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, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at September 30, 2020 and 2019 and the results of our operations and cash flows for the periods presented. The December 31, 2019 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements, except for the adoption during the three months ended March 31, 2020 of Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement and ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, neither of which had a material impact on our condensed consolidated financial statements. In addition, effective January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief, the impact of which is described in Note 2.
Cash, Cash Equivalents and Restricted Cash: The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):
|
Nine months ended September 30,
|
|
2020
|
|
|
2019
|
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
$
|
268,108
|
|
|
$
|
278,629
|
|
|
End of the period
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
388,024
|
|
|
|
184,673
|
|
|
Restricted cash
|
|
|
1,512
|
|
|
|
5,658
|
|
|
Total cash, cash equivalents and restricted cash, end of period
|
|
|
389,536
|
|
|
|
190,331
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
$
|
121,428
|
|
|
$
|
(88,298
|
)
|
9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2. Recently Issued and Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method. The ASU is effective commencing with our quarter ended March 31, 2022, with early adoption permitted. We are currently evaluating the impact of ASU 2020-06 on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. This ASU was effective commencing with our quarter ended March 31, 2020 through December 31, 2022 and we expect to adopt in 2021. We do not expect the adoption of this ASU to have an impact on our condensed consolidated financial statements as our Credit Agreement (as defined in Note 14 below) uses the secured overnight financing rate as an alternative to LIBOR.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in May 2019 issued ASU No. 2019-05, Credit Losses (Topic 326): Targeted Transition Relief (collectively referred to as “Topic 326”). Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted Topic 326 effective January 1, 2020, recognizing a net cumulative decrease to retained earnings of approximately $0.5 million. Topic 326 was applicable to the following financial assets: short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our condensed consolidated balance sheets. We elected to estimate the expected credit losses using a loss rate method that was applied to groups of assets categorized based on similar risk characteristics. The loss rate was based on historical losses and other information available to management. To account for the measurement of expected credit losses an allowance for credit losses was required for receivables and contract assets and was not required for any other applicable financial asset. As of September 30, 2020, $1.9 million was deducted primarily from receivables to present the net amount expected to be collected. The increase in the allowance since the initial adoption of Topic 326 was due to additional credit risk exposure to our customers related to the COVID-19 pandemic.
In connection with the adoption of Topic 326, we implemented the following accounting policy as of January 1, 2020:
Allowance for Credit Losses: Financial assets, which potentially subject us to credit losses, consist primarily of short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our consolidated balance sheets. We measure expected credit losses of financial assets based on historical loss and other information available to management using a loss rate method applied to asset groups with categorically similar risk characteristics. These expected credit losses are recorded to an allowance for credit losses valuation account that is deducted from receivables and contract assets to present the net amount expected to be collected on the financial asset on the consolidated balance sheet.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. Restatement
Restatement Background
As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements (the “Other Adjustments”). We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three and nine months ended September 30, 2019 herein.
Description of Restatement Tables
We have presented below a reconciliation from the previously reported to the restated values as of and for the three and nine months ended September 30, 2019. The previously reported values were derived from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 filed on October 25, 2019 and are labeled as “As Previously Reported” in the following tables. The account balances labeled as “Investigation Adjustments” represent effects of adjustments resulting from the Investigation. The account balances labeled as “Other Adjustments” represent the effects of other adjustments, which related to revisions in estimates in projects primarily impacting revenue and cost of revenue in the Transportation segment as a result of out-of-period or uncorrected misstatements in previously filed financial statements that were not material, individually or in the aggregate, to those previously filed financial statements, balance sheet reclassifications and other immaterial adjustments.
The impacts to the condensed consolidated statements of shareholders’ equity and comprehensive income (loss) as a result of the restatement were due to the changes in net income (loss) for the three and nine months ended September 30, 2019. In addition, there was no impact to net cash used in investing and financing activities for the nine months ended September 30, 2019 as a result of the restatement.
The effects of the prior-period misstatements on our consolidated financial statements are as follows (in thousands, except per share data):
Consolidated Balance Sheet
|
September 30, 2019
|
|
As Previously Reported
|
|
|
Investigation Adjustments
|
|
|
Other Adjustments
|
|
|
As Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
184,673
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
184,673
|
|
|
Short-term marketable securities
|
|
|
37,918
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,918
|
|
|
Receivables, net
|
|
|
700,387
|
|
|
|
10,569
|
|
|
|
2,016
|
|
|
|
712,972
|
|
|
Contract assets
|
|
|
233,925
|
|
|
|
(17,452
|
)
|
|
|
(10,066
|
)
|
|
|
206,407
|
|
|
Inventories
|
|
|
95,442
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,442
|
|
|
Equity in construction joint ventures
|
|
|
209,765
|
|
|
|
(10,351
|
)
|
|
|
4,540
|
|
|
|
203,954
|
|
|
Other current assets
|
|
|
42,698
|
|
|
|
9,019
|
|
|
|
208
|
|
|
|
51,925
|
|
|
Total current assets
|
|
|
1,504,808
|
|
|
|
(8,215
|
)
|
|
|
(3,302
|
)
|
|
|
1,493,291
|
|
|
Property and equipment, net
|
|
|
542,796
|
|
|
|
—
|
|
|
|
—
|
|
|
|
542,796
|
|
|
Long-term marketable securities
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
Investments in affiliates
|
|
|
84,914
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84,914
|
|
|
Goodwill
|
|
|
264,112
|
|
|
|
—
|
|
|
|
—
|
|
|
|
264,112
|
|
|
Right of use assets
|
|
|
70,472
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,472
|
|
|
Deferred income taxes, net
|
|
|
38,443
|
|
|
|
(8,580
|
)
|
|
|
774
|
|
|
|
30,637
|
|
|
Other noncurrent assets
|
|
|
118,228
|
|
|
|
—
|
|
|
|
(1,790
|
)
|
|
|
116,438
|
|
|
Total assets
|
|
$
|
2,633,773
|
|
|
$
|
(16,795
|
)
|
|
$
|
(4,318
|
)
|
|
$
|
2,612,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
8,263
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,263
|
|
|
Accounts payable
|
|
|
399,528
|
|
|
|
—
|
|
|
|
215
|
|
|
|
399,743
|
|
|
Contract liabilities
|
|
|
106,010
|
|
|
|
9,025
|
|
|
|
(5,736
|
)
|
|
|
109,299
|
|
|
Accrued expenses and other current liabilities
|
|
|
342,040
|
|
|
|
12,031
|
|
|
|
5,150
|
|
|
|
359,221
|
|
|
Total current liabilities
|
|
|
855,841
|
|
|
|
21,056
|
|
|
|
(371
|
)
|
|
|
876,526
|
|
|
Long-term debt
|
|
|
394,841
|
|
|
|
—
|
|
|
|
—
|
|
|
|
394,841
|
|
|
Long-term lease liabilities
|
|
|
56,740
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,740
|
|
|
Deferred income taxes, net
|
|
|
4,652
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,652
|
|
|
Other long-term liabilities
|
|
|
58,433
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,433
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 46,741,263 shares as of September 30, 2019
|
|
|
468
|
|
|
|
—
|
|
|
|
—
|
|
|
|
468
|
|
|
Additional paid-in capital
|
|
|
567,033
|
|
|
|
—
|
|
|
|
—
|
|
|
|
567,033
|
|
|
Accumulated other comprehensive loss
|
|
|
(3,282
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,282
|
)
|
|
Retained earnings
|
|
|
656,487
|
|
|
|
(34,046
|
)
|
|
|
(2,751
|
)
|
|
|
619,690
|
|
|
Total Granite Construction Incorporated shareholders’ equity
|
|
|
1,220,706
|
|
|
|
(34,046
|
)
|
|
|
(2,751
|
)
|
|
|
1,183,909
|
|
|
Non-controlling interests
|
|
|
42,560
|
|
|
|
(3,805
|
)
|
|
|
(1,196
|
)
|
|
|
37,559
|
|
|
Total equity
|
|
|
1,263,266
|
|
|
|
(37,851
|
)
|
|
|
(3,947
|
)
|
|
|
1,221,468
|
|
|
Total liabilities and equity
|
|
$
|
2,633,773
|
|
|
$
|
(16,795
|
)
|
|
$
|
(4,318
|
)
|
|
$
|
2,612,660
|
|
Consolidated Statement of Operations
|
|
|
Three Months Ended September 30, 2019
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
As Previously Reported
|
|
|
Investigation Adjustments
|
|
|
Other Adjustments
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Investigation Adjustments
|
|
|
Other Adjustments
|
|
|
As Restated
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
$
|
598,646
|
|
|
$
|
23,861
|
|
|
$
|
1,360
|
|
|
$
|
623,867
|
|
|
$
|
1,340,834
|
|
|
$
|
72,094
|
|
|
$
|
(5,351
|
)
|
|
$
|
1,407,577
|
|
|
Water
|
|
|
135,908
|
|
|
|
(1,771
|
)
|
|
|
267
|
|
|
|
134,404
|
|
|
|
347,994
|
|
|
|
(2,669
|
)
|
|
|
231
|
|
|
|
345,556
|
|
|
Specialty
|
|
|
224,457
|
|
|
|
—
|
|
|
|
287
|
|
|
|
224,744
|
|
|
|
540,234
|
|
|
|
—
|
|
|
|
(1,737
|
)
|
|
|
538,497
|
|
|
Materials
|
|
|
129,099
|
|
|
|
—
|
|
|
|
—
|
|
|
|
129,099
|
|
|
|
268,389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
268,389
|
|
|
Total revenue
|
|
|
1,088,110
|
|
|
|
22,090
|
|
|
|
1,914
|
|
|
|
1,112,114
|
|
|
|
2,497,451
|
|
|
|
69,425
|
|
|
|
(6,857
|
)
|
|
|
2,560,019
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
585,013
|
|
|
|
(8,245
|
)
|
|
|
234
|
|
|
|
577,002
|
|
|
|
1,405,830
|
|
|
|
(24,647
|
)
|
|
|
(4,622
|
)
|
|
|
1,376,561
|
|
|
Water
|
|
|
120,878
|
|
|
|
674
|
|
|
|
215
|
|
|
|
121,767
|
|
|
|
313,582
|
|
|
|
674
|
|
|
|
215
|
|
|
|
314,471
|
|
|
Specialty
|
|
|
186,158
|
|
|
|
—
|
|
|
|
—
|
|
|
|
186,158
|
|
|
|
464,858
|
|
|
|
—
|
|
|
|
—
|
|
|
|
464,858
|
|
|
Materials
|
|
|
104,629
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104,629
|
|
|
|
233,675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
233,675
|
|
|
Total cost of revenue
|
|
|
996,678
|
|
|
|
(7,571
|
)
|
|
|
449
|
|
|
|
989,556
|
|
|
|
2,417,945
|
|
|
|
(23,973
|
)
|
|
|
(4,407
|
)
|
|
|
2,389,565
|
|
|
Gross profit (loss)
|
|
|
91,432
|
|
|
|
29,661
|
|
|
|
1,465
|
|
|
|
122,558
|
|
|
|
79,506
|
|
|
|
93,398
|
|
|
|
(2,450
|
)
|
|
|
170,454
|
|
|
Selling, general and administrative expenses
|
|
|
73,424
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,424
|
|
|
|
224,577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
224,577
|
|
|
Acquisition and integration expenses
|
|
|
2,744
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,744
|
|
|
|
15,244
|
|
|
|
—
|
|
|
|
(1,475
|
)
|
|
|
13,769
|
|
|
Gain on sales of property and equipment
|
|
|
(7,101
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,101
|
)
|
|
|
(13,936
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,936
|
)
|
|
Operating income (loss)
|
|
|
22,365
|
|
|
|
29,661
|
|
|
|
1,465
|
|
|
|
53,491
|
|
|
|
(146,379
|
)
|
|
|
93,398
|
|
|
|
(975
|
)
|
|
|
(53,956
|
)
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,713
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,713
|
)
|
|
|
(6,257
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,257
|
)
|
|
Interest expense
|
|
|
4,839
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,839
|
|
|
|
13,011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,011
|
|
|
Equity in income of affiliates, net
|
|
|
(6,275
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,275
|
)
|
|
|
(10,159
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,159
|
)
|
|
Other income, net
|
|
|
127
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127
|
|
|
|
(2,394
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,394
|
)
|
|
Total other income
|
|
|
(3,022
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,022
|
)
|
|
|
(5,799
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,799
|
)
|
|
Income (loss) before provision for (benefit from) income taxes
|
|
|
25,387
|
|
|
|
29,661
|
|
|
|
1,465
|
|
|
|
56,513
|
|
|
|
(140,580
|
)
|
|
|
93,398
|
|
|
|
(975
|
)
|
|
|
(48,157
|
)
|
|
Provision for (benefit from) income taxes
|
|
|
3,474
|
|
|
|
7,898
|
|
|
|
375
|
|
|
|
11,747
|
|
|
|
(37,451
|
)
|
|
|
26,145
|
|
|
|
(210
|
)
|
|
|
(11,516
|
)
|
|
Net income (loss)
|
|
|
21,913
|
|
|
|
21,763
|
|
|
|
1,090
|
|
|
|
44,766
|
|
|
|
(103,129
|
)
|
|
|
67,253
|
|
|
|
(765
|
)
|
|
|
(36,641
|
)
|
|
Amount attributable to non-controlling interests
|
|
|
(1,425
|
)
|
|
|
2,660
|
|
|
|
(100
|
)
|
|
|
1,135
|
|
|
|
(8,793
|
)
|
|
|
4,060
|
|
|
|
563
|
|
|
|
(4,170
|
)
|
|
Net income (loss) attributable to Granite Construction Incorporated
|
|
$
|
20,488
|
|
|
$
|
24,423
|
|
|
$
|
990
|
|
|
$
|
45,901
|
|
|
$
|
(111,922
|
)
|
|
$
|
71,313
|
|
|
$
|
(202
|
)
|
|
$
|
(40,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) income per share attributable to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.52
|
|
|
$
|
0.02
|
|
|
$
|
0.98
|
|
|
$
|
(2.39
|
)
|
|
$
|
1.52
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.87
|
)
|
|
Diluted
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
$
|
0.02
|
|
|
$
|
0.97
|
|
|
$
|
(2.39
|
)
|
|
$
|
1.52
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.87
|
)
|
|
Weighted average shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46,788
|
|
|
|
46,788
|
|
|
|
46,788
|
|
|
|
46,788
|
|
|
|
46,771
|
|
|
|
46,771
|
|
|
|
46,771
|
|
|
|
46,771
|
|
|
Diluted
|
|
|
47,170
|
|
|
|
47,170
|
|
|
|
47,170
|
|
|
|
47,170
|
|
|
|
46,771
|
|
|
|
46,771
|
|
|
|
46,771
|
|
|
|
46,771
|
|
Consolidated Statement of Cash Flows
|
Nine Months Ended September 30, 2019
|
|
As Previously Reported
|
|
|
Investigation Adjustments
|
|
|
Other Adjustments
|
|
|
As Restated
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(103,129
|
)
|
|
$
|
67,253
|
|
|
$
|
(765
|
)
|
|
$
|
(36,641
|
)
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
92,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92,700
|
|
|
Gain on sales of property and equipment
|
|
|
(13,936
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,936
|
)
|
|
Deferred income taxes
|
|
|
(37,338
|
)
|
|
|
35,188
|
|
|
|
—
|
|
|
|
(2,150
|
)
|
|
Stock-based compensation
|
|
|
8,924
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,924
|
|
|
Equity in net loss (income) from unconsolidated joint ventures
|
|
|
173,008
|
|
|
|
(77,334
|
)
|
|
|
(2,400
|
)
|
|
|
93,274
|
|
|
Net income from affiliates
|
|
|
(10,159
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,159
|
)
|
|
Other non-cash adjustments
|
|
|
4,630
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,630
|
|
|
Changes in assets and liabilities, net of the effects of an acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(224,475
|
)
|
|
|
—
|
|
|
|
(1,083
|
)
|
|
|
(225,558
|
)
|
|
Contract assets, net
|
|
|
(13,276
|
)
|
|
|
(16,109
|
)
|
|
|
7,846
|
|
|
|
(21,539
|
)
|
|
Inventories
|
|
|
(6,178
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,178
|
)
|
|
Contributions to unconsolidated construction joint ventures
|
|
|
(57,280
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(57,280
|
)
|
|
Distributions from unconsolidated construction joint ventures and affiliates
|
|
|
13,181
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,181
|
|
|
Other assets, net
|
|
|
(1,141
|
)
|
|
|
(8,998
|
)
|
|
|
(251
|
)
|
|
|
(10,390
|
)
|
|
Accounts payable
|
|
|
148,739
|
|
|
|
—
|
|
|
|
(5,061
|
)
|
|
|
143,678
|
|
|
Accrued expenses and other current liabilities, net
|
|
|
(768
|
)
|
|
|
—
|
|
|
|
1,714
|
|
|
|
946
|
|
|
Net cash used in operating activities
|
|
$
|
(26,498
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(26,498
|
)
|
4. Impairment Charges
Goodwill
We performed an interim goodwill impairment test on the March 31, 2020 balances of our Water and Mineral Services Group Materials and Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation during the three months ended March 31, 2020, exasperated by economic disruption and market conditions associated with the COVID-19 pandemic. These factors led to reductions in the revenue and margin growth rates used in our quantitative goodwill tests. The goodwill impairment test resulted in a $14.8 million impairment charge during the three months ended March 31, 2020 associated with our Water and Mineral Services Group Materials reporting unit and no impairment charge associated with our Water and Minerals Services Group Specialty reporting unit as its estimated fair value exceeded its net book value (i.e., cushion) by over 15%. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment.
We performed a second interim goodwill impairment test on the September 30, 2020 balances of our Midwest Group Specialty, Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnel during the three months ended September 30, 2020. These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests. The goodwill impairment test resulted in a non-cash impairment charge of an additional $117.9 million and $14.4 million associated with our Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units, respectively, during the three months ended September 30, 2020. The goodwill impairment tests for the Midwest Group Specialty reporting unit indicated that their estimated fair values exceeded their net book value (i.e., headroom) by nearly 15%; therefore, no impairment charge was recorded. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment. We completed our 2020 annual goodwill impairment tests during the quarter ended December 31, 2020 and no additional impairment charge was recorded.
Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherent in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.
Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs.
Investment in Affiliates
During the nine months ended September 30, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand. The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary decline in fair value below the carrying value. Therefore, we recorded a non-cash impairment charge of $9.6 million during the nine months ended September 30, 2020. The remaining carrying value of the investments of $76.5 million at September 30, 2020 represents the fair value recorded on a nonrecurring basis and is a Level 3 fair value measurement.
5. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. When we experience significant changes in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. Other than those identified in the 2019 Annual Report on Form 10-K, we did not identify any material amounts that should have been recorded in a prior period for the three and nine months ended September 30, 2019. In our review of these changes for the three and nine months ended September 30, 2020, we did not identify any material amounts that should have been recorded in a prior period.
In the normal course of business, we have revisions in estimates, including estimated costs some of which are associated with unresolved affirmative claims and back charges. The estimated or actual recovery related to these estimated costs may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.
There were no increases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, for the periods presented.
The projects with decreases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, are summarized as follows (dollars in millions except per share data):
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Number of projects with downward estimate changes
|
|
|
3
|
|
|
|
4
|
|
|
|
6
|
|
|
|
10
|
|
|
Range of reduction in gross profit from each project, net
|
|
$
|
7.2 - 17.8
|
|
|
$
|
5.6 - 13.6
|
|
|
$
|
6.5 - 37.6
|
|
|
$
|
5.9 - 48.0
|
|
|
Decrease to project profitability
|
|
$
|
32.2
|
|
|
$
|
37.0
|
|
|
$
|
107.5
|
|
|
$
|
162.5
|
|
|
Increase to net loss
|
|
$
|
21.7
|
|
|
$
|
29.0
|
|
|
$
|
72.6
|
|
|
$
|
127.6
|
|
|
Increase to net loss per diluted share
|
|
$
|
0.48
|
|
|
$
|
0.62
|
|
|
$
|
1.59
|
|
|
$
|
2.73
|
|
Other than one project in our Specialty segment during the three and nine months ended September 30, 2020, all decreases during the three and nine months ended September 30, 2020 were in our Transportation segment and were due to additional costs from differing site conditions, lower productivity than originally anticipated and unfavorable weather. The decreases during the three and nine months ended September 30, 2019 were due to increased project completion costs, schedule delays, lower productivity than originally anticipated and performance of a significant amount of disputed work partially offset by an increase in estimated recovery from customer affirmative claims.
11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. Disaggregation of Revenue
The following tables present our disaggregated revenue (in thousands):
Three months ended September 30,
|
2020
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Materials
|
|
|
Total
|
|
|
California
|
|
$
|
224,636
|
|
|
$
|
10,498
|
|
|
$
|
62,623
|
|
|
$
|
75,901
|
|
|
$
|
373,658
|
|
|
Federal
|
|
|
3,140
|
|
|
|
341
|
|
|
|
28,765
|
|
|
|
—
|
|
|
|
32,246
|
|
|
Heavy Civil
|
|
|
165,434
|
|
|
|
9,985
|
|
|
|
12,892
|
|
|
|
—
|
|
|
|
188,311
|
|
|
Midwest
|
|
|
43,896
|
|
|
|
—
|
|
|
|
24,392
|
|
|
|
—
|
|
|
|
68,288
|
|
|
Northwest
|
|
|
186,893
|
|
|
|
444
|
|
|
|
57,247
|
|
|
|
48,674
|
|
|
|
293,258
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
85,331
|
|
|
|
19,215
|
|
|
|
4,882
|
|
|
|
109,428
|
|
|
Total
|
|
$
|
623,999
|
|
|
$
|
106,599
|
|
|
$
|
205,134
|
|
|
$
|
129,457
|
|
|
$
|
1,065,189
|
|
|
2019 (As Restated)
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Materials
|
|
|
Total
|
|
|
California
|
|
$
|
197,057
|
|
|
$
|
10,390
|
|
|
$
|
60,791
|
|
|
$
|
71,251
|
|
|
$
|
339,489
|
|
|
Federal
|
|
|
56
|
|
|
|
155
|
|
|
|
23,973
|
|
|
|
—
|
|
|
|
24,184
|
|
|
Heavy Civil
|
|
|
187,828
|
|
|
|
389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
188,217
|
|
|
Midwest
|
|
|
27,359
|
|
|
|
39
|
|
|
|
45,701
|
|
|
|
—
|
|
|
|
73,099
|
|
|
Northwest
|
|
|
211,567
|
|
|
|
1,095
|
|
|
|
70,754
|
|
|
|
51,662
|
|
|
|
335,078
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
122,336
|
|
|
|
23,525
|
|
|
|
6,186
|
|
|
|
152,047
|
|
|
Total
|
|
$
|
623,867
|
|
|
$
|
134,404
|
|
|
$
|
224,744
|
|
|
$
|
129,099
|
|
|
$
|
1,112,114
|
|
Nine months ended September 30,
|
2020
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Materials
|
|
|
Total
|
|
|
California
|
|
$
|
478,590
|
|
|
$
|
24,225
|
|
|
$
|
158,076
|
|
|
$
|
161,397
|
|
|
$
|
822,288
|
|
|
Federal
|
|
|
5,306
|
|
|
|
1,309
|
|
|
|
78,760
|
|
|
|
—
|
|
|
|
85,375
|
|
|
Heavy Civil
|
|
|
519,963
|
|
|
|
28,260
|
|
|
|
27,963
|
|
|
|
—
|
|
|
|
576,186
|
|
|
Midwest
|
|
|
103,081
|
|
|
|
152
|
|
|
|
74,543
|
|
|
|
—
|
|
|
|
177,776
|
|
|
Northwest
|
|
|
403,061
|
|
|
|
4,344
|
|
|
|
125,647
|
|
|
|
103,812
|
|
|
|
636,864
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
259,690
|
|
|
|
48,098
|
|
|
|
10,610
|
|
|
|
318,398
|
|
|
Total
|
|
$
|
1,510,001
|
|
|
$
|
317,980
|
|
|
$
|
513,087
|
|
|
$
|
275,819
|
|
|
$
|
2,616,887
|
|
|
2019 (As Restated)
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Materials
|
|
|
Total
|
|
|
California
|
|
$
|
404,981
|
|
|
$
|
14,390
|
|
|
$
|
135,928
|
|
|
$
|
145,278
|
|
|
$
|
700,577
|
|
|
Federal
|
|
|
133
|
|
|
|
1,034
|
|
|
|
57,698
|
|
|
|
—
|
|
|
|
58,865
|
|
|
Heavy Civil
|
|
|
501,330
|
|
|
|
7,370
|
|
|
|
—
|
|
|
|
—
|
|
|
|
508,700
|
|
|
Midwest
|
|
|
73,555
|
|
|
|
123
|
|
|
|
119,148
|
|
|
|
—
|
|
|
|
192,826
|
|
|
Northwest
|
|
|
427,578
|
|
|
|
3,675
|
|
|
|
151,621
|
|
|
|
107,040
|
|
|
|
689,914
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
318,964
|
|
|
|
74,102
|
|
|
|
16,071
|
|
|
|
409,137
|
|
|
Total
|
|
$
|
1,407,577
|
|
|
$
|
345,556
|
|
|
$
|
538,497
|
|
|
$
|
268,389
|
|
|
$
|
2,560,019
|
|
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. Unearned Revenue
The following tables present our unearned revenue as of the respective periods (in thousands):
|
September 30, 2020
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Total
|
|
|
California
|
|
$
|
562,988
|
|
|
$
|
52,598
|
|
|
$
|
115,748
|
|
|
$
|
731,334
|
|
|
Federal
|
|
|
13,787
|
|
|
|
494
|
|
|
|
107,273
|
|
|
|
121,554
|
|
|
Heavy Civil
|
|
|
1,060,034
|
|
|
|
24,803
|
|
|
|
224,427
|
|
|
|
1,309,264
|
|
|
Midwest
|
|
|
169,538
|
|
|
|
—
|
|
|
|
106,694
|
|
|
|
276,232
|
|
|
Northwest
|
|
|
505,559
|
|
|
|
721
|
|
|
|
50,752
|
|
|
|
557,032
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
118,938
|
|
|
|
—
|
|
|
|
118,938
|
|
|
Total
|
|
$
|
2,311,906
|
|
|
$
|
197,554
|
|
|
$
|
604,894
|
|
|
$
|
3,114,354
|
|
|
June 30, 2020
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Total
|
|
|
California
|
|
$
|
636,385
|
|
|
$
|
61,151
|
|
|
$
|
122,989
|
|
|
$
|
820,525
|
|
|
Federal
|
|
|
16,464
|
|
|
|
861
|
|
|
|
123,169
|
|
|
|
140,494
|
|
|
Heavy Civil
|
|
|
1,188,587
|
|
|
|
34,961
|
|
|
|
233,068
|
|
|
|
1,456,616
|
|
|
Midwest
|
|
|
214,016
|
|
|
|
—
|
|
|
|
112,299
|
|
|
|
326,315
|
|
|
Northwest
|
|
|
571,068
|
|
|
|
330
|
|
|
|
89,730
|
|
|
|
661,128
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
130,561
|
|
|
|
—
|
|
|
|
130,561
|
|
|
Total
|
|
$
|
2,626,520
|
|
|
$
|
227,864
|
|
|
$
|
681,255
|
|
|
$
|
3,535,639
|
|
|
September 30, 2019 (As Restated)
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Total
|
|
|
California
|
|
$
|
520,649
|
|
|
$
|
19,594
|
|
|
$
|
96,921
|
|
|
$
|
637,164
|
|
|
Federal
|
|
|
14,699
|
|
|
|
1,181
|
|
|
|
177,686
|
|
|
|
193,566
|
|
|
Heavy Civil
|
|
|
1,627,696
|
|
|
|
52,820
|
|
|
|
245,477
|
|
|
|
1,925,993
|
|
|
Midwest
|
|
|
222,045
|
|
|
|
70
|
|
|
|
140,721
|
|
|
|
362,836
|
|
|
Northwest
|
|
|
276,090
|
|
|
|
1,880
|
|
|
|
74,959
|
|
|
|
352,929
|
|
|
Water and Mineral Services
|
|
|
—
|
|
|
|
159,608
|
|
|
|
—
|
|
|
|
159,608
|
|
|
Total
|
|
$
|
2,661,179
|
|
|
$
|
235,153
|
|
|
$
|
735,764
|
|
|
$
|
3,632,096
|
|
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. Contract Assets and Liabilities
During the three and nine months ended September 30, 2020, we recognized revenue of $3.5 million and $117.5 million, respectively, that was included in the contract balance at December 31, 2019. During the three and nine months ended September 30, 2019, we recognized revenue of $8.9 million and $123.8 million, respectively, that was included in the contract liability balance at December 31, 2018.
As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $99.7 million and $214.4 million during the three and nine months ended September 30, 2020, respectively, and $52.5 million and $150 million during the three and nine months ended September 30, 2019, respectively. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.
As of September 30, 2020, December 31, 2019 and September 30, 2019, the aggregate claim recovery estimates included in contract asset and liability balances were $29.2 million, $71.1 million and $67.2 million, respectively.
The components of the contract asset balances as of the respective dates were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Costs in excess of billings and estimated earnings
|
|
$
|
39,623
|
|
|
$
|
100,761
|
|
|
$
|
100,345
|
|
|
Contract retention
|
|
|
120,316
|
|
|
|
110,680
|
|
|
|
106,062
|
|
|
Total contract assets
|
|
$
|
159,939
|
|
|
$
|
211,441
|
|
|
$
|
206,407
|
|
As of September 30, 2020, December 31, 2019 and September 30, 2019, no contract retention individually exceeded 10% of total net receivables at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.
The components of the contract liability balances as of the respective dates were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Billings in excess of costs and estimated earnings, net of retention
|
|
$
|
168,383
|
|
|
$
|
86,736
|
|
|
$
|
100,916
|
|
|
Provisions for losses
|
|
|
21,047
|
|
|
|
9,001
|
|
|
|
8,383
|
|
|
Total contract liabilities
|
|
$
|
189,430
|
|
|
$
|
95,737
|
|
|
$
|
109,299
|
|
9. Receivables, net
Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest. The following table presents major categories of receivables (in thousands):
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
September 30, 2020
|
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Contracts completed and in progress:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed
|
|
$
|
355,293
|
|
|
$
|
299,633
|
|
|
$
|
417,373
|
|
|
Unbilled
|
|
|
167,311
|
|
|
|
149,696
|
|
|
|
182,762
|
|
|
Total contracts completed and in progress
|
|
|
522,604
|
|
|
|
449,329
|
|
|
|
600,135
|
|
|
Material sales
|
|
|
70,918
|
|
|
|
42,936
|
|
|
|
72,486
|
|
|
Other
|
|
|
71,691
|
|
|
|
55,526
|
|
|
|
41,259
|
|
|
Total gross receivables
|
|
|
665,213
|
|
|
|
547,791
|
|
|
|
713,880
|
|
|
Less: allowance for credit losses
|
|
|
3,265
|
|
|
|
374
|
|
|
|
908
|
|
|
Total net receivables
|
|
$
|
661,948
|
|
|
$
|
547,417
|
|
|
$
|
712,972
|
|
Included in other receivables at September 30, 2020, December 31, 2019 and September 30, 2019, were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. Fair Value Measurement
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
September 30, 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
78,981
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
78,981
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swap
|
|
|
—
|
|
|
|
209
|
|
|
|
—
|
|
|
|
209
|
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
1,512
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,512
|
|
|
Total assets
|
|
$
|
80,493
|
|
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
80,702
|
|
|
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
—
|
|
|
$
|
8,353
|
|
|
$
|
—
|
|
|
$
|
8,353
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
8,353
|
|
|
$
|
—
|
|
|
$
|
8,353
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
94,696
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
94,696
|
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
5,835
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,835
|
|
|
Total assets
|
|
$
|
100,531
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,531
|
|
|
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
—
|
|
|
$
|
4,603
|
|
|
$
|
—
|
|
|
$
|
4,603
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
4,603
|
|
|
$
|
—
|
|
|
$
|
4,603
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
68,579
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68,579
|
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
5,658
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,658
|
|
|
Total assets
|
|
$
|
74,237
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,237
|
|
|
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
—
|
|
|
$
|
5,564
|
|
|
$
|
—
|
|
|
$
|
5,564
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
5,564
|
|
|
$
|
—
|
|
|
$
|
5,564
|
|
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Interest Rate Swaps
In connection with the Third Amended and Restated Credit Agreement (as discussed further in Note 14) we entered into two interest rate swaps designated as cash flow hedges with an effective date of May 2018. The two cash flow hedges had a combined initial notional amount of $150.0 million and mature in May 2023. The interest rate swaps are designed to convert the interest rate on the term loan from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 2.76% plus the same applicable margin. The interest rate swap is measured at fair value on the consolidated balance sheets using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.
Other Assets and Liabilities
The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:
|
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
(in thousands)
|
Fair Value Hierarchy
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity marketable securities (1)
|
Level 1
|
|
$
|
5,700
|
|
|
$
|
5,696
|
|
|
$
|
32,799
|
|
|
$
|
32,792
|
|
|
$
|
47,918
|
|
|
$
|
47,856
|
|
|
Liabilities (including current maturities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.75% Convertible Notes (2),(3)
|
Level 2
|
|
$
|
198,606
|
|
|
|
184,000
|
|
|
$
|
193,696
|
|
|
$
|
249,895
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Credit Agreement - term loan (2)
|
Level 3
|
|
|
133,125
|
|
|
|
135,046
|
|
|
|
138,750
|
|
|
|
139,042
|
|
|
|
140,625
|
|
|
|
141,634
|
|
|
Credit Agreement - revolving credit facility (2)
|
Level 3
|
|
|
75,000
|
|
|
|
76,180
|
|
|
|
25,000
|
|
|
|
25,043
|
|
|
|
250,000
|
|
|
|
251,986
|
|
(1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of September 30, 2020, December 31, 2019 and September 30, 2019.
(2) The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market as of September 30, 2020 and December 31, 2019. The fair value of the Credit Agreement is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14 for definitions of, and more information about, the Credit Agreement and 2.75% Convertible Notes.
(3) Excluded from carrying value is $31.4 million and $36.3 million debt discount of as of September 30, 2020 and December 31, 2019, respectively, related to the 2.75% Convertible Notes (see Note 14).
As disclosed in Note 4, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2020, we did not record any fair value adjustments related to nonfinancial liabilities measured at fair value on a nonrecurring basis. During the three and nine months ended September 30, 2019, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
11. Construction Joint Ventures
We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and nine months ended September 30, 2020, we determined no change was required for existing joint ventures.
Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At September 30, 2020, there was approximately $1.8 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.7 billion represented our share and the remaining $1.1 billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.
Consolidated Construction Joint Ventures (“CCJVs”)
At September 30, 2020, we were engaged in seven active CCJV projects with total contract values ranging from $26.1 million to $435.3 million and a combined total of $1.7 billion of which our share was $1.0 billion. Our share of revenue remaining to be recognized on these CCJVs was $451.3 million and ranged from $6.5 million to $173.8 million. Our proportionate share of the equity in these joint ventures was between 50.0% and 65.0%. During the three and nine months ended September 30, 2020, total revenue from CCJVs was $79.2 million and $219.9 million, respectively, and during the three and nine months ended September 30, 2019, total revenue from CCJVs was $66.1 million and $205.6 million, respectively. During the nine months ended September 30, 2020 and 2019, CCJVs provided $17.0 million and used $19.0 million of operating cash flows, respectively.
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Unconsolidated Construction Joint Ventures
As of September 30, 2020, we were engaged in ten active unconsolidated joint venture projects with total contract values ranging from $12.1 million to $3.8 billion for a combined total of $11.6 billion of which our share was $3.4 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of September 30, 2020, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $538.0 million and ranged from $1.1 million to $141.1 million.
The following is summary financial information related to unconsolidated construction joint ventures:
|
|
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
(in thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
211,483
|
|
|
$
|
179,049
|
|
|
$
|
217,279
|
|
|
Other current assets (1)
|
|
|
874,396
|
|
|
|
972,840
|
|
|
|
863,182
|
|
|
Noncurrent assets
|
|
|
176,195
|
|
|
|
207,584
|
|
|
|
209,865
|
|
|
Less partners’ interest
|
|
|
849,213
|
|
|
|
904,565
|
|
|
|
858,235
|
|
|
Granite’s interest (1),(2)
|
|
|
412,861
|
|
|
|
454,908
|
|
|
|
432,091
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
514,739
|
|
|
|
581,199
|
|
|
$
|
542,278
|
|
|
Less partners’ interest and adjustments (3)
|
|
|
211,749
|
|
|
|
243,202
|
|
|
|
231,909
|
|
|
Granite’s interest
|
|
|
302,990
|
|
|
|
337,997
|
|
|
|
310,369
|
|
|
Equity in construction joint ventures (4)
|
|
$
|
109,871
|
|
|
$
|
116,911
|
|
|
$
|
121,722
|
|
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $82.3 million as of September 30, 2020 and $81.9 million as of both December 31, 2019 and September 30, 2019, related to performance guarantees.
(2) Included in this balance as of September 30, 2020, December 31, 2019 and September 30, 2019, was $86.2 million, $116.8 million and $118.0 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $13.8 million, $15.9 million and $14.8 million related to Granite’s share of estimated recovery of back charge claims as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively.
(3) Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.
(4) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $75.1 million, $76.2 million and $82.2 million as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
As Restated
|
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
293,733
|
|
|
$
|
421,977
|
|
|
$
|
740,224
|
|
|
$
|
1,273,982
|
|
|
Less partners’ interest and adjustments (1)
|
|
|
206,032
|
|
|
|
309,937
|
|
|
|
471,999
|
|
|
|
949,855
|
|
|
Granite’s interest
|
|
|
87,701
|
|
|
|
112,040
|
|
|
|
268,225
|
|
|
|
324,127
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
299,776
|
|
|
|
441,898
|
|
|
|
884,991
|
|
|
|
1,309,867
|
|
|
Less partners’ interest and adjustments (1)
|
|
|
203,932
|
|
|
|
308,764
|
|
|
|
578,235
|
|
|
|
891,795
|
|
|
Granite’s interest
|
|
|
95,844
|
|
|
|
133,134
|
|
|
|
306,756
|
|
|
|
418,072
|
|
|
Granite’s interest in gross loss
|
|
$
|
(8,143
|
)
|
|
$
|
(21,094
|
)
|
|
$
|
(38,531
|
)
|
|
$
|
(93,945
|
)
|
(1) Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.
During the three and nine months ended September 30, 2020, unconsolidated construction joint venture net loss was $(6.0) million and $(144.5) million, respectively, of which our share was $(8.0) million and $(38.5) million, respectively. The differences between our share of the joint venture net loss when compared to the joint venture net loss primarily resulted from differences between our estimated total revenue and cost of revenue when compared to that of our partners’ on five and four projects during 2020 and 2019, respectively. The differences are due to timing differences from varying accounting policies and in public company quarterly reporting requirements. These joint venture net loss amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.
Line Item Joint Ventures
As of September 30, 2020, we had four active line item joint venture construction projects with a total contract value of $318.0 million of which our portion was $188.5 million. As of September 30, 2020, our share of revenue remaining to be recognized on these line item joint ventures was $111.3 million. During the three and nine months ended September 30, 2020, our portion of revenue from line item joint ventures was $27.5 million and $58.7 million, respectively. During the three and nine months ended September 30, 2019, our portion of revenue from line item joint ventures was $9.1 million and $21.3 million, respectively.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
12. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
|
(in thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Foreign
|
|
$
|
46,000
|
|
|
$
|
55,335
|
|
|
$
|
55,769
|
|
|
Real estate
|
|
|
16,535
|
|
|
|
17,229
|
|
|
|
17,670
|
|
|
Asphalt terminal
|
|
|
13,929
|
|
|
|
11,612
|
|
|
|
11,475
|
|
|
Total investments in affiliates
|
|
$
|
76,464
|
|
|
$
|
84,176
|
|
|
$
|
84,914
|
|
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
|
(in thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Current assets
|
|
$
|
116,712
|
|
|
$
|
122,348
|
|
|
$
|
140,487
|
|
|
Noncurrent assets
|
|
|
165,292
|
|
|
|
165,331
|
|
|
|
168,715
|
|
|
Total assets
|
|
|
282,004
|
|
|
|
287,679
|
|
|
|
309,202
|
|
|
Current liabilities
|
|
|
48,478
|
|
|
|
48,322
|
|
|
|
61,738
|
|
|
Long-term liabilities (1)
|
|
|
55,206
|
|
|
|
61,078
|
|
|
|
60,230
|
|
|
Total liabilities
|
|
|
103,684
|
|
|
|
109,400
|
|
|
|
121,968
|
|
|
Net assets
|
|
|
178,320
|
|
|
|
178,279
|
|
|
|
187,234
|
|
|
Granite’s share of net assets
|
|
$
|
76,464
|
|
|
$
|
84,176
|
|
|
$
|
84,914
|
|
(1) The balance primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates and debt associated with our real estate investments.
Of the $282.0 million of total affiliate assets as of September 30, 2020, we had investments in thirteen foreign entities with total assets ranging from $0.1 million to $66.0 million, three real estate entities with total assets ranging from $8.1 million to $35.7 million and the asphalt terminal entity had total assets of $31.6 million. We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25% to 50% as of September 30, 2020. During the nine months ended September 30, 2020, we recorded a $9.6 million impairment charge related to our investment in foreign affiliates. See Note 4 for further discussion of the impairment charge. The equity method investments in real estate affiliates included $13.2 million, $13.6 million and $14.1 million in residential real estate in Texas as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively. Our percent ownership in the real estate entities ranged from 18% to 47% as of September 30, 2020. The remaining balances were in commercial real estate in Texas.
13. Property and Equipment, net
Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets and were as follows:
|
(in thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
Equipment and vehicles
|
|
$
|
959,828
|
|
|
$
|
947,687
|
|
|
$
|
949,577
|
|
|
Quarry property
|
|
|
199,677
|
|
|
|
188,960
|
|
|
|
185,792
|
|
|
Land and land improvements
|
|
|
135,102
|
|
|
|
132,531
|
|
|
|
134,543
|
|
|
Buildings and leasehold improvements
|
|
|
122,119
|
|
|
|
122,316
|
|
|
|
112,940
|
|
|
Office furniture and equipment
|
|
|
72,675
|
|
|
|
67,991
|
|
|
|
66,791
|
|
|
Property and equipment
|
|
|
1,489,401
|
|
|
|
1,459,485
|
|
|
|
1,449,643
|
|
|
Less: accumulated depreciation and depletion
|
|
|
953,145
|
|
|
|
917,188
|
|
|
|
906,847
|
|
|
Property and equipment, net
|
|
$
|
536,256
|
|
|
$
|
542,297
|
|
|
$
|
542,796
|
|
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
14. Long-Term Debt and Credit Arrangements
|
(in thousands)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
2.75% Convertible Notes
|
|
$
|
198,606
|
|
|
$
|
193,696
|
|
|
$
|
—
|
|
|
Credit Agreement - term loan
|
|
|
133,125
|
|
|
|
138,750
|
|
|
|
140,625
|
|
|
Credit Agreement - revolving credit facility
|
|
|
75,000
|
|
|
|
25,000
|
|
|
|
250,000
|
|
|
Debt issuance costs and other
|
|
|
7,166
|
|
|
|
6,906
|
|
|
|
12,479
|
|
|
Total debt
|
|
|
413,897
|
|
|
|
364,352
|
|
|
|
403,104
|
|
|
Less current maturities
|
|
|
8,253
|
|
|
|
8,244
|
|
|
|
8,263
|
|
|
Total long-term debt
|
|
$
|
405,644
|
|
|
$
|
356,108
|
|
|
$
|
394,841
|
|
The aggregate minimum principal maturities of long-term debt related to balances at September 30, 2020 excluding debt issuance costs, including current maturities and the $31.4 million unamortized debt discount related to the 2.75% Convertible Notes are as follows $2.1 million during the remainder of 2020; $8.5 million in 2021; $8.5 million in 2022; $192.3 million in 2023; $231.1 million in 2024; and $7.9 million in 2025 and thereafter.
Credit Agreement
On March 26, 2020, we entered into Amendment No. 3 to the Third Amended and Restated Credit Agreement, which among other things, (i) reduced the revolving credit facility from $350.0 million to $275.0 million; (ii) amended the definition of Applicable Rate; (iii) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; and (iv) modified certain financial covenants to allow for investments in certain large projects during 2020.
On June 19, 2020 and November 12, 2020, we entered into Amendments No. 4 and No. 5, respectively, to the Third Amended and Restated Credit Agreement, which, among other things, provided additional timing for the Company to deliver annual and quarterly financial statements.
On February 19, 2021, we entered into the Limited Waiver and Amendment No. 6 to the Third Amended and Restated Credit Agreement which waives any defaults or events of defaults that may have arisen in connection with the Company’s restatement during the periods covered by the restatement, the failure to comply with a financial covenant and any right of the lenders to collect interest at the default rate with respect to the waived defaults and events of default.
We refer to Third Amended and Restated Credit Agreement dated May 31, 2018 and all subsequent amendments listed above as “Credit Agreement.”
The Credit Agreement consists of a term loan and a revolving credit facility.
The term loan requires that Granite repay 1.25% of the original $150.0 million principal balance each quarter until the maturity date, at which point the remaining balance is due. As of each September 30, 2020, December 31, 2019 and September 30, 2019, $7.5 million of the term loan balance was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $125.6 million, $131.3 million and $133.1 million, respectively, was included in long-term debt.
As of September 30, 2020, the total unused availability under the Credit Agreement was $155.9 million resulting from $44.1 million in issued and outstanding letters of credit and $75.0 million drawn under the revolving credit facility. The letters of credit had expiration dates between October 2020 and December 2023.
Borrowings under the Credit Agreement bear interest at LIBOR, subject to a 75 basis point floor, or a base rate (at our option), plus an applicable margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement) calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was 3.00% for loans bearing interest based on LIBOR and 2.00% for loans bearing interest at the base rate at September 30, 2020. Accordingly, the effective interest rate at September 30, 2020, using three-month LIBOR and the base rate was 3.75% and 5.25%, respectively, and we elected to use LIBOR for both the term loan and the revolving credit facility.
2.75% Convertible Notes
In November 2019, we issued an aggregate principal amount of $230.0 million of convertible senior notes (the “2.75% Convertible Notes”) at an interest rate of 2.75% per annum payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020 and maturing on November 1, 2024, unless earlier converted, redeemed or repurchased.
As of September 30, 2020 and December 31, 2019, the carrying amount of the liability component was $198.6 million and $193.7 million, respectively. As of September 30, 2020 and December 31, 2019, the unamortized debt discount was $31.4 million and $36.3 million, respectively.
On October 29, 2019, in connection with the offering of our 2.75% Convertible Notes, we entered into a purchased equity derivative instrument (“Hedge Option”) and sold warrants to reduce the cost of the Hedge Option. The Hedge Option and warrants were included in additional paid-in capital on the condensed consolidated balance sheets and were $27.9 million and $11.2 million, respectively, as of both September 30, 2020 and December 31, 2019.
On May 4, 2020, the Company notified the Trustee for the 2.75% Convertible Notes that beginning May 5, 2020 until the date on which the Company regained compliance with its filing requirements under section 4.06(d) of the indenture, the Company would pay 0.50% per annum of additional interest to the Noteholders on the November 1st and May 1st semi-annual coupon payment dates.
2019 Notes
As of September 30, 2019, senior notes payable in the amount of $40.0 million were due to a group of institutional holders, and had an interest rate of 6.11% per annum and were originally due in December 2019 (“2019 Notes”). On July 29, 2019, we called and redeemed the $40.0 million outstanding balance.
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of September 30, 2020, the Consolidated Leverage Ratio was 2.96, which did not exceed the maximum of 3.25. Our Consolidated Interest Coverage Ratio was 5.69, which exceeded the minimum of 4.00. To accommodate the delays in filing our financial statements, we entered into amendments with our lenders to extend the deadline for filing the 2019 Annual Report on Form 10-K and all of our 2020 Quarterly Reports on Form 10-Qs to February 28, 2021
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
15. Leases
We have leases for office and shop space, as well as for equipment primarily utilized in our construction projects. As of September 30, 2020, our lease contracts were classified as operating leases and had terms ranging from month-to-month to 23 years. As of September 30, 2020, December 31, 2019 and September 30, 2019, right of use (“ROU”) assets and long term lease liabilities were separately presented and short term lease liabilities of $19.1 million, $17.0 million and $15.9 million, respectively, were included in accrued and other current liabilities on our condensed consolidated balance sheets.
As of September 30, 2020, December 31, 2019 and September 30, 2019, we had no lease contracts that had not yet commenced but created significant rights and obligations.
Lease expense was $5.5 million and $16.2 million during the three and nine months ended September 30, 2020, respectively, and $5.0 million and $13.9 million during the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, December 31, 2019 and September 30, 2019, our weighted-average remaining lease term was 5.2 years, 5.8 years and 6.0 years, respectively, and the weighted-average discount rate was 3.89%, 3.97% and 3.99%, respectively. As of September 30, 2020, December 31, 2019 and September 30, 2019, the lease liability was equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on our secured debt, using one maturity discount rate that is updated quarterly, as it is not materially different than the discount rates applied to each of the leases in the portfolio.
The following table summarizes our undiscounted lease liabilities outstanding as of September 30, 2020 (in thousands):
|
Remainder of 2020
|
|
$
|
5,503
|
|
|
2021
|
|
|
21,488
|
|
|
2022
|
|
|
19,261
|
|
|
2023
|
|
|
13,159
|
|
|
2024
|
|
|
7,606
|
|
|
2025 through 2036
|
|
|
13,600
|
|
|
Total future minimum lease payments
|
|
$
|
80,617
|
|
|
Less: imputed interest
|
|
|
(9,664
|
)
|
|
Total
|
|
$
|
70,953
|
|
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
16. Weighted Average Shares Outstanding and Net Income (Loss) Per Share
The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
As Restated
|
|
|
(in thousands, except per share amounts)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Numerator (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common shareholders for basic calculation
|
|
$
|
(91,162
|
)
|
|
$
|
45,901
|
|
|
$
|
(153,127
|
)
|
|
$
|
(40,811
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
45,654
|
|
|
|
46,788
|
|
|
|
45,598
|
|
|
|
46,771
|
|
|
Dilutive effect of RSUs and 2.75% Convertible Notes (1),(2)
|
|
|
—
|
|
|
|
382
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
45,654
|
|
|
|
47,170
|
|
|
|
45,598
|
|
|
|
46,771
|
|
|
Net income (loss) per share, basic
|
|
$
|
(2.00
|
)
|
|
$
|
0.98
|
|
|
$
|
(3.36
|
)
|
|
$
|
(0.87
|
)
|
|
Net income (loss) per share, diluted
|
|
$
|
(2.00
|
)
|
|
$
|
0.97
|
|
|
$
|
(3.36
|
)
|
|
$
|
(0.87
|
)
|
(1) Due to the net losses, RSUs representing approximately 636,000, 580,000 and 393,000 for the three and nine months ended September 30, 2020 and nine months ended September 30, 2019, respectively, have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.
(2) As the average price of our common stock was below $31.47 per share since the issuance date of the 2.75% Convertible Notes, the number of shares used in calculating diluted net income (loss) per share for the three and nine months ended September 30, 2020 excluded the potential dilution from the 2.75% Convertible Notes converting into shares of common stock.
17. Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
As Restated
|
|
|
(dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
11,272
|
|
|
$
|
11,747
|
|
|
$
|
(5,220
|
)
|
|
$
|
(11,516
|
)
|
|
Effective tax rate
|
|
|
(12.9
|
)%
|
|
|
20.8
|
%
|
|
|
2.9
|
%
|
|
|
23.9
|
%
|
Our effective tax rate for the three and nine months ended September 30, 2020 decreased to (12.9)% and 2.9% from 20.8% and 23.9% respectively, when compared to the same period in 2019. This change was primarily due to the goodwill impairment and the investment in affiliates impairment which is discrete to the three months ended March 31, 2020 and resulted in no discrete tax benefit and the second goodwill impairment which is discrete to the three months ended September 30, 2020 and resulted in no discrete tax benefit. See Note 4 for discussion of the impairment charges.
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
18. Contingencies - Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.
Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. The aggregate liabilities recorded as of September 30, 2020 and 2019 related to these matters were immaterial. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined.
On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Amended Complaint seeks damages based on allegations that in the Company’s SEC filings the defendants made false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations and prospects. On May 20, 2020, the Court denied, in part, the Defendants’ Motion to Dismiss the Amended Complaint. On January 21, 2021, the Court granted Plaintiff’s motion for class certification. We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.
On October 23, 2019, a putative class action lawsuit was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer; Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint. We have filed a demurrer seeking to dismiss the amended complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of the case, which we intend to defend vigorously.
On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendants knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaint seeks monetary damages and corporate governance reforms. The Court has ordered that the lawsuit in the derivative action be stayed until further order of the Court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.
As of September 30, 2020, no liability related to above matters was recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.
In connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued us subpoenas for documents in connection with the independent Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.
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 September 30,
|
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Materials
|
|
|
Total
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
623,999
|
|
|
$
|
106,599
|
|
|
$
|
205,134
|
|
|
$
|
194,298
|
|
|
$
|
1,130,030
|
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(64,841
|
)
|
|
|
(64,841
|
)
|
|
Revenue from external customers
|
|
|
623,999
|
|
|
|
106,599
|
|
|
|
205,134
|
|
|
|
129,457
|
|
|
|
1,065,189
|
|
|
Gross profit
|
|
|
54,322
|
|
|
|
12,557
|
|
|
|
33,292
|
|
|
|
25,826
|
|
|
|
125,997
|
|
|
Depreciation, depletion and amortization
|
|
|
5,268
|
|
|
|
8,258
|
|
|
|
5,046
|
|
|
|
6,120
|
|
|
|
24,692
|
|
|
2019 (As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
623,867
|
|
|
$
|
134,404
|
|
|
$
|
224,744
|
|
|
$
|
198,538
|
|
|
$
|
1,181,553
|
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(69,439
|
)
|
|
|
(69,439
|
)
|
|
Revenue from external customers
|
|
|
623,867
|
|
|
|
134,404
|
|
|
|
224,744
|
|
|
|
129,099
|
|
|
|
1,112,114
|
|
|
Gross profit
|
|
|
46,865
|
|
|
|
12,637
|
|
|
|
38,586
|
|
|
|
24,470
|
|
|
|
122,558
|
|
|
Depreciation, depletion and amortization
|
|
|
4,096
|
|
|
|
9,272
|
|
|
|
7,747
|
|
|
|
6,784
|
|
|
|
27,899
|
|
Nine months ended September 30,
|
|
|
Transportation
|
|
|
Water
|
|
|
Specialty
|
|
|
Materials
|
|
|
Total
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
1,510,001
|
|
|
$
|
317,980
|
|
|
$
|
513,087
|
|
|
$
|
400,808
|
|
|
$
|
2,741,876
|
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(124,989
|
)
|
|
|
(124,989
|
)
|
|
Revenue from external customers
|
|
|
1,510,001
|
|
|
|
317,980
|
|
|
|
513,087
|
|
|
|
275,819
|
|
|
|
2,616,887
|
|
|
Gross profit
|
|
|
110,888
|
|
|
|
34,483
|
|
|
|
47,853
|
|
|
|
44,915
|
|
|
|
238,139
|
|
|
Depreciation, depletion and amortization
|
|
|
14,685
|
|
|
|
27,399
|
|
|
|
18,166
|
|
|
|
16,563
|
|
|
|
76,813
|
|
|
Segment assets
|
|
|
305,962
|
|
|
|
142,604
|
|
|
|
118,797
|
|
|
|
361,862
|
|
|
|
929,225
|
|
|
2019 (As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from reportable segments
|
|
$
|
1,407,577
|
|
|
$
|
345,556
|
|
|
$
|
538,497
|
|
|
$
|
402,437
|
|
|
$
|
2,694,067
|
|
|
Elimination of intersegment revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(134,048
|
)
|
|
|
(134,048
|
)
|
|
Revenue from external customers
|
|
|
1,407,577
|
|
|
|
345,556
|
|
|
|
538,497
|
|
|
|
268,389
|
|
|
|
2,560,019
|
|
|
Gross (loss) profit
|
|
|
31,016
|
|
|
|
31,085
|
|
|
|
73,639
|
|
|
|
34,714
|
|
|
|
170,454
|
|
|
Depreciation, depletion and amortization
|
|
|
12,581
|
|
|
|
31,259
|
|
|
|
21,960
|
|
|
|
18,417
|
|
|
|
84,217
|
|
|
Segment assets
|
|
|
314,247
|
|
|
|
293,156
|
|
|
|
136,466
|
|
|
|
371,465
|
|
|
|
1,115,334
|
|
A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
As Restated
|
|
|
|
|
|
|
As Restated
|
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Total gross profit from reportable segments
|
|
$
|
125,997
|
|
|
$
|
122,558
|
|
|
$
|
238,139
|
|
|
$
|
170,454
|
|
|
Selling, general and administrative expenses
|
|
|
82,505
|
|
|
|
73,424
|
|
|
|
252,568
|
|
|
|
224,577
|
|
|
Acquisition and integration expenses
|
|
|
73
|
|
|
|
2,744
|
|
|
|
73
|
|
|
|
13,769
|
|
|
Non-cash impairment charges (See Note 4)
|
|
|
132,277
|
|
|
|
—
|
|
|
|
156,690
|
|
|
|
—
|
|
|
Gain on sales of property and equipment
|
|
|
(3,057
|
)
|
|
|
(7,101
|
)
|
|
|
(4,870
|
)
|
|
|
(13,936
|
)
|
|
Total other expense (income)
|
|
|
1,284
|
|
|
|
(3,022
|
)
|
|
|
10,766
|
|
|
|
(5,799
|
)
|
|
Income (loss) before provision for (benefit from) income taxes
|
|
$
|
(87,085
|
)
|
|
$
|
56,513
|
|
|
$
|
(177,088
|
)
|
|
$
|
(48,157
|
)
|