Item 5. Market for Registrant’s Common Equity
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the New York Stock Exchange under the ticker symbol GVA. 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.
The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended December 31, 2021:
Period
 
Total number of shares purchased (1)
 
 
Average price paid per share
 
 
Total number of shares purchased as part of publicly announced plans or programs
 
 
Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
 
October 1, 2021 through October 31, 2021
 
 
524
 
 
$
38.36
 
 
 
—
 
 
$
157,165,044
 
November 1, 2021 through November 30, 2021
 
 
386
 
 
$
37.14
 
 
 
—
 
 
$
157,165,044
 
December 1, 2021 through December 31, 2021
 
 
2,387
 
 
$
38.76
 
 
 
—
 
 
$
157,165,044
 
 
 
 
3,297
 
 
$
38.51
 
 
 
—
 
 
 
 
 
(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.
17
Table of Contents
Performance Graph
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. The Dow Jones U.S. Heavy Construction index includes the following companies: 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. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2016 through December 31, 2021.
 
December 31,
 
2016
 
 
2017
 
 
2018
 
 
2019
 
 
2020
 
 
2021
 
Granite Construction Incorporated
 
$
100.00
 
 
$
116.44
 
 
$
74.76
 
 
$
52.11
 
 
$
51.75
 
 
$
75.96
 
S&P 500
 
$
100.00
 
 
$
121.83
 
 
$
116.49
 
 
$
153.17
 
 
$
181.35
 
 
$
233.41
 
Dow Jones U.S. Heavy Construction
 
$
100.00
 
 
$
105.37
 
 
$
77.85
 
 
$
104.44
 
 
$
126.81
 
 
$
189.88
 
 
18
Table of Contents
Item 6. RESERVED
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We deliver infrastructure solutions for public and private clients primarily in the United States. We are one of the largest diversified infrastructure companies in the United States. 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. 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. 
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:
 
•
California;
 
•
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; and
 
•
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 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. economy; (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. A stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector. This reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector. In addition, a stagnant or declining economy tends to produce less tax revenue for public agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements. Some funding sources that have been specifically earmarked for infrastructure spending, such as diesel and gasoline taxes, are not as directly affected by a stagnant or declining economy, unless actual consumption is reduced or gasoline sales tax revenues decline consistent with fuel prices. However, even these can be temporarily at risk as federal, state and local governments take actions to balance their budgets. 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.
19
 
Critical Accounting Policies and Estimates
The financial statements included in “Item 8. Financial Statements and Supplementary Data” have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our estimates and related judgments and assumptions are continually evaluated based on available information and experiences; however, actual amounts could differ from those estimates.
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.
Revenue Recognition
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. 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. Cost estimates for all of our significant projects use a detailed “bottom up” approach. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include:
 
•
changes in costs of labor and/or materials;
 
•
subcontractor costs, availability and/or performance issues;
 
•
extended overhead and other costs due to owner, weather and other delays;
 
•
changes in productivity expectations;
 
•
changes from original design on design-build projects;
 
•
our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs;
 
•
a change in the availability and proximity of equipment and materials;
 
•
complexity in original design;
 
•
length of time to complete the project;
 
•
the availability and skill level of workers in the geographic location of the project;
 
•
site conditions that differ from those assumed in the original bid;
 
•
costs associated with scope changes; and
 
•
the customer’s ability to properly administer the contract.
The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit and gross profit margin from period to period. Significant changes in 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.
Goodwill
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. Examples of such events or circumstances include, but are not limited to, the following: 
 
•
a significant adverse change in the business climate;
 
•
a significant adverse change in legal factors or an adverse action or assessment by a regulator;
 
•
a more likely than not expectation that a segment or a significant portion thereof will be sold; or
 
•
the testing for recoverability of a significant asset group within the segment.
In accordance with U.S. 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, 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.
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Table of Contents
Current Economic Environment and Outlook
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. In the November 2021 elections, voters in 17 states approved 89% of state and local ballot initiatives that will provide an additional $6.9 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 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,
 
 
2021
 
 
 
2020
 
 
 
2019
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
3,010,053
 
 
$
3,128,879
 
 
$
2,914,877
 
Gross profit
 
$
305,556
 
 
$
304,653
 
 
$
189,785
 
Selling, general and administrative expenses
 
$
243,083
 
 
$
252,879
 
 
$
238,147
 
Other costs (see Note 1 of “Notes to the Consolidated Financial Statements”)
 
$
95,155
 
 
$
36,964
 
 
$
6,735
 
Gain on sales of property and equipment, net (see Note 11 of “Notes to the Consolidated Financial Statements”)
 
$
(33,781
)
 
$
(4,925
)
 
$
(13,373
)
Operating income (loss)
 
$
1,099
 
 
$
19,735
 
 
$
(41,724
)
Total other (income) expense, net
 
$
10,595
 
 
$
11,590
 
 
$
(1,500
)
Net income (loss) from continuing operations
 
$
(8,259
)
 
$
(1,782
)
 
$
(27,936
)
Net income (loss) from discontinued operations (see Note 2 of “Notes to the Consolidated Financial Statements”)
 
$
10,673
 
 
$
(164,399
)
 
$
(28,766
)
Amount attributable to non-controlling interests from continuing operations
 
$
7,682
 
 
$
21,064
 
 
$
(3,489
)
Net income (loss) attributable to Granite Construction Incorporated
 
$
10,096
 
 
$
(145,117
)
 
$
(60,191
)
 
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Table of Contents
 
Revenue
Total Revenue by Segment
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
2,602,306
 
 
 
86.5
%
 
$
2,764,094
 
 
 
88.3
%
 
$
2,575,791
 
 
 
88.4
%
Materials
 
 
407,747
 
 
 
13.5
 
 
 
364,785
 
 
 
11.7
 
 
 
339,086
 
 
 
11.6
 
Total
 
$
3,010,053
 
 
 
100.0
%
 
$
3,128,879
 
 
 
100.0
%
 
$
2,914,877
 
 
 
100.0
%
Construction Revenue
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
 
$
822,448
 
 
 
31.6
%
 
$
928,193
 
 
 
33.5
%
 
$
787,259
 
 
 
30.6
%
Central
 
 
1,058,448
 
 
 
40.7
 
 
 
1,145,725
 
 
 
41.5
 
 
 
1,056,385
 
 
 
41.0
 
Mountain
 
 
721,410
 
 
 
27.7
 
 
 
690,176
 
 
 
25.0
 
 
 
732,147
 
 
 
28.4
 
Total
 
$
2,602,306
 
 
 
100.0
%
 
$
2,764,094
 
 
 
100.0
%
 
$
2,575,791
 
 
 
100.0
%
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
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
 
$
242,552
 
 
 
59.4
%
 
$
222,021
 
 
 
60.9
%
 
$
198,465
 
 
 
58.6
%
Central
 
 
33,270
 
 
 
8.2
 
 
 
25,181
 
 
 
6.9
 
 
 
23,830
 
 
 
7.0
 
Mountain
 
 
131,925
 
 
 
32.4
 
 
 
117,583
 
 
 
32.2
 
 
 
116,791
 
 
 
34.4
 
Total
 
$
407,747
 
 
 
100.0
%
 
$
364,785
 
 
 
100.0
%
 
$
339,086
 
 
 
100.0
%
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.
 
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Table of Contents
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. 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.
December 31,
 
2021
 
 
2020
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unearned revenue
 
$
2,595,085
 
 
 
64.7
%
 
$
2,810,827
 
 
 
69.8
%
Other awards
 
 
1,414,979
 
 
 
35.3
 
 
 
1,214,658
 
 
 
30.2
 
Total
 
$
4,010,064
 
 
 
100.0
%
 
$
4,025,485
 
 
 
100.0
%
 
December 31,
 
2021
 
 
2020
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
 
$
1,476,066
 
 
 
36.8
%
 
$
1,354,776
 
 
 
33.7
%
Central
 
 
1,585,309
 
 
 
39.5
 
 
 
1,943,622
 
 
 
48.2
 
Mountain
 
 
948,689
 
 
 
23.7
 
 
 
727,087
 
 
 
18.1
 
Total
 
$
4,010,064
 
 
 
100.0
%
 
$
4,025,485
 
 
 
100.0
%
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 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.
Gross Profit
The following table presents gross profit by reportable segment for the respective periods:
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
248,350
 
 
$
241,444
 
 
$
146,472
 
Percent of segment revenue
 
 
9.5
%
 
 
8.7
%
 
 
5.7
%
Materials
 
 
57,206
 
 
 
63,209
 
 
 
43,313
 
Percent of segment revenue
 
 
14.0
 
 
 
17.3
 
 
 
12.8
 
Total gross profit
 
$
305,556
 
 
$
304,653
 
 
$
189,785
 
Percent of total revenue
 
 
10.2
%
 
 
9.7
%
 
 
6.5
%
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.
 
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Table of Contents
Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Selling
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related expenses
 
$
56,264
 
 
$
60,162
 
 
$
52,142
 
Incentive compensation
 
 
4,729
 
 
 
4,949
 
 
 
4,302
 
Restricted stock unit amortization
 
 
1,363
 
 
 
1,244
 
 
 
1,766
 
Other selling expenses
 
 
3,398
 
 
 
8,630
 
 
 
10,069
 
Total selling
 
 
65,754
 
 
 
74,985
 
 
 
68,279
 
General and administrative
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and related expenses
 
 
88,210
 
 
 
88,998
 
 
 
78,628
 
Incentive compensation
 
 
7,909
 
 
 
10,399
 
 
 
7,189
 
Restricted stock unit amortization
 
 
3,090
 
 
 
2,942
 
 
 
5,734
 
Other general and administrative expenses
 
 
78,120
 
 
 
75,555
 
 
 
78,317
 
Total general and administrative
 
 
177,329
 
 
 
177,894
 
 
 
169,868
 
Total selling, general and administrative
 
$
243,083
 
 
$
252,879
 
 
$
238,147
 
Percent of revenue
 
 
8.1
%
 
 
8.1
%
 
 
8.2
%
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 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 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. Total general and administrative expenses remained largely unchanged for 2021 when compared to 2020.
Other Costs
The following table presents other costs for the respective periods:
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Other costs
 
$
95,155
 
 
$
36,964
 
 
$
6,735
 
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,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Gain on sales of property and equipment, net
 
$
(33,781
)
 
$
(4,925
)
 
$
(13,373
)
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.
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Other (Income) Expense
The following table presents the components of other (income) expense, net for the respective periods:
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
(1,178
)
 
$
(3,017
)
 
$
(7,256
)
Interest expense
 
 
20,282
 
 
 
23,866
 
 
 
18,052
 
Equity in income of affiliates
 
 
(3,465
)
 
 
(5,191
)
 
 
(6,991
)
Other income, net
 
 
(5,044
)
 
 
(4,068
)
 
 
(5,305
)
Total other (income) expense, net
 
$
10,595
 
 
$
11,590
 
 
$
(1,500
)
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.
Income Taxes
The following table presents the provision for (benefit from) income taxes on continuing operations for the respective periods:
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Provision for (benefit from) income taxes on continuing operations
 
$
(1,237
)
 
$
9,927
 
 
$
(12,288
)
Effective tax rate
 
 
13.0
%
 
 
121.9
%
 
 
30.5
%
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
The following table presents the income amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods:
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Amount attributable to non-controlling interests
 
$
7,682
 
 
$
21,064
 
 
$
(3,489
)
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 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)
Revenue :  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:  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.
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Liquidity and Capital Resources
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. Our credit facility consists of a term loan and a revolving credit facility. Of the $275.0 million revolving credit facility, $232.0 million was available for borrowing at December 31, 2021. See Note 14 of “Notes to the Consolidated Financial Statements” for further discussion regarding the revolving credit facility.
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, for continuing operations as of the respective dates:
December 31,
 
2021
 
 
2020
 
Cash and cash equivalents excluding CCJVs
 
$
302,864
 
 
$
350,473
 
CCJV cash and cash equivalents (1)
 
 
92,783
 
 
 
74,819
 
Total consolidated cash and cash equivalents
 
 
395,647
 
 
 
425,292
 
Short-term and long-term marketable securities (2)
 
 
15,600
 
 
 
5,200
 
Total cash, cash equivalents and marketable securities
 
$
411,247
 
 
$
430,492
 
(1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2) All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations as of all periods presented.
Granite’s portion of CCJV cash and cash equivalents was $54.4 million and $42.6 million as of December 31, 2021 and 2020, 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.
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Cash Flows
Years Ended December 31,
 
2021
 
 
2020
 
 
2019
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
21,931
 
 
$
268,460
 
 
$
111,438
 
Investing activities
 
$
(21,478
)
 
$
(41,262
)
 
$
(40,322
)
Financing activities
 
$
(24,446
)
 
$
(57,658
)
 
$
(81,637
)
Operating activities
As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, 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. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer.
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 $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 primarily due to a decrease in debt principal repayments, partially offset by a decrease in proceeds from debt.
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Derivatives
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 $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.
Surety Bonds and Real Estate Mortgages
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 $4.0 billion CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.
Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. 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 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, 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; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the 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. Our Consolidated Interest Coverage Ratio was 6.69, which exceeded the minimum of 4.00. 
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 (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 caption Recently Issued Accounting Pronouncements.
 
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