What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 541 added, 390 removed, 1409 unchanged (40% of the section changed)

3 unchanged sentences

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

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

Current assets

93 unchanged sentences

issued and outstanding:

45,818,719 shares as of June 30, 2021, 45,668,541 shares as of December 31, 2020 and 45,651,914 shares as of June 30, 2020

45,826,409 shares as of September 30, 2021, 45,668,541 shares as of December 31, 2020 and 45,655,682 shares as of September 30, 2020

Additional paid-in capital

28 unchanged sentences

(Unaudited - in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Transportation

$ 568,186  

$ 623,999  

$ 1,444,450  

$ 1,510,001  

121,968  

106,599  

335,153  

317,980  

234,300  

205,134  

590,245  

513,087  

137,675  

129,457  

326,366  

275,819  

Total revenue

1,062,129  

1,065,189  

2,696,214  

2,616,887  

Cost of revenue

Transportation

509,683  

569,677  

1,290,564  

1,399,113  

112,092  

94,042  

306,148  

283,497  

203,442  

171,842  

517,693  

465,234  

116,977  

103,631  

281,610  

230,904  

Total cost of revenue

942,194  

939,192  

2,396,015  

2,378,748  

119,935  

125,997  

300,199  

238,139  

Selling, general and administrative expenses

77,603  

72,889  

227,400  

224,128  

Non-cash impairment charges (see Note 3)

132,277  

156,690  

Other costs (see Note 3)

85,547  

28,513  

Gain on sales of property and equipment, net (see Note 12)

( 5,159 )  

( 3,057 )  

( 39,349 )  

Operating income (loss)

43,732  

( 85,801 )  

26,601  

Other (income) expense

Interest income

( 293 )  

( 755 )  

( 737 )  

Interest expense

16,019  

17,902  

Equity in income of affiliates, net

Other (income) expense, net

Total other (income) expense

( 2,539 )  

( 2,353 )  

( 10,578 )  

Other expense (income), net

( 1,967 )  

( 3,018 )  

Total other expense, net

10,766  

Income (loss) before provision for (benefit from) income taxes

41,327  

( 87,085 )  

24,915  

Provision for (benefit from) income taxes

11,272  

Net income (loss)

32,423  

( 98,357 )  

22,847  

Amount attributable to non-controlling interests

18,741  

Net income (loss) attributable to Granite Construction Incorporated

$ 35,043  

$ ( 91,162 )  

$ 23,309  

$ ( 153,127 )

Net income (loss) per share attributable to common shareholders (see Note 14)

$ 0.76  

$ ( 2.00 )  

$ 0.51  

$ 0.73  

$ ( 2.00 )  

$ 0.49  

Weighted average shares of common stock

45,821  

45,654  

45,773  

45,598  

47,906  

45,654  

47,522  

45,598  

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(Unaudited - in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,  

Nine Months Ended September 30,  

Net income (loss)

Other comprehensive income (loss), net of tax:

Net unrealized gain (loss) on derivatives

$ 32,423  

$ ( 98,357 )  

$ 22,847  

$ ( 171,868 )

Other comprehensive (loss) income, net of tax:

Net unrealized (loss) gain on derivatives

$ ( 945 )  

$ ( 904 )  

reclassification for net losses included in interest expense

$ ( 566 )  

$ ( 546 )  

$ 1,839  

Foreign currency translation adjustments, net

Other comprehensive income (loss)

( 151 )  

( 273 )  

Other comprehensive (loss) income

$ ( 717 )  

$ ( 202 )  

$ 1,566  

Comprehensive income (loss)

$ 31,706  

$ ( 98,559 )  

$ 24,413  

$ ( 175,225 )

Non-controlling interests in comprehensive income

18,741  

Comprehensive income (loss) attributable to Granite Construction Incorporated

$ 34,326  

$ ( 91,364 )  

$ 24,875  

$ ( 156,484 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

11 unchanged sentences

Total Equity  

Balances at March 31, 2021

Balances at June 30, 2021

45,818,719  

5 unchanged sentences

$ 988,242  

Net income (loss)

35,043  

1 unchanged sentence

( 2,620 )  

Other comprehensive income

32,423  

Other comprehensive loss

( 717 )  

Purchases of common stock (1)

10 unchanged sentences

( 26 )  

Balances at June 30, 2021

( 72 )  

Balances at September 30, 2021

45,826,409  

4 unchanged sentences

$ 37,169  

Balances at March 31, 2020

$ 1,022,354  

Balances at June 30, 2020

45,651,914  

4 unchanged sentences

$ 23,039  

Net income (loss)

$ 1,090,760  

Other comprehensive income

Purchases of common stock (1)

( 91,162 )  

1 unchanged sentence

( 7,195 )  

Other comprehensive loss

( 202 )  

Purchases of common stock (1)

( 1,352 )  

( 25 )  

Dividends on common stock ( $0.13 per share)

2 unchanged sentences

Transactions with non-controlling interests

( 4,640 )  

Amortized RSUs and other

1 unchanged sentence

( 82 )  

Balances at June 30, 2020

Balances at September 30, 2020

45,655,682  

13 unchanged sentences

$ 991,610  

Net (loss) income

Net income (loss)

23,309  

( 462 )  

22,847  

Other comprehensive income

13 unchanged sentences

( 203 )  

Balances at June 30, 2021

Balances at September 30, 2021

45,826,409  

35 unchanged sentences

( 217 )  

Balances at June 30, 2020

Balances at September 30, 2020

45,655,682  

11 unchanged sentences

( Unaudited - in thousands )

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

Net income (loss)

$ 22,847  

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

$ ( 171,868 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation, depletion and amortization

22 unchanged sentences

144,558  

( 6,062 )  

Contributions to unconsolidated construction joint ventures

1 unchanged sentence

Distributions from unconsolidated construction joint ventures and affiliates

14,379  

Other assets, net

4 unchanged sentences

28,694  

Net cash (used in) provided by operating activities

43,477  

Net cash provided by operating activities

59,922  

138,666  

Investing activities

9 unchanged sentences

58,002  

12,283  

Other investing activities, net

Net cash provided by (used in) investing activities

Net cash used in investing activities

( 17,381 )  

Financing activities

16 unchanged sentences

24,663  

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

27,913  

3 unchanged sentences

268,108  

Cash, cash equivalents and $ 1,512 in restricted cash at end of both periods

Cash, cash equivalents and $1,512 in restricted cash at end of each period

$ 465,561  

27 unchanged sentences

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, 2021  and 

September 30, 2021  and 

2020  and the results of our operations and cash flows for the periods presented.

9 unchanged sentences

Therefore, the results of operations for the 

three and six months ended June 30, 2021  are not necessarily indicative of the results to be expected for the full year.

three and nine months ended September 30, 2021  are not necessarily indicative of the results to be expected for the full year.

Cash, Cash Equivalents and Restricted Cash:

The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):

Six months ended June 30,

Nine months ended September 30,

Cash, cash equivalents and restricted cash, beginning of period

$ 437,648  

$ 268,108  

End of the period

Cash and cash equivalents

464,049  

388,024  

Restricted cash

Total cash, cash equivalents and restricted cash, end of period

Net (decrease) increase in cash, cash equivalents and restricted cash

465,561  

389,536  

Net increase in cash, cash equivalents and restricted cash

$ 27,913  

$ 121,428  

Recently Issued Accounting Pronouncements

8 unchanged sentences

) ,  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.

This change will also reduce reported interest expense and increase reported net income as we 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 for convertible debt.

6 unchanged sentences

Upon adoption of ASU 2020 - 06, interest expense previously recorded and remaining to be recorded from the debt discount will be reversed through retained earnings with an offset to debt, net of tax.

We estimate this impact to be between $ 20 million and $ 40 million.

In addition, using the if-converted method may have a material impact to diluted earnings per share if the Company is in a net income position.

We estimate this impact to long-term debt and retained earnings to be between $ 20 million and $ 40 million.

In addition, using the if-converted method as compared to the treasury stock method may have a material impact to diluted earnings per share if the Company is in a net income position.

In March 2020, the FASB issued ASU 2020 - 04,  Reference Rate Reform (Topic 848 ):

3 unchanged sentences

Scope , which provided clarification guidance to ASU 

These ASUs are effective commencing with our quarter ended March 31, 2020 through December 31, 2022, at our option, and we expect to adopt in early 2022.

 We do not expect the adoption of these ASUs to have a material impact on our condensed consolidated financial statements.

Our Credit Agreement currently incorporates the uses of the secured overnight financing rate as an alternative to LIBOR. 

These ASUs are effective at our option beginning with our quarter ended March 31, 2020 through December 31, 2022, 

and we expect to adopt in the second quarter of 2022.

