale. This decrease was partially offset by increased revenue driven by higher beginning CAP levels. California operating group revenue increased $38.1 million despite the unfavorable weather conditions during the first half of the year, partly due to emergency work resulting from the weather as well as higher CAP levels to start the year.
During both the three and six months ended June 30, 2023 and 2022, approximately 65% of revenue earned in the Construction segment was from the public sector.
Materials Revenue
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2023 | 2022 | 2023 | As Recast | |||||||||||||||||||||||||||||||||||||||||||
2022 | |||||||||||||||||||||||||||||||||||||||||||||||
California | $ | 77,216 | 51.7 | % | $ | 71,572 | 52.6 | % | $ | 107,354 | 52.2 | % | $ | 117,259 | 55.4 | % | |||||||||||||||||||||||||||||||
Central | 12,338 | 8.3 | 13,901 | 10.2 | 23,894 | 11.6 | 24,263 | 11.5 | |||||||||||||||||||||||||||||||||||||||
Mountain | 59,585 | 40.0 | 50,553 | 37.2 | 74,543 | 36.2 | 70,124 | 33.1 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 149,139 | 100.0 | % | $ | 136,026 | 100.0 | % | $ | 205,791 | 100.0 | % | $ | 211,646 | 100.0 | % |
Materials revenue for the three months ended June 30, 2023 increased $13.1 million, or 9.6%, when compared to the same period in 2022 driven by higher asphalt and aggregate sales prices and increased aggregate sales volume. Aggregate sales volume was up 9.2% during the three months ended June 30, 2023.
Materials revenue for the six months ended June 30, 2023 decreased $5.9 million, or 2.8%, when compared to the six months ended June 30, 2022, driven primarily by lower sales volumes in both asphalt and aggregates resulting from inclement weather during the first quarter of 2023, partially offset by increased sales prices. Asphalt and aggregate sales volumes were down 12.6% and 4.8%, respectively, in the six months ended June 30, 2023, with the greatest decreases in the California operating group.
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Committed and Awarded Projects
CAP consists of two components: (1) unearned revenue and (2) other awards. Unearned revenue includes the revenue we expect to record in the future on executed contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. Certain government contracts where funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed.
Other awards include the general construction portion of construction management/general contractor (“CM/GC”) contracts and awarded contracts with unexercised contract options or unissued task orders. The general construction portion of CM/GC contracts are included in other awards to the extent contract execution and funding is probable. Contracts with unexercised contract options or unissued task orders are included in other awards to the extent option exercise or task order issuance is probable. All CAP is in the Construction segment.
(dollars in thousands) | June 30, 2023 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||
Unearned revenue | $ | 3,392,506 | 62.4 | % | $ | 3,163,568 | 62.0 | % | $ | 2,877,478 | 64.2 | % | |||||||||||||||||||||||
Other awards | 2,045,082 | 37.6 | 1,940,385 | 38.0 | 1,607,661 | 35.8 | |||||||||||||||||||||||||||||
Total | $ | 5,437,588 | 100.0 | % | $ | 5,103,953 | 100.0 | % | $ | 4,485,139 | 100.0 | % |
(dollars in thousands) | June 30, 2023 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||
California | $ | 2,345,611 | 43.2 | % | $ | 1,913,634 | 37.5 | % | $ | 1,747,163 | 39.0 | % | |||||||||||||||||||||||
Central | 1,599,538 | 29.4 | 1,750,375 | 34.3 | 1,661,613 | 37.0 | |||||||||||||||||||||||||||||
Mountain | 1,492,439 | 27.4 | 1,439,944 | 28.2 | 1,076,363 | 24.0 | |||||||||||||||||||||||||||||
Total | $ | 5,437,588 | 100.0 | % | $ | 5,103,953 | 100.0 | % | $ | 4,485,139 | 100.0 | % |
CAP of $5.4 billion at June 30, 2023 increased $333.6 million and $952.4 million when compared to March 31, 2023 and December 31, 2022, respectively. Significant additions to CAP during the three months ended June 30, 2023 included a $173 million weir widening project in California, a $72 million highway project in California, a $48 million flood control project in Texas, a $45 million railway project in California and a $38 million highway project in Alaska.
Non-controlling partners’ share of CAP as of June 30, 2023, March 31, 2023 and December 31, 2022 was $129.6 million, $109.6 million and $85.0 million, respectively.
At June 30, 2023, three contracts with remaining CAP of $10 million or more per project had total forecasted losses with remaining revenue of $86.2 million, or 1.6%, of total CAP.
Gross Profit
The following table presents gross profit by reportable segment for the respective periods:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(dollars in thousands) | 2023 | As Restated and Recast | 2023 | As Recast | |||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||
Construction | $ | 79,154 | $ | 80,252 | $ | 115,859 | $ | 138,731 | |||||||||||||||
Percent of segment revenue | 10.6 | % | 11.3 | % | 9.2 | % | 10.7 | % | |||||||||||||||
Materials | 23,932 | 17,314 | 19,586 | 18,927 | |||||||||||||||||||
Percent of segment revenue | 16.0 | % | 12.7 | % | 9.5 | % | 8.9 | % | |||||||||||||||
Total gross profit | $ | 103,086 | $ | 97,566 | $ | 135,445 | $ | 157,658 | |||||||||||||||
Percent of total revenue | 11.5 | % | 11.5 | % | 9.3 | % | 10.5 | % |
Construction gross profit for the three and six months ended June 30, 2023 decreased by $1.1 million and $22.9 million, or 1.4% and 16.5%, respectively, when compared to 2022. The decrease for the six months ended June 30, 2023 was primarily due to an increase in the negative net impact from revisions in estimates, mainly in our Central operating group. For further discussion of projects with revisions in estimates which individually had an impact of $5.0 million or more on
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gross profit, see Note 4 of "Notes to the Condensed Consolidated Financial Statements." Increased depreciation expense during the three and six months ended June 30, 2023 also contributed to the decrease in gross profit. As previously disclosed, our former Water and Mineral Services operating group (“WMS”) was classified as held for sale throughout the first and second quarters of 2022, and therefore no depreciation expense was recorded for WMS assets during that period.
Materials gross profit for the three and six months ended June 30, 2023 increased by $6.6 million and $0.7 million, respectively, when compared to 2022. Higher sales prices were the primary driver of the gross profit improvement for the three months ended June 30, 2023.
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, | ||||||||||||||||||||||
(dollars in thousands) | 2023 | As Recast | 2023 | As Recast | |||||||||||||||||||
2022 | 2022 | ||||||||||||||||||||||
Selling | |||||||||||||||||||||||
Salaries and related expenses | $ | 13,894 | $ | 14,314 | $ | 30,256 | $ | 31,628 | |||||||||||||||
Stock-based compensation | 243 | 215 | 1,072 | 858 | |||||||||||||||||||
Other selling expenses | 1,797 | 3,238 | 3,236 | 4,981 | |||||||||||||||||||
Total selling | 15,934 | 17,767 | 34,564 | 37,467 | |||||||||||||||||||
General and administrative | |||||||||||||||||||||||
Salaries and related expenses | 25,460 | 23,930 | 51,825 | 53,577 | |||||||||||||||||||
Stock-based compensation | 1,255 | 1,166 | 5,968 | 3,107 | |||||||||||||||||||
Other general and administrative expenses | 21,914 | 17,258 | 45,328 | 36,090 | |||||||||||||||||||
Total general and administrative | 48,629 | 42,354 | 103,121 | 92,774 | |||||||||||||||||||
Total selling, general and administrative | $ | 64,563 | $ | 60,121 | $ | 137,685 | $ | 130,241 | |||||||||||||||
Percent of revenue | 7.2 | % | 7.1 | % | 9.4 | % | 8.7 | % |
Selling Expenses
Selling expenses include the costs for estimating and bidding including offsetting customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses for the three and six months ended June 30, 2023 decreased by $1.8 million and $2.9 million, or 10.3% and 7.7%, when compared to 2022, primarily due to reduced prebid costs in the current year.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses for the three and six months ended June 30, 2023 increased by $6.3 million and $10.3 million, or 14.8% and 11.2%, primarily due to increases in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is mostly offset in Other (income) expense, net, through investments held within our own company-owned life insurance policy, as well as increases in stock-based compensation expense. The increases for the six months ended June 30, 2023 were partially offset by the sale of Inliner on March 16, 2022.
Loss on Debt Extinguishment
In the second quarter of 2023, we issued 1,390,500 shares of Granite common stock and paid approximately $198.8 million in cash in exchange for approximately $198.7 million aggregate principal amount of our 2.75% Convertible Notes (the "Exchange Transaction") concurrent with the offering of the 3.75% Convertible Notes. As a result of the Exchange Transaction, we incurred a $51.1 million loss on debt extinguishment. Included in the loss on debt extinguishment is a $1.7
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million charge for the acceleration of the amortization of debt issuance costs associated with the 2.75% Convertible Notes that were redeemed early.
Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
As Restated and Recast | As Restated and Recast | ||||||||||||||||||||||
(dollars in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Provision for (benefit from) income taxes | $ | 9,024 | $ | 8,668 | $ | (445) | $ | 15,020 | |||||||||||||||
Effective tax rate | (60.9 | %) | 30.7 | % | 0.9 | % | 158.1 | % |
We calculate our income tax provision (benefit) at the end of each interim period by estimating our annual effective tax rate and applying that rate to our income or loss before tax. 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 16 of "Notes to the Condensed Consolidated Financial Statements" for more information.
Amount Attributable to Non-controlling Interests
The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2023 | As Restated | 2023 | 2022 | |||||||||||||||||||
2022 | |||||||||||||||||||||||
Amount attributable to non-controlling interests | $ | 6,846 | $ | (897) | $ | 9,595 | $ | (2,535) |
The amount attributable to non-controlling interests represents the non-controlling owners’ share of the net income or loss of our consolidated construction joint ventures. The amounts for the three and six months ended June 30, 2023 increased $7.7 million and $12.1 million, respectively, primarily due to the impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).
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Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, investments, available borrowing capacity and cash generated from operations. We may also from time-to-time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions or sell one or more business units or assets. See Note 14 of the "Notes to the Condensed Consolidated Financial Statements" for further information on the issuance of our 3.75% Convertible Notes during the second quarter of 2023.
Our material cash requirements include paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness, repurchase shares of our common stock or acquire assets or businesses that are complementary to our operations.
We believe our primary sources of liquidity will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments and other liquidity requirements associated with our existing operations for the next twelve months. We also believe our primary sources of liquidity, access to debt and equity capital markets and cash expected to be generated from operations will be sufficient to meet our long-term requirements and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.
As of June 30, 2023, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisting primarily of U.S. Government and agency obligations and corporate commercial paper. As of June 30, 2023, the total unused availability under our Credit Agreement was $275.9 million, resulting from $19.1 million in issued and outstanding letters of credit and $55.0 million drawn under the Credit Agreement. See Note 14 of “Notes to the Condensed Consolidated Financial Statements.”
As of June 30, 2023, we had $2.0 million of receivables and $29.0 million of contract retention receivables from Brightline Trains Florida LLC ("Brightline") (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”). As of the date of this report, $1.9 million of the Brightline receivables have been collected and the remaining $0.1 million are current. Brightline has experienced delays in securing additional funding in the past, therefore the timing and probability of future payments may be affected and our liquidity impacted if Brightline faces additional funding difficulties.
In evaluating our liquidity position and needs, we also consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:
(in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
Cash and cash equivalents excluding CCJVs | $ | 128,630 | $ | 191,444 | |||||||
CCJV cash and cash equivalents (1) | 85,816 | 102,547 | |||||||||
Total consolidated cash and cash equivalents | 214,446 | 293,991 | |||||||||
Short-term and long-term marketable securities (2) | 36,556 | 65,943 | |||||||||
Total cash, cash equivalents and marketable securities | $ | 251,002 | $ | 359,934 |
(1)The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2)All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations and corporate commercial paper as of all periods presented.
Granite’s portion of CCJV cash and cash equivalents was $52.1 million and $62.5 million as of June 30, 2023 and December 31, 2022, respectively. Excluded from the table above is $32.9 million and $40.4 million as of June 30, 2023 and December 31, 2022, respectively, of Granite’s portion of unconsolidated construction joint venture cash and cash equivalents.
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Capital Expenditures
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 six months ended June 30, 2023, we had capital expenditures of $79.7 million, compared to $73.2 million, during the six months ended June 30, 2022. We currently anticipate 2023 capital expenditures to be between approximately $100 million and $120 million.
Cash Flows
Six Months Ended June 30, | |||||||||||
(in thousands) | 2023 | 2022 | |||||||||
Net cash provided by (used in): | |||||||||||
Operating activities | $ | (118,948) | $ | (103,278) | |||||||
Investing activities | $ | (64,378) | $ | 30,317 | |||||||
Financing activities | $ | 103,781 | $ | (157,055) |
Operating activities
As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including project progression toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements. Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer.
