Granite Construction Inc 10-Q for FY2020 Q1
Granite Construction Inc (GVA)
About this 10-Q
Granite Construction Inc filed this 10-Q on February 25, 2021, covering the quarter ended March 31, 2020 (FY2020 Q1).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $635.93M
- up 9.3% from $581.81M a year earlier
- Net loss
- $65.37M
- compared with a net loss of $62.47M a year earlier
- Diluted EPS
- -$1.44
- compared with -$1.34 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended |
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ___________ to ___________ | |
| Commission File Number: |
GRANITE CONSTRUCTION INCORPORATED
| State of Incorporation: | I.R.S. Employer Identification Number: |
| | |
Address of principal executive offices:
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐ Yes ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 22, 2021.
| Class |
| Outstanding |
| Common stock, $0.01 par value |
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As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on February 22, 2021 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements. We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three months ended March 31, 2019 herein. See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for additional information.
| Explanatory Note | ||
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2020, December 31, 2019 and March 31, 2019 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 |
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Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019 |
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Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. | |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 4. |
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Item 6. |
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| EXHIBIT 10.1 | ||
| EXHIBIT 95 | ||
| EXHIBIT 101.INS |
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| EXHIBIT 101.SCH |
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| EXHIBIT 101.CAL |
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| EXHIBIT 101.DEF |
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| EXHIBIT 101.LAB |
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| EXHIBIT 101.PRE |
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| EXHIBIT 104 | ||
| Item 1. |
FINANCIAL STATEMENTS |
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
| As Restated | ||||||||||||
| March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents ($, $, and $ related to consolidated construction joint ventures (“CCJVs”)) | $ | $ | $ | |||||||||
| Short-term marketable securities | ||||||||||||
| Receivables, net ($, $ and $ related to CCJVs) | ||||||||||||
| Contract assets ($, $ and $ related to CCJVs) | ||||||||||||
| Inventories | ||||||||||||
| Equity in construction joint ventures | ||||||||||||
| Other current assets ($, $ and $ related to CCJVs) | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment, net ($, $ and $ related to CCJVs) | ||||||||||||
| Long-term marketable securities | ||||||||||||
| Investments in affiliates | ||||||||||||
| Goodwill | ||||||||||||
| Right of use assets | ||||||||||||
| Deferred income taxes, net | ||||||||||||
| Other noncurrent assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Current maturities of long-term debt | $ | $ | $ | |||||||||
| Accounts payable ($, $ and $ related to CCJVs) | ||||||||||||
| Contract liabilities ($, $ and $ related to CCJVs) | ||||||||||||
| Accrued expenses and other current liabilities ($, $ and $ related to CCJVs) | ||||||||||||
| Total current liabilities | ||||||||||||
| Long-term debt | ||||||||||||
| Long-term lease liabilities | ||||||||||||
| Deferred income taxes, net | ||||||||||||
| Other long-term liabilities | ||||||||||||
| Commitments and contingencies (Note 18) | ||||||||||||
| Equity | ||||||||||||
| Preferred stock, $ par value, authorized shares, outstanding | ||||||||||||
| Common stock, $ par value, authorized shares; issued and outstanding: shares as of March 31, 2020, shares as of December 31, 2019 and shares as of March 31, 2019 | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Retained earnings | ||||||||||||
| Total Granite Construction Incorporated shareholders’ equity | ||||||||||||
| Non-controlling interests | ||||||||||||
| Total equity | ||||||||||||
| Total liabilities and equity | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share data)
| As Restated |
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| Three Months Ended March 31, |
2020 |
2019 |
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| Revenue |
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| Transportation |
$ | $ | ||||||
| Water |
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| Specialty |
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| Materials |
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| Total revenue |
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| Cost of revenue |
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| Transportation |
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| Water |
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| Specialty |
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| Materials |
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| Total cost of revenue |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Acquisition and integration expenses | ||||||||
| Non-cash impairment charges (See Note 4) | ||||||||
| Gain on sales of property and equipment |
( |
) | ( |
) | ||||
| Operating loss |
( |
) | ( |
) | ||||
| Other (income) expense |
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| Interest income |
( |
) | ( |
) | ||||
| Interest expense |
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| Equity in income of affiliates, net |
( |
) | ( |
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| Other expense (income), net |
( |
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| Total other expense (income) |
( |
) | ||||||
| Loss before benefit from income taxes |
( |
) | ( |
) | ||||
| Benefit from income taxes |
( |
) | ( |
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| Net loss |
( |
) | ( |
) | ||||
| Amount attributable to non-controlling interests |
( |
) | ||||||
| Net loss attributable to Granite Construction Incorporated |
$ | ( |
) | $ | ( |
) | ||
| Net loss per share attributable to common shareholders (See Note 16) |
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| Basic |
$ | ( |
) | $ | ( |
) | ||
| Diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average shares of common stock |
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| Basic |
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| Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited - in thousands)
| As Restated | ||||||||
| Three Months Ended March 31, |
2020 |
2019 |
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| Net loss | $ | ( |
) | $ | ( |
) | ||
| Other comprehensive loss, net of tax: |
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| Net unrealized loss on derivatives |
$ | ( |
) | $ | ( |
) | ||
| Less: reclassification for net losses included in interest expense |
( |
) | ||||||
| Net change |
$ | ( |
) | $ | ( |
) | ||
| Foreign currency translation adjustments, net |
( |
) | ||||||
| Other comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | ||
| Non-controlling interests in comprehensive loss |
( |
) | ||||||
| Comprehensive loss attributable to Granite Construction Incorporated | $ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - in thousands, except share data)
| Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||
| Balances at December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Purchases of common stock (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Restricted Stock Units (“RSUs”) vested | ( | ) | ||||||||||||||||||||||||||||||
| Dividends on common stock ($ per share) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Effect of adopting Topic 326 (Note 2) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Transactions with non-controlling interests | — | |||||||||||||||||||||||||||||||
| Amortized RSUs and other | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances at March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Balances at December 31, 2018 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Net (loss) income | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchases of common stock (1) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| RSUs vested | ||||||||||||||||||||||||||||||||
| Dividends on common stock ($ per share) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Effect of adopting Topic 842 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Amortized RSUs and other | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances at March 31, 2019 (As Restated) | $ | $ | $ | ( | ) | $ | $ | $ | $ |
(1) Represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 Equity Incentive Plan.
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
| As Restated | ||||||||
| Three Months Ended March 31, | 2020 | 2019 | ||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation, depletion and amortization | ||||||||
| Amortization related to the 2.75% Convertible Notes (Note 14) | ||||||||
| Gain on sales of property and equipment, net | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Equity in net loss from unconsolidated joint ventures | ||||||||
| Net income from affiliates | ( | ) | ( | ) | ||||
| Non-cash impairment charges (See Note 4) | ||||||||
| Changes in assets and liabilities: | ||||||||
| Receivables | ||||||||
| Contract assets, net | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Contributions to unconsolidated construction joint ventures | ( | ) | ( | ) | ||||
| Distributions from unconsolidated construction joint ventures and affiliates | ||||||||
| Other assets, net | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities, net | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Proceeds from called marketable securities | ||||||||
| Maturities of marketable securities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sales of property and equipment | ||||||||
| Other investing activities, net | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Proceeds from debt | ||||||||
| Debt principal repayments | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Other financing activities, net | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and $ and $ in restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and $ and $ in restricted cash at end of period | $ | $ | ||||||
| Supplementary Information | ||||||||
| Right of use assets obtained in exchange for lease obligations | $ | $ | ||||||
| Cash paid for operating lease liabilities | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
| Non-cash investing and financing activities: | ||||||||
| RSUs issued, net of forfeitures | $ | $ | ||||||
| Accrued cash dividends | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” “the Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at March 31, 2020 and 2019 and the results of our operations and cash flows for the periods presented. The December 31, 2019 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements, except for the adoption during the three months ended March 31, 2020 of Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement and ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, neither of which had a material impact on our condensed consolidated financial statements. In addition, effective January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief, the impact of which is described in Note 2.
Cash, Cash Equivalents and Restricted Cash: The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):
| Three months ended March 31, | 2020 | 2019 | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | $ | $ | ||||||
| End of the period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash, end of period | ||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | ( | ) | $ | ( | ) | ||
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2. Recently Issued and Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method. The ASU is effective commencing with our quarter ended March 31, 2022, with early adoption permitted. We are currently evaluating the impact of ASU 2020-06 on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. This ASU was effective commencing with our quarter ended March 31, 2020 through December 31, 2022 and we expect to adopt in 2021. We do not expect the adoption of this ASU to have an impact on our condensed consolidated financial statements as our Credit Agreement (as defined in Note 14 below) uses the secured overnight financing rate as an alternative to LIBOR.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in May 2019 issued ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief (collectively referred to as “Topic 326”). Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted Topic 326 effective January 1, 2020, recognizing a net cumulative decrease to retained earnings of approximately $
In connection with the adoption of Topic 326, we implemented the following accounting policy as of January 1, 2020:
Allowance for Credit Losses: Financial assets, which potentially subject us to credit losses, consist primarily of short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our consolidated balance sheets. We measure expected credit losses of financial assets based on historical loss and other information available to management using a loss rate method applied to asset groups with categorically similar risk characteristics. These expected credit losses are recorded to an allowance for credit losses valuation account that is deducted from receivables and contract assets to present the net amount expected to be collected on the financial asset on the consolidated balance sheet.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. Restatement
Restatement Background
As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements (the “Other Adjustments”). We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three months ended March 31, 2019 herein.
Description of Restatement Tables
We have presented below a reconciliation from the previously reported to the restated values as of and for the three months ended March 31, 2019. The previously reported values were derived from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 filed on April 26, 2019 and are labeled as “As Previously Reported” in the following tables. The account balances labeled as “Investigation Adjustments” represent effects of adjustments resulting from the Investigation. The account balances labeled as “Other Adjustments” represent the effects of other adjustments, which related to revisions in estimates in projects primarily impacting revenue and cost of revenue in the Transportation segment as a result of out-of-period or uncorrected misstatements in previously filed financial statements that were not material, individually or in the aggregate, to those previously filed financial statements, balance sheet reclassifications and other immaterial adjustments.
The impacts to the condensed consolidated statements of shareholders’ equity and comprehensive loss as a result of the restatement were due to the changes in net loss for the three months ended March 31, 2019. In addition, there was no impact to net cash used in investing and financing activities for the three months ended March 31, 2019 as a result of the restatement.
The effects of the prior-period misstatements on our consolidated financial statements are as follows (in thousands, except per share data):
Consolidated Balance Sheet
| March 31, 2019 | As Previously Reported | Investigation Adjustments | Other Adjustments | As Restated | ||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Short-term marketable securities | ||||||||||||||||
| Receivables, net | ||||||||||||||||
| Contract assets | ( | ) | ( | ) | ||||||||||||
| Inventories | ||||||||||||||||
| Equity in construction joint ventures | ( | ) | ( | ) | ||||||||||||
| Other current assets | ||||||||||||||||
| Total current assets | ( | ) | ( | ) | ||||||||||||
| Property and equipment, net | ||||||||||||||||
| Long-term marketable securities | ||||||||||||||||
| Investments in affiliates | ||||||||||||||||
| Goodwill | ||||||||||||||||
| Right of use assets | ||||||||||||||||
| Deferred income taxes, net | ||||||||||||||||
| Other noncurrent assets | ( | ) | ||||||||||||||
| Total assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Current maturities of long-term debt | $ | $ | $ | $ | ||||||||||||
| Accounts payable | ( | ) | ||||||||||||||
| Contract liabilities | ( | ) | ||||||||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||||||||||
| Total current liabilities | ( | ) | ||||||||||||||
| Long-term debt | ||||||||||||||||
| Long-term lease liabilities | ||||||||||||||||
| Deferred income taxes, net | ||||||||||||||||
| Other long-term liabilities | ( | ) | ||||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Equity | ||||||||||||||||
| Preferred stock, $ par value, authorized shares, outstanding | ||||||||||||||||
| Common stock, $ par value, authorized shares; issued and outstanding: shares as of March 31, 2019 | ||||||||||||||||
| Additional paid-in capital | ||||||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Retained earnings | ( | ) | ( | ) | ||||||||||||
| Total Granite Construction Incorporated shareholders’ equity | ( | ) | ( | ) | ||||||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Total equity | ( | ) | ( | ) | ||||||||||||
| Total liabilities and equity | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
Consolidated Statement of Operations
| Three Months Ended March 31, 2019 | As Previously Reported | Investigation Adjustments | Other Adjustments | As Restated | ||||||||||||
| Revenue | ||||||||||||||||
| Transportation | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Water | ( | ) | ( | ) | ||||||||||||
| Specialty | ( | ) | ||||||||||||||
| Materials | ||||||||||||||||
| Total revenue | ( | ) | ( | ) | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Transportation | ( | ) | ||||||||||||||
| Water | ||||||||||||||||
| Specialty | ||||||||||||||||
| Materials | ||||||||||||||||
| Total cost of revenue | ( | ) | ||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Selling, general and administrative expenses | ( | ) | ||||||||||||||
| Acquisition and integration expenses | ( | ) | ||||||||||||||
| Gain on sales of property and equipment | ( | ) | ( | ) | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Interest income | ( | ) | ( | ) | ||||||||||||
| Interest expense | ||||||||||||||||
| Equity in income of affiliates, net | ( | ) | ( | ) | ||||||||||||
| Other income, net | ( | ) | ( | ) | ||||||||||||
| Total other income | ( | ) | ( | ) | ||||||||||||
| Loss before benefit from income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Benefit from income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amount attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to Granite Construction Incorporated | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common shareholders | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares of common stock | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
Consolidated Statement of Cash Flows
| Three Months Ended March 31, 2019 | As Previously Reported | Investigation Adjustments | Other Adjustments | As Restated | ||||||||||||
| Operating activities | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Depreciation, depletion and amortization | ||||||||||||||||
| Gain on sales of property and equipment, net | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation | ||||||||||||||||
| Equity in net loss from unconsolidated joint ventures | ( | ) | ||||||||||||||
| Net income in affiliates | ( | ) | ( | ) | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||||
| Receivables | ( | ) | ||||||||||||||
| Contract assets, net | ( | ) | ( | ) | ||||||||||||
| Inventories | ( | ) | ( | ) | ||||||||||||
| Contributions to unconsolidated construction joint ventures | ( | ) | ( | ) | ||||||||||||
| Distributions from unconsolidated construction joint ventures | ||||||||||||||||
| Other assets, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Accounts payable | ( | ) | ( | ) | ( | ) | ||||||||||
| Accrued expenses and other current liabilities, net | ( | ) | ( | ) | ||||||||||||
| Net cash used in operating activities | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
4. Impairment Charges
Goodwill
We performed an interim goodwill impairment test on the March 31, 2020 balances of our Water and Mineral Services Group Materials and Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation during the three months ended March 31, 2020, exasperated by economic disruption and market conditions associated with the COVID-19 pandemic. These factors led to reductions in the revenue and margin growth rates used in our quantitative goodwill tests. The goodwill impairment test resulted in a $
Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherent in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.
Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs.
Subsequent Goodwill Impairment Charges
We performed a second interim goodwill impairment test on the September 30, 2020 balances of our Midwest Group Specialty, Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnel during the three months ended September 30, 2020. These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests. The goodwill impairment test resulted in a non-cash impairment charge of an additional $
Investment in Affiliates
During the three months ended March 31, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand. The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary decline in fair value below the carrying value. Therefore, we recorded a non-cash impairment charge of $
5. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. When we experience significant changes in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. Other than those identified in the 2019 Annual Report on Form 10-K, we did not identify any material amounts that should have been recorded in a prior period for the three months ended March 31, 2019. In our review of these changes for the three months ended March 31, 2020, we did not identify any material amounts that should have been recorded in a prior period.
There were no increases from revisions in estimates, which individually had an impact of $
The projects with decreases from revisions in estimates, which individually had an impact of million or more on gross profit are summarized as follows (dollars in millions except per share data):
| As Restated | ||||||||
| Three Months Ended March 31, | 2020 | 2019 | ||||||
| Number of projects with downward estimate changes | ||||||||
| Range of reduction in gross profit from each project, net | $ | $ | ||||||
| Decrease to project profitability | $ | $ | ||||||
| Increase to net loss | $ | $ | ||||||
| Increase to net loss per diluted share | $ | $ | ||||||
Decreases during the three months ended March 31, 2020 and 2019 were due to additional costs from differing site conditions and construction delays. One project had a decrease in our Specialty segment during the three months ended March 31, 2020 and the remaining decreases during both the three months ended March 31, 2020 and 2019 were in our Transportation segment.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. Disaggregation of Revenue
The following tables present our disaggregated revenue (in thousands):
Three months ended March 31,
| 2020 | Transportation | Water | Specialty | Materials | Total | |||||||||||||||
| California | $ | $ | $ | $ | ||||||||||||||||
| Federal | ||||||||||||||||||||
| Heavy Civil | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||
| Northwest | ||||||||||||||||||||
| Water and Mineral Services | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ |
| 2019 (As Restated) | ||||||||||||||||||||
| California | $ | $ | $ | $ | $ | |||||||||||||||
| Federal | ||||||||||||||||||||
| Heavy Civil | ||||||||||||||||||||
| Midwest | ||||||||||||||||||||
| Northwest | ||||||||||||||||||||
| Water and Mineral Services | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ |
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. Unearned Revenue
The following tables present our unearned revenue as of the respective periods (in thousands):
| March 31, 2020 |
Transportation |
Water |
Specialty |
Total |
||||||||||||
| California |
$ | $ | $ | $ | ||||||||||||
| Federal |
||||||||||||||||
| Heavy Civil |
||||||||||||||||
| Midwest |
||||||||||||||||
| Northwest |
||||||||||||||||
| Water and Mineral Services |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| December 31, 2019 |
Transportation |
Water |
Specialty |
Total |
||||||||||||
| California |
$ | $ | $ | $ | ||||||||||||
| Federal |
||||||||||||||||
| Heavy Civil |
||||||||||||||||
| Midwest |
||||||||||||||||
| Northwest |
||||||||||||||||
| Water and Mineral Services |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| March 31, 2019 (As Restated) | Transportation | Water | Specialty | Total | ||||||||||||
| California |
$ | $ | $ | $ | ||||||||||||
| Federal |
||||||||||||||||
| Heavy Civil |
||||||||||||||||
| Midwest |
||||||||||||||||
| Northwest |
||||||||||||||||
| Water and Mineral Services |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
8. Contract Assets and Liabilities
During the three months ended March 31, 2020 and 2019, we recognized revenue of $
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 $
The components of the contract asset balances as of the respective dates were as follows (in thousands):
| As Restated | ||||||||||||
| March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||
| Costs in excess of billings and estimated earnings | $ | $ | $ | |||||||||
| Contract retention | ||||||||||||
| Total contract assets | $ | $ | $ | |||||||||
As of March 31, 2020, December 31, 2019 and March 31, 2019, no contract retention individually exceeded 10% of total net receivables at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.
The components of the contract liability balances as of the respective dates were as follows (in thousands):
| As Restated | ||||||||||||
| March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||
| Billings in excess of costs and estimated earnings, net of retention | $ | $ | $ | |||||||||
| Provisions for losses | ||||||||||||
| Total contract liabilities | $ | $ | $ | |||||||||
9. Receivables, net
Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest. The following table presents major categories of receivables (in thousands):
| As Restated | ||||||||||||
|
| March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||
| Contracts completed and in progress: | ||||||||||||
| Billed | $ | $ | $ | |||||||||
| Unbilled | ||||||||||||
| Total contracts completed and in progress | ||||||||||||
| Material sales | ||||||||||||
| Other | ||||||||||||
| Total gross receivables | ||||||||||||
| Less: allowance for credit losses | ||||||||||||
| Total net receivables | $ | $ | $ | |||||||||
Included in other receivables at March 31, 2020, December 31, 2019 and March 31, 2019, were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. Fair Value Measurement
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
| Fair Value Measurement at Reporting Date Using | ||||||||||||||||
| March 31, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other noncurrent assets | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2019 | ||||||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other noncurrent assets | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ |
| March 31, 2019 | ||||||||||||||||
| Cash equivalents | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other noncurrent assets | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Accrued and other current liabilities | ||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ |
Interest Rate Swaps
In connection with the Third Amended and Restated Credit Agreement (as discussed further in Note 14) we entered into two interest rate swaps designated as cash flow hedges with an effective date of May 2018. The two cash flow hedges had a combined initial notional amount of $
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:
| March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||||
| (in thousands) | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||
| Assets: | |||||||||||||||||||||||||
| Held-to-maturity marketable securities (1) | Level 1 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Liabilities (including current maturities): | |||||||||||||||||||||||||
| 2.75% Convertible Notes (2),(3) | Level 2 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Credit Agreement - term loan (2) | Level 3 | ||||||||||||||||||||||||
| Credit Agreement - revolving credit facility (2) | Level 3 | ||||||||||||||||||||||||
| 2019 Notes (2) | Level 3 | ||||||||||||||||||||||||
(1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of March 31, 2020 and December 31, 2019, and included corporate bonds as of March 31, 2019.
(2) The fair values of the 2019 Notes, Credit Agreement term loan and revolving credit facility are based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. The fair value of the
(3) Excluded from the carrying value is $
As disclosed in Note 4, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the three months ended March 31, 2020. During the three months ended March 31, 2020, we did not record any fair value adjustments related to nonfinancial liabilities measured at fair value on a nonrecurring basis. During the three months ended March 31, 2019, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
11. Construction Joint Ventures
We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three months ended March 31, 2020, we determined no change was required for existing joint ventures.
Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At March 31, 2020, there was approximately $
Consolidated Construction Joint Ventures (“CCJVs”)
At March 31, 2020, we were engaged in active CCJV projects with total contract values ranging from $
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Unconsolidated Construction Joint Ventures
As of March 31, 2020, we were engaged in active unconsolidated joint venture projects with total contract values ranging from $
The following is summary financial information related to unconsolidated construction joint ventures:
| As Restated | ||||||||||||
| (in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||
| Assets | ||||||||||||
| Cash, cash equivalents and marketable securities | $ | $ | $ | |||||||||
| Other current assets (1) | ||||||||||||
| Noncurrent assets | ||||||||||||
| Less partners’ interest | ||||||||||||
| Granite’s interest (1),(2) | ||||||||||||
| Liabilities | 0 | |||||||||||
| Current liabilities | ||||||||||||
| Less partners’ interest and adjustments (3) | ||||||||||||
| Granite’s interest | ||||||||||||
| Equity in construction joint ventures (4) | $ | $ | $ | |||||||||
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $
(2) Included in this balance as of March 31, 2020, December 31, 2019 and March 31, 2019 was $
(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.
| Three Months Ended March 31, | ||||||||
| As Restated | ||||||||
| (in thousands) | 2020 | 2019 | ||||||
| Revenue | ||||||||
| Total | $ | $ | ||||||
| Less partners’ interest and adjustments (1) | ( | ) | ||||||
| Granite’s interest | ||||||||
| Cost of revenue | ||||||||
| Total | ||||||||
| Less partners’ interest and adjustments (1) | ||||||||
| Granite’s interest | ||||||||
| Granite’s interest in gross loss | $ | ( | ) | $ | ( | ) | ||
(1) Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.
During the three months ended March 31, 2020 and 2019 unconsolidated construction joint venture net (loss)/income was $(
Line Item Joint Ventures
As of March 31, 2020, we had
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
12. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
| (in thousands) |
March 31, 2020 |
December 31, 2019 |
March 31, 2019 |
|||||||||
| Foreign |
$ | $ | $ | |||||||||
| Real estate |
||||||||||||
| Asphalt terminal |
||||||||||||
| Total investments in affiliates |
$ | $ | $ | |||||||||
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
| (in thousands) |
March 31, 2020 |
December 31, 2019 |
March 31, 2019 |
|||||||||
| Current assets |
$ | $ | $ | |||||||||
| Noncurrent assets |
||||||||||||
| Total assets |
||||||||||||
| Current liabilities |
||||||||||||
| Long-term liabilities (1) |
||||||||||||
| Total liabilities |
||||||||||||
| Net assets |
||||||||||||
| Granite’s share of net assets |
$ | $ | $ | |||||||||
(1) The balance primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates and debt associated with our real estate investments.
Of the $
13. Property and Equipment, net
Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets and were as follows:
| (in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||
| Equipment and vehicles | $ | $ | $ | |||||||||
| Quarry property | ||||||||||||
| Land and land improvements | ||||||||||||
| Buildings and leasehold improvements | ||||||||||||
| Office furniture and equipment | ||||||||||||
| Property and equipment | ||||||||||||
| Less: accumulated depreciation and depletion | ||||||||||||
| Property and equipment, net | $ | $ | $ | |||||||||
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
14. Long-Term Debt and Credit Arrangements
| (in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||
| 2.75% Convertible Notes | $ | $ | $ | |||||||||
| Credit Agreement - term loan | ||||||||||||
| Credit Agreement - revolving credit facility | ||||||||||||
| 2019 Notes | ||||||||||||
| Debt issuance costs and other | ( | ) | ||||||||||
| Total debt | ||||||||||||
| Less current maturities | ||||||||||||
| Total long-term debt | $ | $ | $ |
The aggregate minimum principal maturities of long-term debt related to balances at March 31, 2020 excluding debt issuance costs, including current maturities and the $
Credit Agreement
On March 26, 2020, we entered into Amendment No.3 to the Third Amended and Restated Credit Agreement, which among other things, (i) reduced the revolving credit facility from $
On June 19, 2020 and November 12, 2020, we entered into Amendments No. 4 and No. 5, respectively, to the Third Amended and Restated Credit Agreement, which, among other things, provided additional timing for the Company to deliver annual and quarterly financial statements.
On February 19, 2021, we entered into the Limited Waiver and Amendment No. 6 to the Third Amended and Restated Credit Agreement which waives any defaults or events of defaults that may have arisen in connection with the Company’s restatement during the periods covered by the restatement, the failure to comply with a financial covenant and any right of the lenders to collect interest at the default rate with respect to the waived defaults and events of default.
We refer to Third Amended and Restated Credit Agreement dated May 31, 2018 and all subsequent amendments listed above as “Credit Agreement.”
The Credit Agreement consists of a term loan and a revolving credit facility.
The term loan requires that Granite repay
As of March 31, 2020 , the total unused availability under the Credit Agreement was $
Borrowings under the Credit Agreement bear interest at LIBOR, subject to a
2.75% Convertible Notes
In November 2019, we issued an aggregate principal amount of $
As of March 31, 2020 and December 31, 2019, the carrying amount of the liability component was $
On October 29, 2019, in connection with the offering of our 2.75% Convertible Notes, we entered into a purchased equity derivative instrument (“Hedge Option”) and sold warrants to reduce the cost of the Hedge Option. The Hedge Option and warrants were included in additional paid-in capital on the condensed consolidated balance sheets and were $
2019 Notes
As of March 31, 2019, senior notes payable in the amount of $
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of March 31, 2020, the Consolidated Leverage Ratio was
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
15. Leases
We have leases for office and shop space, as well as for equipment primarily utilized in our construction projects. As of March 31, 2020, our lease contracts were classified as operating leases and had terms ranging from month-to-month to
As of March 31, 2020, December 31, 2019 and March 31, 2019, we had no lease contracts that had not yet commenced but created significant rights and obligations.
Lease expense was $
The following table summarizes our undiscounted lease liabilities outstanding as of March 31, 2020 (in thousands):
| Remainder of 2020 | $ | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 through 2036 | ||||
| Total future minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ |
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
16. Weighted Average Shares Outstanding and Net Loss Per Share
The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net loss per share as well as the calculation of basic and diluted net loss per share:
| Three Months Ended March 31, |
||||||||
| As Restated |
||||||||
| (in thousands, except per share amounts) |
2020 |
2019 |
||||||
| Numerator (basic and diluted) |
||||||||
| Net loss allocated to common shareholders for basic calculation |
$ | ( |
) | $ | ( |
) | ||
| Denominator |
||||||||
| Weighted average common shares outstanding, basic |
||||||||
| Dilutive effect of RSUs and 2.75% Convertible Notes (1),(2) |
||||||||
| Weighted average common shares outstanding, diluted |
||||||||
| Net loss per share, basic |
$ | ( |
) | $ | ( |
) | ||
| Net loss per share, diluted |
$ | ( |
) | $ | ( |
) | ||
(2) As the average price of our common stock was below $
17. Income Taxes
The following table presents the benefit from income taxes for the respective periods:
| Three Months Ended March 31, | ||||||||
| As Restated | ||||||||
| (dollars in thousands) | 2020 | 2019 | ||||||
| Benefit from income taxes | $ | ( | ) | $ | ( | ) | ||
| Effective tax rate | % | % | ||||||
Our effective tax rate for the three months ended March 31, 2020 decreased to
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
18. Contingencies - Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.
Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. The aggregate liabilities recorded as of March 31, 2020 and 2019 related to these matters were immaterial. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined.
On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Amended Complaint seeks damages based on allegations that in the Company’s SEC filings the defendants made false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations and prospects. On May 20, 2020, the Court denied, in part, the Defendants’ Motion to Dismiss the Amended Complaint. On January 21, 2021, the Court granted Plaintiff’s motion for class certification. We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.
On October 23, 2019, a putative class action lawsuit was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer; Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint. We have filed a demurrer seeking to dismiss the amended complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of the case, which we intend to defend vigorously.
On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendants knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaint seeks monetary damages and corporate governance reforms. The Court has ordered that the lawsuit in the derivative action be stayed until further order of the Court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.
As of March 31, 2020, no liability related to above matters was recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.
In connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued us subpoenas for documents in connection with the independent Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
19. Business Segment Information
Summarized segment information is as follows (in thousands):
| Three Months Ended March 31, |
||||||||||||||||||||
| Transportation |
Water |
Specialty |
Materials |
Total |
||||||||||||||||
| 2020 |
||||||||||||||||||||
| Total revenue from reportable segments |
$ | $ | $ | $ | $ | |||||||||||||||
| Elimination of intersegment revenue |
( |
) | ( |
) | ||||||||||||||||
| Revenue from external customers |
||||||||||||||||||||
| Gross profit (loss) |
( |
) | ( |
) | ||||||||||||||||
| Depreciation, depletion and amortization |
||||||||||||||||||||
| Segment assets |
||||||||||||||||||||
| 2019 (As Restated) |
||||||||||||||||||||
| Total revenue from reportable segments |
$ | $ | $ | $ | $ | |||||||||||||||
| Elimination of intersegment revenue |
( |
) | ( |
) | ||||||||||||||||
| Revenue from external customers |
||||||||||||||||||||
| Gross (loss) profit |
( |
) | ( |
) | ||||||||||||||||
| Depreciation, depletion and amortization |
||||||||||||||||||||
| Segment assets |
A reconciliation of segment gross profit to consolidated loss before benefit from income taxes is as follows:
| Three Months Ended March 31, |
||||||||
| As Restated |
||||||||
| (in thousands) |
2020 |
2019 |
||||||
| Total gross profit from reportable segments |
$ | $ | ||||||
| Selling, general and administrative expenses |
||||||||
| Acquisition and integration expenses | ||||||||
| Non-cash impairment charges (See Note 4) | ||||||||
| Gain on sales of property and equipment |
( |
) | ( |
) | ||||
| Total other expense (income) |
( |
) | ||||||
| Loss before benefit from income taxes |
$ | ( |
) | $ | ( |
) | ||
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Disclosure
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, backlog, and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, backlog, and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
Overview
We are one of the largest diversified infrastructure companies in the United States, engaged in infrastructure projects including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, power-related facilities, water-related facilities, well drilling, utilities, tunnels, dams and other infrastructure-related projects, site preparation, mining services, and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as construction management professional services. We have four reportable business segments: Transportation, Water, Specialty and Materials (see Note 19 of “Notes to the Condensed Consolidated Financial Statements”). In addition to business segments, we review our business by operating groups. Our operating groups are California, Federal, Heavy Civil, Northwest, Midwest and Water and Mineral Services.
The five primary economic drivers of our business are (i) the overall health of the U.S. economy; (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement.
Current Economic Environment and Outlook
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted, and is likely to continue to result, in substantial economic disruption for the foreseeable future. While there is optimism that the pandemic will come to an end with the prevalence of vaccines, significant uncertainty continues to exist with the resurgence of cases and the economic restrictions in many states.
With regard to the COVID-19 pandemic, our first priority is to continue to do everything we can to ensure the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Subject to that and with appropriate risk mitigation and safety practices, we are doing everything we can to carry on our operations in this unprecedented business environment in which we find ourselves.
Work on most of our projects continues as the Company performs services that are categorized under one or more of the “Essential Critical Infrastructure Sectors,” as defined by federal and state law. However, our operations in Mexico and Canada have been impacted with local COVID-19 work restrictions and travel bans, and we have experienced temporary suspensions or reduced project activities as a result of COVID-19 contributing in some cases to employee and subcontractor absences. This disruption has been most impactful to our Water and Mineral Services Group and certain operations located in Washington and Arizona.
In the face of rapidly changing market conditions, we are continually monitoring the status of our balance sheet and access to liquidity. Despite the ongoing pandemic, our balance sheet has strengthened in response to the efforts of our teams across the country. Given the uncertain market environment including the uncertain impact of reduced state and local tax receipts due to the pandemic, Granite continues to be focused on our liquidity through maximizing the return on capital investments and minimizing travel and related expenditures.
Granite’s backlog continues to be strong. This year we are seeing increased interest in best-value or alternative delivery procurement work by the state Department of Transportations, such as California and Utah, along with other state agencies. This shift will create a delay in certain project bookings in the short term, but we believe will give us the opportunity for larger future work with historically higher margins.
Funding for our public work projects, which is around 75% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, Congress on September 30, 2020 approved the one-year extension of the Fixing America’s Surface Transportation (“FAST”) Act with flat funding levels as well as a $13.6 billion infusion to the Highway Trust Fund from the general fund, providing state and local governments the visibility needed to plan for 2021 construction programs. In late December 2020, Congress approved a $10 billion relief spending bill for state departments of transportation as part of the Coronavirus Response and Relief Act to help offset pandemic-induced revenue declines. Based on estimates provided by The Federal Highway Administration, over $1.5 billion of the relief fund is apportioned to Granite Construction’s vertically-integrated states. While a permanent revenue solution for the Highway Trust Fund is not yet in place, it continues to remain a stabilizing force for transportation markets. We are optimistic that Congress and the Administration will jointly move forward in 2021 to pass a bipartisan Federal Infrastructure Bill, which we believe will meaningfully improve the programming visibility for state and local governments, starting with the 2022 construction season.
At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements. In California, our top revenue-generating state, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program. Revenue collected through SB-1 is on track to increase over the next 5 years. While we are encouraged by these funding supports, some of our core states are nevertheless experiencing financial headwinds from the pandemic, which may negatively impact transportation infrastructure spending during the first nine months of 2021. We closely monitor these funding trends and manage our pursuit pipeline accordingly.
While funding uncertainties caused by the COVID-19 pandemic disrupted the normal cadence of project bids in our water-related construction, water resources and wastewater rehabilitation businesses, market demand and local funding opportunities remain resilient. Across the Water segment’s end markets, states and municipal water authorities are weighing options for overdue water and wastewater infrastructure investment. For our wastewater rehabilitation business, this includes potential awards for infrastructure improvements mandated through consent decrees. At the federal level, Congress approved the Water Resources Development Act of 2020 and authorized spending $9.9 billion for 46 new flood control, harbor, ecosystem and lock and dam projects on waterways across the nation. This legislation unlocked the roughly $10 billion balance in the Harbor Maintenance Trust Fund including allowing access to $500 million in appropriations to the Army Corps.
For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in the 2019 Annual Report on Form 10-K.
Heavy Civil Strategic Review
Through this challenging time, the Company has not lost sight of its strategic review initiatives related to the Heavy Civil operating group to reduce enterprise exposure to large, complex projects where risks are difficult to mitigate. The Company concluded that historical industry pricing and associated risk for this type of work does not align with the Company’s stakeholder expectations. Under a new management team, we have narrowed the footprint of our Heavy Civil operating group, including the closure of our New York office in January 2021. Our focus is to pursue opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages, with strong margin expectations.
Impact of Independent Audit/Compliance Committee Investigation
As a result of our delay in filing our 2019 Annual Report on Form 10-K, there are jurisdictions across the country where we were unable to bid on public projects due to various financial statement filing requirements. This has mainly impacted certain public agency bidding opportunities. Granite teams across the country have continued to work with the various public agencies on these challenges. Through the work of Granite teams, the inability to bid in certain jurisdictions has not had a significant impact to Granite’s liquidity or results of operations.
Results of Operations
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year. As described in the Explanatory Note, we have restated our unaudited condensed consolidated financial statements for the three months ended March 31, 2019, the impact of which is reflected in the tables below.
The following table presents a financial summary for the three months ended March 31, 2020 and 2019:
| Three Months Ended March 31, |
|||||||||
| As Restated |
|||||||||
| (in thousands) |
2020 |
2019 |
|||||||
| Total revenue |
$ | 635,927 | $ | 581,813 | |||||
| Gross profit |
23,799 | 1,138 | |||||||
| Selling, general and administrative expenses |
78,381 | 80,155 | |||||||
| Non-cash impairment charges (See Note 4) | 24,413 | — | |||||||
| Operating loss |
(78,372 | ) | (78,965 | ) | |||||
| Total other expense (income) |
8,876 | (1,854 | ) | ||||||
| Amount attributable to non-controlling interests |
7,168 | (2,709 | ) | ||||||
| Net loss attributable to Granite Construction Incorporated |
(65,370 | ) | (62,470 | ) | |||||
Revenue
Total Revenue by Segment
| Three Months Ended March 31, |
||||||||||||||||
| As Restated |
||||||||||||||||
| (dollars in thousands) | 2020 | 2019 | ||||||||||||||
| Transportation |
$ | 350,901 | 55.2 | % | $ | 301,964 | 51.9 | % | ||||||||
| Water |
101,657 | 16.0 | 99,082 | 17.0 | ||||||||||||
| Specialty |
133,039 | 20.9 | 139,124 | 23.9 | ||||||||||||
| Materials |
50,330 | 7.9 | 41,643 | 7.2 | ||||||||||||
| Total |
$ | 635,927 | 100.0 | % | $ | 581,813 | 100.0 | % | ||||||||
Transportation Revenue
| Three Months Ended March 31, |
||||||||||||||||
| As Restated | ||||||||||||||||
| (dollars in thousands) | 2020 | 2019 | ||||||||||||||
| California |
$ | 94,932 | 27.1 | % | $ | 69,513 | 22.9 | % | ||||||||
| Federal |
398 | 0.1 | 27 | 0.1 | ||||||||||||
| Heavy Civil |
167,426 | 47.7 | 159,742 | 52.9 | ||||||||||||
| Midwest |
24,243 | 6.9 | 18,061 | 6.0 | ||||||||||||
| Northwest |
63,902 | 18.2 | 54,621 | 18.1 | ||||||||||||
| Total |
$ | 350,901 | 100.0 | % | $ | 301,964 | 100.0 | % | ||||||||
Transportation revenue for the three months ended March 31, 2020 increased by $48.9 million, or 16.2%, when compared to 2019 primarily due to an increase in the California and Northwest operating groups from beginning the year with higher contract backlog and from an increase in the Heavy Civil operating group from a reduction in the net negative impact from revisions in estimates (see Note 5 of “Notes to the Condensed Consolidated Financial Statements” for more information). During the three months ended March 31, 2020 and 2019, the majority of revenue earned in the Transportation segment was from the public sector.
Water Revenue
| Three Months Ended March 31, |
||||||||||||||||
| (dollars in thousands) | 2020 | 2019 | ||||||||||||||
| California |
$ | 5,512 | 5.4 | % | $ | 1,366 | 1.4 | % | ||||||||
| Federal |
381 | 0.4 | 508 | 0.5 | ||||||||||||
| Heavy Civil |
7,102 | 7.0 | 4,361 | 4.4 | ||||||||||||
| Midwest | — | — | 84 | 0.1 | ||||||||||||
| Northwest |
1,657 | 1.6 | 1,231 | 1.2 | ||||||||||||
| Water and Mineral Services |
87,005 | 85.6 | 91,532 | 92.4 | ||||||||||||
| Total | $ | 101,657 | 100.0 | % | $ | 99,082 | 100.0 | % | ||||||||
Water revenue for the three months ended March 31, 2020 increased by $2.6 million, or 2.6%, when compared to 2019 primarily due to an increase in California and Heavy Civil operating groups from beginning the year with higher contract backlog partially offset by decreases in the Water and Mineral Services. During the three months ended March 31, 2020 and 2019, the majority of revenue earned in the Water segment was from the public sector.
Specialty Revenue
| Three Months Ended March 31, |
||||||||||||||||
| (dollars in thousands) | 2020 | 2019 | ||||||||||||||
| California |
$ | 44,488 | 33.5 | % | $ | 32,155 | 23.1 | % | ||||||||
| Federal |
26,491 | 19.9 | 15,202 | 10.9 | ||||||||||||
| Heavy Civil | 3,494 | 2.6 | — | — | ||||||||||||
| Midwest |
11,503 | 8.6 | 34,321 | 24.7 | ||||||||||||
| Northwest |
31,613 | 23.8 | 32,192 | 23.1 | ||||||||||||
| Water and Mineral Services |
15,450 | 11.6 | 25,254 | 18.2 | ||||||||||||
| Total | $ | 133,039 | 100.0 | % | $ | 139,124 | 100.0 | % | ||||||||
Specialty revenue for the three months ended March 31, 2020 decreased by $6.1 million, or 4.4%, when compared to 2019 primarily due to increases in the California and Federal operating groups which began the year with higher contract backlog and the start of new awards in 2020 in the Federal operating group. Increases were partially offset by decreases in the Water and Mineral Services and Midwest operating groups primarily which began the year with lower contract backlog. During the three months ended March 31, 2020 and 2019 revenue earned in the Specialty segment was from both the public and private sectors.
Materials Revenue
| Three Months Ended March 31, |
||||||||||||||||
| (dollars in thousands) | 2020 | 2019 | ||||||||||||||
| California |
$ | 33,267 | 66.1 | % | $ | 23,065 | 55.4 | % | ||||||||
| Northwest |
14,453 | 28.7 | 14,532 | 34.9 | ||||||||||||
| Water and Mineral Services |
2,610 | 5.2 | 4,046 | 9.7 | ||||||||||||
| Total |
$ | 50,330 | 100.0 | % | $ | 41,643 | 100.0 | % | ||||||||
Materials revenue for the three months ended March 31, 2020 increased by $8.7 million, or 20.9%, when compared to 2019 primarily due to increases in the California operating group from an increase in volume as a result of favorable weather during 2020 when compared to 2019.
Contract Backlog
Our contract backlog consists of the revenue we expect to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in our contract backlog at the time a contract is awarded and to the extent we believe contract execution and funding is probable. Awarded contracts that include unexercised contract options or unissued task orders are included in contract backlog to the extent option exercise or task order issuance is probable. Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past.
Total Contract Backlog by Segment
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| Transportation |
$ | 2,700,336 | 74.2 | % | $ | 2,811,669 | 75.2 | % | $ | 2,912,627 | 78.2 | % | ||||||||||||
| Water |
241,161 | 6.6 | % | 226,023 | 6.1 | % | 319,154 | 8.6 | % | |||||||||||||||
| Specialty |
700,588 | 19.2 | % | 696,570 | 18.7 | % | 493,372 | 13.2 | % | |||||||||||||||
| Total |
$ | 3,642,085 | 100.0 | % | $ | 3,734,262 | 100.0 | % | $ | 3,725,153 | 100.0 | % | ||||||||||||
Transportation Contract Backlog
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| Unearned revenue |
$ | 2,691,091 | 99.7 | % | $ | 2,798,056 | 99.5 | % | $ | 2,316,675 | 79.5 | % | ||||||||||||
| Other awards (1) |
9,245 | 0.3 | % | 13,613 | 0.5 | % | 595,952 | 20.5 | % | |||||||||||||||
| Total |
$ | 2,700,336 | 100.0 | % | $ | 2,811,669 | 100.0 | % | $ | 2,912,627 | 100.0 | % | ||||||||||||
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| California |
$ | 530,657 | 19.7 | % | $ | 526,641 | 18.7 | % | $ | 422,441 | 14.5 | % | ||||||||||||
| Federal |
18,152 | 0.7 | % | 14,139 | 0.5 | % | 126 | 0.0 | % | |||||||||||||||
| Heavy Civil |
1,321,442 | 48.9 | % | 1,484,437 | 52.8 | % | 1,912,727 | 65.6 | % | |||||||||||||||
| Midwest |
208,872 | 7.7 | % | 230,889 | 8.2 | % | 214,164 | 7.4 | % | |||||||||||||||
| Northwest |
621,213 | 23.0 | % | 555,563 | 19.8 | % | 363,169 | 12.5 | % | |||||||||||||||
| Total |
$ | 2,700,336 | 100.0 | % | $ | 2,811,669 | 100.0 | % | $ | 2,912,627 | 100.0 | % | ||||||||||||
Transportation contract backlog of $2.7 billion at March 31, 2020 was $111.3 million, or 4.0%, lower than at December 31, 2019 primarily due to progress on existing projects in the Heavy Civil and Midwest operating groups, partially offset by increased success rate on bidding activity in Federal and Northwest operating groups. Significant new awards during the three months ended March 31, 2020 included a $45.0 million runway reconstruction project in Nevada, a $25.0 million interchange reconstruction project in California and a $20.0 million railroad crossing project in California.
Non-controlling partners’ share of Transportation contract backlog as of March 31, 2020, December 31, 2019 and March 31, 2019, was $295.4 million, $310.2 million and $202.9 million, respectively. Four contracts in our Transportation segment with recorded forecasted losses had remaining revenue of $230.4 million, or 8.5%, of Transportation contract backlog at March 31, 2020.
Water Contract Backlog
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| Unearned revenue |
$ | 241,161 | 100.0 | % | $ | 224,875 | 99.5 | % | $ | 221,675 | 69.5 | % | ||||||||||||
| Other awards (1) |
— | 0.0 | % | 1,148 | 0.5 | % | 97,479 | 30.5 | % | |||||||||||||||
| Total |
$ | 241,161 | 100.0 | % | $ | 226,023 | 100.0 | % | $ | 319,154 | 100.0 | % | ||||||||||||
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| California |
$ | 52,136 | 21.6 | % | $ | 19,950 | 8.8 | % | $ | 7,314 | 2.3 | % | ||||||||||||
| Federal |
957 | 0.4 | % | 1,041 | 0.5 | % | 1,717 | 0.5 | % | |||||||||||||||
| Heavy Civil |
41,511 | 17.2 | % | 47,046 | 20.8 | % | 16,827 | 5.3 | % | |||||||||||||||
| Midwest |
150 | 0.1 | % | 152 | 0.1 | % | 143 | 0.0 | % | |||||||||||||||
| Northwest |
2,868 | 1.2 | % | 4,545 | 2.0 | % | 1,759 | 0.6 | % | |||||||||||||||
| Water and Mineral Services |
143,539 | 59.5 | % | 153,289 | 67.8 | % | 291,394 | 91.3 | % | |||||||||||||||
| Total |
$ | 241,161 | 100.0 | % | $ | 226,023 | 100.0 | % | $ | 319,154 | 100.0 | % | ||||||||||||
Water contract backlog of $241.2 million as of March 31, 2020 was $15.1 million, or 6.7%, higher than at December 31, 2019. The increase in the California operating group due to new awards was partially offset by a decrease in the Water and Mineral Services operating group due to progress on existing projects.
Specialty Contract Backlog
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| Unearned revenue |
$ | 667,776 | 95.3 | % | $ | 694,297 | 99.7 | % | $ | 459,149 | 93.1 | % | ||||||||||||
| Other awards (1) |
32,812 | 4.7 | % | 2,273 | 0.3 | % | 34,223 | 6.9 | % | |||||||||||||||
| Total |
$ | 700,588 | 100.0 | % | $ | 696,570 | 100.0 | % | $ | 493,372 | 100.0 | % | ||||||||||||
(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.
| As Restated | ||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||||
| California |
$ | 109,016 | 15.6 | % | $ | 100,019 | 14.4 | % | $ | 72,403 | 14.7 | % | ||||||||||||
| Federal |
139,480 | 19.9 | % | 153,563 | 22.0 | % | 134,605 | 27.3 | % | |||||||||||||||
| Heavy Civil |
240,059 | 34.2 | % | 243,329 | 34.9 | % | — | — | ||||||||||||||||
| Midwest |
142,680 | 20.4 | % | 137,952 | 19.8 | % | 214,486 | 43.4 | % | |||||||||||||||
| Northwest |
69,353 | 9.9 | % | 61,707 | 8.9 | % | 71,878 | 14.6 | % | |||||||||||||||
| Total |
$ | 700,588 | 100.0 | % | $ | 696,570 | 100.0 | % | $ | 493,372 | 100.0 | % | ||||||||||||
Specialty contract backlog of $700.6 million as of March 31, 2020 was $4.0 million, or 0.6% higher than at December 31, 2019 due to increased success rate on bidding activity in the Midwest and Northwest operating groups partially offset by progress on existing projects in the Federal operating group.
Non-controlling partners’ share of Specialty contract backlog as of March 31, 2020, December 31, 2019 and March 31, 2019, was $84.3 million, $89.1 million and $107.3 million, respectively.
Gross Profit (Loss)
The following table presents gross profit (loss) by business segment for the respective periods:
| Three Months Ended March 31, |
||||||||
| As Restated | ||||||||
| (dollars in thousands) |
2020 |
2019 |
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| Transportation |
$ | 25,369 | $ | (16,348 | ) | |||
| Percent of segment revenue |
7.2 | % |
(5.4 | )% |
||||
| Water |
9,347 | 7,946 | ||||||
| Percent of segment revenue |
9.2 | 8.0 | ||||||
| Specialty |
(10,719 | ) | 13,298 | |||||
| Percent of segment revenue |
(8.1 | ) | 9.6 | |||||
| Materials |
(198 | ) | (3,758 | ) | ||||
| Percent of segment revenue |
(0.4 | ) | (9.0 | ) | ||||
| Total gross profit |
$ | 23,799 | $ | 1,138 | ||||
| Percent of total revenue |
3.7 | % |
0.2 | % |
||||
Transportation gross profit for the three months ended March 31, 2020 increased by $41.7 million, or over 100%, when compared to 2019 primarily due to a net positive impact from revisions in estimates in our Heavy Civil operating group (see Note 5 of “Notes to the Condensed Consolidated Financial Statements”).
Water gross profit for the three months ended March 31, 2020 increased by $1.4 million, or 17.6%, when compared to 2019 primarily due to an increase in revenue volume.
Specialty gross profit for the three months ended March 31, 2020 decreased by $24.0 million, or over 100%, when compared to 2019. Gross profit as a percentage of segment revenue for the three months ended March 31, 2020 decreased to -8.1% from 9.6%. Decreases are primarily due to net negative impact from revisions in estimates on a tunnel project (see Note 5 of “Notes to the Condensed Consolidated Financial Statements”).
Materials gross loss for the three months ended March 31, 2020 decreased by $3.6 million, or 94.7%, when compared to 2019 due to an increase in volume from favorable weather during 2020 when compared to 2019.
Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
| Three Months Ended March 31, |
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| As Restated | ||||||||
| (dollars in thousands) |
2020 |
2019 |
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| Selling |
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| Salaries and related expenses |
$ | 16,566 | $ | 16,988 | ||||
| Restricted stock unit amortization |
432 | 1,109 | ||||||
| Other selling expenses |
4,710 | 3,099 | ||||||
| Total selling |
21,708 | 21,196 | ||||||
| General and administrative |
||||||||
| Salaries and related expenses |
28,135 | 25,944 | ||||||
| Restricted stock unit amortization |
1,419 | 4,821 | ||||||
| Non-recurring legal and accounting fees | 5,165 | — | ||||||
| Other general and administrative expenses |
21,954 | 28,194 | ||||||
| Total general and administrative |
56,673 | 58,959 | ||||||
| Total selling, general and administrative |
$ | 78,381 | $ | 80,155 | ||||
| Percent of revenue |
12.3 | % |
13.8 | % |
||||
Selling Expenses
Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e. stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses remained relatively unchanged during the three months ended March 31, 2020 when compared to 2019.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses during the three months ended March 31, 2020 decreased $2.3 million, or 3.9%, when compared to 2019 due to a decrease in other general and administrative expenses from a change in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is offset in other (expense) income, net, as well as decreases in restricted stock unit amortization. Decreases were offset by an increase in legal and accounting fees incurred during the three months ended March 31, 2020 that were related to the independent Investigation undertaken by the Audit Committee starting in February 2020.
Income Taxes
The following table presents the benefit from income taxes for the respective periods:
| Three Months Ended March 31, |
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| As Restated | ||||||||
| (dollars in thousands) |
2020 |
2019 |
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| Benefit from income taxes |
$ | (14,710 | ) | $ | (17,350 | ) | ||
| Effective tax rate |
16.9 | % | 22.5 | % | ||||
We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our loss before benefit from income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 17 of “Notes to the Condensed Consolidated Financial Statements” for more information.
Certain Legal Proceedings
As discussed in Note 18 of “Notes to the Condensed Consolidated Financial Statements,” under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations. We may also from time to time access our revolving credit facility, issue and sell equity, debt or hybrid securities or engage in other capital markets transactions. As of March 31, 2020, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisted of U.S. Government and agency obligations. Our credit facility consists of a term loan and a revolving credit facility. Of the $275.0 million revolving credit facility capacity, $218.8 million was available for borrowing at March 31, 2020. See Note 14 of “Notes to the Condensed Consolidated Financial Statements” for further discussion regarding our credit facility.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected operating requirements for the next twelve months from the date of this filing. There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.
In evaluating our liquidity position and needs, we consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:
| (in thousands) |
March 31, 2020 |
December 31, 2019 |
March 31, 2019 |
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| Cash and cash equivalents excluding CCJVs | $ | 140,906 | $ | 184,141 | $ | 68,782 | ||||||
| CCJV cash and cash equivalents (1) |
101,698 | 78,132 | 131,481 | |||||||||
| Total consolidated cash and cash equivalents | 242,604 | 262,273 | 200,263 | |||||||||
| Short-term and long-term marketable securities (2) |
5,000 | 32,799 | 66,049 | |||||||||
| Total cash, cash equivalents and marketable securities | $ | 247,604 | $ | 295,072 | $ | 266,312 | ||||||
(1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2) All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations as of all periods presented.
Granite’s portion of CCJV cash and cash equivalents was $58.7 million, $44.3 million and $75.6 million as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $44.1 million, $60.4 million and $91.0 million as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.
Cash Flows
| Three Months Ended March 31, |
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| As Restated |
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| (in thousands) |
2020 |
2019 |
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| Net cash (used in) provided by: |
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| Operating activities |
$ | (20,125 | ) | $ | (36,364 | ) | ||
| Investing activities |
5,902 | (24,343 | ) | |||||
| Financing activities |
(6,400 | ) | (11,834 | ) | ||||
Operating activities
As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, our projects’ progressions toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts.
Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.
Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer which can cause fluctuations in operating cash flows.
Cash used in operating activities of $20.1 million for the three months ended March 31, 2020 represents a $16.2 million decrease when compared to 2019. The change was primarily due to a $15.8 million decrease in net contributions to unconsolidated joint ventures and affiliates and a $4.1 million decrease in the net loss after adjusting for non-cash items partially offset by $3.6 million increase in cash used in working capital. The increase in working capital was due to a decrease in cash provided by accounts receivable from reduced volume and a decrease in cash provided from accounts payable due to timing of payments.
Investing activities
Cash provided by investing activities of $5.9 million for the three months ended March 31, 2020 increased $30.2 million when compared to cash used in investing activities in 2019 primarily due to an increase in maturities of marketable securities.
Financing activities
Cash used in financing activities of $6.4 million for the three months ended March 31, 2020 represents a $5.4 million decrease when compared to 2019 and was primarily due to a decrease in repurchases of common stock.
Capital Expenditures
During the three months ended March 31, 2020, we had capital expenditures of $21.4 million compared to $28.7 million during 2019. Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. During the year ended December 31, 2020, capital expenditures were approximately $90.0 million.
Derivatives
We recognize interest rate and commodity swap derivative instruments as either assets or liabilities at fair value using Level 2 inputs in the condensed consolidated balance sheets. See Note 10 to “Notes to the Condensed Consolidated Financial Statements” for further information. The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds. See Note 14 to “Notes to the Condensed Consolidated Financial Statements” for further information.
Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At March 31, 2020, approximately $3.4 billion of our contract backlog was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.
Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 12 of “Notes to the Condensed Consolidated Financial Statements.”
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of March 31, 2020, the Consolidated Leverage Ratio was 1.97, which did not exceed the maximum of 3.25. Our Consolidated Interest Coverage Ratio was 9.02, which exceeded the minimum of 4.00. To accommodate the delays in filing our financial statements, we entered into amendments with our lenders to extend the deadline for filing the 2019 Annual Report on Form 10-K and all of our 2020 Quarterly Reports on Form 10-Qs to February 28, 2021.
Share Repurchase Program
As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization we have established a plan to facilitate common stock repurchases. As of March 31, 2020, $157.2 million of the authorization remained available. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.
Website Access
Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There has been no significant change in our exposure to market risk when compared to those disclosed in our 2019 Annual Report on Form 10-K.
| CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) were not effective due to material weaknesses previously disclosed in our 2019 Annual Report on Form 10-K. In light of the material weaknesses in our internal control over financial reporting, we performed extensive additional analysis and other procedures to validate that our financial information contained in this Form 10-Q was prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Following such additional analysis and procedures, our management, including our principal executive officer and principal financial officer, has concluded that our financial statements state fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Form 10-Q, in conformity with U.S. GAAP.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| LEGAL PROCEEDINGS |
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.
Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. The aggregate liabilities recorded as of March 31, 2020 and 2019 related to these matters were immaterial. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined.
On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Amended Complaint seeks damages based on allegations that in the Company’s SEC filings the defendants made false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations and prospects. On May 20, 2020, the Court denied, in part, the Defendants’ Motion to Dismiss the Amended Complaint. On January 21, 2021, the Court granted Plaintiff’s motion for class certification. We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.
On October 23, 2019, a putative class action lawsuit was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer; Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint asserting causes of action under the Securities Act of 1933 against the previously named defendants and PricewaterhouseCoopers LLP. We have filed a demurrer seeking to dismiss the amended complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of the case, which we intend to defend vigorously.
On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendants knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaint seeks monetary damages and corporate governance reforms. The Court has ordered that the lawsuit in the derivative action be stayed until further order of the Court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.
As of March 31, 2020, no liability related to above matters was recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.
In connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding that Investigation. The SEC has issued us subpoenas for documents in connection with the independent Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.
| RISK FACTORS |
There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
| 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 March 31, 2020:
| Period |
Total number of shares purchased (1) |
Average price paid per share |
Total number of shares purchased as part of publicly announced plans or programs |
Approximate dollar value of shares that may yet be purchased under the plans or programs (2) |
||||||||||||
| January 1, 2020 through January 31, 2020 |
941 | $ | 27.44 | — | $ | 157,165,044 | ||||||||||
| February 1, 2020 through February 29, 2020 |
554 | $ | 27.11 | — | $ | 157,165,044 | ||||||||||
| March 1, 2020 through March 31, 2020 |
48,215 | $ | 12.75 | — | $ | 157,165,044 | ||||||||||
| 49,710 | $ | 13.18 | — | |||||||||||||
| MINE SAFETY DISCLOSURES |
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
| EXHIBITS |
| 10.1 |
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| 10.2 | † | Executive Retention and Severance Plan III and Participation Agreement [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K with the SEC on March 30, 2020] | ||
| 10.3 | † | Long-Term Incentive Plan [Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 30, 2020] | ||
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| 95 | † | Mine Safety Disclosure | ||
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| 104 |
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Filed herewith |
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Furnished herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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GRANITE CONSTRUCTION INCORPORATED |
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| Date: |
February 25, 2021 |
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/s/ Elizabeth L. Curtis |
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Elizabeth L. Curtis |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |