The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2017. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at
June 30, 2018
and 2017 and the results of our operations and cash flows for the periods presented. The December 31, 2017 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and six months ended
June 30, 2018
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, 2018 of Accounting Standards Update (“ASU”) No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
ASU No. 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory,
ASU No. 2017-01,
Business Combinations (Topic 805)
:
Clarifying the Definition of a Business
and ASU No. 2017-09,
Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting,
none of which had a material impact on our condensed consolidated financial statements. In addition, during the three months ended March 31, 2018, we adopted ASU No. 2018-05,
Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.118,
the impact of which is disclosed in Note 16 and on January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606,
Revenue from Contracts with Customers
and subsequently issued additional related ASUs (“Topic 606”), the impact of which is described in detail below
.
On April 3, 2018, we acquired LiquiForce and on June 14, 2018, we completed the acquisition of Layne Christensen Company (“Layne”).
See Note 3 for further information.
Foreign Currency Transactions and Translation:
Through the acquisitions of Layne and LiquiForce, we now have operations in Latin America, Canada and Brazil which involve exposure to possible volatile movements in foreign currency exchange rates.
We account for foreign currency exchange transactions and translation in accordance with ASC Topic 830,
Foreign Currency Matters.
Foreign currency transactions are remeasured into the functional currency with gains and losses included in other income, net in the condensed consolidated statements of operations. In Mexico, most of our customer contracts are denominated in U.S. dollars; therefore, the functional currency is U.S. dollars. In Canada and Brazil, the functional currency is the local currency. The impact from foreign currency transactions was immaterial for both the three and six months ended June 30, 2018. Assets and liabilities in functional currency are translated into U.S. dollars at exchange rates prevailing at the balance sheet date. Revenues and expenses are translated into U.S. dollars at average foreign currency exchange rates prevailing during the reporting periods. The translation adjustments from functional currency to U.S. dollars are reported in accumulated other comprehensive income on the condensed consolidated balance sheets.
7
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Cash, Cash Equivalents and Restricted Cash:
In connection with the acquisition of Layne, we acquired restricted cash which is included in other noncurrent assets in the condensed consolidated balance sheets
and consists of escrow
funds and judicial deposits associated with tax related legal proceedings in Brazil
. The table below presents changes in restricted cash and cash equivalents on the condensed consolidated statements of cash flows and a reconciliation to the amounts reporte
d in the condensed consolidated balance sheets (in thousands).
Six Months Ended June 30,
|
|
2018
|
|
|
2017
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
233,711
|
|
|
$
|
189,326
|
|
End of the period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
195,515
|
|
|
|
178,068
|
|
Restricted cash
|
|
|
5,746
|
|
|
|
—
|
|
Total cash, cash equivalents and restricted cash, end of period
|
|
|
201,261
|
|
|
|
178,068
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
$
|
(32,450
|
)
|
|
$
|
(11,258
|
)
|
Inventories:
Inventories consist primarily of quarry products, contract-specific materials, water well drilling materials, and sewer remediation materials that are located in the U.S. and mineral extraction and drilling supplies located in the U.S. and foreign countries, primarily Brazil and Mexico. Cost of U.S. and foreign inventories are
valued at the lower of average cost or net realizable value
. W
e reserve
quarry products
based on estimated quantities of materials on hand in excess of approximately one year of demand.
As of June 30, 2018, inventory included $19.1 million of supplies related to the Water and Mineral Services operating group.
Reclassifications
: Certain immaterial reclassifications of prior period amounts have been made to conform to the current period presentation.
Effect of adopting Topic 606
The core principle of Topic 606 is that revenue will be recognized when promised goods or services are transferred to customers in an amount that reflects consideration for which entitlement is expected in exchange for those goods or services. We adopted Topic 606 using a modified retrospective transition approach and elected to apply Topic 606 to contracts with customers that are not substantially complete, i.e. less than 90% complete, as of January 1, 2018.
While the adoption of Topic 606 did not have an impact on revenue of our Construction Materials segment, it did impact revenue of our Construction and Large Project Construction segments specifically in the following areas:
|
•
|
Multiple performance obligations – In accordance with Topic 606, we reviewed construction contracts with customers, including those related to contract modifications, to determine if there are multiple performance obligations. Based on this review, we identified one unconsolidated joint venture contract in our Large Project Construction segment that has multiple performance obligations.
|
|
•
|
Multiple contracts – We reviewed contracts containing task orders and identified one Construction segment master contract that consists of multiple individual contracts as defined by Topic 606. Previously, revenue for this contract was forecasted and recorded at the master contract level.
|
|
•
|
Revenue recognition – We identified one contract in our Large Project Construction segment where performance obligations are satisfied and control of the promised goods and services are transferred to the customer upon delivery of goods rather than over time. Previously, revenue for this contract was recognized over time.
|
|
•
|
Provisions for losses – We identified one unconsolidated joint venture contract in our Large Project Construction segment that has actual and provisions for losses at the performance obligation level related to completed and uncompleted performance obligations, respectively. Previously, provisions for losses were recorded at the contract level.
|
The impact to retained earnings as of January 1, 2018 from the adoption of Topic 606 related to the items noted above was a net cumulative decrease of $15.2 million.
8
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In addition, as of January 1, 2018, we began to separately present contract assets and
liabilities on the condensed consolidated balance sheets. Contract assets include amounts due under contractual retainage provisions that were previously included in accounts receivable as well as costs and estimated earnings in excess of billings that we
re previously separately presented. Contract liabilities include billings in excess of costs and estimated earnings that were previously separately presented as well as provisions for losses that were previously included in accrued expenses and other curre
nt liabilities. See Note 7 for further information.
Disclosures included in Notes 5, 6 and 7 are related to the adoption of Topic 606 and are revenue disaggregated by operating group, information about unearned revenue and contract assets and liabilities, respectively.
The accounting policies that were affected by Topic 606 and the changes thereto are as follows:
Revenue Recognition:
Our revenue is primarily derived from construction contracts that can span several quarters or years and from sales of construction materials. We recognize revenue in accordance with Topic 606. Topic 606 provides for a five-step model for recognizing revenue from contracts with customers as follows:
|
2.
|
Identify performance obligations
|
|
3.
|
Determine the transaction price
|
|
4.
|
Allocate the transaction price
|
Generally, our contracts contain one performance obligation.
Contracts with customers in our Construction Materials segment are typically defined by our customary business practices and are valued at the contractual selling price per unit. Our customary business practices are for the delivery of a separately identifiable good at a point in time which is typically when delivery to the customer occurs.
Contracts in our Construction and Large Project Construction segments may contain multiple distinct promises or multiple contracts within a master agreement (e.g. contracts that cross multiple locations/geographies and task orders), which we review at contract inception to determine if they represent multiple performance obligations or multiple separate contracts. This review consists of determining if promises or groups of promises are distinct within the context of the contract, including whether contracts are physically contiguous, contain task orders, purchase orders or sales orders, contain termination clauses and/or contain elements not related to design and/or build.
The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods and services to the customer. The consideration promised in a contract with customers of our Construction and Large Project Construction segments may include both fixed amounts and variable amounts (e.g. bonuses/incentives or penalties/liquidated damages) to the extent that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., probable and estimable). When a contract has a single performance obligation, the entire transaction price is attributed to that performance obligation. When a contract has more than one performance obligation, the transaction price is allocated to each performance obligation based on estimated relative standalone selling prices
of the goods or services at the inception of the contract, which typically is determined using cost plus an appropriate margin.
Subsequent to the inception of a contract in our Construction and Large Project Construction segments, the transaction price could change for various reasons, including the executed or estimated amount of change orders and unresolved contract modifications and claims to or from owners. Changes that are accounted for as an adjustment to existing performance obligations are allocated on the same basis at contract inception. Otherwise, changes are accounted for as separate performance obligation(s) and the separate transaction price is allocated as discussed above.
Changes are made to the transaction price from unapproved change orders to the extent the amount can be reasonably estimated and recovery is probable.
On certain projects we have submitted and have pending unresolved contract modifications and affirmative claims (“affirmative claims”) to recover additional costs and the associated profit, if applicable, to which the Company believes it is entitled under the terms of contracts with customers, subcontractors, vendors or others. The owners or their authorized representatives and/or other third parties may be in partial or full agreement with the modifications or affirmative claims, or may have rejected or disagree entirely or partially as to such entitlement.
9
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Changes are made to the transaction price from affirmative claims with customers to the extent that additiona
l revenue on a claim settlement with a customer is probable and estimable. A reduction to costs related to affirmative claims with non-customers with whom we have a contractual arrangement (“back charges”) is recognized when the estimated recovery is proba
ble and the amount can be reasonably estimated. Except for contractual back charges, affirmative claims against non-customers that are unrelated to jobs are recognized as a reduction to cost or increase to other income when the claims are settled. Recogniz
ing affirmative claims and back charge recoveries requires significant judgments of certain factors including, but not limited to, dispute resolution developments and outcomes, anticipated negotiation results, and the cost of resolving such matters and est
imates.
Certain construction contracts include retention provisions to provide assurance to our customers that we will perform in accordance with the contract terms and are therefore not considered a financing benefit. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the customer. We have determined there are no significant financing components in our contracts during the six months ended
June 30, 2018
.
Typically, performance obligations related to contracts in our Construction and Large Project Construction segments are satisfied over time because our performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced. We recognize revenue as performance obligations are satisfied and control of the promised good and service is transferred to the customer. Revenue in our Construction and Large Project Construction segments is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to cost”) method. Under the cost to cost method, costs incurred to-date are generally the best depiction of transfer of control.
All contract costs, including those associated with affirmative claims, change orders and back charges, are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined.
Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs).
The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project. Cost estimates for all of our significant projects use a detailed “bottom up” approach, and we believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include:
|
•
|
the completeness and accuracy of the original bid;
|
|
•
|
costs associated with scope changes;
|
|
•
|
changes in costs of labor and/or materials;
|
|
•
|
extended overhead and other costs due to owner, weather and other delays;
|
|
•
|
subcontractor performance issues;
|
|
•
|
changes in productivity expectations;
|
|
•
|
site conditions that differ from those assumed in the original bid;
|
|
•
|
changes from original design on design-build projects;
|
|
•
|
the availability and skill level of workers in the geographic location of the project;
|
|
•
|
a change in the availability and proximity of equipment and materials;
|
|
•
|
our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and
|
|
•
|
the customer’s ability to properly administer the contract.
|
The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit and gross profit margin from period to period. Significant changes in cost estimates, particularly in our larger, more complex projects have had, and can in future periods have, a significant effect on our profitability.
All state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us, with provisions to pay us for work performed through the date of termination including demobilization cost.
10
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Generally, costs to obtain our contracts (“pre-bid costs”) that are not expected to be recovered from the customer are expensed as incurred and included in selling, g
eneral and administrative expenses on our consolidated statements of operations. Although unusual, pre-bid costs that are explicitly chargeable to the customer even if the contract is not obtained are included in accounts receivable on our consolidated bal
ance sheets when we are notified that we are not the low bidder with a corresponding reduction to selling, general and administrative expenses on our consolidated statements of operations.
Unearned Revenue:
Unearned revenue represents the aggregate amount of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations at the end of a reporting period. We generally include a project in our unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable. Certain contracts contain contract options that are exercisable at the option of our customers without requiring us to go through an additional competitive bidding process or contain task orders related to master contracts under which we perform work only when the customer awards specific task orders to us. Contract options and task orders are included in unearned revenue when exercised or issued, respectively.
Substantially all of the contracts in our unearned revenue 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. Many projects in our Construction segment are added to unearned revenue and completed within the same fiscal quarter or year and, therefore, may not be reflected in our beginning or ending unearned revenue. Approximately $2.2 billion of the
June 30, 2018
unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter. Unearned revenue is presented by segment and operating group in Note 6.
Contract Assets:
Our contract assets include amounts due under contractual retainage provisions as well as costs and estimated earnings in excess of billings. The balances billed but not paid by customers pursuant to retainage provisions generally become due upon completion and acceptance of the project work or products by the owners. Costs and estimated earnings in excess of billings also represent amounts earned and reimbursable under contracts, including claim recovery estimates, but have a conditional right for billing and payment such as achievement of milestones or completion of the project. With the exception of customer affirmative claims, generally, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next twelve months. Settlement with the customer of outstanding affirmative claims is dependent on the claims resolution process and could extend beyond one year or the project operating cycle. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced.
Costs to mobilize equipment and labor to a job site prior to substantive work beginning (“mobilization costs”) are capitalized as incurred and amortized over the expected duration of the contract. As of
June 30, 2018
and January 1, 2018, we had no material capitalized mobilization costs.
Contract Liabilities:
Our contract liabilities consist of provisions for losses and billings in excess of costs and estimated earnings. Provisions for losses are recognized in the consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.
The amounts by which each condensed consolidated balance sheet line item as of
June 30, 2018
and condensed consolidated statement of operations line item for the three and six months ended
June 30, 2018
was affected by the adoption of Topic 606 relative to the previous revenue guidance are presented in the tables below (in thousands). The changes are primarily related to reclassifications on the condensed consolidated balance sheet and the impact on the condensed consolidated statement of operations from the new requirements under Topic 606. The change in retained earnings is net of the cumulative effect of initially applying Topic 606.
11
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
June 30, 2018
Condensed Consolidated Balance Sheet
|
As Reported
|
|
Balances Without
Adoption of Topic
606
|
|
Effect of Change Higher/(Lower)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
$
|
492,718
|
|
$
|
615,782
|
|
$
|
(123,064
|
)
|
Contract assets
|
|
265,190
|
|
|
—
|
|
|
265,190
|
|
Costs and estimated earnings in excess of billings
|
|
—
|
|
|
175,265
|
|
|
(175,265
|
)
|
Other current assets
|
|
49,100
|
|
|
49,813
|
|
|
(713
|
)
|
Deferred income taxes, net
|
|
25,135
|
|
|
19,863
|
|
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
$
|
91,864
|
|
$
|
—
|
|
$
|
91,864
|
|
Billings in excess of costs and estimated earnings
|
|
—
|
|
|
119,335
|
|
|
(119,335
|
)
|
Accrued expenses and other current liabilities
|
|
293,959
|
|
|
282,222
|
|
|
11,737
|
|
Deferred income taxes, net
|
|
5,759
|
|
|
5,759
|
|
|
—
|
|
Retained earnings
|
|
737,417
|
|
|
750,263
|
|
|
(12,846
|
)
|
Three Months Ended June 30, 2018
Condensed Consolidated Statement of Operations
|
As Reported
|
|
Balances Without
Adoption of Topic
606
|
|
Effect of Change Higher/(Lower)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
432,225
|
|
$
|
433,509
|
|
$
|
(1,284
|
)
|
Large Project Construction
|
|
273,946
|
|
|
274,228
|
|
|
(282
|
)
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
370,674
|
|
$
|
370,674
|
|
$
|
—
|
|
Large Project Construction
|
|
272,608
|
|
|
274,450
|
|
|
(1,842
|
)
|
Gross profit
|
|
80,369
|
|
|
80,093
|
|
|
276
|
|
Operating (loss) income
|
|
(5,729
|
)
|
|
(6,005
|
)
|
|
276
|
|
Provision for income taxes
|
|
2,796
|
|
|
2,746
|
|
|
50
|
|
Net (loss) income
|
|
(6,081
|
)
|
|
(6,307
|
)
|
|
226
|
|
Net (loss) income attributable to Granite Construction Incorporated
|
|
(8,385
|
)
|
|
(8,611
|
)
|
|
226
|
|
12
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Six Months Ended June 30, 2018
Condensed Consolidated Statement of Operations
|
As Reported
|
|
Balances Without
Adoption of Topic
606
|
|
Effect of Change Higher/(Lower)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
701,468
|
|
$
|
702,989
|
|
$
|
(1,521
|
)
|
Large Project Construction
|
|
522,360
|
|
|
520,849
|
|
|
1,511
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
Construction
|
$
|
601,521
|
|
$
|
601,521
|
|
$
|
—
|
|
Large Project Construction
|
|
500,656
|
|
|
503,734
|
|
|
(3,078
|
)
|
Gross profit
|
|
136,652
|
|
|
133,584
|
|
|
3,068
|
|
Operating (loss) income
|
|
(18,564
|
)
|
|
(21,632
|
)
|
|
3,068
|
|
(Benefit from) provision for income taxes
|
|
(1,335
|
)
|
|
(2,048
|
)
|
|
713
|
|
Net (loss) income
|
|
(15,743
|
)
|
|
(18,098
|
)
|
|
2,355
|
|
Net (loss) income attributable to Granite Construction Incorporated
|
|
(19,808
|
)
|
|
(22,163
|
)
|
|
2,355
|
|
2. Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02,
Leases
(Topic 842)
and subsequently issued a related ASU
,
which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU will be effective commencing with our quarter ending March 31, 2019. We expect the adoption of this ASU to have a material increase to assets and liabilities on our consolidated balance sheets.
In February 2018, the FASB issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,
which allows companies to reclassify stranded tax affects resulting from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”), from accumulated other comprehensive income to retained earnings. In addition, the ASU requires certain new disclosures regardless of the election. This ASU will be effective commencing with our quarter ending March 31, 2019. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
3. Acquisitions
On June 14, 2018, we completed the $349.8 million acquisition of Layne, a U.S.-based global water management, infrastructure services and drilling company in a stock-for-stock merger which was comprised of $321.0 million in Company common stock and $28.8 million in cash to settle all outstanding stock options, restricted stock awards and unvested performance shares of Layne. In addition to issuances of Granite common stock and the settlement of various equity awards, we assumed $191.5 million in convertible notes at fair value. See Note 14 for further discussion of the assumed convertible notes.
Layne will operate as a wholly owned subsidiary of Granite Construction Incorporated
and its results will be reported in the newly formed Water and Mineral Services operating group in the
Construction and Construction Materials segments. Layne’s customers are in both the public and private sector. Layne is a leader in water management and drilling and therefore this acquisition significantly enhances Granite’s presence in the water infrastructure market. Layne has a network of 52 offices located throughout North and Latin America. We have accounted for this transaction in accordance with ASC
Topic 805,
Business Combinations
(“ASC 805”).
Included in the condensed consolidated statements of operations for three and six months ending June 30, 2018 is approximately two weeks of Layne revenue and net loss before taxes of $21.5 million and $15.1 million, respectively, following the June 14, 2018 acquisition date. The loss before taxes includes Layne’s portion of total acquisition and integration expenses of $14.7 million for three and six months ending June 30, 2018.
13
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Preliminary
Purchase Price Allocation
In accordance with ASC 805, the total purchase price and assumed liabilities were allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of June 14, 2018 as presented in the table below (in thousands). These estimates are subject to revision, which may result in adjustments to the values presented below
.
We expect to finalize these amounts within 12 months from the acquisition date.
Assets
|
|
|
|
|
Cash
|
|
$
|
2,995
|
|
Receivables
|
|
|
70,160
|
|
Contract assets
|
|
|
44,947
|
|
Inventories
|
|
|
23,424
|
|
Other current assets
|
|
|
5,533
|
|
Property and equipment
|
|
|
187,890
|
|
Investments in affiliates
|
|
|
63,000
|
|
Deferred income taxes
|
|
|
23,185
|
|
Other noncurrent assets
|
|
|
17,868
|
|
Total tangible assets
|
|
|
439,002
|
|
Identifiable intangible assets
|
|
|
60,748
|
|
Liabilities
|
|
|
|
|
Identifiable intangible liabilities
|
|
|
6,700
|
|
Accounts payable
|
|
|
38,321
|
|
Contract liabilities
|
|
|
7,854
|
|
Accrued expenses and other current liabilities
|
|
|
47,694
|
|
Long-term debt
|
|
|
191,500
|
|
Other long-term liabilities
|
|
|
32,085
|
|
Total liabilities assumed
|
|
|
317,454
|
|
Total identifiable net assets acquired
|
|
|
175,596
|
|
Goodwill
|
|
|
174,244
|
|
Estimated purchase price
|
|
$
|
349,840
|
|
In addition, on April 3, 2018, we acquired LiquiForce, a privately owned company which provides sewer lining rehabilitation services to public and private sector water and wastewater customers in both Canada and the U.S. The Company acquired LiquiForce for $35.9 million in cash borrowed under the r
evolving credit facility as defined in Note 14
. The tangible and net intangible assets acquired and liabilities assumed were $14.5 million, $10.9 million and $8.6 million, respectively, resulting in acquired goodwill of $19.1 million. LiquiForce results are reported in the Kenny operating group in the
Construction segment.
14
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Intangible assets
The following table lists amortized intangible assets and liabilities from the Layne and LiquiForce acquisitions that are included in other noncurrent assets and other long-term liabilities in the condensed consolidated balance sheets as of June 30, 2018 (in thousands):
|
Weighted Average Useful Lives (Years)
|
|
|
Gross Value
|
|
|
Accumulated Amortization
|
|
|
Net Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
7
|
|
|
$
|
34,674
|
|
|
$
|
(728
|
)
|
|
$
|
33,946
|
|
Backlog
|
|
3
|
|
|
|
11,163
|
|
|
|
(1,890
|
)
|
|
|
9,273
|
|
Developed technologies
|
|
4
|
|
|
|
9,228
|
|
|
|
(234
|
)
|
|
|
8,994
|
|
Trademarks/trade names
|
|
4
|
|
|
|
8,989
|
|
|
|
(163
|
)
|
|
|
8,826
|
|
Favorable contracts
|
|
3
|
|
|
|
4,800
|
|
|
|
(596
|
)
|
|
|
4,204
|
|
Right of ways
|
|
12
|
|
|
|
2,268
|
|
|
|
(12
|
)
|
|
|
2,256
|
|
Covenants not to compete and other
|
|
5
|
|
|
|
859
|
|
|
|
(42
|
)
|
|
|
817
|
|
Intangible assets
|
|
|
|
|
$
|
71,981
|
|
|
$
|
(3,665
|
)
|
|
$
|
68,316
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfavorable contracts
|
|
2
|
|
|
$
|
6,892
|
|
|
$
|
(952
|
)
|
|
$
|
5,940
|
|
Unfavorable leases
|
|
1
|
|
|
|
300
|
|
|
|
(13
|
)
|
|
|
287
|
|
Intangible liabilities
|
|
|
|
|
$
|
7,192
|
|
|
$
|
(965
|
)
|
|
$
|
6,227
|
|
The net a
mortization expense related to the acquired amortized intangible assets for the three and six months ended June 30, 2018 was
$
2
.7 million
and was included in cost of revenue and selling, general and administrative expenses in the condensed consolidated statements of operations. All of the acquired intangible assets and liabilities will be amortized on a straight line basis except for backlog, favorable contracts and unfavorable contracts which will be amortized as the associated projects progress, and customer relationships which will be amortized on a double declining basis. Amortization expense related to the acquired amortized intangible asset balances at June 30, 2018 is expected to be recorded in the future as follows:
$10.9 million
for the remainder of 2018;
$13.2 million
in 2019;
$10.8 million
in 2020;
$8.8 million
in 2021; and
$
18
.4 million
thereafter.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The factors that contributed to the recognition of goodwill from the acquisitions of Layne and LiquiForce include acquiring a workforce with capabilities in the global water management, construction and drilling markets, cost savings opportunities and synergies. In connection with the Layne acquisition, the assignment of goodwill to reporting units was not complete as of June 30, 2018 and is expected to be complete as of September 30, 2018. For the LiquiForce acquisition, we recorded $18.8 million within our Construction segment that was allocated to our Kenny Construction reporting unit. The goodwill from both acquisitions is not expected to be deductible for income tax purposes.
Balance at December 31, 2017
|
$
|
53,799
|
|
Layne acquisition goodwill
|
|
174,244
|
|
LiquiForce acquisition goodwill
|
|
18,838
|
|
Balance at June 30, 2018
|
$
|
246,881
|
|
15
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Pro Forma Financial Information
The financial information in the table below summarizes the combined results of operations of Granite and Layne, on a pro forma basis, as though the companies had been combined as of the beginning of 2017 (in thousands, except per share amounts). The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2017.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
|
Revenue
|
|
$
|
909,783
|
|
$
|
888,176
|
|
|
$
|
1,583,073
|
|
$
|
1,452,067
|
|
Net income (loss)
|
|
|
16,834
|
|
|
(10,974
|
)
|
|
|
14,454
|
|
|
(61,709
|
)
|
Net income (loss) attributable to Granite
|
|
|
14,530
|
|
|
(13,113
|
)
|
|
|
10,389
|
|
|
(63,787
|
)
|
Basic net income (loss) per share attributable to common shareholders
|
|
|
0.32
|
|
|
(0.29
|
)
|
|
|
0.23
|
|
|
(1.41
|
)
|
Diluted net income (loss) per share attributable to common shareholders
|
|
|
0.30
|
|
|
(0.29
|
)
|
|
|
0.22
|
|
|
(1.41
|
)
|
These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of Layne to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2017. Acquisition and integration expenses related to Layne that were incurred during the three and six months ended June 30, 2018 are reflected in the six months ended June 30, 2017 due to the assumed timing of the transaction. The statutory tax rate of
26% and
39%
was used for 2018 and 2017, respectively, for the pro forma adjustments.
Acquisition and integration expenses associated with both the Layne and LiquiForce acquisitions for the three and six months ended June 30, 2018 were comprised of the following
(in thousands)
:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2018
|
|
Professional services and other expenses
|
|
$
|
18,064
|
|
|
$
|
26,473
|
|
Severance and personnel costs
|
|
|
8,223
|
|
|
|
8,223
|
|
Total
|
|
$
|
26,287
|
|
|
$
|
34,696
|
|
4. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. When we experience significant changes in our estimates of costs to complete, 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 cost estimates in the future.
In our review of these changes for the three and six months ended
June 30, 2018 and for the three months ended June 30, 2017
, we did not identify any material amounts that should have been recorded in a prior period. In our review of these changes for the six months ended June 30, 2017, we identified and corrected amounts that should have been recorded during the three months ended September 30, 2016. This correction resulted in a $4.9 million decrease to Large Project Construction revenue and gross profit and a $1.6 million increase in net loss attributable to Granite Construction Incorporated. We have assessed the impact of this correction to the financial statements of prior periods’ as well as to the financial statements for the six months ended June 30, 2017 and the year ended December 31, 2017 and have concluded that the amounts were not material.
In the normal course of business, we have revisions in estimated costs some of which are associated with unresolved affirmative claims and back charges. The estimated or actual recovery related to these estimated costs may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.
16
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Affirmative Claims
Revisions in estimates for the three and six months ended
June 30, 2018
included net increases in revenue of $2.3 million and $4.9 million, respectively, related to the estimated cost recovery of customer affirmative claims, which included increases of $6.4 million and $8.5 million, respectively, that were also affected by an increase in estimated contract costs in excess of the estimated recovery during the three and six months ended
June 30, 2018
. The offsetting decreases of $4.1 million and $3.6 million, respectively, had estimated contract costs in excess of the estimated cost recovery that were recorded in prior periods.
Revisions in estimates for the three and six months ended June 30, 2017 included net increases in revenue of $12.2 million and $14.0 million, respectively, related to the estimated cost recovery of customer affirmative claims, which included increases of $11.4 million and $14.1 million, respectively, that were also affected by an increase in estimated contract costs in excess of the estimated recovery during the three and six months ended June 30, 2017. The remaining $0.8 million and offsetting decrease of $0.1 million, respectively, had estimated contract costs in excess of estimated cost recovery that were recorded in prior periods.
Back Charges
Revisions in estimates for the three and six months ended
June 30, 2018
included reductions in cost of revenue of $1.6 million and $2.0 million, respectively, related to the estimated recovery of back charges of which
$0.9 million and
$1.1 million, respectively, had estimated contract costs in excess of estimated cost recovery
during
the three and six months ended
June 30, 2018
.
The remaining $0.7 million and $0.9 million, respectively, had estimated contract costs in excess of estimated cost recovery that were recorded in prior periods.
Revisions in estimates for the three and six months ended June 30, 2017 included reductions in cost of revenue of $2.7 million and $3.0 million, respectively, related to the estimated recovery of back charges of which $1.4 million had estimated contract costs in excess of estimated cost recovery
during both the three and six months ended June 30, 2017
.
The remaining $1.3 million and $1.6 million, respectively, had estimated contract costs in excess of estimated cost recovery that were recorded in prior periods
.
The tables below include the impact to gross profit from significant revisions in estimates related to estimated and actual recovery of customer affirmative claims and back charges as well as the impact to gross profit from changes in estimated contract revenue and costs.
Construction
The changes in project profitability from revisions in estimates, both increases and decreases, which individually had an impact of
$1.0 million
or more on gross profit, were net decreases of $4.5 million and $3.3 million for the three and six months ended June 30, 2018, respectively. The changes for the three and six months ended June 30, 2017 were decreases of $1.1 million and $1.8 million, respectively. The projects are summarized as follows:
Increases
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Number of projects with upward estimate changes
|
|
|
1
|
|
|
|
|
—
|
|
|
|
|
2
|
|
|
|
|
—
|
|
Range of increase in gross profit from each project, net
|
$
|
|
1.4
|
|
|
$
|
|
—
|
|
|
$
|
1.4 - 1.4
|
|
|
$
|
|
—
|
|
Increase on project profitability
|
$
|
|
1.4
|
|
|
$
|
|
—
|
|
|
$
|
|
2.8
|
|
|
$
|
|
—
|
|
The increases during the three and six months ended June 30, 2018 were due to lower costs and higher productivity than originally anticipated.
17
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Decreases
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Number of projects with downward estimate changes
|
|
|
3
|
|
|
|
|
1
|
|
|
|
|
3
|
|
|
|
|
1
|
|
Range of reduction in gross profit from each project, net
|
$
|
1.2 - 2.5
|
|
|
$
|
|
1.1
|
|
|
$
|
1.3 - 2.6
|
|
|
$
|
|
1.8
|
|
Decrease on project profitability
|
$
|
|
5.9
|
|
|
$
|
|
1.1
|
|
|
$
|
|
6.1
|
|
|
$
|
|
1.8
|
|
The decreases during the three and six months ended June 30, 2018 and 2017 were due to additional costs and lower productivity than originally anticipated.
Large Project Construction
The changes in project profitability from revisions in estimates, both increases and decreases, which individually had an impact of $1.0 million or more on gross profit, were net decreases of $30.3 million and $39.8 million for the three and six months ended
June 30, 2018, respectively
.
The changes for the three and six months ended June 30, 2017 were decreases of $23.8 million and $37.8 million, respectively.
There were no amounts attributable to non-controlling interests
for both the three and six months ended
June 30, 2018.
T
he amounts attributable to non-controlling interests
were $0.4 million and $2.0 million of the decreases for the three and six months ended June 30, 2017, respectively
. The projects are summarized as follows:
Increases
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Number of projects with upward estimate changes
|
|
|
1
|
|
|
|
|
—
|
|
|
|
|
1
|
|
|
|
|
—
|
|
Range of increase in gross profit from each project, net
|
$
|
|
1.0
|
|
|
$
|
|
—
|
|
|
$
|
|
1.2
|
|
|
$
|
|
—
|
|
Increase on project profitability
|
$
|
|
1.0
|
|
|
$
|
|
—
|
|
|
$
|
|
1.2
|
|
|
$
|
|
—
|
|
The increases during the three and six months ended June 30, 2018 were due to higher productivity than originally anticipated as well as owner-directed scope changes.
Decreases
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Number of projects with downward estimate changes
|
|
|
3
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
7
|
|
Range of reduction in gross profit from each project, net
|
$
|
1.0 - 15.7
|
|
|
$
|
1.1 - 8.1
|
|
|
$
|
1.1 - 18.3
|
|
|
$
|
1.0 - 10.8
|
|
Decrease on project profitability
|
$
|
|
31.3
|
|
|
$
|
|
23.8
|
|
|
$
|
|
41.0
|
|
|
$
|
|
37.8
|
|
The decreases during the three and six months ended
June 30, 2018
were due to higher costs than originally anticipated
as well as additional weather related costs
and a decrease in estimated recovery from customer affirmative claims. The decreases during the three and six months ended June 30, 2017 were due to
higher costs than originally anticipated as well as additional design, weather and owner-related costs, net of estimated and actual recovery from customer affirmative claims and back charges
. As of
June 30, 2018
there were three projects for which additional costs were reasonably possible in excess of the probable amounts included in the cost forecast. The reasonably possible aggregate range that has the potential to adversely impact gross profit during the year ending December 31, 2018, was zero to $15.0 million. As the related projects proceed, future estimates may change and could have a material effect on our financial position, results of operations and/or cash flows in the future.
18
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5.
Disaggregation of Revenue
We disaggregate our revenue based on our reportable segments and operating groups as it is the format that is regularly reviewed by management. Our reportable segments are: Construction, Large Project Construction and Construction Materials. Our operating groups are: (i) California; (ii) Northwest; (iii) Heavy Civil; (iv) Kenny and (v) Water and Mineral Services. The following tables present our disaggregated revenue (in thousands):
Three Months Ended June 30,
|
Construction
|
|
Large Project Construction
|
|
Construction Materials
|
|
Total
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
$
|
187,901
|
|
$
|
14,971
|
|
$
|
55,194
|
|
$
|
258,066
|
|
Northwest
|
|
160,983
|
|
|
12,360
|
|
|
43,621
|
|
|
216,964
|
|
Heavy Civil
|
|
7,055
|
|
|
201,960
|
|
|
—
|
|
|
209,015
|
|
Kenny
|
|
56,938
|
|
|
44,655
|
|
|
—
|
|
|
101,593
|
|
Water and Mineral Services
|
|
19,348
|
|
|
—
|
|
|
2,133
|
|
|
21,481
|
|
Total
|
$
|
432,225
|
|
$
|
273,946
|
|
$
|
100,948
|
|
$
|
807,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
$
|
147,605
|
|
$
|
12,048
|
|
$
|
48,463
|
|
$
|
208,116
|
|
Northwest
|
|
182,574
|
|
|
11,295
|
|
|
30,718
|
|
|
224,587
|
|
Heavy Civil
|
|
24,098
|
|
|
188,481
|
|
|
—
|
|
|
212,579
|
|
Kenny
|
|
74,992
|
|
|
42,639
|
|
|
—
|
|
|
117,631
|
|
Total
|
$
|
429,269
|
|
$
|
254,463
|
|
$
|
79,181
|
|
$
|
762,913
|
|
Six Months Ended June 30,
|
Construction
|
|
Large Project Construction
|
|
Construction Materials
|
|
Total
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
$
|
351,997
|
|
$
|
27,786
|
|
$
|
88,182
|
|
$
|
467,965
|
|
Northwest
|
|
227,425
|
|
|
21,575
|
|
|
56,355
|
|
|
305,355
|
|
Heavy Civil
|
|
12,255
|
|
|
384,641
|
|
|
—
|
|
|
396,896
|
|
Kenny
|
|
90,443
|
|
|
88,358
|
|
|
—
|
|
|
178,801
|
|
Water and Mineral Services
|
|
19,348
|
|
|
—
|
|
|
2,133
|
|
|
21,481
|
|
Total
|
$
|
701,468
|
|
$
|
522,360
|
|
$
|
146,670
|
|
$
|
1,370,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
$
|
230,369
|
|
$
|
22,169
|
|
$
|
72,879
|
|
$
|
325,417
|
|
Northwest
|
|
263,240
|
|
|
14,962
|
|
|
40,820
|
|
|
319,022
|
|
Heavy Civil
|
|
33,318
|
|
|
350,227
|
|
|
—
|
|
|
383,545
|
|
Kenny
|
|
129,191
|
|
|
74,138
|
|
|
—
|
|
|
203,329
|
|
Total
|
$
|
656,118
|
|
$
|
461,496
|
|
$
|
113,699
|
|
$
|
1,231,313
|
|
19
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. Unearned Revenue
The following tables present our unearned revenue as of the respective periods (in thousands):
June 30, 2018
|
Construction
|
|
Large Project Construction
|
|
Total
|
|
California
|
$
|
364,305
|
|
$
|
33,033
|
|
$
|
397,338
|
|
Northwest
|
|
383,855
|
|
|
—
|
|
|
383,855
|
|
Heavy Civil
|
|
43,959
|
|
|
2,032,151
|
|
|
2,076,110
|
|
Kenny
|
|
125,159
|
|
|
246,699
|
|
|
371,858
|
|
Water and Mineral Services
|
|
187,179
|
|
|
—
|
|
|
187,179
|
|
Total
|
$
|
1,104,457
|
|
$
|
2,311,883
|
|
$
|
3,416,340
|
|
March 31, 2018
|
Construction
|
|
Large Project Construction
|
|
Total
|
|
California
|
$
|
333,866
|
|
$
|
48,162
|
|
$
|
382,028
|
|
Northwest
|
|
362,225
|
|
|
—
|
|
|
362,225
|
|
Heavy Civil
|
|
54,596
|
|
|
2,233,174
|
|
|
2,287,770
|
|
Kenny
|
|
130,289
|
|
|
286,269
|
|
|
416,558
|
|
Total
|
$
|
880,976
|
|
$
|
2,567,605
|
|
$
|
3,448,581
|
|
January 1, 2018
|
Construction
|
|
Large Project Construction
|
|
Total
|
|
California
|
$
|
365,771
|
|
$
|
40,283
|
|
$
|
406,054
|
|
Northwest
|
|
262,117
|
|
|
53,465
|
|
|
315,582
|
|
Heavy Civil
|
|
43,016
|
|
|
2,356,769
|
|
|
2,399,785
|
|
Kenny
|
|
154,524
|
|
|
307,904
|
|
|
462,428
|
|
Total
|
$
|
825,428
|
|
$
|
2,758,421
|
|
$
|
3,583,849
|
|
7. Contract Assets and Liabilities
During the three and six months ended
June 30, 2018
, we recognized revenue of $13.3 million and $102.7 million, respectively, that was included in the contract liability balance at January 1, 2018.
During the three and six months ended
June 30, 2018
, we recognized revenue of $33.2 million and $60.9 million, respectively, 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. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.
As of
June 30, 2018 and January 1, 2018,
the aggregate claim recovery estimates included in contract asset and liability balances were approximately $36.1 million and $26.7 million, respectively. As of June 30, 2017, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings included $10.8 million in aggregate claim recovery estimates.
The components of the contract asset balances as of the respective dates were as follows (in thousands):
|
June 30,
2018
|
|
January 1,
2018
|
|
Costs in excess of billings and estimated earnings
|
$
|
161,670
|
|
$
|
69,755
|
|
Contract retention
|
|
103,520
|
|
|
91,135
|
|
Total contract assets
|
$
|
265,190
|
|
$
|
160,890
|
|
20
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table summarizes changes in the contract asset balance for the period presented (in thousands):
Balance at January 1, 2018
|
$
|
160,890
|
|
Change in the measure of progress on projects, net
|
|
643,605
|
|
Acquired contract assets
|
|
45,353
|
|
Revisions in estimates, net
|
|
(44,550
|
)
|
Billings
|
|
(516,854
|
)
|
Receipts related to contract retention
|
|
(23,254
|
)
|
Balance at June 30, 2018
|
$
|
265,190
|
|
The components of the contract liability balances as of the respective dates were as follows (in thousands):
|
June 30,
2018
|
|
January 1,
2018
|
|
Billings in excess of costs and estimated earnings
|
$
|
91,147
|
|
$
|
82,750
|
|
Provisions for losses
|
|
717
|
|
|
924
|
|
Total contract liabilities
|
$
|
91,864
|
|
$
|
83,674
|
|
The following table summarizes changes in the contract liability balance for the period presented (in thousands):
Balance at January 1, 2018
|
$
|
83,674
|
|
Change in the measure of progress on projects, net
|
|
(620,602
|
)
|
Acquired contract liabilities
|
|
7,974
|
|
Revisions in estimates, net
|
|
(4,353
|
)
|
Billings
|
|
625,434
|
|
Change in provision for loss, net
|
|
(263
|
)
|
Balance at June 30, 2018
|
$
|
91,864
|
|
8. Receivables, net
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
Construction contracts completed and in progress:
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed
|
|
$
|
340,548
|
|
|
$
|
252,467
|
|
|
$
|
208,635
|
|
Unbilled
|
|
|
71,464
|
|
|
|
77,135
|
|
|
|
135,072
|
|
Retentions
|
|
|
—
|
|
|
|
91,135
|
|
|
|
75,891
|
|
Total construction contracts completed and in progress
|
|
|
412,012
|
|
|
|
420,737
|
|
|
|
419,598
|
|
Construction material sales
|
|
|
64,128
|
|
|
|
42,192
|
|
|
|
54,165
|
|
Other
|
|
|
16,644
|
|
|
|
17,014
|
|
|
|
10,892
|
|
Total gross receivables
|
|
|
492,784
|
|
|
|
479,943
|
|
|
|
484,655
|
|
Less: allowance for doubtful accounts
|
|
|
66
|
|
|
|
152
|
|
|
|
410
|
|
Total net receivables
|
|
$
|
492,718
|
|
|
$
|
479,791
|
|
|
$
|
484,245
|
|
Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest. Included in other receivables at
June 30, 2018
, December 31, 2017 and June 30, 2017 were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds, receivables from vendors and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates. As of
June 30, 2018
, December 31, 2017 and June 30, 2017, the estimated recovery from back charge claims included in Other receivables was $1.6 million, $1.1 million and $0.3 million, respectively.
Certain construction contracts include retainage provisions that were included in contract assets as of June 30, 2018 and in receivables, net as of December 31, 2017 and June 30, 2017 in our condensed consolidated balance sheets. As of
June 30, 2018
, December 31, 2017 and June 30, 2017, no retention receivable individually exceeded 10% of total net receivables at any of the presented dates. The majority of the retentions receivable are expected to be collected within one year and there were no retentions receivables determined to be uncollectible.
21
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9.
Marketable Securities
All marketable securities were classified as held-to-maturity as of the dates presented and the carrying amounts of held-to-maturity securities were as follows:
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
U.S. Government and agency obligations
|
|
$
|
15,000
|
|
|
$
|
17,910
|
|
|
$
|
12,909
|
|
Commercial paper
|
|
|
—
|
|
|
|
49,865
|
|
|
|
34,912
|
|
Corporate bonds
|
|
|
5,014
|
|
|
|
—
|
|
|
|
—
|
|
Total short-term marketable securities
|
|
|
20,014
|
|
|
|
67,775
|
|
|
|
47,821
|
|
U.S. Government and agency obligations
|
|
|
61,191
|
|
|
|
59,993
|
|
|
|
59,990
|
|
Corporate bonds
|
|
|
—
|
|
|
|
5,022
|
|
|
|
—
|
|
Total long-term marketable securities
|
|
|
61,191
|
|
|
|
65,015
|
|
|
|
59,990
|
|
Total marketable securities
|
|
$
|
81,205
|
|
|
$
|
132,790
|
|
|
$
|
107,811
|
|
Scheduled maturities of held-to-maturity investments were as follows:
(in thousands)
|
|
June 30,
2018
|
|
Due within one year
|
|
$
|
20,014
|
|
Due in one to five years
|
|
|
61,191
|
|
Total
|
|
$
|
81,205
|
|
10.
Fair Value Measurement
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
|
|
Fair Value Measurement at Reporting Date Using
|
|
June 30, 2018
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
56,534
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,534
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
5,746
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,746
|
|
Total assets
|
|
$
|
62,280
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
37,284
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,284
|
|
Commercial paper
|
|
|
9,967
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,967
|
|
Total assets
|
|
$
|
47,251
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
38,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,006
|
|
Total assets
|
|
$
|
38,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,006
|
|
22
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Interest Rate Swaps
In May 2018, we entered into the Third Amended and Restated Credit Agreement (as defined in Note 14), terminated the interest rate swap we entered into in January 2016 and entered into two new interest rate swaps designated as cash flow hedges with an effective date of May 2018. The two new cash flow hedges have a combined initial notional amount of $150.0 million and mature in May 2023. The interest rate swaps are designed to convert the interest rate on the term loan described in Note 14, from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 2.76% plus the same applicable margin. The interest rate swaps are reported at fair value in the condensed consolidated balance sheets using Level 2 inputs. As of
June 30, 2018
, December 31, 2017 and June 30, 2017 the fair values of the cash flow hedges were $0.5 million, $1.4 million and $0.7 million, respectively, all of which were included in other current assets in the condensed consolidated balance sheets. The unrealized gains and losses, net of taxes, on the effective portion reported as a component of accumulated other comprehensive income and the interest expense reclassified from accumulated other comprehensive income (loss) were both immaterial during the three and six months ended
June 30, 2018
and 2017.
Other Assets and Liabilities
The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
(in thousands)
|
|
Fair Value
Hierarchy
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity marketable securities
|
|
Level 1
|
|
$
|
81,205
|
|
|
$
|
80,006
|
|
|
$
|
132,790
|
|
|
$
|
132,002
|
|
|
$
|
107,811
|
|
|
$
|
107,381
|
|
Liabilities (including current maturities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Notes
1
|
|
Level 3
|
|
$
|
80,000
|
|
|
$
|
81,307
|
|
|
$
|
80,000
|
|
|
$
|
82,190
|
|
|
$
|
120,000
|
|
|
$
|
123,371
|
|
Credit Agreement - term loan
1
|
|
Level 3
|
|
|
150,000
|
|
|
|
150,608
|
|
|
|
90,000
|
|
|
|
89,871
|
|
|
|
92,500
|
|
|
|
92,046
|
|
Credit Agreement - revolving credit facility
1
|
|
Level 3
|
|
|
99,000
|
|
|
|
99,267
|
|
|
|
55,000
|
|
|
|
55,054
|
|
|
|
30,000
|
|
|
|
29,672
|
|
Convertible notes
1
|
|
Level 1
|
|
|
160,765
|
|
|
|
186,410
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1
See Note 14 for definitions of, and more information about, the 2019 Notes, Credit Agreement and Convertible notes.
During the three and six months ended
June 30, 2018
and 2017, 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
June 30, 2018
, we determined no change to the primary beneficiary was required for existing construction joint ventures.
Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At
June 30, 2018
, there was approximately $3.9 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $1.3 billion represented our share and the remaining $2.6 billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ and/or other guarantees.
23
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Consolidated Construction Joint Ventures (“CCJVs”)
At
June 30, 2018
, we were engaged in six active CCJV projects with total contract values ranging from $50.5 million to $409.7 million and a combined total of $1.2 billion. Our share of revenue remaining to be recognized on these CCJVs was $430.9 million and ranged from $1.1 million to $190.8 million. Our proportionate share of the equity in these joint ventures was between 50.0% and 65.0%. During the three and six months ended
June 30, 2018
, total revenue from CCJVs was $67.7 million and $111.5 million, respectively.
During the three and six months ended
June 30, 2017
, total revenue from CCJVs was $49.5 million and $85.0 million, respectively.
During the six months ended
June 30, 2018
and 2017, CCJVs provided $15.1 million and $19.2 million of operating cash flows, respectively.
Unconsolidated Construction Joint Ventures
As of
June 30, 2018
, we were engaged in ten active unconsolidated joint venture projects with total contract values ranging from $77.3 million to $3.7 billion and a combined total of $12.2 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of
June 30, 2018
, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $1.3 billion and ranged from $2.3 million to $312.8 million.
The following is summary financial information related to unconsolidated construction joint ventures:
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
309,330
|
|
|
$
|
289,940
|
|
|
$
|
388,542
|
|
Other current assets
1
|
|
|
701,945
|
|
|
|
812,577
|
|
|
|
632,166
|
|
Noncurrent assets
|
|
|
211,963
|
|
|
|
219,825
|
|
|
|
230,633
|
|
Less partners’ interest
|
|
|
792,567
|
|
|
|
869,782
|
|
|
|
828,237
|
|
Granite’s interest
1,2
|
|
|
430,671
|
|
|
|
452,560
|
|
|
|
423,104
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
535,700
|
|
|
|
682,832
|
|
|
|
668,630
|
|
Less partners’ interest and adjustments
3
|
|
|
342,760
|
|
|
|
462,159
|
|
|
|
460,052
|
|
Granite’s interest
|
|
|
192,940
|
|
|
|
220,673
|
|
|
|
208,578
|
|
Equity in construction joint ventures
4
|
|
$
|
237,731
|
|
|
$
|
231,887
|
|
|
$
|
214,526
|
|
1
Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets were amounts related to performance guarantees that were $88.6 million as of both
June 30, 2018
and December 31, 2017 and $88.9 million as of June 30, 2017.
2
Included in this balance as of
June 30, 2018
, December 31, 2017 and June 30, 2017 was $65.8 million, $74.3 million and $81.7 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $10.6 million, $11.8 million and $9.8 million related to Granite’s share of estimated recovery of back charge claims as of June 30, 2018, December 31, 2017 and June 30, 2017, respectively.
3
Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates
primarily related to contract forecast differences
.
4
Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets were amounts related to deficits in construction joint ventures that were $14.7 million as of
June 30, 2018
and $15.9 million as of both December 31, 2017 and June 30, 2017.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
449,996
|
|
|
$
|
515,983
|
|
|
$
|
689,437
|
|
|
$
|
967,304
|
|
Less partners’ interest and adjustments
1
|
|
|
340,809
|
|
|
|
376,332
|
|
|
|
461,841
|
|
|
|
700,162
|
|
Granite’s interest
|
|
|
109,187
|
|
|
|
139,651
|
|
|
|
227,596
|
|
|
|
267,142
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
423,385
|
|
|
|
498,932
|
|
|
|
804,274
|
|
|
|
941,922
|
|
Less partners’ interest and adjustments
1
|
|
|
296,250
|
|
|
|
349,557
|
|
|
|
562,751
|
|
|
|
666,552
|
|
Granite’s interest
|
|
|
127,135
|
|
|
|
149,375
|
|
|
|
241,523
|
|
|
|
275,370
|
|
Granite’s interest in gross loss
|
|
$
|
(17,948
|
)
|
|
$
|
(9,724
|
)
|
|
$
|
(13,927
|
)
|
|
$
|
(8,228
|
)
|
1
Partners’ interest and adjustments represents 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.
24
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
During the three and six months ended
June 30, 2018
, unconsolidated construction joint venture net income (loss) was $26.5 million and ($114.4) million, respectively, of which our post-adjustment share were net losses of ($17.7) million and ($
13.4) million, respectively.
During the three and six months ended June 30, 2017, unconsolidated construction joint venture net income was
$17.6 million
and $26.2 million, respectively, of which our post-adjustment share were net losses of ($9.7) million a
nd ($8.2) million, respectively.
The differences between our share of the joint venture net loss during 2018 when compared to the joint venture net income (loss) primarily resulted from differences between our estimated total revenue and cost of revenue wh
en compared to that of our partners’ on
two
projects. These joint venture net income amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.
Line Item Joint Ventures
As of
June 30, 2018
, we had one active line item joint venture construction project with a total contract value of $18.0 million of which our portion was $10.8 million. As of
June 30, 2018
, our share of revenue remaining to be recognized on this line item joint venture was $10.6 million. During the three and six months ended
June 30, 2018
, our portion of revenue from line item joint ventures was $0.4 million and $1.2 million, respectively.
During the three and six months ended June 30, 2017, our portion of revenue from line item joint ventures was
$6.8 million
and $14.7 million, respectively.
12. Investments in Affiliates
Our investments in affiliates balance is related to our investments in unconsolidated non-construction entities that we account for using the
equity method of accounting, including investments in foreign affiliates, real estate entities and an asphalt terminal entity.
As part of the acquisition of Layne, we acquired investments in foreign affiliates that are
engaged in mineral drilling services and the manufacture and supply of drilling equipment, parts and supplies in Latin America.
The real estate entities were formed to accomplish specific real estate development projects in which our wholly-owned subsidiary, Granite Land Company, participates with third-party partners. The asphalt terminal entity is a 50% interest in a limited liability company which owns and operates an asphalt terminal and operates an emulsion plant in Nevada.
Our investments in affiliates balance consists of the following:
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
Equity method investment in foreign affiliates
|
|
$
|
63,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity method investments in real estate affiliates
|
|
|
27,591
|
|
|
|
29,472
|
|
|
|
27,329
|
|
Equity method investment in asphalt terminal affiliate
|
|
|
8,904
|
|
|
|
8,997
|
|
|
|
9,841
|
|
Total investments in affiliates
|
|
$
|
99,495
|
|
|
$
|
38,469
|
|
|
$
|
37,170
|
|
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
Current assets
|
|
$
|
136,953
|
|
|
$
|
31,320
|
|
|
$
|
25,246
|
|
Noncurrent assets
|
|
|
173,384
|
|
|
|
129,039
|
|
|
|
131,723
|
|
Total assets
|
|
|
310,337
|
|
|
|
160,359
|
|
|
|
156,969
|
|
Current liabilities
|
|
|
54,710
|
|
|
|
30,131
|
|
|
|
34,736
|
|
Long-term liabilities
1
|
|
|
54,383
|
|
|
|
31,636
|
|
|
|
25,595
|
|
Total liabilities
|
|
|
109,093
|
|
|
|
61,767
|
|
|
|
60,331
|
|
Net assets
|
|
|
201,244
|
|
|
|
98,592
|
|
|
|
96,638
|
|
Granite’s share of net assets
|
|
$
|
99,495
|
|
|
$
|
38,469
|
|
|
$
|
37,170
|
|
1
The balance primarily relates to debt associated with our real estate investments. The increase in the balance since December 31, 2017 is related to debt of our investments in foreign affiliates associated with purchase of equipment and buildings.
The equity method investments in real estate affiliates included $24.0 million, $24.3 million and $22.2 million in residential real estate in Texas as of
June 30, 2018
, December 31, 2017 and June 30, 2017, respectively. The remaining balances were in commercial real estate in Texas. Of the $310.3 million in total assets as of
June 30, 2018
, real estate entities had total assets ranging from $0.3 million to $68.2 million, the non-real estate entity had total assets of $20.4 million and the foreign entities had total assets ranging from $0.1 million to $64.6 million. We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25.0% to 50.0% as of June 30, 2018.
25
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
13.
P
roperty and Equipment, net
Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets and were as follows:
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
Equipment and vehicles
|
|
$
|
933,951
|
|
|
$
|
778,549
|
|
|
$
|
774,903
|
|
Quarry property
|
|
|
178,809
|
|
|
|
182,267
|
|
|
|
176,041
|
|
Land and land improvements
|
|
|
141,549
|
|
|
|
108,830
|
|
|
|
111,766
|
|
Buildings and leasehold improvements
|
|
|
105,038
|
|
|
|
82,601
|
|
|
|
84,113
|
|
Office furniture and equipment
|
|
|
63,806
|
|
|
|
56,894
|
|
|
|
58,377
|
|
Property and equipment
|
|
|
1,423,153
|
|
|
|
1,209,141
|
|
|
|
1,205,200
|
|
Less: accumulated depreciation and depletion
|
|
|
827,366
|
|
|
|
801,723
|
|
|
|
791,121
|
|
Property and equipment, net
|
|
$
|
595,787
|
|
|
$
|
407,418
|
|
|
$
|
414,079
|
|
14.
Long-Term Debt and Credit Arrangements
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
Senior notes payable
|
|
$
|
80,000
|
|
|
$
|
80,000
|
|
|
$
|
120,000
|
|
Credit Agreement term loan
|
|
|
150,000
|
|
|
|
90,000
|
|
|
|
92,500
|
|
Credit Agreement revolving credit loan
|
|
|
99,000
|
|
|
|
55,000
|
|
|
|
30,000
|
|
Convertible notes
|
|
|
160,765
|
|
|
|
—
|
|
|
|
—
|
|
Debt issuance costs
|
|
|
(1,073
|
)
|
|
|
(499
|
)
|
|
|
(590
|
)
|
Total debt
|
|
|
488,692
|
|
|
|
224,501
|
|
|
|
241,910
|
|
Less current maturities
|
|
|
207,982
|
|
|
|
46,048
|
|
|
|
14,796
|
|
Total long-term debt
|
|
$
|
280,710
|
|
|
$
|
178,453
|
|
|
$
|
227,114
|
|
The aggregate minimum principal maturities of long-term debt, including current maturities and excluding debt issuance costs, related to balances at
June 30, 2018
are as follows: $204.5 million during the remainder of 2018;
$
47.5
million in 2019
; $7.5 million in 2020; $7.5 million in 2021; $7.5 million in 2022; and $215.3 million thereafter.
Senior Notes Payable
Senior notes payable in the amount of $80.0 million as of both
June 30, 2018
and December 31, 2017 and in the amount of $120.0 million as of June 30, 2017 were due to a group of institutional holders and had an interest rate of 6.11% per annum (“2019 Notes”). As of both
June 30, 2018
and December 31, 2017, $40.0 million of the outstanding balance was included in long-term debt and the remaining $40.0 million was included in current maturities of long-term debt on the condensed consolidated balance sheets. As of June 30, 2017, $10.0 million of the outstanding balance was included in current maturities of long-term debt in the condensed consolidated balance sheets. The remaining $110.0 million was included in long-term debt in the condensed consolidated balance sheets, including $30.0 million due for the 2017 installment as we had the ability and intent to pay the 2017 installment using borrowings under the Credit Agreement or by obtaining other sources of financing.
Credit Agreement
Granite entered into the Third Amended and Restated Credit Agreement dated May 31, 2018 (the “Credit Agreement”). The Credit Agreement provides for, among other things, (i) an increase in the total committed credit facility amount to $500.0 million from $300.0 million, of which $150.0 million is a term loan (all of which was drawn on May 31, 2018) and $350.0 million is a revolving credit facility; (ii) an additional increase to the revolving credit facility and/or term loan at the option of the Company, in an aggregate maximum amount up to $200.0 million subject to the lenders providing the additional commitments; (iii) a revised maturity date of May 31, 2023 (the “Maturity Date”) and (iv) the elimination of the stipulation to have a $150 million minimum cash balance before and after a dividend payment.
There was no change in the aggregate sublimit for letters of credit of $100.0 million nor was there any significant change to the affirmative, restrictive or financial covenant terms except for the removal of the minimum Consolidated Tangible Net Worth financial covenant requirement and an increase of the Consolidated Leverage Ratio financial covenant requirement from 3.00 to 3.50 for the four quarters subsequent to a permitted acquisition with cash consideration in excess of $100.0 million.
26
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Of the $150.0 million term loan, 1.25% of the principal balance is due each quarter beginning in September 2018 and the remaining balance is
due on the Maturity Date.
As of
June 30, 2018
, December 31, 2017 and June 30, 2017, $7.5 million, $6.2 million and $5.0 million, respectively, of the term loan balance was included in current maturities of long-term debt and the remaining $142.5 million,
$83.8 million and $87.5 million, respectively, was included in long-term debt on the condensed consolidated balance sheets
.
As of June 30, 2018, the total stated amount of all issued and outstanding letters of credit under the Credit Agreement was
$33.0 million
.
As of
June 30, 2018
, December 31, 2017 and June 30, 2017, $99.0 million, $55.0 million and $30.0 million had been drawn on the revolving credit facility primarily to fund the Layne and LiquiForce acquisitions and to service the 2016 and 2017 installments of the 2019 Notes, respectively.
As of
June 30, 2018
, the total unused availability under the Credit Agreement was
$218.0 million
. The letters of credit will expire between July 2018 and June 2019.
Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at our option), plus an applicable margin based on the Consolidated Leverage Ratio calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was 1.63% for loans bearing interest based on LIBOR and
0.63%
for loans bearing interest at the base rate at
June 30, 2018
. Accordingly, the effective interest rate using three-month LIBOR and base rate was
3.96%
and
5.63%
, respectively, at
June 30, 2018
and we elected to use LIBOR for both the term loan and the revolving credit facility. In May 2018, we entered into an interest rate swap to convert the interest rate on borrowings under the Credit Agreement from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 2.76% plus the same applicable margin.
Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Maturity Date. Borrowings bearing interest at a LIBOR rate have a term no less than one month and no greater than six months (a longer period, not to exceed 12 months, if approved by all lenders). At the end of each term, such borrowings can be paid or continued at our discretion as either a borrowing at the base rate or a borrowing at a LIBOR rate with similar terms and the same or different permitted interest period. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the obligations under the 2019 Notes by first priority liens (subject only to other permitted liens) on substantially all of the assets of the Company and certain of our subsidiaries that are required to be guarantors or borrowers under the Credit Agreement; however, a waiver of the requirement for Layne to become a guarantor and provide liens on its assets has been obtained until the 8.0% Convertible Notes (defined below) are redeemed or converted.
The Credit Agreement provides for the release of the liens securing the obligations at our option and expense, so long as certain conditions as defined by the terms in the Credit Agreement are satisfied (“Collateral Release Period”). However, if subsequent to exercising the option, our Consolidated Fixed Charge Coverage Ratio is less than 1.25 or our Consolidated Leverage Ratio is greater than 2.50, then we would be required to promptly re-pledge substantially all of the assets of the Company and our subsidiaries that are guarantors or borrowers under the Credit Agreement. As of June 30, 2018, the conditions for the exercise of our right under Credit Agreement to have liens released were not satisfied.
Convertible Notes
In connection with our acquisition of Layne, we assumed fair value of $69.9 million of convertible notes that have an interest rate of 4.25% per annum, payable semi-annually in arrears on May 15 and November 15 (“4.25% Convertible Notes”). The 4.25% Convertible Notes mature on November 15, 2018, unless earlier repurchased, redeemed or converted and are convertible at the option of the holders until the close of business on November 14, 2018. As of June 30, 2018, $69.9 million was included in current maturities of long-term debt on the condensed consolidated balance sheets.
Subsequent to the Merger Agreement, cash was elected as the settlement method for conversion of the 4.25% Convertible Notes. As of June 30, 2018, the conversion rate was 11.8012 shares of Granite’s common stock per $1,000 in principal of the 4.25% Convertible Notes providing a conversion price of approximately $84.74 per share of Granite’s common stock.
Also in connection with our acquisition of Layne, we assumed fair value of $121.6 million of convertible notes that have an interest rate of 8.0% per annum, payable semi-annually on May 1 and November 1 (“8.0% Convertible Notes”). The 8.0% Convertible Notes mature on May 1, 2019; however, if any of the then outstanding 4.25% Convertible Notes remain outstanding on August 15, 2018, the 8.0% Convertible Notes will mature on August 15, 2018 (“Maturity Date”). As of June 30, 2018, $90.9 million was included in current maturities of long-term debt and the premium of $30.7 million associated with the conversion feature was included in additional paid-in capital on the condensed consolidated balance sheet.
As of June 30, 2018, the conversion rate of the 8.0% Convertible Notes was 23.1305 shares of Granite’s common stock per $1,000 principal amount of 8.0% Convertible Notes providing a conversion price of approximately $43.23 per share of Granite’s common stock. Prior to the Maturity Date, the notes may be converted to Granite common stock at the election of the note holders.
27
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Covenants and Events of Default
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (i) us no longer being entitled to borrow under the agreements; (ii) termination of the agreements; (iii) the requirement that any letters of credit under the agreements be cash collateralized; (iv) acceleration of the maturity of outstanding indebtedness under the agreements and/or (v) foreclosure on any collateral securing the obligations under the agreements.
The most significant financial covenants under the terms of our Credit Agreement and
related to the note purchase agreement governing our 2019 Notes
(“2019 NPA”) require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. In addition, the 2019 NPA requires a minimum Consolidated Tangible Net Worth.
As of June 30, 2018 and pursuant to the definitions in the 2019 NPA, which is more restrictive, our Consolidated Tangible Net Worth was
$1.0 billion
, which exceeded the minimum of
$757.3 million
, our Consolidated Leverage Ratio was
2.10
which did not exceed the maximum of 3.00. Our Consolidated Interest Coverage Ratio was
23.92
which exceeded the minimum of 4.00.
As of
June 30, 2018
, we were in compliance with all covenants contained in the Credit Agreement and related to the 2019 NPA. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.
15. Weighted
Average Shares Outstanding and Net (Loss) Income Per Share
The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net (loss) income per share as well as the calculation of basic and diluted net (loss) income per share:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(in thousands, except per share amounts)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income allocated to common shareholders for basic calculation
|
|
$
|
(8,385
|
)
|
|
$
|
14,133
|
|
|
$
|
(19,808
|
)
|
|
$
|
(9,657
|
)
|
Effect of dilutive convertible notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net (loss) income allocated to common shareholders for diluted calculation
|
|
|
(8,385
|
)
|
|
|
14,133
|
|
|
|
(19,808
|
)
|
|
|
(9,657
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
41,044
|
|
|
|
39,827
|
|
|
|
40,074
|
|
|
|
39,738
|
|
Dilutive effect of convertible notes, restricted stock units and common stock options
1
|
|
|
—
|
|
|
|
566
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average common shares outstanding, diluted
|
|
|
41,044
|
|
|
|
40,393
|
|
|
|
40,074
|
|
|
|
39,738
|
|
Net (loss) income per share, basic
|
|
$
|
(0.20
|
)
|
|
$
|
0.35
|
|
|
$
|
(0.49
|
)
|
|
$
|
(0.24
|
)
|
Net (loss) income per share, diluted
|
|
$
|
(0.20
|
)
|
|
$
|
0.35
|
|
|
$
|
(0.49
|
)
|
|
$
|
(0.24
|
)
|
1
Due to the net losses, shares related to convertible notes and restricted stock units representing 960,000 and 732,000 for the three and six months ended June 30, 2018, respectively, and 618,000 related to restricted stock units for the six months ended June 30, 2017 have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.
28
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
16.
Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
(dollars in thousands)
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
2,796
|
|
|
|
$
|
8,088
|
|
|
|
$
|
(1,335
|
)
|
|
|
$
|
(4,408
|
)
|
|
Effective tax rate
|
|
|
(85.1
|
%)
|
|
|
|
33.2
|
%
|
|
|
|
7.8
|
%
|
|
|
|
36.8
|
%
|
|
Our effective tax rate for the three and six months ended June 30, 2018 decreased to (85.1%) from 33.2% and to 7.8% from 36.8%, respectively, when compared to the same periods in 2017. This change was primarily due to a decrease in the effective tax rate due to Tax Reform enacted in December 2017, one-time nondeductible acquisition and integration expenses and an increase in the loss (income) before provision for (benefit from) income taxes.
On December 22, 2017, Tax Reform was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, a territorial tax system was implemented, and a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries was imposed, among other changes. ASC Topic 740,
Accounting for Income Taxes
, requires companies to recognize the effect of tax law changes in the period of enactment. ASU 2018-05,
Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.118,
allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The Company has recognized the provisional tax impacts of Tax Reform in its consolidated financial statements for the year ended December 31, 2017. On June 14, 2018, the Company acquired Layne recognizing provisional tax impacts of Tax Reform in the opening balance sheet including assessing our intent to indefinitely reinvest certain earnings of our foreign subsidiaries and affiliates. The majority of the provisional tax impacts of Tax Reform recorded in the Company’s condensed consolidated financial statements as of June 30, 2018 are related to the revaluation of deferred tax assets and liabilities and the one-time repatriation tax. Based on a review of the guidance issued by the Internal Revenue Service in the second quarter of 2018, no adjustment to the provisional amounts recorded in the Company’s condensed consolidated financial statements, as of June 30, 2018, was deemed necessary. We continue to assess new guidance and refine our computation of the provisional tax impacts discussed above and will complete our analysis within the one-year measurement period ending December 22, 2018.
Approximately $15.0 million of uncertain tax position liability was assumed as part of the Layne acquisition and was recorded in other long-term liabilities in the Company’s condensed consolidated balance sheets as of June 30, 2018.
29
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
17.
Equity
The following tables summarize our equity activity for the periods presented (in thousands):
|
|
Granite
Construction
Incorporated
|
|
|
Non-controlling
Interests
|
|
|
Total Equity
|
|
Balance at December 31, 2017
|
|
$
|
945,108
|
|
|
$
|
47,697
|
|
|
$
|
992,805
|
|
Net (loss) income
|
|
|
(19,808
|
)
|
|
|
4,065
|
|
|
|
(15,743
|
)
|
Purchases of common stock
1
|
|
|
(6,165
|
)
|
|
|
—
|
|
|
|
(6,165
|
)
|
Dividends on common stock
|
|
|
(11,146
|
)
|
|
|
—
|
|
|
|
(11,146
|
)
|
Effect of adopting Topic 606
|
|
|
(15,202
|
)
|
|
|
—
|
|
|
|
(15,202
|
)
|
Issuance of common stock for Layne acquisition
2
|
|
|
321,075
|
|
|
|
48
|
|
|
|
321,123
|
|
Premium on 8.0% Convertible Notes
3
|
|
|
30,702
|
|
|
|
—
|
|
|
|
30,702
|
|
Transactions with non-controlling interests
|
|
|
—
|
|
|
|
(6,400
|
)
|
|
|
(6,400
|
)
|
Other transactions with shareholders and employees
4
|
|
|
11,012
|
|
|
|
—
|
|
|
|
11,012
|
|
Balance at June 30, 2018
|
|
$
|
1,255,576
|
|
|
$
|
45,410
|
|
|
$
|
1,300,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
885,988
|
|
|
$
|
36,603
|
|
|
$
|
922,591
|
|
Net (loss) income
|
|
|
(9,657
|
)
|
|
|
2,078
|
|
|
|
(7,579
|
)
|
Purchases of common stock
5
|
|
|
(6,568
|
)
|
|
|
—
|
|
|
|
(6,568
|
)
|
Dividends on common stock
|
|
|
(10,354
|
)
|
|
|
—
|
|
|
|
(10,354
|
)
|
Other transactions with shareholders and employees
4
|
|
|
11,987
|
|
|
|
—
|
|
|
|
11,987
|
|
Balance at June 30, 2017
|
|
$
|
871,396
|
|
|
$
|
38,681
|
|
|
$
|
910,077
|
|
1
Represents 104,000 shares purchased in connection with employee tax withholding for restricted stock units vested under our 2012 Equity Incentive Plan.
2
Represents 5,624,000 shares issued in connection with the Layne acquisition wherein each share of Layne common stock was exchanged for 0.27 shares of Granite common stock. See Note 3 for further information.
3
Represents premium associated with the conversion feature on the 8.0% Convertible Notes assumed from the acquisition of Layne. See Note 14 for further discussion.
4
Amounts are comprised primarily of amortized restricted stock units.
5
Represents 133,000 shares purchased in connection with employee tax withholding for restricted stock units vested under our 2012 Equity Incentive Plan.
30
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
18.
Legal Proceeding
s
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.
Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in our condensed consolidated balance sheets. The aggregate liabilities recorded as of
June 30, 2018
, December 31, 2017 and June 30, 2017 related to these matters were approximately $1.0 million, $0.9 million and $1.0 million, respectively, and were primarily included in accounts payable and accrued expenses and other current liabilities on our condensed consolidated balance sheets. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued l
osses 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.
31
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
19.
Business
Segment Information
Summarized segment information is as follows (in thousands):
Three Months Ended June 30,
|
|
Construction
|
|
|
Large Project
Construction
|
|
|
Construction
Materials
|
|
|
Total
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
432,225
|
|
|
$
|
273,946
|
|
|
$
|
146,197
|
|
|
$
|
852,368
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
(45,249
|
)
|
|
|
(45,249
|
)
|
Revenue from external customers
|
|
|
432,225
|
|
|
|
273,946
|
|
|
|
100,948
|
|
|
|
807,119
|
|
Gross profit
|
|
|
61,551
|
|
|
|
1,338
|
|
|
|
17,480
|
|
|
|
80,369
|
|
Depreciation, depletion and amortization
|
|
|
9,645
|
|
|
|
9,318
|
|
|
|
6,074
|
|
|
|
25,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
429,269
|
|
|
$
|
254,463
|
|
|
$
|
123,242
|
|
|
$
|
806,974
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
(44,061
|
)
|
|
|
(44,061
|
)
|
Revenue from external customers
|
|
|
429,269
|
|
|
|
254,463
|
|
|
|
79,181
|
|
|
|
762,913
|
|
Gross profit
|
|
|
60,900
|
|
|
|
489
|
|
|
|
13,181
|
|
|
|
74,570
|
|
Depreciation, depletion and amortization
|
|
|
5,441
|
|
|
|
3,081
|
|
|
|
5,417
|
|
|
|
13,939
|
|
Six Months Ended June 30,
|
|
Construction
|
|
|
Large Project
Construction
|
|
|
Construction
Materials
|
|
|
Total
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
701,468
|
|
|
$
|
522,360
|
|
|
$
|
199,519
|
|
|
$
|
1,423,347
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
(52,849
|
)
|
|
|
(52,849
|
)
|
Revenue from external customers
|
|
|
701,468
|
|
|
|
522,360
|
|
|
|
146,670
|
|
|
|
1,370,498
|
|
Gross profit
|
|
|
99,947
|
|
|
|
21,704
|
|
|
|
15,001
|
|
|
|
136,652
|
|
Depreciation, depletion and amortization
|
|
|
14,699
|
|
|
|
11,917
|
|
|
|
11,484
|
|
|
|
38,100
|
|
Segment assets
|
|
|
608,116
|
|
|
|
335,036
|
|
|
|
304,121
|
|
|
|
1,247,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
656,118
|
|
|
$
|
461,496
|
|
|
$
|
171,864
|
|
|
$
|
1,289,478
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
(58,165
|
)
|
|
|
(58,165
|
)
|
Revenue from external customers
|
|
|
656,118
|
|
|
|
461,496
|
|
|
|
113,699
|
|
|
|
1,231,313
|
|
Gross profit
|
|
|
88,229
|
|
|
|
3,044
|
|
|
|
8,423
|
|
|
|
99,696
|
|
Depreciation, depletion and amortization
|
|
|
10,435
|
|
|
|
4,967
|
|
|
|
10,615
|
|
|
|
26,017
|
|
Segment assets
|
|
|
142,456
|
|
|
|
312,891
|
|
|
|
295,068
|
|
|
|
750,415
|
|
As of June 30, 2018, segment assets include $21.2 million of property and equipment located in foreign countries (primarily Brazil and Mexico). As of June 30, 2017 and December 31, 2017, all segment assets were located in the United States.
A reconciliation of segment gross profit to consolidated (loss) income before provision for (benefit from) income taxes is as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Total gross profit from reportable segments
|
|
$
|
80,369
|
|
|
$
|
74,570
|
|
|
$
|
136,652
|
|
|
$
|
99,696
|
|
Selling, general and administrative expenses
|
|
|
61,316
|
|
|
|
51,388
|
|
|
|
122,568
|
|
|
|
113,225
|
|
Acquisition and integration expenses
|
|
|
26,287
|
|
|
|
—
|
|
|
|
34,696
|
|
|
|
—
|
|
Gain on sales of property and equipment
|
|
|
(1,505
|
)
|
|
|
(807
|
)
|
|
|
(2,048
|
)
|
|
|
(1,077
|
)
|
Total other income
|
|
|
(2,444
|
)
|
|
|
(371
|
)
|
|
|
(1,486
|
)
|
|
|
(465
|
)
|
(Loss) income before provision for (benefit from) income taxes
|
|
$
|
(3,285
|
)
|
|
$
|
24,360
|
|
|
$
|
(17,078
|
)
|
|
$
|
(11,987
|
)
|
32
Table of Contents