Cash used in operating activities of $118.9 million for the six months ended June 30, 2023 represents a $15.7 million increase in cash used when compared to the same period of 2022. The change was primarily attributable to the timing of receipts and payments of working capital, which includes receivables, net contract assets, inventories, other assets, accounts payable and accrued expenses and other liabilities. Cash used in working capital increased by $28.3 million. This was partially offset by a decrease in contributions, net of distributions, of $18.6 million to unconsolidated joint ventures and affiliates.
Investing activities
Cash used in investing activities of $64.4 million for the six months ended June 30, 2023 represents a $94.7 million increase in cash used when compared to the same period of 2022. The change was primarily due to proceeds from the sale of the Inliner business in March 2022, partially offset by changes in marketable securities activity and the acquisition of CMR in the current year.
Financing activities
Cash provided by financing activities of $103.8 million for the six months ended June 30, 2023 represents a $260.8 million increase in cash provided by financing activities when compared to the same period of 2022. The change was primarily due to the prepayment in the prior year of our term loan of $123.8 million, which did not recur this year. Also, net cash inflows related to our convertible bond transactions in the current year generated $99.0 million in cash. The year over year increase in cash provided by financing activities was also due to $66.6 million less cash used for repurchases of common stock and higher contributions from non-controlling partners, net of distributions, of $15.9 million. These increases were partially offset by a $45.0 million decrease in cash provided by our revolving credit facility. See Note 14 of the “Notes to the Condensed Consolidated Financial Statements” for further information about our long-term debt transactions and our credit facility.
Derivatives
We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs. See Note 9 to “Notes to the Condensed Consolidated Financial Statements” for further information. The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes and the Capped Call
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transactions related to the 3.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds.
Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At June 30, 2023, approximately $3.1 billion of our $5.4 billion CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.
Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 10 of “Notes to the Condensed Consolidated Financial Statements.”
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, the 2.75% Convertible Notes and 3.75% Convertible Notes are governed by the terms and conditions of their respective indentures. Our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes, our 3.75% Convertible Notes or our Credit Agreement would constitute an event of default under the 2.75% Convertible Notes indenture, the 3.75% Convertible Note indenture or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the 2.75% Convertible Notes indenture or the 3.75% Convertible Notes indenture could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of June 30, 2023, we were in compliance with the covenants in the Credit Agreement.
Share Repurchase Program
As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”). There were no share repurchases under the 2022 authorization in the six months ended June 30, 2023 and $231.5 million of the 2022 authorization remained available as of June 30, 2023.
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 any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in our exposure to market risk from what was previously disclosed in our Annual Report.
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Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Remediation of Prior Year Material Weakness
Management has concluded that the material weakness described in our Annual Report has been remediated because the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that the controls operated effectively.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The description of the matters set forth in Part I, Item I of this Report under Note 17 of “Notes to the Condensed Consolidated Financial Statements” is incorporated herein by reference.
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.
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, 2023:
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, 2023 through April 30, 2023 | 255 | $ | 38.55 | — | $ | 231,535,405 | |||||||||||||||||
May 1, 2023 through May 31, 2023 | 1,605 | $ | 38.06 | — | $ | 231,535,405 | |||||||||||||||||
June 1, 2023 through June 30, 2023 | 4,482 | $ | 38.46 | — | $ | 231,535,405 | |||||||||||||||||
6,342 | $ | 38.36 | — |
(1)The number of shares purchased was in connection with employee tax withholding for restricted stock units vested under our equity incentive plans.
(2)As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion. The specific timing and amount of any future purchases 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.
Item 5. OTHER INFORMATION
Trading Arrangements
During the three months ended June 30, 2023, none of the Company’s directors or “officers,” as defined in Rule 16a-1(f) of the Exchange Act, adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
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Item 6. EXHIBITS
3.1 | * | |||||||||||||
3.2 | * | |||||||||||||
4.1 | * | |||||||||||||
10.1 | * | |||||||||||||
10.2 | * | |||||||||||||
31.1 | † | |||||||||||||
31.2 | † | |||||||||||||
32 | †† | |||||||||||||
95 | † | |||||||||||||
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) | ||||||||||||
* | Incorporated by reference | |||||||||||||
† | Filed herewith | |||||||||||||
†† | Furnished herewith |
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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: | July 27, 2023 | By: | /s/ Elizabeth L. Curtis | ||||||||||||||
Elizabeth L. Curtis | |||||||||||||||||
Executive Vice President and Chief Financial Officer | |||||||||||||||||
(Duly Authorized Officer and Principal Financial Officer) |
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