As our Third Amended and Restated Credit Agreement dated May 18, 2021, as subsequently amended (the “Credit Agreement”) currently incorporates the use of the secured overnight financing rate as an alternative to LIBOR, we do not expect the adoption of these ASUs to have a material impact on our condensed consolidated financial statements.

GRANITE CONSTRUCTION INCORPORATED

4 unchanged sentences

and more frequently when events and circumstances occur that indicate a possible impairment of goodwill.

There were no events or circumstances during the six  months ended June 30, 2021 or during the three months ended June 30, 2020 that would indicate a possible goodwill impairment. 

There were no events or circumstances during the nine months ended September 

30, 2021  that would indicate a possible goodwill impairment. 

We performed an interim goodwill impairment test on the March 

4 unchanged sentences

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 

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 test for the Midwest Group Specialty reporting unit indicated that its estimated fair value exceeded its net book value (i.e., headroom) by over 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. 

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.

3 unchanged sentences

Investments in affiliates are evaluated for impairment using the other-than-temporary impairment model, which requires an impairment charge to be recognized if our investments’ carrying amounts exceed their fair value, and the decline in fair value is deemed to be other than temporary.

There were no events or changes in circumstances which would cause us to assess our investments for impairment during the six months ended June 30, 2021 or during the three months ended June 30, 2020.

During the three months ended March 31, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand.

There were no events or changes in circumstances which would cause us to assess our investments for impairment during the nine months ended September 

30, 2021 or during the three months ended September 30, 2020.

During the three months ended March 

31, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand.

The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary declines in fair value below the carrying values.

Therefore, we recorded a non-cash impairment charge of $ 9.6  million during the six months ended June 30, 2020 using assumptions classified as Level 3 inputs.

Other costs included on the condensed consolidated statements of operations primarily consisted of $ 66.0 million in net settlement charges for the six months ended June 30, 2021 as further described in Note 16.

Other costs also included $ 6.2  million and $ 13.4  million for the three and six months ended June 30, 2021, respectively, and $ 13.5 million and $ 18.7 million for the three and six months ended June 30, 2020, respectively, of legal, accounting and investigation fees related to the independent investigation undertaken by the Audit/Compliance Committee.

The remaining Other costs were related to restructuring in the Heavy Civil operating group and integration expenses related to the Layne Christensen Company (“Layne”) acquisition.

Therefore, we recorded a non-cash impairment charge of $ 9.6  million during the nine months ended September 30, 2020 using assumptions classified as Level 3 inputs.

Other costs included on the condensed consolidated statements of operations primarily consisted of $ 66.0  million in net settlement charges for the nine months ended September 

30, 2021 as further described in Note 16.

Other costs also included $ 3.5  million and $ 16.9  million for the 

three and nine months ended September 30, 2021 , respectively, and $ 9.7  million and $ 28.4  million for the three and nine months ended September 30, 2020 , respectively, of legal, accounting and investigation fees related to the lawsuits discussed in Note 16 and to the independent investigation undertaken by the Audit/Compliance Committee.

The remaining Other costs were primarily related to restructuring in the Heavy Civil operating group and integration expenses related to the Layne Christensen Company (“Layne”) acquisition.

Revisions in Estimates

2 unchanged sentences

Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate.

In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.

When we experience significant 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. In our review of these changes for the 

three and six months ended June 30, 2021  and 2020 , we did 

three and nine months ended September 30, 2021  and 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.

Decreases for all periods presented were in our Transportation segment except for one project in the Water segment during the nine months ended September 30, 2021 and one project in the Specialty segment during each period in 2020 and the nine months ended September 30, 2021. 

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Number of projects with downward estimate changes

3 unchanged sentences

$ 5.5 - 16.2  

$ 6.5 - 37.6  

Decrease to project profitability

Increase to net loss

Increase to net loss per diluted share

The decreases during the six months ended June 30, 2021 were in our Transportation segment and were due to additional costs from acceleration of work coupled with lower productivity than originally anticipated and unfavorable weather. Other than one project in our Specialty segment during the 

three  and 

six  months ended 

June 30, 2020, all decreases were in our Transportation segment and were due to additional costs and lower productivity than originally anticipated as well as weather related costs.

Decrease to net income/increase to net loss

Amounts attributable to non-controlling interests

Decrease to net income/increase to net loss attributable to Granite Construction Incorporated

Decrease to net income/increase to net loss per diluted share attributable to common shareholders (1)

( 1 ) The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued September 30, 2020  condensed consolidated financial statements.

The decreases during the three and nine months ended September 30, 2021 were due to additional costs from acceleration of work coupled with lower productivity and higher costs than originally anticipated.

The decreases during the nine months ended September 30, 2021 were also due to unfavorable weather and extended project duration.

The decreases during the three and nine months ended September 30, 2020 were due to additional costs from differing site conditions, lower productivity than originally anticipated and unfavorable weather.

GRANITE CONSTRUCTION INCORPORATED

2 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Transportation

43 unchanged sentences

293,258  

231,981  

Water and Mineral Services

7 unchanged sentences

$ 1,065,189  

Six Months Ended June 30,

Nine Months Ended September 30,

Transportation

26 unchanged sentences

$ 326,366  

$ 2,696,214  

Transportation

26 unchanged sentences

$ 275,819  

$ 2,616,887  

GRANITE CONSTRUCTION INCORPORATED

2 unchanged sentences

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

June 30, 2021

September 30, 2021

Transportation

15 unchanged sentences

273,622  

745,750  

Water and Mineral Services

5 unchanged sentences

$ 3,032,192  

March 31, 2021

June 30, 2021

Transportation

22 unchanged sentences

$ 3,452,021  

June 30, 2020

September 30, 2020

Transportation

23 unchanged sentences

$ 3,114,354  

Approximately $ 2.5  billion of the June 30, 2021 

unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.

Approximately $ 2.3  billion of the September 30, 2021  unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.

GRANITE CONSTRUCTION INCORPORATED

3 unchanged sentences

We recognized revenue of $ 5.8  million and $ 181.4  million during the 

three and six months ended June 30, 2021 , respectively, and $ 18.2  million and $ 114.0 million during the three and six months ended June 30, 2020, respectively, that was included in the contract liability balances at December 31, 2020  and 2019, respectively.

three and nine months ended September 30, 2021 , respectively, and $ 3.5  million and $ 117.5 million during the three and nine months ended September 30, 2020 , respectively, that was included in the contract liability balances at December 31, 2020  and 2019, respectively.

As a result of changes in contract transaction price from items such as executed or estimated change orders and resolution of contract modifications and claims, we recognized revenue of $ 37.2  million and $ 153.6 million during the 

three and six months ended June 30, 2021 , respectively, and $ 49.9  million and $ 93.8  million during the 

three and six months ended June 30, 2020 , respectively, related to performance obligations that were satisfied or partially satisfied prior to the end of the periods.

The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued June 30, 2020 condensed consolidated financial statements.

June 30, 2021 , December 31, 2020  and June 30, 2020 , the aggregate claim recovery estimates included in contract asset balances were $ 47.7  million, $ 37.7  million and $ 60.0  million, respectively.

three and nine months ended September 30, 2021 , respectively, and $ 55.5  million and $ 149.3  million during the 

three and nine months ended September 30, 2020 , respectively, related to performance obligations that were satisfied or partially satisfied prior to the end of the periods.

The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued September 30, 2020  condensed consolidated financial statements.

September 30, 2021 , December 31, 2020  and September 30, 2020 , the aggregate claim recovery estimates included in contract asset balances were $ 40.4  million, $ 37.7  million and $ 29.2  million, respectively.

The components of the contract asset balances as of the respective dates were as follows:

(in thousands)

June 30, 2021

December 31, 2020

June 30, 2020

September 30, 2021  

December 31, 2020  

September 30, 2020  

Costs in excess of billings and estimated earnings

$ 61,815  

$ 39,300  

$ 39,623  

Contract retention

142,231  

125,639  

120,316  

Total contract assets

June 30, 2021 , December 31, 2020  and June 30, 2020 , no contract retention receivable individually exceeded 15% of total contract assets at any of the presented dates.

$ 204,046  

$ 164,939  

$ 159,939  

September 30, 2021 , December 31, 2020  and September 30, 2020 , no contract retention receivable individually exceeded 15% of total contract assets at any of the presented dates.

The majority of the contract retention balance is expected to be collected within one year. 

1 unchanged sentence

(in thousands)

June 30, 2021

December 31, 2020

June 30, 2020

September 30, 2021  

December 31, 2020  

September 30, 2020  

Billings in excess of costs and estimated earnings, net of retention

$ 166,091  

$ 143,623  

$ 168,383  

Provisions for losses

29,176  

27,698  

21,047  

Total contract liabilities

$ 195,267  

$ 171,321  

$ 189,430  

 Receivables, net 

2 unchanged sentences

(in thousands)

June 30, 2021  

September 30, 2021  

December 31, 2020  

June 30, 2020  

September 30, 2020  

Contracts completed and in progress:

26 unchanged sentences

Included in other receivables at 

June 30, 2021 , December 31, 2020  and June 30, 2020 , were items such as estimated recovery from back charge claims, notes receivable, insurance receivable, fuel tax refunds and income tax refunds.

Other than the $ 63.0 million insurance receivable related to the settlement discussed in Note 16, no other receivables individually exceeded 10% of total net receivables at any of these dates.

September 30, 2021 , December 31, 2020  and September 30, 2020 , were items such as estimated recovery from insurance receivable, notes receivable and income tax refunds.

Other than the $ 63.0 million insurance receivable related to the settlement discussed in Note 16 included in the September 30, 2021 balance, no other receivables individually exceeded 5% of total net receivables at any of these dates.

GRANITE CONSTRUCTION INCORPORATED

3 unchanged sentences

Fair Value Measurement at Reporting Date Using

June 30, 2021

September 30, 2021

Cash equivalents

2 unchanged sentences

$ 61,231  

Other current assets

Commodity swap

Other noncurrent assets

2 unchanged sentences

$ 62,743  

$ 26,551  

Accrued and other current liabilities

21 unchanged sentences

$ 7,606  

June 30, 2020

September 30, 2020

Cash equivalents

2 unchanged sentences

$ 78,981  

Other current assets

Commodity swap

Other noncurrent assets

12 unchanged sentences

Interest Rate Swaps

In connection with the Third Amended and Restated Credit Agreement we entered into two interest rate swaps with an effective date of May 2018 that were designated as cash flow hedges through the three months ended March 31, 2021. 

In connection with entering into the Credit Agreement, we entered into two interest rate swaps with an effective date of May 2018 that were designated as cash flow hedges through the three months ended March 31, 2021. 

These interest rate swaps 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 condensed 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. During the three months ended 

2.76 % plus the same applicable margin. The interest rate swaps are measured at fair value on the condensed 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.

During the three months ended 

June 30, 

2021, we determined that the interest rate swaps were no longer highly effective in offsetting changes to expected future cash flows on hedged transactions, and the interest rate swaps were de-designated as cash flow hedges.

As a result of this de-designation, we recorded a $ 0.8 million reduction to interest expense in the condensed consolidated statements of operations during the three months ended June 30, 2021. 

The unrealized loss on the interest rate swaps of $ 5.4 million in accumulated other comprehensive loss will continue to be amortized to interest expense through the maturity date of May 2023 and was $ 0.7  million and $ 1.5  million during the three and six months ended June 30, 2021.

Commodity Swaps

As of June 30, 2021, we held crude oil swaps with total outstanding gross notional amounts of $ 4.9 million that will all mature by October 2021.

For the three and six months ended June 30, 2021 ,  total commodity swap gain was $ 1.2  million and $ 1.3  million, respectively, and was included in cost of revenue on the condensed consolidated statements of operations.

2021, we determined that the interest rate swaps were no longer highly effective in offsetting changes to expected future cash flows on hedged transactions and were therefore de-designated as cash flow hedges.

As a result of this de-designation, the $ 5.4 million unrealized loss recorded to accumulated other comprehensive loss prior to de-designation will continue to be amortized to interest expense through the maturity date of May 2023.

The impact from the interest rate swap de-designation that was included in interest expense on the condensed consolidated statements of operations was immaterial for the three and nine months ended September 30, 2021.

Other Assets and Liabilities

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

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

(in thousands)

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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 13  for more information about the Credit Agreement and 2.75% Convertible Notes. 

( 3 ) Excluded from the carrying value is debt discount of $ 26.2  million, $ 29.7  million and $ 33.1  million as of June 30, 2021 , December 31, 2020 and June 30, 2020, respectively, related to the 2.75% Convertible Notes (see Note 13 ).

During the three and six  months ended June 30, 2021  and the three months ended June 30, 2020, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

As disclosed in Note 3, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the six  months ended June 30, 2020.

See Note 13  for more information about the 2.75% Convertible Notes and the Credit Agreement.

( 3 ) Excluded from the carrying value is debt discount of $ 24.5  million, $ 29.7  million and $ 31.4  million as of September 30, 2021 , December 31, 2020 and September 30, 2020, respectively, related to the 2.75% Convertible Notes (see Note 13 ).

During the three and nine months ended September 30, 2021 , we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

As disclosed in Note 3, 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.

GRANITE CONSTRUCTION INCORPORATED

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Based on our assessments during the 

three and six months ended June 30, 2021 , we determined no change was required for existing joint ventures.

three and nine months ended September 30, 2021 , 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).

June 30, 2021 , there was approximately $ 1.0  billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $ 0.4 billion represented our share and the remaining $ 0.6 billion represented our partners’

September 30, 2021 , there was approximately $ 0.8  billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $ 0.3  billion represented our share and the remaining $ 0.5  billion represented our partners’

We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed.

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Consolidated Construction Joint Ventures (“CCJVs”)

June 30, 2021 , we were engaged in 

nine active CCJV projects with total contract values ranging from $ 2.2  million to $ 437.5  million and a combined total of $ 1.8  billion of which our share was $ 1.0  billion.

Our share of revenue remaining to be recognized on these CCJVs was $ 350.9  million and ranged from $ 1.0  million to $ 115.8  million.

September 30, 2021 , we were engaged in 

eight active CCJV projects with total contract values ranging from $ 2.3  million to $ 437.5  million and a combined total of $ 1.6  billion of which our share was $ 914.8  million.

As of September 30, 2021, our share of revenue remaining to be recognized on these CCJVs was $ 292.6  million and ranged from $ 0.8  million to $ 97.3  million by project.

Our proportionate share of the equity in these joint ventures was between 

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During the 

three and six months ended June 30, 2021 , total revenue from CCJVs was $ 114.9  million and $ 197.5 million, respectively, and during the 

three and six months ended June 30, 2020 , total revenue from CCJVs was $ 86.0  million and $ 140.7 million, respectively.

three and nine months ended September 30, 2021 , total revenue from CCJVs was $ 117.4  million and $ 314.9 million, respectively, and during the 

three and nine months ended September 30, 2020 , total revenue from CCJVs was $ 79.2  million and $ 219.9 million, respectively.

During the 

six months ended June 30, 2021  and 2020 , CCJVs provided $ 19.4  million and $ 19.8  million of operating cash flows, respectively.

nine months ended September 30, 2021  and 2020 , CCJVs provided $ 17.5  million and $ 17.0  million of operating cash flows, respectively.

Unconsolidated Construction Joint Ventures

June 30, 2021 , we were engaged in ten  active unconsolidated joint venture projects with total contract values ranging from $ 13.4  million to $ 3.8  billion for a combined total of $ 11.6  billion of which our share was $ 3.4  billion.

September 30, 2021 , we were engaged in ten  active unconsolidated joint venture projects with total contract values ranging from $ 13.7  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 %.

June 30, 2021 , our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 297.0  million and ranged from $ 1.3  million to $ 61.4  million.

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

September 30, 2021 , our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 225.8  million and ranged from $ 1.2  million to $ 52.8  million by project.

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

(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

Cash, cash equivalents and marketable securities

$ 139,381  

$ 181,889  

$ 213,285  

Other current assets (1)

795,440  

767,803  

948,103  

Noncurrent assets

140,160  

164,022  

185,866  

Less partners’

716,678  

751,125  

908,274  

Granite’s interest (1),(2)

358,303  

362,589  

438,980  

Current liabilities

432,130  

482,562  

515,113  

Less partners’

interest and adjustments (3)

235,649  

226,308  

182,035  

Granite’s interest

196,481  

256,254  

333,078  

Equity in construction joint ventures (4)

$ 161,822  

$ 106,335  

$ 105,902  

( 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 

June 30, 2021 , 

September 30, 2021 , 

December 31, 2020  and 

June 30, 2020  related to performance guarantees.

( 2 ) Included in this balance as of June 30, 2021 , December 31, 2020  and June 30, 2020 , was $ 96.7  million, $ 88.7  million and $ 80.9  million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims.

September 30, 2020  related to performance guarantees.

( 2 ) Included in this balance as of September 30, 2021 , December 31, 2020  and September 30, 2020 , was $ 101.9  million, $ 88.7  million and $ 86.2  million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims.

In addition, this balance included $ 14.1  million, $ 13.1  million and $ 13.8  million as of 

June 30, 2021 , 

September 30, 2021 , 

December 31, 2020  and 

June 30, 2020 , respectively, related to Granite’s share of estimated recovery of back charge claims.

September 30, 2020 , respectively, related to Granite’s share of estimated recovery of back charge claims.

( 3 ) Partners’

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( 4 ) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $ 19.9  million, $ 82.5  million and $ 75.1  million as of 

June 30, 2021 , 

December 31, 2020  and June 30, 2020 , respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.

Three Months Ended June 30,

Six Months Ended June 30,

September 30, 2021 , 

December 31, 2020  and September 30, 2020 , respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

$ 263,558  

$ 384,461  

$ 495,600  

$ 446,491  

Less partners’

interest and adjustments (1)

176,657  

287,639  

328,977  

265,967  

Granite’s interest

86,901  

96,822  

166,623  

180,524  

Cost of revenue

249,494  

356,755  

497,564  

585,215  

Less partners’

interest and adjustments (1)

169,041  

241,560  

337,775  

374,303  

Granite’s interest

80,453  

115,195  

159,789  

210,912  

Granite’s interest in gross profit (loss)

$ 6,448  

$ ( 18,373 )  

$ 6,834  

( 1 ) Partners’

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

During the three and six months ended June 30, 2021 , unconsolidated construction joint venture net income/(loss) was $ 13.8  million and $( 2.2 ) million, respectively, of which our share was net income of $ 6.6  million and $ 7.0 million, respectively.

During the three and nine months ended September 30, 2021 , unconsolidated construction joint venture net loss was $( 9.3 ) million and $( 11.5 ) million, respectively, of which our share was net income of $ 1.0  million and $ 8.0 million, respectively.

During the 

three and six months ended June 30, 2020 , unconsolidated net income/(loss) was $ 27.5  million and $( 138.5 ) million, respectively, of which our share was net loss of $( 18.7 ) million and $( 30.5 ) million, respectively.

The differences between our share of the joint venture net income/(loss) when compared to the joint venture net income/(loss) primarily resulted from differences between our estimated total revenue and cost of revenue when compared to that of our partners’ on five  projects during both 2021  and 2020.

 The differences are due to timing differences from differing accounting policies and in public company quarterly reporting requirements. These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.

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.

During both 2021  and 2020, there were variances on five  projects between our estimated total revenue and cost of revenue when compared to that of our partners’ due to timing of recognition from differing accounting policies and public company quarterly reporting requirements.

These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.

Line Item Joint Ventures

As of June 30, 2021 , we were engaged in 

As of September 30, 2021 , we were engaged in 

three  active line item joint venture construction projects with a total contract value of $ 337.0 million of which our portion was $ 221.9  million.

June 30, 2021 , our share of revenue remaining to be recognized on these line item joint ventures was $ 61.2  million.

September 30, 2021 , our share of revenue remaining to be recognized on these line item joint ventures was $ 84.6  million.

During the 

three and six months ended June 30, 2021 ,  

three and nine months ended September 30, 2021 ,  

our portion of revenue from line item joint ventures was $ 26.3  million and $ 55.0 million, respectively.

During the three and six months ended June 30, 2020 , our portion of revenue from line item joint ventures was $ 18.4  million and $ 31.2 million, respectively.

During the three and nine months ended September 30, 2020 , our portion of revenue from line item joint ventures was $ 27.5  million and $ 58.7 million, respectively.

GRANITE CONSTRUCTION INCORPORATED

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(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

$ 49,089  

$ 47,650  

$ 46,000  

12,777  

16,535  

Asphalt terminal

13,583  

14,860  

13,929  

Total investments in affiliates

$ 72,415  

$ 75,287  

$ 76,464  

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, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

Current assets

$ 162,503  

$ 133,882  

$ 116,712  

Noncurrent assets

161,700  

164,620  

165,292  

324,203  

298,502  

282,004  

Current liabilities

80,145  

52,583  

48,478  

Long-term liabilities (1)

59,501  

66,108  

55,206  

Total liabilities

139,646  

118,691  

103,684  

184,557  

179,811  

178,320  

Granite’s share of net assets

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

Of the $ 316.0  million of total affiliate assets as of June 30, 2021 , we had investments in thirteen  foreign entities with total assets ranging from $ 0.1  million to $ 82.1  million, 

two  real estate entities with total assets of $ 66.2  million and the asphalt terminal entity had total assets of $ 35.3  million.

We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25 % to 50 % as of June 30, 2021 . During the six  months ended 

June 30, 2020, we recorded a $ 9.6  million impairment charge related to our investment in foreign affiliates.

$ 72,415  

$ 75,287  

$ 76,464  

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

Of the $ 324.2  million of total affiliate assets as of September 30, 2021 , we had investments in thirteen  foreign entities with total assets ranging from $ 0.1  million to $ 84.4  million, 

two  real estate entities with total assets of $ 75.5  million and the asphalt terminal entity that had total assets of $ 33.4  million.

We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25 % to 50 % as of September 30, 2021 . 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 

3  for further discussion of the impairment charge. As of 

June 30, 2021  and 

September 30, 2021  and 

December 31, 2020 , all of the investments in real estate affiliates were in residential real estate in Texas.

June 30, 2020 , $ 13.2  million of the investments in real estate affiliates was in residential real estate in Texas and the remaining balance was in commercial real estate in Texas.

September 30, 2020 , $ 13.2  million of the investments in real estate affiliates was in residential real estate in Texas and the remaining balance was in commercial real estate in Texas.

Our percent ownership in the real estate entities was between 

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25 % as of 

June 30, 2021 .

September 30, 2021 .

Property and Equipment, net

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(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

Equipment and vehicles

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(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

2.75% Convertible Notes

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As of each 

June 30, 2021 , December 31, 2020  and June 30, 2020 , $ 7.5  million of the term loan portion of the Third Amended and Restated Credit Agreement dated May 31, 2018 ( as subsequently amended, the “Credit Agreement”) was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $ 120.0  million, $ 123.8  million and $ 127.5  million, respectively, was included in long-term debt.

June 30, 2021 , the total unused availability under the Credit Agreement was $ 226.6  million resulting from $ 48.4  million in issued and outstanding letters of credit and no amount was drawn under the revolving credit facility.

The letters of credit had expiration dates between July 2022  and 

September 30, 2021 , December 31, 2020  and September 30, 2020 , $ 7.5  million of the term loan portion of the Credit Agreement was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $ 118.1  million, $ 123.8  million and $ 125.6  million, respectively, was included in long-term debt.

September 30, 2021 , the total unused availability under the Credit Agreement was $ 227.9  million resulting from $ 47.1  million in issued and outstanding letters of credit and no amount drawn under the revolving credit facility.

The letters of credit had expiration dates between October 2021  and 

December 2024 . 

As of June 30, 2021, the Applicable Rate was 1.63 % for loans under the Credit Agreement bearing interest based on LIBOR and 0.63 % for loans bearing interest at the Base Rate.

As of September 30, 2021, the Applicable Rate was 1.63 % for loans under the Credit Agreement bearing interest based on LIBOR and 0.63 % for loans bearing interest at the Base Rate.

Accordingly, the effective interest rates at 

June 30, 2021 , for LIBOR and Base Rate loans were 

September 30, 2021 , for LIBOR and Base Rate loans were 

2.38 % and 3.88 %, respectively. We elected to use LIBOR for the term loan.

As of June 30, 2021 , the Consolidated Leverage Ratio (as defined in the Credit Agreement) was 1.69 , which did not exceed the maximum of 3.00 and the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) was 8.26 , which exceeded the minimum of 4.00 .

As of June 30, 2021 , 

December 31, 2020  and June 30, 2020 , the carrying amount of the liability component of the 2.75% Convertible Notes was $ 203.8  million, $ 200.3  million and $ 196.9  million, respectively. As of June 30, 2021 , December 31, 2020  and June 30, 2020 , the unamortized debt discount was $ 26.2  million, $ 29.7  million and $ 33.1  million, respectively.

During the three and six months ended June 30, 2021, we recorded $ 1.8  million and $ 3.5  million, respectively, of amortization related to the debt discount on the 2.75 % Convertible Notes to interest expense in our condensed consolidated statements of operations and $ 0.6  million and $ 1.2  million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations.

During the three and six months ended June 30, 2020, we recorded $ 1.6  million and $ 3.2  million, respectively, of amortization related to the debt discount on the 2.75 % Convertible Notes to interest expense in our condensed consolidated statements of operations and $ 0.2 million and $ 1.1 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. These amounts were presented as amortization related to the 2.75 % Convertible Notes on our condensed consolidated statements of cash flows.

As of September 30, 2021 , the Consolidated Leverage Ratio (as defined in the Credit Agreement) was 1.73 , which did not exceed the maximum of 3.00 and the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) was 8.52 , which exceeded the minimum of 4.00 .

As of September 30, 2021 , 

December 31, 2020  and September 30, 2020 , the carrying amount of the liability component of the 2.75% Convertible Notes was $ 205.5  million, $ 200.3  million and $ 198.6  million, respectively. As of September 30, 2021 , December 31, 2020  and September 30, 2020 , the unamortized debt discount was $ 24.5  million, $ 29.7  million and $ 31.4  million, respectively.

During the three months ended September 30, 2021  and 2020, we recorded $ 1.7  million of amortization related to the debt discount on the 2.75 % Convertible Notes to interest expense in our condensed consolidated statements of operations and $ 0.6  million and $ 0.5 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations.

During the nine months ended September 31, 2021 and 2020, we recorded $ 5.2  million and $ 4.9  million, respectively, of amortization related to the debt discount on the 2.75 % Convertible Notes to interest expense in our condensed consolidated statements of operations and $ 1.8 million and $ 1.6  million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. These nine -month amounts were presented as amortization related to the 2.75 % Convertible Notes on our condensed consolidated statements of cash flows.

 Weighted Average Shares Outstanding and Net Income (Loss) Per Share

The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

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$ 23,309  

$ ( 153,127 )

Weighted average common shares outstanding, basic

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$ 0.49  

( 1 ) Due to the net losses for the six months ended June 30, 2021  and 2020,  RSUs representing approximately 503,000  and 552,000  shares, respectively, have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.

( 2 ) Although the average price of our common stock for the period was greater than the initial conversion price of 

$ 31.47 per share, due to the net loss for the six months ended June 30, 2021 , approximately 1.0 million shares related to the 2.75% Convertible Notes converting into shares of common stock have been excluded from the number of shares used in calculating diluted net loss per share as their inclusion would be antidilutive. The number of shares used in calculating diluted net income (loss) per share for the three and six months ended June 30, 2020 excluded the potential dilution from the 2.75 % Convertible Notes converting into shares of common stock as the average price of our common stock was below $31.47 per share for those periods.

( 1 ) Due to the net losses for the three and nine months ended 

September 30, 2020 , RSUs representing approximately 636,000  and 580,000  shares, respectively, have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.

( 2 ) The number of shares used in calculating diluted net 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 as the average price of our common stock was below $ 31.47 per share for those periods.

 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,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

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( 12.9 )%  

41.7 %  

Our effective tax rate for the 

three months ended June 30, 2021  decreased to 21.9 % from 64.7 %, when compared to the same period in 2020 .

This change was primarily due to the impact of adjusting our estimate of our annual effective tax rate relative to the loss before benefit from income taxes for the three months ended June 30, 2020. 

Our effective tax rate for the 

six months ended June 30, 2021  increased to 

41.7 % from 

18.3 %, when compared to the same period in 2020.

 This change was primarily due to the goodwill impairment and the investment in affiliates impairment which is discrete to the six months ended June 30, 2020 and resulted in no discrete tax benefit.

See Note 3 for discussion of the impairment charges.

The $ 66.0 million in settlement charges discussed in Note 16 are discrete to the six months ended June 30, 2021 which resulted in a discrete tax benefit of $ 17.0 million.

three and nine months ended September 30, 2021  increased to 21.5 % and 

8.3 % from ( 12.9 )% and 

2.9 %, respectively, when compared to the same periods in 2020 .

These changes were primarily due to the goodwill impairments and the investment in affiliates impairments during the three months ended March 31, 2020 and September 30, 2020 which were discrete to those periods and resulted in no  discrete tax benefit.

See Note 3 for discussion of the impairment charges. The $ 66.0  million in settlement charges discussed in Note 16 are discrete to the nine  months ended September 

30, 2021 which resulted in a discrete tax benefit of $ 17.0 million.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 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.

 Contingencies - Legal Proceedings

Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets.

The aggregate liabilities recorded as of June 30, 2021  were $ 66.0 million and as of December 31, 

It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated.

Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period.

In addition, disclosure is required when a material loss is either probable but not  reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded.

The total liabilities recorded, net of insurance receivable, as of September 30, 2021 

were $ 66.0 million and as of December 31, 

2020  and June 30, 2020 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.

The total range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined.

Ordinary Course Legal Proceedings

For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of “Notes to the Consolidated Financial Statements”

in our Annual Report on Form 10 -K for the year ended December 31, 2020.

Securities Litigation, Derivative Lawsuits and Other Matters

August 13, 2019, 

12 unchanged sentences

The amended complaint seeks damages based on allegations that the defendants made false and/or misleading statements and failed to disclose material adverse facts in the Company’s SEC filings about its 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. 

On May 20, 2020, the court denied, in part, our motion to dismiss the amended complaint. On January 21, 2021, the court granted plaintiff’s motion for class certification. 

On October 23, 2019, a putative class action lawsuit, titled Nasseri v.

3 unchanged sentences

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. On April 9, 2021, the court entered an order overruling our demurrer seeking to dismiss the amended complaint.

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 filed a demurrer seeking to dismiss the amended complaint. On April 9, 2021, the court entered an order overruling our demurrer seeking to dismiss the amended complaint.

On May 14, 2021, the plaintiff filed a motion for class certification.

On July 26, 2021, we filed a motion to stay the case pending the federal court’s review of the proposed settlement in 

The hearing on the motion has been continued to March 25, 2022 in light of the settlement proceedings in 

Police Retirement System of St.

Granite Construction Incorporated, et al.

On April 29, 2021, we entered into a stipulation of settlement (the “Settlement Agreement”) to settle Police Retirement System of St.

Granite Construction Incorporated, et al.

 The Settlement Agreement also settles claims alleged in Nasseri v.

Granite Construction Incorporated, et al.

The settlement is subject to court approval.

Under the Settlement Agreement, the Company will pay or cause to be paid a total of $ 129 million in cash, $ 63 million of which it expects to be paid through insurance proceeds. 

The payment will be paid to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’

Under the Settlement Agreement, the Company will pay or cause to be paid a total of $ 129.0 million in cash, $ 63.0 million of which it expects to be paid through insurance proceeds. The payment will be paid to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’

fees and expenses, and cash payments to members of the settlement class.

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The Settlement Agreement contains no admission of liability, wrongdoing or responsibility by any of the parties.

On April 30, 2021, the class representative filed a motion for preliminary approval of the settlement, which is still under review by the court.

On April 30, 2021, the class representative in Police Retirement System of St.

Granite Construction Incorporated, et al.

filed a motion for preliminary approval of the settlement.

The plaintiff in Nasseri v.

Granite Construction Incorporated, et al.

has been permitted to intervene, although the court has denied his application to be appointed as additional lead plaintiff. If the court preliminarily approves the settlement, members of the settlement class will be provided notice of, and an opportunity to object to, the settlement at a fairness hearing to be held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered.

has been permitted to intervene, although the court has denied his application to be appointed as additional lead plaintiff. On October 6, 2021, the court issued an order granting preliminary approval of the settlement.

Pursuant to the terms of the Settlement Agreement, payment was made to the settlement fund after preliminary approval in October 2021.

Members of the settlement class will now be provided notice of, and an opportunity to object to, the settlement at a fairness hearing to be held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered.

The fairness hearing is scheduled for February 24, 2022.

If the court approves the settlement, including the payment and release described above, and enters such order and final judgment, and such judgment is no longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court and the release will be effective to all members of the settlement class.

As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $ 66.0 million in the quarter ended March 31, 2021.

May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H.

May 6, 2020, a stockholder derivative lawsuit, titled English v.

Roberts, et al., 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, 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 allegedly occurred between April 30, 2018 and October 24, 2019. 

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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.

On May 12, 2021, a stockholder derivative lawsuit was filed in the Delaware Court of Chancery against James H.

On May 12, 2021, a stockholder derivative lawsuit, titled Davydov v.

Roberts, et al.

, was filed in the Delaware Court of Chancery against James H.

Roberts, Jigisha Desai, Laurel Krzeminski, Craig Hall, our Senior Vice President, General Counsel, Corporate Compliance Officer, and Secretary, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty that allegedly occurred between 

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GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms.

We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of these cases, which we intend to defend vigorously.

As of June 

On July 16, 2021, we filed a motion to dismiss the complaint.

The plaintiff’s response is due on November 22, 2021.

We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of these cases.

As of September 

30, 2021, other than the $66.0 million charge described above, we did not record any liability related to the above matters because we concluded such liabilities were not probable and the amounts of such liabilities are not reasonably estimable.

We were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages.

Layne was a subcontractor on the foundation for the Salesforce Tower office building in 2013 and 2014.

Our subsidiary, Layne, was a subcontractor on the foundation for the Salesforce Tower office building in 2013 and 2014.

Certain anomalies were discovered in March 2014 in the foundation’s structural concrete, which were remediated by the general contractor during 2015.

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The claim was denied by the builder’s risk insurers.

The project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy, which proceeding was then transferred by agreement to arbitration. Although we were not a party to this legal proceeding, we believe, based on court filings and developments in the arbitration, that the project owner and the general contractor asserted a claim for damages against the project’s builder’s risk insurers for approximately $ 100 million.

In connection with our acquisition of Layne in June 2018, we assumed any potential liability relating to this project.

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Accordingly, no provision has been made in our consolidated financial statements.

In connection with our disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation.

In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “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 accounting issues identified in the Investigation.

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Summarized segment information is as follows (in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Transportation

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119,935  

116,946  

Depreciation, depletion and amortization

21 unchanged sentences

24,692  

Six Months Ended June 30,

Nine Months Ended September 30,

Transportation

54 unchanged sentences

16,563  

76,813  

Segment assets

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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132,277  

Other costs (see Note 3)

156,690  

Other costs (see Note 3)

85,547  

4 unchanged sentences

( 39,349 )  

Total other (income) expense

( 2,806 )  

Total other expense, net

10,766  

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$ 24,915  

$ ( 177,088 )

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Current Economic Environment and Outlook

While the COVID-19 pandemic continues to have a significant impact around the country and the world, there has been significant improvement in the United States. Granite’s approach to the pandemic is led by prioritizing the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. As of the end of the second quarter of 2021, our business has largely returned to pre-pandemic levels of activity with locales across our footprint removing most pandemic restrictions. However, we continue to closely monitor developments related to COVID-19, which continue to be highly uncertain and could adversely impact our operations and financial results in future periods. 

Our consolidated balance sheet and liquidity continue to be strong through the second quarter of 2021 and we expect it to continue to remain strong as we continue to focus on working capital management and reinvestment in our businesses.

While the COVID-19 pandemic continues to have a significant impact around the country and the world, Granite’s approach has been consistent led by prioritizing the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Although certain projects are periodically affected by the pandemic, our business has largely returned to pre-pandemic levels of activity.

The future developments of the pandemic are highly uncertain and could adversely impact our operations and financial results in future periods.

We are closely monitoring federal, state, regional and local guidelines, orders and regulations and will take necessary steps to comply with new regulations as required.

We are continually monitoring the supply and demand related to labor and supplies, including materials such as concrete and steel. During 2021, certain segments of the construction industry were adversely affected by inflation as well as supply chain and labor constraints. The actual and expected impact to Granite was limited to oil price inflation through our use of diesel fuel and liquid asphalt, which we are monitoring and pricing into our contracts accordingly.

Our consolidated balance sheet and liquidity continue to be strong through the third quarter of 2021 and we expect it to continue to remain strong providing us the flexibility to reinvest in our businesses and execute upon our capital allocation strategy.

Funding for our public work projects, which is around 75% of our portfolio, is dependent on federal, state, regional and local revenues.

At the federal level, on September 30, 2020, Congress approved the one-year extension of the Fixing America’s Surface Transportation (“FAST”) Act with flat funding levels as well as a $13.6 billion infusion to the Highway Trust Fund from the general fund, providing state and local governments the visibility needed to plan for 2021 construction programs.

In late December 2020, Congress approved a $10 billion relief spending bill for state departments of transportation as part of the Coronavirus Response and Relief Act to help offset pandemic-induced revenue declines.

Based on estimates provided by The Federal Highway Administration, over $1.5 billion of the relief fund is apportioned to Granite Construction’s vertically-integrated businesses.

Furthermore, in March 2021, Congress approved the American Rescue Plan Act of 2021 which included $360 billion in Coronavirus State and Local Fiscal Recovery Funds to assist governments' efforts to mitigate fiscal effects on state and local budgets.

Within the Coronavirus State and Local Fiscal Recovery Funds, $10 billion is earmarked for infrastructure, with much of it anticipated to go towards clean energy and non-surface transportation projects.

In late June 2021, the Biden Administration and members of a bipartisan Senate group agreed to a roughly $1.2 trillion Bipartisan Infrastructure Framework, proposing for $579 billion in new spending which includes significant new funding proposals for roads, bridges, airports, ports and inland waterway infrastructures.

We remain optimistic that Congress and the Administration will jointly move forward in 2021 to pass a long-term solution that addresses infrastructure investment, which we believe will meaningfully improve the programming visibility for state and local governments, starting in mid to late 2022 and then building in following years.

At the federal level, public work projects benefit from a $10 billion relief spending bill for state departments of transportations approved by Congress in December 2020 as part of the Coronavirus Response and Relief Act and a $360 billion Coronavirus State and Local Fiscal Recovery Funds approved by Congress in March 2021.

The Fixing America’s Surface Transportation (“FAST”) was extended for one year through September 30, 2021 with flat funding levels and for another month through October 31, 2021 as the Biden Administration and Congress work to pass a long-term solution.

In late June 2021, the Biden Administration and members of a bipartisan Senate group agreed to a roughly $1.2 trillion Bipartisan Infrastructure Framework (Infrastructure Investment and Jobs Act), proposing for $579 billion in new spending which includes significant new funding proposals for roads, bridges, airports, ports and inland waterway infrastructures.

At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending.

In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements.

In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements.

In California, our top revenue-generating state, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program.

Revenue collected through SB-1 is on track to increase over the next 5 years.

While we are encouraged by these funding supports, our markets are diverse with some being more impacted by the pandemic. 

We closely monitor these funding trends in all our markets and manage our pursuit pipeline accordingly.

While funding uncertainties caused by the COVID-19 pandemic disrupted the normal cadence of project bids in our water-related construction, water resources and wastewater rehabilitation businesses, market demand and local funding opportunities remain resilient.

Across the Water segment’s end markets, states and municipal water authorities are weighing options for overdue water and wastewater infrastructure investment. For our wastewater rehabilitation business, this includes potential awards for infrastructure improvements mandated through consent decrees.

At the federal level, Congress approved the Water Resources Development Act of 2020 and authorized spending $9.9 billion for 46 new flood control, harbor, ecosystem and lock and dam projects on waterways across the nation.

This legislation unlocked the roughly $10 billion balance in the Harbor Maintenance Trust Fund including allowing access to $500 million in appropriations to the Army Corps of Engineers.

Furthermore, state and local governments have the discretion to make necessary investments in water and sewer infrastructure using the non-earmarked portion of the Coronavirus State and Local Fiscal Recovery Funds approved in March 2021.

The American Jobs Plan proposed by the Administration in March also included funding proposals for water and wastewater infrastructure improvements.

As further discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,” we were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages.

While we are encouraged by these funding supports, our markets are diverse with some being more impacted by the pandemic. We closely monitor these funding trends in all our markets and manage our pursuit pipeline accordingly.

As further discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,”

we were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages.

Layne was a subcontractor on this project and in connection with our acquisition of Layne in June 2018, we assumed any liability related to it.

See “Item 1A.

Risk Factors—In connection with acquisitions or divestitures, we may become subject to liabilities”

Risk Factors - In connection with acquisitions or divestitures, we may become subject to liabilities”

and “Item 1A.

Risk Factors - We are involved in lawsuits and legal proceedings in the ordinary course of our business and may in the future be subject to other litigation and legal proceedings, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations”

in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

Heavy Civil Strategic Review

The Company continues to focus on the execution of its strategic initiatives related to the Heavy Civil operating group to reduce enterprise exposure to large, complex projects where risks are difficult to mitigate which we refer to as the Old Risk Portfolio.

The Company concluded that historical industry pricing and associated risk for this type of work does not align with the Company’s stakeholder expectations.

Our focus is to pursue opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages, coupled with stricter bidding criteria and project approval requirements. 

in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report on Form 10-K”) for additional information.

Results of Operations

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Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.

The following table presents a financial summary for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents a financial summary for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Operating income (loss)

Total other (income) expense

Total other expense, net

Amount attributable to non-controlling interests

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Total Revenue by Segment  

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

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Transportation Revenue

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Transportation revenue for the three and six months ended June 30, 2021 decreased by $9.9 million, or 1.8%, and $9.7 million, or 1.1%, respectively, when compared to 2020 primarily driven by certain Heavy Civil operating group projects, including those in the Old Risk Portfolio, nearing completion. These decreases were partially offset by increases in the California operating group from beginning the periods with higher CAP (see “Committed and Awarded Projects”

section for definition of CAP), increased awards in the California and Northwest operating groups and in the Heavy Civil operating group from a decrease in the net negative impact of revisions in estimates when compared to 2020 (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”

for more information). During the three and six months ended June 30, 2021 and 2020, the majority of revenue earned in the Transportation segment was from the public sector.

Transportation revenue for the three and nine months ended September 30, 2021 decreased by $55.8 million, or 8.9%, and $65.6 million, or 4.3%, respectively, when compared to 2020.

These decreases were primarily driven by lower Committed and Awarded Projects (“CAP”) levels in the Heavy Civil operating group as well as certain Heavy Civil operating group projects, including those in the Old Risk Portfolio (1) , nearing completion and decreases in the California operating group due to owner worksite accommodations in the third quarter of 2020 that are not present in 2021. These decreases were partially offset by a decrease in the net negative impact of revisions in estimates when compared to 2020 (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”

for more information). During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Transportation segment was from the public sector.

(1)  Old Risk Portfolio includes projects with risk criteria that do not align with Granite's new project selection criteria for the Heavy Civil operating group.

Table of Content

Water Revenue

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Water and Mineral Services

Water revenue for the three and six months ended June 30, 2021 increased by $3.7 million, or 3.4%, and $1.8 million, or 0.9%, respectively, when compared to 2020.

The increases were primarily driven by increased demand for water supply and maintenance services amidst the western U.S.

drought conditions, as well as lower activity levels in 2020 as a result of the COVID-19 pandemic which caused delays in awarded projects and deferrals in bidding processes. During the three and six months ended June 30, 2021 and 2020, the majority of revenue earned in the Water segment was from the public sector.

Water revenue for the three and nine months ended September 30, 2021 increased by $15.4 million, or 14.4%, and $17.2 million, or 5.4%, respectively, when compared to 2020.

The increases were primarily driven by increased demand for water supply and maintenance services, as well as lower activity levels in 2020 as a result of the COVID-19 pandemic which caused delays in awarded projects and deferrals in bidding processes. During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Water segment was from the public sector.

Specialty Revenue

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Water and Mineral Services

Specialty revenue for the three and six months ended June 30, 2021 increased by $25.4 million, or 14.5%, and $48.0 million, or 15.6%, respectively, when compared to 2020.

These increases were primarily driven by project progression in the Heavy Civil operating group, new awards in the Northwest operating group and recovery from the pandemic in the Water and Mineral Service operating group, partially offset by projects nearing completion in the Midwest operating group. During the three and six months ended June 30, 2021 and 2020, revenue earned in the Specialty segment was from both the public and private sectors.

Specialty revenue for the three and nine months ended September 30, 2021 increased by $29.2 million, or 14.2%, and $77.2 million, or 15.0%, respectively, when compared to 2020.

These increases were primarily driven by project progression of a federal site development project in the Heavy Civil operating group and increased activity in the Water and Mineral Services operating group’s mineral exploration business. During the three and nine months ended September 30, 2021 and 2020, revenue earned in the Specialty segment was from both the public and private sectors.

Materials Revenue 

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Water and Mineral Services

Materials revenue for the three and six months ended June 30, 2021 increased by $29.2 million, or 30.4%, and $42.3 million, or 28.9%, when compared to 2020 primarily due to an increase in volume in both asphalt and aggregates.

Materials revenue for the three and nine months ended September 30, 2021 increased by $8.2 million, or 6.3%, and $50.5 million, or 18.3%, when compared to 2020 primarily due to an increase in volume and an increase in prices in both asphalt and aggregates.

Committed and Awarded Projects

Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog to Committed and Awarded Projects (“CAP”) and added the general construction portion of construction management/general contractor contracts to the extent contract execution and funding is probable.

Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog (consisting of the revenue we expect to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts) to CAP and added the general construction portion of construction management/general contractor contracts to the extent contract execution and funding is probable.

This is the same presentation used in our quarterly earnings calls and press releases.

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Contract options and task orders are included in unearned revenue when exercised or issued, respectively.

Other awards include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively.

Other awards in the tables below include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively.

Other awards also include the general construction portion of construction management/general contractor projects to the extent award, contract execution and funding are probable.

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(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

September 30, 2020

Transportation

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(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

September 30, 2020

Unearned revenue

Other awards (1)

(1) Other awards include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively, as well as the general construction portion of construction management/general contractor contracts to the extent contract execution is probable.

(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

Transportation CAP of $2.9 billion at June 30, 2021 was $134.8 million, or 4.4%, lower than at March 31, 2021 primarily due to progress on existing projects and fewer awarded contracts in the Heavy Civil operating group, consistent with our strategy to narrow the footprint of this group, as discussed in the “Current Economic Environment and Outlook”

above. Significant new awards during the three months ended June 30, 2021 included a $151.0 million highway construction project in California, a $16.0 million airport project in Alaska, a $44.1 million corridor improvement project in Nevada, a $28.0 million interchange access ramp construction project in Washington, and an $18.7 million road reconstruction project in Utah.

September 30, 2020

Transportation CAP of $2.9 billion at September 30, 2021 was $20.1 million, or 0.7%, higher than at June 30, 2021 primarily due to new awards in the California operating group and new awards in the Northwest operating group, including a $25 million airport transformation project in Arizona, partially offset by progress on existing projects and fewer awarded contracts in the Heavy Civil operating group, consistent with our strategy to narrow the footprint of this group.

Non-controlling partners’

share of Transportation CAP as of June 30, 2021, March 31, 2021 and June 30, 2020 was $212.1 million, $248.4 million and $280.0 million, respectively.

Four  contracts in our Transportation segment had total forecasted losses with remaining revenue of $303.1 million, or 10.5%, of Transportation CAP at  June 30, 2021 .

share of Transportation CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $184.1 million, $212.1 million and $282.4 million, respectively.

Four  contracts in our Transportation segment had total forecasted losses with remaining revenue of $252.1 million, or 8.7%, of Transportation CAP at  September 30, 2021 .

(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

September 30, 2020

Unearned revenue

Other awards (1)

(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

September 30, 2020

Water and Mineral Services

Water CAP of $531.9 million as of June 30, 2021 was $192.8 million, or 56.9%, higher than at March 31, 2021 primarily due to new awards in the Heavy Civil and Northwest operating groups.

Significant new awards during the three months ended June 30, 2021 included a $160.5 million dam project in Texas.

Water CAP of $0.5 billion as of September 30, 2021 was $7.8 million, or 1.5%, lower than at June 30, 2021 primarily due to progress on existing projects in the California operating group.

Specialty CAP

(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

September 30, 2020

Unearned revenue

Other awards (1)

(1) Other awards include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively, as well as the general construction portion of construction management/general contractor contracts to the extent contract execution is probable.

(dollars in thousands)

June 30, 2021

March 31, 2021

September 30, 2021

June 30, 2021

Specialty CAP of $1.0 billion as of June 30, 2021 was $64.7 million, or 6.0%, lower than at March 31, 2021 due to progress on existing projects in all operating groups, partially offset by increased awards in the Northwest operating group.

Non-controlling partners’

share of Specialty CAP as of June 30, 2021, March 31, 2021 and June 30, 2020 was $61.5 million, $72.9 million and $71.0 million, respectively.

September 30, 2020

Specialty CAP of $0.9 billion as of September 30, 2021 was $129.7 million, or 12.7%, lower than at June 30, 2021 due to progress on existing projects in all operating groups. Non-controlling partners’

share of Specialty CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $46.0 million, $61.5 million and $64.8 million, respectively.

The following table presents gross profit by business segment for the respective periods:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

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Percent of total revenue

Transportation gross profit for the three and six months ended June 30, 2021 increased by $28.3 million, or 90.8%, and $38.8 million, or 68.6%, respectively, when compared to 2020 primarily due to a decrease in the negative net impact from revisions in estimates in our Heavy Civil operating group Old Risk Portfolio, partially offset by projects nearing completion (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Water gross profit for the three and six months ended June 30, 2021 decreased by $2.0 million, or 16.0%, and $2.8 million, or 12.8%, respectively, when compared to 2020.

The decreases were primarily due to an increase in weather-related costs on one project in the Heavy Civil operating group and increased costs on a California operating group project from extended project duration, partially offset by an increase in the Water and Mineral Services operating group from increased revenue.

Specialty gross profit for the three months ended June 30, 2021 remained relatively unchanged when compared to 2020 and increased by $27.1 million, or over 100%, for the six months ended June 30, 2021 primarily due to a decrease in the negative net impact from revisions in estimates in our Midwest operating group (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Materials gross profit for the three and six months ended June 30, 2021 increased by $3.2 million, or 16.6%, and $5.0 million, or 26.0%, respectively, when compared to 2020 due to an increase in volume in both asphalt and aggregates.

Transportation gross profit for the three and nine months ended September 30, 2021 increased by $4.2 million, or 7.7%, and $43.0 million, or 38.8%, respectively, when compared to 2020 primarily due to a decrease in the negative net impact from revisions in estimates in our Heavy Civil operating group Old Risk Portfolio (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Water gross profit for the three and nine months ended September 30, 2021 decreased by $2.7 million, or 21.4%, and $5.5 million, or 15.9%, respectively, when compared to 2020.

This decrease is primarily due to the increase in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Specialty gross profit for the three and nine months ended September 30, 2021 decreased by $2.4 million, or 7.3%, and increased by $24.7 million, or 51.6%, respectively, when compared to 2020.

The year-to-date increase was primarily due to increased revenue from project progression in the Heavy Civil operating group, increased activity in the Water and Mineral Services operating group’s mineral exploration business and a decrease in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Materials gross profit for the three months ended September 30, 2021 decreased by $5.0 million, or 19.5% when compared to 2020 as rising fuel and liquid asphalt costs were not able to be fully mitigated during the quarter.

Selling, General and Administrative Expenses

The following table presents the components of selling, general and administrative expenses for the respective periods:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

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Selling Expenses

Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e.

stipends), business development and materials facility permits.

Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits.

Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses.

Selling expenses for the three and six months ended June 30, 2021 decreased by $1.5 million, or 7.9%, and $3.3 million, or 8.0%, respectively, when compared to 2020 due to decreases in other selling expenses from reduced estimating and bidding costs.

Selling expenses for the three and nine months ended September 30, 2021 decreased by $2.2 million, or 10.9%, and $5.5 million, or 9.0%, respectively, when compared to 2020 from reduced estimating and bidding costs, which impacted other selling expenses for the nine months, and salaries and related expenses for both periods.

General and Administrative Expenses

General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions.

Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses.

General and administrative expenses for the three and six months ended June 30, 2021 remained relatively unchanged when compared to the same periods in 2020.

Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses.

Total general and administrative expenses for the three and nine months ended September 30, 2021 increased by $7.2 million, or 13.8%, and $9.1 million, or 5.6%, respectively, when compared to 2020, primarily due to increases in other general and administrative expenses from increases in incentive compensation as a result of improved financial performance.

Gain on Sales of Property and Equipment, net

The following table presents the gain on sales of property and equipment, net for the respective periods:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Gain on sales of property and equipment, net

Gain on sales of property and equipment, net for the three and six months ended June 30, 2021 increased by $30.4 million, or over 100%, and $32.4 million, or over 100%, respectively, when compared to 2020 due to the sale of two properties in California on June 30, 2021, as part of our ongoing asset optimization plan.

Gain on sales of property and equipment, net for the three and nine months ended September 30, 2021 increased by $2.1 million and $34.5 million, respectively, when compared to 2020.

The increase during the nine months was primarily due to the sale of two properties in California as part of our ongoing asset optimization plan.

See Note 12 of “Notes to the Condensed Consolidated Financial Statements”

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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,

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

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Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash generated from operations.

We may also from time to time access our revolving credit facility, issue and sell equity, debt or hybrid securities or engage in other capital markets transactions.

As of June 30, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and our marketable securities consisted of U.S. Government and agency obligations.

We may also from time to time issue and sell equity, debt or hybrid securities, engage in other capital markets transactions or sell one or more business units, divisions or assets.

As of September 30, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and our marketable securities consisted of U.S. Government and agency obligations.

Our credit facility consists of a term loan and a revolving credit facility.

Of the $275.0 million revolving credit facility capacity, $226.6 million was available for borrowing at June 30, 2021.

Of the $275.0 million revolving credit facility capacity, $227.9 million was available for borrowing at September 30, 2021.

This difference between capacity and amount available for borrowing is due to letters of credit taken out primarily for insurance;

see Note 13 of “Notes to the Condensed Consolidated Financial Statements”

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Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock.

We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected operating requirements, including the payment expected to be made to settle our securities litigation, which remains subject to court approval, as discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements”, for the next twelve months from the date of this filing.

There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.

This includes the payment that was made pursuant to the terms of the settlement agreement to the settlement fund after preliminary approval in October 2021, as discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements.” There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.

In evaluating our liquidity position and needs, we consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”).

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(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

Cash and cash equivalents excluding CCJVs

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and agency obligations as of all periods presented.

Granite’s portion of CCJV cash and cash equivalents was $62.3 million, $42.6 million and $55.1 million as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $47.5 million, $58.9 million and $65.6 million as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. 

Six Months Ended June 30,

Granite’s portion of CCJV cash and cash equivalents was $69.2 million, $42.6 million and $53.4 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $48.0 million, $58.9 million and $66.2 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. 

Nine Months Ended September 30,

(in thousands)

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While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer which can cause fluctuations in operating cash flows.

Cash used in operating activities of $

Cash provided by operating activities of $

59.9 million for the 

six months ended June 30, 2021 represents a $

nine months ended September 30, 2021 represents a $

78.7 million decrease when compared to cash provided by operating activities in the same period of 

2020. The change was primarily due to a $41.0 million decrease in cash provided by net loss after adjusting for non-cash items, a $

45.1 million increase in cash used in working capital and a $23.5 million increase in contributions, net of distributions, to unconsolidated joint ventures and affiliates.

The increase in cash used in working capital was primarily due to increased activity from CCJVs, partially offset by a decrease in cash used by accounts payable from payment timing differences.

Related to the securities litigation settlement, which remains subject to court approval, discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,”

2020. The decrease was primarily due to a $

54.7 million decrease (including the $66.0 million in net securities litigation settlement charges) in cash provided by net income after adjusting for non-cash items, a $

71.4 million increase (excluding the $66.0 million net increase in working capital related to the securities litigation settlement) in cash used in working capital and an $

18.6 million increase in contributions, net of distributions, to unconsolidated joint ventures and affiliates.

The decrease in cash used in working capital was primarily due to increases to contract assets, net, partially offset by a decrease in cash used by accounts payable from payment timing differences.

Related to the securities litigation settlement , discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,”

we have separately presented the $129.0 million liability and the associated $63.0 million insurance receivable in the condensed consolidated statement of cash flows.

During the six months ended June 30, 2021, there was no impact on operating cash flow as both are expected to settle during the second half of 2021, subject to court approval.

The liability was paid and the receivable was collected in October 2021;

therefore, the impact on operating cash flow will occur in the fourth quarter of 2021 and there was no impact during the nine months ended September 30, 2021.

Investing activities

Cash provided by investing activities of $1.7 million for the six months ended June 30, 2021 represents a $23.1 million increase when compared to 2020 primarily from the sale of two properties in California.

This increase was partially offset by a decrease in proceeds from maturities and called marketable securities.

Cash used in investing activities of $17.4 million for the nine months ended September 30, 2021 represents a $24.5 million decrease from cash used in investing activities when compared to the same period of 2020 primarily from a decrease in proceeds from maturities of, and proceeds from called, marketable securities, partially offset by proceeds from the sale of two properties in California.

Financing activities

Cash used in financing activities of $13.6 million for the six months ended June 30, 2021 represents a $44.9 million decrease when compared to 2020 primarily due to a decrease in debt proceeds, partially offset by an increase in contributions from non-controlling partners, net of distributions.

Cash used in financing activities of $14.6 million for the nine months ended September 30, 2021 represents a $39.3 million decrease when compared to cash provided by financing activities in the same period of 2020 primarily due to a draw on our revolver of $50 million in the prior year, partially offset by an increase in contributions from non-controlling partners, net of distributions.

Capital Expenditures

During the six months ended June 30, 2021, we had capital expenditures of $46.4 million compared t o $52.2 mi llion during 2020.

During the nine months ended September 30, 2021, we had capital expenditures of $73.0 million compared t o $74.9 mi llion during 2020.

Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems.

The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors.

We currently anticipate 2021 capital expenditures to be $100.2 million for the full year.  

We currently anticipate 2021 capital expenditures to be approximately $100 million for the full year.

We recognize interest rate and commodity swap derivative instruments as either assets or liabilities at fair value using Level 2 inputs in the condensed consolidated balance sheets.

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We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts.

At June 30, 2021, approximatel y $3.0 billion of our CAP was bonded.

At September 30, 2021, approximatel y $2.6 billion of our CAP was bonded.

Performance bonds do not have stated expiration dates;

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The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio.

As of June 30, 2021, the Consolidated Leverage Ratio was 1.69, which did not exceed the maximum of 3.00.

As of September 30, 2021, the Consolidated Leverage Ratio was 1.73, which did not exceed the maximum of 3.00.

Our Consolidated Interest Coverage Ratio was 8.52, which exceeded the minimum of 4.00.

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As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization, we have established a plan to facilitate common stock repurchases.

As of June 30, 2021, $157.2 million of the authorization remained available.

As of September 30, 2021, $157.2 million of the authorization remained available.

The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements