What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-02-28 compared with 2021-03-30 · 224 added, 282 removed, 185 unchanged (73% of the section changed)

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Our common stock trades on the New York Stock Exchange under the ticker symbol GVA.

As of March, 25, 2021, 45,789,095 shares of our common stock were outstanding and held by 709 shareholders of record.

As of February 18, 2022, 45,875,355 shares of our common stock were outstanding and held by 675 shareholders of record.

We have paid quarterly cash dividends since the second quarter of 1990, and we expect to continue to do so.

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December 1, 2021 through December 31, 2021

(1) The number of shares purchased is in connection with employee tax withholding for units vested under our 2012 Equity Incentive Plan.

(2) As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to purchase up to $200.0 million of our common stock at management’s discretion.

As part of this authorization we have established a share repurchase program to facilitate common stock repurchases.

We did not purchase shares under the share purchase plan in any of the periods presented. 

As of December 31, 2020 , $157.2 million of the authorization remained available.

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

(1) On June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan, which replaced the Amended and Restated 2012 Equity Incentive Plan.

The number of shares purchased is in connection with employee tax withholding for restricted stock units vested under our 2012 and 2021 Equity Incentive Plans.

(2) As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to purchase up to $200.0 million of our common stock at management's discretion (the “2016 authorization”). As part of the 2016 authorization, we established a share repurchase program to facilitate common stock repurchases.

We did not purchase shares under the share purchase plan in any of the periods presented. As of December 31, 2021, $157.2 million of the 2016 authorization remained available. As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”).

The 2022 authorization replaced the 2016 authorization, including the amount available for repurchase, and no further repurchases will take place under the 2016 authorization. The specific timing and amount of any future purchases will vary based on market conditions, securities law limitations and other factors.

Performance Graph

The following graph compares the cumulative 5-year total return provided to Granite Construction Incorporated’s common stock holders relative to the cumulative total returns of the S&P 500 index and the Dow Jones U.S.

The following graph compares the cumulative five-year total return provided to Granite Construction Incorporated’s common stockholders relative to the cumulative total returns of the S&P 500 index and the Dow Jones U.S.

Heavy Construction index.

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Heavy Construction index includes the following companies:

AECOM, Emcor Group Inc., Fluor Corp, Jacobs Engineering Group Inc., Mastec Inc., Quanta Services Inc.

and Valmont Industries Inc.

Certain of these companies differ from Granite in that they derive more revenue and profit from non-U.S.

AECOM, Emcor Group Inc., Mastec Inc., Quanta Services Inc., Valmont Industries Inc.

and WillScot Mobile Mini Holdings Corp. Certain of these companies differ from Granite in that they derive more revenue and profit from non-U.S.

operations and have customers in different markets.

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Heavy Construction

SELECTED FINANCIAL DATA

Not Applicable.

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

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We are one of the largest diversified infrastructure companies in the United States.

Within the public sector, we primarily concentrate on heavy-civil infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, power-related facilities, water-related facilities, well drilling, utilities, tunnels, dams and other infrastructure-related projects.

Within the private sector, we perform site preparation, mining services and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as provide construction management professional services.

Our reportable business segments are the same as our operating segments and correspond with how our chief operating decision maker (our President) regularly reviews financial information to allocate resources and assess performance. Our reportable business segments are:

Transportation, Water, Specialty and Materials.

Within the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels and other infrastructure-related projects.

During the fourth quarter of 2021, the Company updated its strategy to focus on its core business capabilities, to leverage its current geographic based home markets in the civil construction and materials business and to target expansion based upon that combined strategy.

Through our strategic analysis, we determined that the end markets and geographic structure of the former Water and Mineral Services operating group (“WMS”) did not align with the Company’s new strategy and the Board of Directors approved a plan to sell these businesses within the next twelve months.

As a result of these actions, we classified WMS as held-for-sale in the consolidated balance sheets and as discontinued operations in the consolidated statements of operations as of and for the year ended December 31, 2021 and applied these changes retrospectively for all other periods presented. See Note 2 of “Notes to the Consolidated Financial Statements”

for WMS financial information, which has been excluded from all other disclosures unless explicitly stated otherwise.

Also related to our new strategic plan, during the fourth quarter of 2021, we reorganized our operating groups to improve operating efficiencies and better position the Company for long-term growth.

In alphabetical order, our continuing business operating groups are defined as follows:

Central (formerly Heavy Civil, Federal and Midwest operating groups), which primarily includes offices in Arizona (formerly in the Northwest operating group), Colorado, Florida, Illinois, Texas and Guam;

Mountain (formerly Northwest), which primarily includes offices in Alaska, Nevada, Utah and Washington.

In addition, we revised the financial information our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews to allocate resources and assess our performance.

This change is consistent with our new strategic plan and better aligns with our continuing civil construction and materials business.

Our CODM now regularly reviews financial information regarding our two primary product lines, construction and materials, as well as our operating groups.

We identified our CODM as our Chief Executive Officer and our Chief Operating Officer.

As a result of these changes, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting , our reportable segments, which are the same as our operating segments, were changed to:

Construction and Materials.

The Construction segment replaces the previous Transportation, Water and Specialty reportable segments, with the composition of our Materials segment for our continuing operations remaining unchanged.

These changes have been applied retrospectively for all periods presented. Our Construction segment focuses on construction and rehabilitation of roads, pavement preservation, bridges, rail lines, airports, marine ports, dams, reservoirs, aqueducts, infrastructure and site development for use by the general public and water-related construction for municipal agencies, commercial water suppliers, industrial facilities and energy companies. It also provides construction of various complex projects including infrastructure / site development, mining, public safety, tunnel, solar and other power projects.

The Materials segment focuses on production of aggregates and asphalt production for internal use and for sale to third parties.

See Note 21 of “Notes to the Consolidated Financial Statements”

for additional information about our reportable business segments.

In addition to business segments, we review our business by operating groups.

In alphabetical order, our operating groups are defined as follows:

(i) California;

(ii) Federal, which primarily includes offices in California, Colorado, Texas and Guam;

(iii) Heavy Civil, which primarily includes offices in California, Florida and Texas (the New York office was closed in January 2021);

(iv) Midwest, which primarily includes offices in Illinois;

(v) Northwest, which primarily includes offices in Alaska, Arizona, Nevada, Utah and Washington;

and (vi) Water and Mineral Services, which includes offices across the United States, Canada and Mexico. 

for additional information about our reportable segments.

On February 2, 2022, we entered into a purchase agreement with Inland Pipe Rehabilitation LLC (“IPR”) and 1000097155 Ontario Inc.

(“Ontario” and together with IPR, the “Purchasers”), investment affiliates of J.F.

Lehman & Company.

Per the terms of that agreement, the Company agreed to sell our trenchless and pipe rehabilitation services business (“Inliner”), a portion of WMS, to the Purchasers, for a purchase price of $159.7 million. The sale has been unanimously approved by the Company’s Board of Directors and is subject to customary covenants and closing conditions. The transaction is expected to close in the first half of 2022.

The water supply, treatment, delivery and maintenance business (“Water Resources”) and mineral exploration drilling business (“Mineral Services”), which represent the remainder of WMS, are expected to be sold within the next twelve months.

See Note 2 of “Notes to the Consolidated Financial Statements”

for additional information. 

The five primary economic drivers of our business are (i) the overall health of the U.S.

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However, even these can be temporarily at risk as federal, state and local governments take actions to balance their budgets.

Additionally, fuel prices and more fuel efficient vehicles can have a dampening effect on consumption, resulting in overall lower tax revenue.

Conversely, increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement.

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The following are accounting policies and estimates that involve significant management judgment and can have significant effects on the Company’s reported results of operations.

The Audit/Compliance Committee of our Board of Directors has reviewed our disclosure of critical accounting policies and estimates.

Revenue Recognition

Our revenue is primarily derived from construction contracts that can span several quarters or years in our Transportation, Water and Specialty segments and from sales of construction related materials in our Materials segment.

Our revenue is primarily derived from construction contracts that can span several quarters or years in our Construction segment and from sales of construction related materials in our Materials segment.

We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, 

and subsequently issued additional related ASUs (“Topic 606”), which we adopted on January 1, 2018 using a modified retrospective transition approach.

Topic 606 provides for a five-step model for recognizing revenue from contracts with customers as follows:

Identify the contract

Identify performance obligations

Determine the transaction price

Allocate the transaction price

Recognize revenue

Generally, our contracts contain one performance obligation.

Contracts with customers in our Materials segment are typically defined by our customary business practices and are valued at the contractual selling price per unit.

Our customary business practices are for the delivery of a separately identifiable good at a point in time which is typically when delivery to the customer occurs.

Contracts in our Transportation, Water and Specialty segments may contain multiple distinct promises or multiple contracts within a master agreement (e.g.

contracts that cross multiple locations/geographies and task orders), which we review at contract inception to determine if they represent multiple performance obligations or multiple separate contracts.

This review consists of determining if promises or groups of promises are distinct within the context of the contract, including whether contracts are physically contiguous, contain task orders, purchase or sales orders, termination clauses and/or elements not related to design and/or build.

The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods and services to the customer.

The contractual consideration from customers of our Transportation, Water and Specialty segments may include both fixed amounts and variable amounts (e.g.

bonuses/incentives or penalties/liquidated damages) to the extent that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., probable and estimable).

When a contract has a single performance obligation, the entire transaction price is attributed to that performance obligation.

When a contract has more than one performance obligation, the transaction price is allocated to each performance obligation based on estimated relative standalone selling prices of the goods or services at the inception of the contract, which typically is determined using cost plus an appropriate margin.

Subsequent to the inception of a contract in our Transportation, Water and Specialty segments, the transaction price could change for various reasons, including executed or unapproved change orders and unresolved contract modifications and/or affirmative claims.

Changes that are accounted for as an adjustment to existing performance obligations are allocated on the same basis at contract inception.

Otherwise, changes are accounted for as separate performance obligation(s) and the separate transaction price is allocated as discussed above.

Changes are made to the transaction price from unapproved change orders to the extent the amount can be reasonably estimated and recovery is probable.

On certain projects we have submitted and have pending unresolved contract modifications and/or affirmative claims (“affirmative claims”) to recover additional costs and the associated profit, if applicable, to which the Company believes it is entitled under the terms of contracts with customers, subcontractors, vendors or others.

The owners or their authorized representatives and/or other third parties may be in partial or full agreement with the modifications or affirmative claims, or may have rejected or disagree entirely or partially as to such entitlement.

Changes are made to the transaction price from affirmative claims with customers to the extent that additional revenue on a claim settlement with a customer is probable and estimable.

A reduction to costs related to affirmative claims with non-customers with whom we have a contractual arrangement (“back charges”) is recognized when the estimated recovery is probable and estimable.

Recognizing affirmative claims and back charge recoveries requires significant judgments of certain factors including, but not limited to, dispute resolution developments and outcomes, anticipated negotiation results, and the cost of resolving such matters.

Certain construction contracts in our Transportation, Water and Specialty segments include retention provisions to provide assurance to our customers that we will perform in accordance with the contract terms and are not considered a financing benefit.

The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the customer. We have determined there are no significant financing components in our contracts during the years ended December 31, 2020 and 2019.

Typically, performance obligations related to contracts in our Transportation, Water and Specialty segments are satisfied over time because our performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced.

We recognize revenue as performance obligations are satisfied and control of the promised good and/or service is transferred to the customer.

Revenue in our Transportation, Water and Specialty segments is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to cost”) method.

Under the cost to cost method, costs incurred to-date are generally the best depiction of transfer of control.

All contract costs, including those associated with affirmative claims, change orders and back charges, are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs).

and subsequently issued additional related ASUs.

The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the forecasted revenue and cost to complete each project.

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The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit and gross profit margin from period to period.

Significant changes in revenue and cost estimates, particularly in our larger, more complex, multi-year projects have had, and can in future periods have, a significant effect on our profitability.

All state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us, with provisions to pay us for work performed through the date of termination including demobilization cost.

Costs to obtain our contracts (“pre-bid costs”) that are not expected to be recovered from the customer are expensed as incurred and included in selling, general and administrative expenses on our consolidated statements of operations.

Although unusual, pre-bid costs that are explicitly chargeable to the customer even if the contract is not obtained are included in accounts receivable on our consolidated balance sheets when we are notified that we are not the low bidder with a corresponding reduction to selling, general and administrative expenses on our consolidated statements of operations.

As of December 31, 2020 and 2019, we had eight reporting units in which goodwill was recorded as follows:

Midwest Group Transportation

Midwest Group Specialty

Northwest Group Transportation

Northwest Group Materials

California Group Transportation

Water and Mineral Services Group Water

Water and Mineral Services Group Specialty

Water and Mineral Services Group Materials

Significant changes in revenue and cost estimates, particularly in our larger, more complex, multi-year projects have had, and in the future could have, a significant effect on our profitability.

Due to the number of factors that can contribute to changes in estimates of contract cost and profitability, 

the sensitivity of reported amounts to the assumptions underlying the estimate’s calculation is not reasonably available or meaningful.

However, Note 3 of “Notes to the Consolidated Financial Statements”

presents the impact material revisions in estimates had on the periods covered by this report.

We perform our goodwill impairment tests annually as of November 1 and more frequently when events and circumstances occur that indicate a possible impairment of goodwill.

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GAAP, we can elect to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or perform a quantitative impairment test.

Based on a qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the quantitative impairment test will be performed.

In performing the quantitative goodwill impairment tests, we calculate the estimated fair value of the reporting unit in which the goodwill is recorded using the discounted cash flows and market multiple methods. Judgments inherent in these methods include 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 2020 discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions.

Our discount rate assumptions are based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units. To assess for reasonableness we compare the estimated fair values of the reporting units to our current market capitalization.

The estimated fair value is compared to the net book value of the reporting unit, including goodwill.

If the fair value of the reporting unit exceeds its net book value, goodwill of the reporting unit is considered not impaired.

If the fair value of the reporting unit is less than its net book value, goodwill is impaired and the excess of the reporting unit’s net book value over the fair value is recognized as a non-cash impairment charge.

During 2020, we performed two interim tests both of which resulted in impairment charges (See Note 12).

For our 2020 annual goodwill impairment test, we conducted quantitative impairment tests for all of our reporting units and concluded that no additional impairment charge was required since the estimated fair value for each of the reporting units exceeded their respective net book values.

The annual goodwill assessment for the Water and Mineral Services (“WMS”) Water and WMS Materials indicated that their estimated fair values exceeded their net book value, but not by a significant amount, as the estimated fair values align with the second interim goodwill impairment test as of September 30, 2020.

The WMS Specialty and Northwest Group Materials reporting units had $9.4 million and $1.9 million, respectively, of goodwill balances as of December 31, 2020 and the annual goodwill assessment resulted in headroom of 12% and 3%, respectively.

Although unexpected, additional adverse changes in the business climate for the WMS Specialty reporting unit could result in an impairment in future periods.

There are no known potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions used to estimate the Northwest Group Materials reporting unit fair value.

The headroom for all other reporting units was in excess of 50%. 

Insurance Estimates

We carry insurance policies to cover various risks, primarily general liability, automobile liability, workers compensation and employee medical expenses under which we are liable to reimburse the insurance company for a portion of each claim paid.

The amounts for which we are liable for general liability and workers compensation generally range from the first $0.5 million to $1.0 million per occurrence.

We accrue for probable losses, both reported and unreported, that are reasonably estimable using actuarial methods based on historic trends, modified, if necessary, by recent events.

Changes in our loss assumptions caused by changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results and financial position up to $1.0 million per occurrence for general liability and workers compensation or $0.3 million for medical insurance.

Based on a qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, a quantitative impairment test will be performed.

In performing a quantitative goodwill impairment test, we calculate the estimated fair value of the reporting unit using the discounted cash flow and market multiple methods. The estimated fair value is compared to the carrying amount of the reporting unit, including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.

If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying amount over the fair value is recognized as a non-cash impairment charge.

Judgments inherent in these methods include 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 2021 discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions.

Our discount rate assumptions are based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units. To assess for reasonableness, we compare the estimated fair values of the reporting units to our current market capitalization. 

Material assumptions used in the impairment analysis included the weighted average cost of capital percent and terminal growth rates.

Accrued Insurance Costs

We carry insurance policies to cover various risks, including general liability, automobile liability, workers compensation and employee medical expenses under which we are liable to reimburse the insurance company for certain losses. 

The amounts for which we are liable range from the first $0.5 million to $1.5 million per occurrence. We accrue for probable losses, both reported and unreported, that are reasonably estimable using actuarial methods based on historic trends, modified, if necessary, by recent events.

The establishment of accruals for estimated losses associated with our insurance policies are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, claim severity, frequency patterns and changing regulatory and legal environments.

Changes in our loss assumptions caused by changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results and financial position. A 10% increase in both the claim frequency and the average cost per claim used to estimate the accruals would result in an increase in our accrued insurance and an associated increase in expense of approximately $7.4 million.

A 10% decrease in both the claim frequency and the average cost per claim would result in a decrease in our accrued insurance and an associated reduction in expense of approximately $6.7 million.

Current Economic Environment and Outlook

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in substantial economic disruption for the foreseeable future.

While there is optimism that the pandemic will come to an end with the prevalence of vaccines and other treatments, uncertainty continues to exist with the possible resurgence of cases and the economic restrictions in many states and subsequent impacts.

With regard to the COVID-19 pandemic, our first priority is to continue to do everything we can to ensure the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities.

We are highly encouraging our employees to receive one of the COVID-19 vaccines.

Subject to that and with appropriate risk mitigation and safety practices, we are doing everything we can to carry on our operations in this unprecedented business environment in which we find ourselves.

Work on most of our projects continues as the Company performs services that are categorized under one or more of the “Essential Critical Infrastructure Sectors,”

as defined by federal and state law. However, our operations in Mexico and Canada were impacted in early 2020 with local COVID-19 work restrictions and travel bans, and we experienced temporary suspensions or reduced project activities as a result of COVID-19 contributing in some cases to employee and subcontractor absences. This disruption has been most impactful to our Water and Mineral Services Group. 

In the face of rapidly changing market conditions, we are continually monitoring the status of our balance sheet and access to liquidity. Despite the pandemic, our balance sheet has strengthened in response to the efforts of our teams across the country. Given the uncertain market environment including the uncertain impact of reduced state and local tax receipts due to the pandemic, Granite continues to be focused on our liquidity through maximizing the return on capital investments and minimizing travel and related expenditures.

Granite’s backlog continues to be strong. This year we are seeing increased interest in best-value or alternative delivery procurement work by the state Department of Transportations, such as California and Utah, along with other state agencies. This shift will create a delay in certain project bookings in the short term due to the procurement methodology, but we believe will give us the opportunity for larger future work with historically higher margins and less inherent risk. 

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

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

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

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

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 government efforts in mitigating the fiscal effects of COVID-19 on state and local budgets. Within the Coronavirus State and Local Fiscal Recovery Funds, $10 billion is earmarked for infrastructure, but much of this is anticipated to go towards clean energy and non-surface transportation projects.

While a permanent revenue solution for the Highway Trust Fund is not yet in place, the expectation continues to remain a stabilizing force for transportation markets.

We are optimistic that Congress and the Administration will jointly move forward in 2021 to pass a bipartisan Federal Infrastructure Bill, which we believe will meaningfully improve the programming visibility for state and local governments, starting with the 2022 construction season.

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

At the federal level, President Biden signed the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) on November 15, 2021.

The five-year IIJA provides the largest increase in federal highway, bridge and transit funding in more than six decades and includes $550 billion in incremental funding.

We believe the increased multi-year spending commitment will improve the programming visibility for state and local governments and bring meaningful impact to project lettings starting in late 2022 and then growing in 2023 and beyond.

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

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

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

While we are encouraged by these funding supports, some of our core states are nevertheless experiencing financial headwinds from the pandemic, which may negatively impact transportation infrastructure spending during 2021.

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

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

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

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

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

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.

For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors”

in this Annual Report.

Heavy Civil Strategic Review

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

Under a new management team, we have narrowed the footprint of our Heavy Civil operating group, including the closure of our New York office in January 2021. Our focus is to pursue opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages, with improved margin expectations. 

Impact of Independent Audit/Compliance Committee Investigation

As a result of our delay in filing our 2019 and 2020 Annual Reports on Form 10-K, there are jurisdictions across the country where we were unable to bid on public projects due to various financial statement filing requirements. This has mainly impacted certain public agency bidding opportunities. Granite teams across the country have continued to work with the various public agencies on these challenges. Through the work of Granite teams, the inability to bid in certain jurisdictions has not had a significant impact to Granite’s liquidity or results of operations.

Revenue collected through SB-1 is on track to increase over the next five years and supports our growth in the state.

Over the past year, segments of the construction industry were adversely affected by inflation as well as supply chain and labor constraints. Inflation has impacted the cost of inputs such as oil related items, concrete and steel. We continually monitor the expected movement of our construction input costs and apply strategies to mitigate the impacts including adjusting the pricing of our contracts.

One of the most significant impacts to our results of operations has been the increase over the last year of oil prices through our use of diesel fuel and liquid asphalt. While we actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future.

Granite’s Committed and Awarded Projects (“CAP”) continues to be strong.

During 2021, we saw increased interest in best-value or alternative delivery procurement work by state departments of transportation, such as California and Utah, along with other state agencies. This shift in delivery procurement methodology creates a delay in certain project bookings and project start times in the short term, but we believe will give us the opportunity for larger future work with more sustainable margins and less inherent risk. 

While we are encouraged by the growth outlook, the COVID-19 pandemic continues to create uncertainties to the economy and the normal cadence of project bids, and could adversely impact our operations and financial results in future periods.

Strategic Actions

The divestiture of the WMS businesses reflect our new strategy to focus on our core civil construction and materials business by using the sale proceeds to invest in these two core businesses.

The divestitures also create opportunities to streamline operational support functions, improve overhead efficiency and better leverage efficiencies of scale.

The current and projected strong demand for civil construction supports the decision to grow our vertically integrated business.

Through our newly reorganized operational structure, our focus is to pursue opportunities in markets where our operating groups’

presence, capabilities and resources provide strategic advantages, with improved and consistent margin expectations.

We enter the 2022 fiscal year with a strong balance sheet and liquidity providing flexibility to invest to strengthen and expand our home market footprint.

Litigation Matter

As further discussed in Note 20 of “Notes to the Consolidated Financial Statements,”

in early February 2022, our wholly-owned subsidiary, Layne Christensen Company (“Layne”), was sued for $70 million and Granite received an arbitration demand for $30 million relating to Layne’s work on the Salesforce Tower foundation.

Layne was a subcontractor on this project and potential liability for this project remained with Layne in connection with our acquisition of Layne in June 2018. 

See “Item 1A.

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

and “Item 1A.

Risk Factors - We are involved in lawsuits 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”

for additional information.

Results of Operations

Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. 

Years Ended December 31,

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Selling, general and administrative expenses

Acquisition and integration expenses

Non-cash impairment charges

Operating (loss) income

Total other expense (income)

Amount attributable to non-controlling interests

Net (loss) income attributable to Granite Construction Incorporated

Other costs (see Note 1 of “Notes to the Consolidated Financial Statements”)

Gain on sales of property and equipment, net (see Note 11 of “Notes to the Consolidated Financial Statements”)

Operating income (loss)

Total other (income) expense, net

Net income (loss) from continuing operations

Net income (loss) from discontinued operations (see Note 2 of “Notes to the Consolidated Financial Statements”)

Amount attributable to non-controlling interests from continuing operations

Net income (loss) attributable to Granite Construction Incorporated

Total Revenue by Segment

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(dollars in thousands)

Transportation

Transportation Revenue

Years Ended December 31,

(dollars in thousands)

Transportation revenue in 2020 increased $125.8 million, or 6.7%, compared to 2019 primarily from the California operating group beginning the year with higher contract backlog, new awards and favorable weather in 2020.

Increases were also due to increases in the Midwest operating group from beginning the year with higher contract backlog and were partially offset by decreases in the Northwest operating group from a decrease in new awards in 2020. During 2020 and 2019, the majority of revenue earned in the Transportation segment was from the public sector.

Water Revenue

Years Ended December 31,

(dollars in thousands)

Water and Mineral Services

Water revenue in 2020 decreased $28.4 million, or 6.1%, compared to 2019 primarily due to decreases in the Water and Mineral Services operating group due to beginning the year with lower contract backlog.

The decreases were partially offset by increases in the California operating group from favorable weather conditions during 2020 when compared to 2019 and in Heavy Civil operating group from beginning the year with higher contract backlog. During 2020 and 2019, the majority of revenue earned in the Water segment was from the public sector.

Specialty Revenue

Construction Revenue

Years Ended December 31,

(dollars in thousands)

Water and Mineral Services

Specialty revenue in 2020 decreased $4.1 million, or 0.6%, when compared to 2019. Increases in the California, Heavy Civil and Federal operating groups primarily resulted from beginning the year with higher contract backlog, which was partially offset by decreases in the Northwest and Midwest operating groups from beginning the year with lower contract backlog and in the Water and Mineral Services operating group from a disruption in business operations associated with the COVID-19 pandemic. During 2020 and 2019, revenue in the Specialty segment was from both the public and private sectors.

Construction revenue in 2021 decreased by $161.8 million, or 5.9%, compared to 2020 primarily due to lower CAP in the California operating group and inclement weather conditions in California near the end of 2021.

Lower CAP was reflective of an extended competitive bidding environment that existed through the first half of 2021.

Additionally, the Central operating group revenue decreased as we remain disciplined in our project bidding selection criteria and certain projects neared completion.

During 2021 and 2020, the majority of revenue earned in the Construction segment was from the public sector.

Materials Revenue

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(dollars in thousands)

Water and Mineral Services

Materials revenue in 2020 increased $23.6 million, or 6.6%, when compared to 2019 primarily due to an increase in the California operating groups from increased volume from improved weather conditions in 2020 partially offset by a decrease in the Water and Mineral Services operating group from an adverse change in the business climate, including a modified relationship with a business partner, increased competition and market consolidation.

Contract Backlog

Our contract backlog consists of the revenue we expect to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts.

We generally include a project in our contract backlog at the time a contract is awarded and to the extent we believe contract execution and funding is probable.

Certain government contracts where funding is appropriated on a periodic basis are included in contract backlog at the time of the award when it is probable the contract value will be funded and executed. Awarded contracts that include unexercised contract options or unissued task orders are included in contract backlog to the extent option exercise or task order issuance is probable, respectively, and are identified as other awards in the tables below.

Materials revenue in 2021 increased by $43.0 million, or 11.8%, when compared to 2020 from increased volumes in both aggregates and asphalt sales combined with increased pricing in certain markets.

Committed and Awarded Projects

Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog to CAP and added the general construction portion of construction management/general contractor (“CM/GC”) contracts.

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

Prior period amounts have been revised to reflect this change.

In line with the revised reportable segments, all CAP is now in the Construction segment.

CAP consists of two components:

(1) unearned revenue and (2) other awards.

Unearned revenue includes the revenue we expect to record in the future on executed contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts.

We generally include a project in unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable.

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

Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer;

however, we have not been materially adversely affected by contract cancellations or modifications in the past.

Total Contract Backlog by Segment

(dollars in thousands)

Transportation

Transportation Contract Backlog

(dollars in thousands)

Unearned revenue

Other awards (1)

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

(dollars in thousands)

Transportation contract backlog of $2.2 billion at December 31, 2020 was $592.9 million, or 21.1%, lower than 2019 primarily due to progress on existing projects partially offset by increases from new awards.

Significant new awards during the fourth quarter of 2020 included a $101 million construction management/general contractor highway improvement project in Southern California, and a $39 million highway widening project in Southern California and the $3 million construction management portion of a $257 million construction management/general contractor highway rehabilitation project in Central California.

Non-controlling partners’

share of Transportation contract backlog as of December 31, 2020 and 2019 was $259.0 million and $310.2 million, respectively.

At December 31, 2020, four contracts in our Transportation segment had total forecasted losses with remaining revenue of $423.0 million, or 19.1%, of Transportation contract backlog.

At December 31, 2019 , four contracts in our Transportation segment had forecasted losses with remaining revenue of $263.6 million, or 9.4% , o f Transportation contract backlog. Provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue.

Water Contract Backlog

(dollars in thousands)

Unearned revenue

Other awards (1)

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

(dollars in thousands)

Water and Mineral Services

Water contract backlog of $311.7 million as of December 31, 2020 was $85.7 million, or 37.9%, higher than at December 31, 2019 primarily due to increased success rate on bidding activity in the Water and Mineral Services operating group.

Specialty Contract Backlog

Certain government contracts where funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed.

Other awards include the general construction portion of CM/GC contracts and awarded contracts with unexercised contract options or unissued task orders.

The general construction portion of CM/GC contracts are included in other awards to the extent contract execution and funding is probable.

Contracts with unexercised contract options or unissued task orders are included in other awards to the extent option exercise or task order issuance is probable, respectively.

(dollars in thousands)

Unearned revenue

Other awards (1)

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

(dollars in thousands)

Specialty contract backlog of $776.9 million as of December 31, 2020 was $80.3 million, or 11.5%, higher than December 31, 2019 primarily due to increases in the Northwest and California operating groups from increased success rate on bidding activity partially offset by decreases in the remaining operating groups from progress on existing projects. Significant new awards during the fourth quarter of 2020 included an $18 million University of California campus renewal project in central California.

In addition, in March of 2021, we were awarded a $267 million tunnel project in Ohio that is expected to be recorded to the Midwest operating group contract backlog in the first quarter of 2021.

CAP of $4.0 billion at December 31, 2021 was $15.4 million, or 0.4%, lower than 2020 primarily due to lower CAP in the Central operating group as we made progress on existing projects and maintained our new project bidding selection criteria.

This decrease was partially offset by increased bidding activity in 2021 in our vertically-integrated businesses.

Significant new additions to CAP during the fourth quarter of 2021 included a $160 million CM/GC project in Utah and a $90 million CM/GC highway improvement project in Northern California.

Non-controlling partners’

share of Specialty contract backlog as of December 31, 2020 and 2019 was $51.6 million and $89.1 million, respectively.

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

share of CAP as of December 31, 2021 and 2020 was $214.3 million and $310.6 million, respectively.

At December 31, 2021 and 2020, three and four contracts had total forecasted losses with remaining revenue of $204.2 million, or 5.1% of total CAP, and $423.0 million, or 10.5% of total CAP, respectively. 

Provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue.

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

Years Ended December 31,

(dollars in thousands)

Transportation

Percent of segment revenue

Total gross profit

Percent of total revenue

Transportation gross profit for the year ended December 31, 2020  increased by $78.7 million, or more than 100% , when compared to 2019  primarily due to a decrease in  net negative impact from revisions in estimates related to the Heavy Civil operating group (see Note 3 of “Notes to the Consolidated Financial Statements”). 

Water gross profit for the year ended December 31, 2020 increased by $24.5 million, or 82.2%, when compared to 2019 and segment gross profit as a percentage of segment revenue for 2020 increased 

to 12.3% from 6.4% in 2019.

The increases were primarily due to increased revenue in our California operating group related to favorable weather and a decrease in negative net impact from revisions in estimates  (See Note 3 of “Notes to the Consolidated Financial Statements”).

Specialty gross profit for the year ended December 31, 2020  increased by $5.5 million, or 6.3%, when compared to 2019primarily due to revenue increases in the California, Heavy Civil and Federal operating groups .

Materials gross profit for the year ended December 31, 2020 increased by $14.4 million, or 28.8%, when compared to 2019 and segment gross profit as a 

percentage of segment revenue for 2020 increased to 17.0% from 14.0% in 2019 driven by an increase in volume from favorable weather during 2020 resulting in a decrease in fixed costs.

Construction gross profit for the year ended December 31, 2021  increased by $6.9 million, or 2.9% , when compared to 2020  primarily due to a decrease in the negative net impact from revisions in estimates in our Central operating group (see Note 3 of “Notes to the Consolidated Financial Statements”) , partially offset by decreases in gross profit from our vertically-integrated businesses from an extended competitive bidding environment.

Materials gross profit for the year ended December 31, 2021 decreased by $6.0 million, or 9.5%, when compared to 2020 driven primarily by higher fuel and liquid asphalt costs in 2021 compared to 2020 combined with lower volumes in California due to inclement weather during the fourth quarter of 2021.

Selling, General and Administrative Expenses

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Restricted stock unit amortization

Non-recurring legal and accounting fees

Other general and administrative expenses

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Selling Expenses

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

stipends), business development and materials facility permits.

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

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

Selling expenses for 2020 increased $6.2 million, or 7.9%, compared to 2019, primarily due to an increase in salaries and related expenses from increased bidding activities.

Selling expenses for 2021 decreased by $9.2 million, or 12.3%, compared to 2020, primarily due to reduced estimating and bidding activity following the implementation of our new project bidding selection criteria.

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, none of which individually exceeded 10% of total general and administrative expenses.

Total general and administrative expenses for 2020 increased $39.1 million, or 17.1%, compared to 2019 primarily due to legal and accounting fees incurred during 2020 that were related to the independent investigation undertaken by the Audit/Compliance Committee starting in February 2020.

Acquisition and Integration expenses

Acquisition and integration expenses were less than $0.1 million, $15.3 million and $61.5 million during the years ended December 31, 2020, 2019 and 2018, respectively, and were primarily related to the acquisition and integration of Layne and LiquiForce. The decrease during the year ended December 31, 2020 when compared to 2019 was due to a reduction in integration costs as the integration was substantially complete at the end of 2019.

The following table presents the components of other income for the respective periods:

Total general and administrative expenses remained largely unchanged for 2021 when compared to 2020.

The following table presents other costs for the respective periods:

Years Ended December 31,

(dollars in thousands)

Other costs for the year ended December 31, 2021 increased by $58.2 million when compared to 2020 primarily due to $66 million in net settlement charges incurred during 2021 as further described in Note 20 of “Notes to the Consolidated Financial Statements.” Other costs also included $21.6 million and $35.6 million for the years ended December 31, 2021 and 2020, respectively, of non-recurring legal and accounting fees.

The majority of these non-recurring fees related to the lawsuits discussed in Note 20 of “Notes to the Consolidated Financial Statements”

and to the Investigation undertaken by the Audit Committee discussed in “Item 1A.

Risk Factors.” The remaining other costs includes personnel costs incurred in connection with our operating group reorganization during 2021 and integration expenses incurred in 2020 and 2019 related to the Layne acquisition that occurred in 2018.

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:

Years Ended December 31,

(dollars in thousands)

Gain on sales of property and equipment, net

Gain on sales of property and equipment, net for the year ended December 31, 2021  

increased by $28.9 million when compared to 2020 primarily due to the sale of property in California as part of our ongoing asset optimization plan.

See Note 11 of “Notes to the Consolidated Financial Statements”

for more information.

Other (Income) Expense

The following table presents the components of other (income) expense, net for the respective periods:

Years Ended December 31,

(in thousands)

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Interest expense

Equity in income of affiliates, net

Equity in income of affiliates

Other income, net

Total other expense (income)

Interest income for 2020 decreased $4.3 million when compared to 2019 primarily due to a decrease in interest rates associated with our marketable securities and cash equivalents.

Interest expense for 2020 increased $5.8 million when compared to 2019 

primarily due to interest on the 2.75% Convertible Notes issued in November 2019. 

Equity in income of affiliates for 2020 decreased $2.7 million when compared to 2019 primarily due to a decrease in income from a real estate investment entity.

Other income, net for 2020 decreased $1.1 million primarily due to changes in the fair market values of our Non-Qualified Deferred Compensation plan assets.

The following table presents the benefit from income taxes for the respective periods:

Total other (income) expense, net

Interest income for 2021 decreased by $1.8 million, or 61.0%, when compared to 2020 primarily due to the settlement of two notes receivable; one in 2020 and the other during the first quarter of 2021.

Interest expense for 2021 decreased by $3.6 million, or 15.0%, when compared to 2020 

as no amount was drawn on the revolver in 2021 and due to a decrease in the effective interest rate on our credit facility. 

Equity in income of affiliates for 2021 decreased by $1.7 million, or 33.2%, when compared to 2020 primarily due to a decrease in income from a real estate investment entity.

The following table presents the provision for (benefit from) income taxes on continuing operations for the respective periods:

Years Ended December 31,

(dollars in thousands)

Benefit from income taxes

Provision for (benefit from) income taxes on continuing operations

Effective tax rate

Our tax rate decreased by 26.2% from 26.4% to 0.2% when compared to 2019 primarily due to the goodwill impairment and the investment in affiliates impairment recorded in 2020 and the relative impact of non-controlling interest recorded in 2020 and 2019.

See Note 12 for discussion of the impairment charges.

Our tax rate decreased from 121.9% to 13.0% when compared to 2020 primarily due to the impact of non-controlling interest and the valuation allowance on capital losses recorded in 2020 relative to the insignificant income before provision for income taxes in 2020.

Amount Attributable to Non-controlling Interests

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The amount attributable to non-controlling interests represents the non-controlling owners’

share of the income or loss of our consolidated construction joint ventures. The change during 2020 was primarily due to a net negative impact from revisions in estimates on one project (See Note 3 of “Notes to the Consolidated Financial Statements”) .

share of the income or loss of our consolidated construction joint ventures. The change during 2021 was primarily due to a net negative impact from revisions in estimates on two projects 

(See Note 3 of “Notes to the Consolidated Financial Statements”) .

Net Income (Loss) from Discontinued Operations

Net income from discontinued operations for the year ended December 31, 2021 increased $175.1 million when compared to 2020 primarily due to goodwill impairment charges in 2020.

Prior Years Comparison (2020 to 2019)

 Construction revenue in 2020 increased $188.3 million, or 7.3%, compared to 2019 primarily from increases in the California operating group due to beginning the year with higher CAP, new awards and favorable weather in 2020.

Increases were also due to the Central operating group beginning the year with higher CAP.

The increases were partially offset by decreases in the Mountain operating group due to a decline in new awards in 2020 and beginning the year with lower CAP.

Materials revenue in 2020 increased $25.7 million, or 7.6%, when compared to 2019 primarily due to an increase in revenue in the California operating group from increased volume from improved weather conditions in 2020.

Gross Profit:

 Construction gross profit for the year ended December 31, 2020 increased by $95.0 million, or 64.8%, when compared to 2019 primarily due to a decrease in net negative impact from revisions in estimates related to the Central operating group.

Materials gross profit for the year ended December 31, 2020 increased by $19.9 million, or 45.9%, when compared to 2019 driven by an increase in volume from favorable weather during 2020 resulting in lower per unit fixed costs.

Selling, General and Administrative Expenses:

Selling expenses for 2020 increased $6.7 million, or 9.8%, compared to 2019 primarily due to an increase in salaries and related expenses from increased bidding activities.

General and administrative expenses for 2020 increased $8.0 million, or 4.7%, compared to 2019 primarily due to increases in salaries and related expenses from an increase in employee benefits and compensation.

 Other costs for the year ended December 30, 2020 increased by $30.2 million when compared to 2019 primarily due to an increase in legal, accounting and investigation fees related to the lawsuits as discussed in Note 20 of “Notes to the Consolidated Financial Statements”

and to the Investigation undertaken by the Audit Committee as discussed in “Item 1A.

Risk Factors.”

Other (Income) Expense:

 Interest income for 2020 decreased $4.2 million, or 58.4%, compared to 2019 primarily due to a decrease in interest rates associated with our marketable securities and cash equivalents.

Interest expense for 2020 increased $5.8 million, or 32.2%, when compared to 2019 primarily due to interest on the $230.0 million convertible senior notes that were issued in November 2019. Equity in income of affiliates for 2020 decreased $1.8 million, or 25.7%, compared to 2019 primarily due to a decrease in income from a real estate investment entity. Other income, net for 2020 decreased $1.2 million, or 23.3%, primarily due to changes in the fair market values of our Non-Qualified Deferred Compensation plan assets.

Income Taxes:

 Our tax rate increased by 91.4% from 30.5% to 121.9% when compared to 2019 primarily due to the impact of non-controlling interest and the valuation allowance on capital losses recorded in 2020 relative to the insignificant income before provision for income taxes in 2020.

Amount Attributable to Non-controlling Interests:

 The change during 2020 was primarily due to a net negative impact from revisions in estimates on one project in the Central operating group.

Net Income ( Loss)  

from Discontinued Operations :

Net loss from discontinued operations for the year ended December 31, 2020 increased $135.6 million when compared to 2019 due to goodwill impairment charges in 2020.

Liquidity and Capital Resources

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

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

Additionally, in November 2019, we issued $230 million of our 2.75% convertible senior notes due 2024.

See Note 14 of “Notes to the Consolidated Financial Statements” for further discussion regarding the convertible notes.

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

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

Our material cash requirements include paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations.

Our primary contractual obligations are as follows and are further discussed in the referenced “Notes to the Consolidated Financial Statements:” 

Asset retirement obligations - see Note 11, Property and Equipment, net

Long-term debt and the associated interest payments –

see Note 14, Long-Term Debt

Operating lease and royalty future minimum payments - see Note 15, Leases

Non-Qualified Deferred Compensation Plan obligations –

see Note 16, Employee Benefit Plans

We believe our cash and cash equivalents, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments, and other liquidity requirements associated with our existing operations for the next twelve months.

We believe our cash and cash equivalents, investments, available borrowing capacity, access to the debt and equity capital markets, proceeds from the sales of the WMS businesses and cash expected to be generated from operations will be sufficient to meet our long-term requirements and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.

As of December 31, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisted of U.S. Government and agency obligations.

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for further discussion regarding the revolving credit facility.

Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe our 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 working capital needs, capital expenditures, financial commitments, cash dividend payments, and other liquidity requirements associated with our existing operations for the next twelve months.

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 also consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”).

The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:

(in thousands)

The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, for continuing operations as of the respective dates:

Cash and cash equivalents excluding CCJVs

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Granite’s portion of CCJV cash and cash equivalents was $54.4 million and $42.6 million as of December 31, 2021 and 2020, respectively.

Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $58.9 million and $60.4 million as of December 31, 2020 and 2019, respectively.

Excluded from the table above is:

$56.5 million and $58.9 million as of December 31, 2021 and 2020, respectively, in Granite’s portion of unconsolidated construction joint venture cash and cash equivalents and

$16.5 million and $10.8 million of cash and cash equivalents as of December 31, 2021 and 2020, respectively, that is included in current assets held-for-sale.

Capital Expenditures

During the year ended December 31, 2021, we had capital expenditures of $94.8 million, including $12.0 million related to discontinued operations, compared to $93.3 million, including $16.7 million related to discontinued operations, 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 2022 capital expenditures for continuing operations to be between approximately $100 million and $115 million.

Years Ended December 31,

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Operating activities

progressions toward completion, outstanding contract change orders and affirmative claims and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.

As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, project progression toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.

Our working capital assets result from both public and private sector projects.

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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.

Cash provided by operating activities of $268.5 million during 2020 represents a $157.0 million increase when compared to 2019. The change was primarily due to a $115.8 million increase in cash provided by working capital primarily from payment timing differences as well as an increase from CCJVs, and a $24.9 million decrease in net contributions to unconsolidated joint ventures and affiliates partially offset by a $16.4 million decrease in cash provided by net loss after adjusting for non-cash items.

Cash provided by operating activities of $21.9 million during 2021 represents a $246.5 million decrease when compared to 2020. The change was primarily due to a $99.2 million decrease in cash provided by net income (including $66 million in net securities litigation settlement charges discussed below) after adjusting for non-cash items and a $147.4 million decrease in cash provided by working capital.

The decrease in cash provided by working capital was primarily due to a decrease in cash provided by contract assets, net from payment timing differences as well as decreases from CCJVs. 

Related to the securities litigation settlement, the settlement amount of $129.0 million, including the amount remitted by insurance, was paid into a settlement escrow fund in October 2021.

The funds are expected to be released from escrow when the case is no longer subject to further appeal or other review.

The amount paid by the Company of $66 million was included in cash provided by operating activities on the consolidated statements of cash flows for the year ended December 31, 2021. See Note 20 of “Notes to the Consolidated Financial Statements.”

Investing activities

Cash used in investing activities of $41.3 million during 2020 represents a $0.9 million increase when compared to 2019 primarily due to a decrease in maturities and proceeds from the sale, net of purchases, of marketable securities.

Cash used in investing activities of $21.5 million during 2021 represents a $19.8 million decrease when compared to 2020 primarily due to proceeds from the sale of three properties in California during 2021, partially offset by a decrease in maturities and proceeds from the sale of marketable securities and the issuance of a note receivable, net of collections.

Financing activities

Cash used in financing activities of $24.4 million during 2021 represents a $33.2 million decrease when compared to 2020.

The change was due to decreases in repurchases of common stock as part of our Board approved repurchase program, in cash paid for the purchase of an equity derivative instrument in connection with the offering of our 2.75% Convertible Notes, and in distributions, net of contributions, to non-controlling partners.

These decreases were partially offset by a decrease in proceeds from the issuance of our 2.75% Convertible Notes and warrants, net of fees, and debt payments, net of a draw, on the revolving credit facility in 2020.

For discussions related to the results of operations and cash flows between 2019 and 2018, refer to Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the United States Securities and Exchange Commission on February 22, 2021 and is incorporated by reference into this Annual Report on Form 10-K.

Capital Expenditures

During the year ended December 31, 2020, we had capital expenditures of $93.3 million compared to $106.8 million during 2019.

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 between $95.0 million and $105.0 million.

The change was primarily due to a decrease in debt principal repayments, partially offset by a decrease in proceeds from debt.

We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value using Level 2 inputs. See Note 8 to “Notes to the Consolidated Financial Statements”

for further information. The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our consolidated balance sheets based on the cash proceeds.

See Note 14 to “Notes to the Consolidated Financial Statements”

for further information. The hedge option and warrant derivative transactions, related to the $230.0 million convertible senior notes that were issued in November 2019, were recorded to equity on our consolidated balance sheets based on the cash proceeds.

See Note 14 to “Notes to the Consolidated Financial Statements”

for further information.

Debt and Contractual Obligations  

The following table summarizes our significant obligations outstanding as of December 31, 2020:

Payments Due by Period

(in thousands)

Less than 1 year

More than 5 years

Long-term debt –

principal (1)

Long-term debt –

Operating leases (3)

Other purchase obligations (4)

Deferred compensation obligations (5)

Asset retirement obligations (6)

(1) Debt issuance costs are excluded from the table.

Included in the table is $29.7 million of unamortized debt discount related to the 2.75% Convertible Notes (as defined in Note 14 to “Notes to the Consolidated Financial Statements”).

(2) Included in the table are future interest payments related to borrowings under our Credit Agreement for the term loan.

Interest for the term loan was calculated using the fixed rate associated with the cash flow hedge of 2.76% plus the applicable margin.

Borrowings are subject to a 75bp LIBOR floor.

As forecasted LIBOR was below 75bps for all future periods, the 75bp LIBOR floor was utilized.

Future interest payments may differ from actual results.

Also included in the table is $25.3 million in interest related to borrowings under our 2.75% Convertible Notes.

See Note 14 of “Notes to the Consolidated Financial Statements.”

(3) These obligations represent the minimum rental and equipment lease commitments and minimum royalty requirements under all noncancellable agreements. See Note 15 of “Notes to the Consolidated Financial Statements.”

(4) These obligations represent firm purchase commitments for equipment and other goods and services not directly connected with our construction contract backlog which are individually greater than $10,000 and have an expected fulfillment date after December 31, 2020.

(5) The timing of expected payment of deferred compensation is based on estimated dates of retirement.

Actual dates of retirement could be different and could cause the timing of payments to change.

(6) Asset retirement obligations represent reclamation and other related costs associated with our owned and leased quarry properties, the majority of which have an estimated settlement date beyond five years.

See Note 11 of “Notes to the Consolidated Financial Statements.”

In addition to the significant obligations described above, as of December 31, 2020, we had approximately $12.7 million associated with uncertain tax positions filed on our tax returns which were excluded because we cannot make a reasonably reliable estimate of the timing of potential payments relative to such reserves.

Surety Bonds and Real Estate Mortgages

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

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

At December 31, 2021, approximately  $2.3 billion 

of our contract backlog was bonded.

of our $4.0 billion CAP was bonded.

Performance bonds do not have stated expiration dates;

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Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt.

Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital.

This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 10 of “Notes to the Consolidated Financial Statements.”

The debt associated with our unconsolidated non-construction entities is included in Note 10 of “Notes to the Consolidated Financial Statements.”

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below.

Our Third Amended and Restated Credit Agreement dated May 18, 2021, as subsequently amended (the “Credit Agreement”) requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below.

Our failure to comply with these covenants would constitute an event of default under the Credit Agreement.

Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility;

Additionally, the $230.0 million principal amount of convertible senior notes that were issued in November 2019 at an interest rate of 2.75% per annum and are payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020 (the “2.75% Convertible Notes”) is governed by the terms and conditions of the indenture.

Our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the 2.75% Convertible Notes indenture or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility;

(ii) termination of such facility;

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and/or (v) foreclosure on any lien securing the obligations under such facility.

A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

A default under the 2.75% Convertible Notes indenture could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of December 31, 2021, the Consolidated Leverage Ratio was 2.39, which did not exceed the maximum of 3.00.

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Share Purchase Program

As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion.

As part of this authorization we have established a plan to facilitate common stock repurchases.

We did not purchase shares under the share purchase plan in any of the periods presented .

As of December 31, 2020 , $157.2 million of the authorization remained available. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

Recently Issued and Adopted Accounting Pronouncements

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 (the “2016 authorization”).

As part of the 2016 authorization, we established a plan to facilitate common stock repurchases.

We did not purchase shares under the share purchase plan in 2021 or 2020 .

As of December 31, 2021 , $157.2 million of the 2016 authorization remained available.

 As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”).

The 2022 authorization replaced the 2016 authorization, including the amount available for repurchase, and no further repurchases will take place under the 2016 authorization. 

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

Recently Issued Accounting Pronouncements

See Note 1 of “Notes to the Consolidated Financial Statements”

under the captions Recently Issued Accounting Pronouncements and Recently Adopted Accounting Pronouncements.

under the caption Recently Issued Accounting Pronouncements.

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-K

Item 5. Market for Registrant’s Common Equity