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Item 1A. Risk Factors

2023-02-21 compared with 2022-02-28 · 176 added, 110 removed, 179 unchanged (62% of the section changed)

Set forth below and elsewhere in this report and in other documents we file with the SEC are various risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report or otherwise adversely affect our business.

RISKS RELATED TO OUR INVESTIGATION, RESTATEMENT AND MATERIAL WEAKNESSES

We restated our consolidated financial statements for several prior periods and failed to timely file our Annual and Quarterly Reports with the SEC, which has affected and may continue to affect investor confidence, our stock price and our reputation with our customers.

It may also result in additional stockholder litigation and may reduce customer confidence in our ability to complete new contract opportunities . 

As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, we restated our consolidated financial statements for the years ended December 31, 2018 and 2017 and unaudited quarterly financial information for the first three quarters of the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 to correct misstatements associated with project forecasts in our former Heavy Civil operating group, which is now part of our Central operating group, discovered in connection with the independent investigation (the “Investigation”) of the Audit/Compliance Committee (the “Audit Committee”) of our Board of Directors.

As a result of the Investigation and restatement process, we failed to timely file our Annual and Quarterly Reports with the SEC.

Such Investigation, restatement and failure to timely file our Annual and Quarterly Reports with the SEC:

had and may continue to have the effect of eroding investor confidence in us and our financial reporting and accounting practices and processes;

negatively impacted and may continue to negatively impact the trading price of our common stock;

required that we incur significant expenses related to the Investigation, restatement and remediation of the deficiencies in our internal control over financial reporting and may require that we incur significant additional expenses relating to any additional stockholder litigation;

may result in additional stockholder litigation;

may make it more difficult, expensive and time consuming for us to raise capital, if necessary, on acceptable terms, if at all;

may make it more difficult to pursue transactions or implement business strategies that might otherwise be beneficial to our business;

may negatively impact our reputation with our customers;

may cause customers to place new orders with other companies.

The occurrence or continued occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We identified material weaknesses in our internal control over financial reporting in our Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, which have been remediated.

If we identify material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately and timely report our financial results, investors may lose confidence in us and the market price of our common stock may decrease.

 As disclosed in our Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, we identified control deficiencies that constituted material weaknesses, either individually or in the aggregate, and since 2020, Company management, with the assistance of outside consultants, has reviewed and revised our internal control over financial reporting in response to the material weaknesses. Management has now concluded that these material weaknesses have been remediated.

We may not be able to accurately and timely report our financial results and/or we may not be able to detect errors on a timely basis if in the future we:

(1) identify one or more material weaknesses in our internal control over financial reporting; (2) are unable to successfully remediate any future material weaknesses; (3) are unable to comply with the requirements of Section 404 in a timely manner; or (4) are unable to assert, or our independent registered public accounting firm is unable to attest, that our internal control over financial reporting is effective.

This could result in:

(i) our financial statements being materially misstated;

(ii) investors losing confidence in the accuracy and completeness of our financial reports;

(iii) the market price of our common stock decreasing (iv) our liquidity and access to the capital markets being adversely affected;

and (v) our inability to maintain compliance with applicable stock exchange listing requirements and debt covenants requirements.

We could also become subject to stockholder or other third-party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, penalties, trading suspensions or other remedies.

Further, because of its inherent limitations, even our remediated and effective internal control over financial reporting may not prevent or detect all misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in our conditions, or that the degree of compliance with our policies or procedures may deteriorate.

We are involved in, and may in the future be subject to, litigation and regulatory examinations, investigations, proceedings or orders as a result of or relating to our restatement and our failure to timely file our Annual and Quarterly Reports with the SEC and if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations.

We are currently the subject of securities class action litigation and derivative lawsuits.

Additionally, in connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding that Investigation. Since contacting the SEC, we have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.

The SEC’s investigation is ongoing and was not resolved when the Audit Committee completed the Investigation or when the Company’s Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020 were filed.

The restatement and our failure to timely file our Annual and Quarterly Reports with the SEC, as well as our previously reported material weaknesses in internal control over financial reporting, may subject us to additional litigation and regulatory examinations, investigations, proceedings or orders, the assessment of civil monetary penalties, and other equitable remedies.

Our management has devoted and may continue to be required to devote significant time and attention to these matters.

If any of these matters are resolved adversely against us, it could harm our business, financial condition and results of operations.

Additionally, while we cannot estimate our potential exposure to these matters at this time, we have already expended significant amounts investigating the claims underlying and defending these matters and expect to continue to need to expend significant amounts to conclude these matters.

RISKS RELATED TO OUR BUSINESS

Public health events, including health epidemics or pandemics or other contagious outbreaks, could negatively impact our business, financial condition and results of operations .

Our ability to perform work may be significantly affected by public health events.

If a public health epidemic or pandemic or other contagious outbreak, including COVID-19, interferes with our ability, or that of our employees, contractors, suppliers, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business, our operations may be affected, which could have a material adverse effect on our business, financial condition and results of operations.

Unfavorable economic conditions may have an adverse impact on our business.

Volatility in the global financial system, deterioration in general economic activity, and fiscal, monetary and other policies that federal, state and local governments may enact, including infrastructure spending or deficit reduction measures, may have an adverse impact on our business, financial position, results of operations, cash flows and liquidity. In particular, low tax revenues, budget deficits, financing constraints, including timing of long-term federal, state and local funding releases, and competing priorities could negatively impact the ability of government agencies to fund existing or new infrastructure projects in the public sector.

Volatility in the global financial system, deterioration in general economic activity, inflation, rising interest rates, supply chain issues, the War in Ukraine, other political, social or economic uncertainties, and fiscal, monetary and other policies that federal, state and local governments may enact, including infrastructure spending or deficit reduction measures, may have an adverse impact on our business, financial position, results of operations, cash flows and liquidity. In particular, low tax revenues, budget deficits, financing constraints, including timing of long-term federal, state and local funding releases, and competing priorities could negatively impact the ability of government agencies to fund existing or new infrastructure projects in the public sector.

These factors could have a material adverse effect on the financial market and economic conditions in the United States as well as throughout the world, which may limit our ability and the ability of our customers to obtain financing and/or could impair our ability to execute our strategy.

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We work in a highly competitive marketplace.

We have multiple competitors in all of the areas in which we work, and some of our competitors are larger than we are and may have greater resources than we do.

We have multiple competitors in all the areas in which we work, and some of our competitors are larger than we are and may have greater resources than we do.

Government funding for public works projects is limited, contributing to competition.

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In addition, should downturns in residential and commercial construction activity occur, the competition for available public sector work would intensify, which could impact our revenue, CAP and profit margins.

Our financial position could be impacted by worse than anticipated results in our former Heavy Civil operating group, which is now part of our Central operating group.

 We completed our previously announced strategic review of our former Heavy Civil operating group, which is now part of our Central operating group, and have taken actions that we believe will be beneficial to us and our stockholders.

However, the results of our planned actions, and the timing of expected benefits, remain uncertain.

In addition, it is possible that we may elect to undertake additional actions related to our Central operating group.

Our results of operations, cash flows and liquidity could be materially impacted by underperformance in our Central operating group.

Fixed price and fixed unit price contracts subject us to the risk of increased project cost.

As more fully described in “Contract Provisions and Subcontracting”

under “Item 1. Business,” the profitability of our fixed price and fixed unit price contracts can be adversely affected by a number of factors that can cause our actual costs to materially exceed the costs estimated at the time of our original bid.

This could result in reduced profits or a loss for that project and there could be a material adverse impact to our financial position, results of operations, cash flows and liquidity.

As part of our growth strategy, we have made and may make future acquisitions, and acquisitions involve many risks and uncertainties.

These risks and uncertainties include: 

our ability to complete acquisitions in accordance with our expected plans, on terms and conditions acceptable to us or our anticipated time frame, or at all;

difficulties identifying all significant risks during our due diligence activities;

that acquisitions involve significant costs and require the time and attention of our management, which may divert management’s attention from ongoing operations;

potential difficulties and increased costs associated with completion of any assumed construction projects;

our ability to successfully manage or achieve the results we expect to experience from the acquisitions and that we may lose key employees or customers of the acquired companies;

assumption of liabilities of an acquired business, including liabilities that were unknown at the time the acquisition was negotiated;

difficulties related to integrating the operations and internal controls, assimilating personnel, services, and systems of an acquired business and to assimilating marketing and other operational capabilities;

increased burdens on our staff and on our administrative, internal control and operating systems, which may hinder our legal and regulatory compliance activities;

if we issue additional equity securities, such issuances could have the effect of diluting our earnings per share as well as our existing shareholders’ individual ownership percentages in the Company;

the recording of goodwill or other non-amortizable intangible assets that will be subject to subsequent impairment testing and potential impairment charges, as well as amortization expenses related to certain other intangible assets;

while we often obtain indemnification rights from the sellers of acquired businesses, such rights may be difficult to enforce and the indemnitors may not have the ability to financially support the indemnity.

Failure to successfully manage and integrate acquisitions could harm our business, financial condition and results of operations.

As part of our strategy, we may make divestitures, and divestitures involve many risks and uncertainties.

These risks and uncertainties include: 

our ability to locate suitable acquirors for our divestitures;

our ability to complete the divestitures in accordance with our expected plans or anticipated time frame, or at all;

our ability to complete the divestitures on terms and conditions acceptable to us;

difficulties separating the assets and personnel related to businesses that we expect to divest from the businesses we expect to retain;

that divestitures involve significant costs and require the time and attention of our management, which may divert management’s attention from ongoing operations;

our ability to successfully cause a buyer of a divested business to assume the liabilities of that business, or even if such liabilities are assumed, we may have difficulties enforcing our rights, contractual or otherwise against the buyer;

the need to obtain regulatory approvals and other third-party consents, which potentially could disrupt customer and vendor relationships;

potential additional tax obligations or the loss of tax benefits;

the divestiture could negatively impact our profitability because of losses that may result from a sale, the loss of revenue or a decrease in cash flows;

following the completion of a divestiture, we may have less diversity in our business and in the markets we serve as well as our client base.

Failure to successfully manage divestitures may generate fewer benefits than expected and could harm our business, financial condition and results of operations.

In connection with acquisitions or divestitures, we may become subject to liabilities. 

In connection with any acquisitions, we may acquire liabilities or defects such as legal claims, including but not limited to third party liability and other tort claims;

claims for breach of contract;

employment-related claims;

environmental liabilities, conditions or damage;

permitting, regulatory or other compliance with law issues;

or tax liabilities.

If we acquire any of these liabilities, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures.

In connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any agreement for a divestiture.

We may also retain exposure on financial or performance guarantees, contractual, employment, pension and severance obligations or other liabilities of the divested business and potential liabilities that may arise under law because of the disposition or the subsequent failure of an acquiror.

As a result, performance by the divested businesses or other conditions outside of our control could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the divested business or operations subject to the divestiture transaction.

These liabilities, if they materialize, could have a material adverse effect on our business, financial condition and results of operations.

under “Item 1. Business,” the profitability of our fixed price and fixed unit price contracts can be adversely affected by a number of factors, including, among others, inflation, inefficiency and incorrect estimates or assumptions, that can cause our actual costs to materially exceed the costs estimated at the time of our original bid.

This could result in reduced profits or a loss for that project and there could be a material adverse impact to our business, results of operations and financial condition.

Public health events, including health epidemics or pandemics or other contagious outbreaks, could negatively impact our business, financial  condition and results of operations. 

Our ability to perform work may be significantly affected by public health events.

If a public health epidemic or pandemic or other contagious outbreak, including COVID-19, interferes with our ability, or that of our employees, contractors, suppliers, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business, our operations may be affected, which could have a material adverse effect on our business, results of operations and financial condition.

We derive a substantial amount of our revenue from federal, state and local government agencies, and any disruption in government funding or in our relationship with those agencies could adversely affect our business.

For the year ended December 31, 2022, approximately 70% of our construction revenue was funded by federal, state and local government agencies and authorities.

A significant amount of this revenue is derived under multi-year contracts, many of which are appropriated on an annual basis.

As a result, at the beginning of a project, the related contract may be only partially funded, and additional funding is normally committed only as appropriations are made in each subsequent year.

The success and further development of our business depends, in large part, upon the continued funding of these government programs, and upon our ability to obtain contracts and perform well under these programs.

A significant reduction in government spending, the absence of a bipartisan agreement on the federal government budget, a partial or full federal government shutdown or a change in budgetary priorities could reduce demand for our services, cancel or delay projects and have a material adverse effect on our business, results of operations and financial condition.

There are several additional factors that could cause government agencies or authorities to delay or cancel programs, to reduce their orders under existing contracts, to exercise their rights to terminate contracts or not to exercise contract options for renewals or extensions.

Such factors, which include the following, could have a material adverse effect on our business, financial condition and results of operations or the timing of contract payments from government agencies or authorities:

the failure of the U.S.

government to complete its budget and appropriations process before its fiscal year-end;

changes in and delays or cancellations of government programs, procurements, requirements or appropriations;

budget constraints or policy changes resulting in delay or curtailment of expenditures related to the services we provide;

re-competes of government contracts;

the timing and amount of tax revenue received by federal, state and local governments, and the overall level of government expenditures;

curtailment in the use of government contracting firms;

delays associated with insufficient numbers of government staff to oversee contracts;

the increasing preference by government agencies for contracting with small and disadvantaged businesses;

competing political priorities and changes in the political climate regarding the funding or operation of the services we provide;

the adoption of new laws or regulations affecting our contracting relationships with the federal, state or local governments;

unsatisfactory performance on government contracts by us or one of our subcontractors, negative government audits or other events that may impair our relationship with federal, state or local governments;

a dispute with or improper activity by any of our subcontractors;

general economic or political conditions.

federal government contracts may give government agencies the right to modify, delay, curtail, renegotiate or terminate existing contracts at their convenience at any time prior to their completion, which could have a material adverse effect on our business, financial condition and results of operations.

federal government projects in which we participate as a contractor or subcontractor may extend for several years.

Generally, government contracts include the right to modify, delay, curtail, renegotiate or terminate contracts and subcontracts at the government’s convenience any time prior to their completion.

Any decision by a U.S.

federal government client to modify, delay, curtail, renegotiate or terminate our contracts at their convenience could have a material adverse effect on our business, financial condition and results of operations.

failure to win new contracts and renew existing contracts with private and public sector clients could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on our ability to win new contracts and renew existing contracts with private and public sector clients.

Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which is affected by a number of factors.

These factors include market conditions, financing arrangements and required governmental approvals.

If negative market conditions arise, or if we fail to secure adequate financial arrangements or the required government approval, we may not be able to pursue certain projects, which could have a material adverse effect on our business, financial condition and results of operations.

The timing of new contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results.

A substantial portion of our revenues are derived from project-based work that is awarded through a competitive bid process.

It is generally difficult to predict the timing and geographic distribution of the projects that we will be awarded.

The selection of, timing of, or failure to obtain projects, delays in awards of projects, the re-bidding or termination of projects due to budget overruns, cancellations of projects or delays in completion of contracts could result in the under-utilization of our assets, including our fleet of construction equipment, which could lower our overall profitability and reduce our cash flows.

Even if we are awarded contracts, we face additional risks that could affect when, or whether, work will begin.

This can present difficulty in matching workforce size and equipment location with contract needs.

In some cases, we may be required to bear the cost of a ready workforce and equipment that is larger than necessary, which could have a material adverse effect on our business, financial condition and results of operations.

If an expected contract award or the related work release is delayed or not received, we could incur substantial costs without receipt of any corresponding revenues.

Moreover, construction projects for which our services are contracted may require significant expenditures by us prior to receipt of relevant payments from the customer.

Finally, the winding down or completion of work on significant projects that were active in previous periods will reduce our revenue and earnings if such significant projects have not been replaced in the current period.

Many of our contracts may be canceled upon short notice, typically 30 to 90 days, even if we are not in default under the contract, and we may be unsuccessful in replacing contracts, resulting in a decrease in our revenue, net income and liquidity.

Certain of our customers assign work to us on a project-by-project basis under master service agreements.

Under these agreements, our customers often have no obligation to assign a specific amount of work to us.

Our operations could decline significantly if the anticipated volume of work is not assigned to us or is canceled.

Many of our contracts, including our master service agreements, are open to competitive bidding at the expiration of their terms.

There can be no assurance that we will be the successful bidder on our existing contracts that come up for re-bid.

Design-build contracts subject us to the risk of design errors and omissions.

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We generally subcontract design responsibility to architectural and engineering firms. However, in the event of a design error or omission causing damages, there is risk that the subcontractor or their errors and omissions insurance would not be able to absorb the liability.

In this case we may be responsible, resulting in a potentially material adverse effect on our financial position, results of operations, cash flows and liquidity.

In this case we may be responsible, resulting in a potentially material adverse effect on our business, results of operations and financial condition.

Many of our contracts have penalties for late completion.

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If we subsequently fail to complete the project as scheduled, we may be held responsible for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated damages.

To the extent these events occur, the total cost of the project could exceed our original estimate and we could experience reduced profits or a loss on that project and there could be a material adverse impact to our financial position, results of operations, cash flows and liquidity.

To the extent these events occur, the total cost of the project could exceed our original estimate and we could experience reduced profits or a loss on that project and there could be a material adverse impact to our business, results of operations and financial condition.

Our failure to adequately recover on affirmative claims brought by us against project owners or other project participants (e.g., back charges against subcontractors) for additional contract costs could have a negative impact on our liquidity and future operations.

In certain circumstances, we assert affirmative claims to which we believe Granite is entitled against project owners, engineers, consultants, subcontractors or others involved in a project for additional costs exceeding the contract price or for amounts not included in the original contract price.

In certain circumstances, we assert affirmative claims to which we believe we are entitled against project owners, engineers, consultants, subcontractors or others involved in a project for additional costs exceeding the contract price or for amounts not included in the original contract price.

These types of affirmative claims occur due to matters such as delays or changes from the initial project scope, both of which may result in additional costs.

Often, these affirmative claims can be the subject of lengthy arbitration or litigation proceedings, and it is difficult to accurately predict when and on what terms they will be fully resolved.

For additional information, see "—Accounting for our revenues and costs involve significant estimates" risk factor below.

The potential gross profit impact of recoveries for affirmative claims may be material in future periods when they, or a portion of them, become probable and estimable or are settled.

When these types of events occur, we use working capital to cover cost overruns pending the resolution of the relevant affirmative claims and may incur additional costs when pursuing such potential recoveries.

A failure to recover on these types of affirmative claims promptly and fully could have a negative impact on our financial position, results of operations, cash flows and liquidity.

A failure to recover on these types of affirmative claims promptly and fully could have a negative impact on our business, results of operations and financial condition.

In addition, while clients and subcontractors may be obligated to indemnify us against certain liabilities, such third parties may refuse or be unable to pay us.

Our financial position could be impacted by worse than anticipated results in our Central operating group.

 In 2020, we completed a strategic review of our former Heavy Civil operating group, which is now part of our Central operating group, and have taken actions that we believe will be beneficial to us and our stockholders.

However, the results of our planned actions, and the timing of expected benefits, remain uncertain.

Underperformance in our Central operating group could have a material adverse effect on our business, results of operations and financial condition.

Unavailability of insurance coverage could have a negative effect on our operations and results.

We maintain insurance coverage as part of our overall risk management strategy and pursuant to requirements to maintain specific coverage that are contained in our financing agreements and in most of our construction contracts.

Although we have been able to obtain reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do so in the future, and our inability to obtain such coverage could have an adverse impact on our ability to procure new work, which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

Although we have been able to obtain reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do so in the future, and our inability to obtain such coverage could have an adverse impact on our ability to procure new work, which could have a material adverse effect on our business, results of operations and financial condition.

An inability to obtain bonding could have a negative impact on our operations and results.

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Business,” we generally are required to provide surety bonds securing our performance under the majority of our public and private sector contracts.

Our inability to obtain reasonably priced surety bonds in the future and, while we monitor the financial health of our insurers and the insurance market, catastrophic events could reduce available limits or the breadth of coverage, both of which could significantly affect our ability to be awarded new contracts and could, therefore, have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

Our inability to obtain reasonably priced surety bonds in the future and, while we monitor the financial health of our insurers and the insurance market, catastrophic events could reduce available limits or the breadth of coverage, both of which could significantly affect our ability to be awarded new contracts and could, therefore, have a material adverse effect on our business, results of operations and financial condition.

We use certain commodity products that are subject to significant price fluctuations. 

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Additionally, some of our contracts may include commodity price escalation clauses which partially protect us from increasing prices.

At times we enter into supply agreements or pre-purchase commodities to secure pricing and may use financial contracts to further manage price risk.

Significant price fluctuations could have a material adverse effect on financial position, results of operations, cash flows and liquidity

At times we enter into supply agreements or pre-purchase commodities to secure pricing and use financial contracts to further manage a portion of the price risk.

Significant price fluctuations could have a material adverse effect on our business, results of operations and financial condition.

Weather can significantly affect our revenues and profitability.

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Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters, as well as terrorist actions, could negatively impact the economies in which we operate. We typically negotiate contract language where we are allowed certain relief from force majeure events in private client contracts and review and attempt to mitigate force majeure events in both public and private client contracts.

We remain obligated to perform our services after most extraordinary events subject to relief that may be available pursuant to a force majeure clause. If we are not able to react quickly to force majeure events, our operations may be affected, which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

We remain obligated to perform our services after most extraordinary events subject to relief that may be available pursuant to a force majeure clause. If we are not able to react quickly to force majeure events, our operations may be affected, which could have a material adverse effect on our business, results of operations and financial condition.

Our CAP is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our future earnings.

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Rising inflation and/or interest rates could have an adverse effect on our business, financial condition and results of operations.

Economic factors, including inflation and fluctuations in interest rates, could have a negative impact on our business.

Economic factors, including inflation and rising interest rates, could have a negative impact on our business.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

Our inability or failure to do so could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

RISKS RELATED TO OUR WORKFORCE, JOINT VENTURES AND SUBCONTRACTORS

In addition, increases in interest rates will result in higher interest expense related to borrowings under our Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), which could have a material adverse effect on our business, results of operations and financial condition.

As part of our growth strategy, we have made and may make future acquisitions, and acquisitions involve many risks and uncertainties.

These risks and uncertainties include:

our ability to complete acquisitions in accordance with our expected plans, on terms and conditions acceptable to us or our anticipated time frame, or at all;

difficulties identifying all significant risks during our due diligence activities;

that acquisitions involve significant costs and require the time and attention of our management, which may divert management’s attention from ongoing operations;

potential difficulties and increased costs associated with completion of any assumed construction projects;

our ability to successfully manage or achieve the results we expect to experience from the acquisitions and that we may lose key employees or customers of the acquired companies;

assumption of liabilities of an acquired business, including liabilities that were unknown at the time the acquisition was negotiated;

difficulties related to integrating the operations and internal controls, assimilating personnel, services, and systems of an acquired business and to assimilating marketing and other operational capabilities;

increased burdens on our staff and on our administrative, internal control and operating systems, which may hinder our legal and regulatory compliance activities;

if we issue additional equity securities, such issuances could have the effect of diluting our earnings per share as well as our existing shareholders’

individual ownership percentages in the Company;

Failure to successfully manage and integrate acquisitions could harm our business, results of operations and financial condition.

As part of our strategy, we may make divestitures, and divestitures involve many risks and uncertainties.

These risks and uncertainties include:

our ability to locate suitable acquirers for our divestitures;

our ability to complete the divestitures in accordance with our expected plans or anticipated time frame, or at all;

our ability to complete the divestitures on terms and conditions acceptable to us;

difficulties separating the assets and personnel related to businesses that we expect to divest from the businesses we expect to retain;

that divestitures involve significant costs and require the time and attention of our management, which may divert management’s attention from ongoing operations;

the need to obtain regulatory approvals and other third-party consents, which potentially could disrupt customer and vendor relationships;

potential additional tax obligations or the loss of tax benefits;

the divestiture could negatively impact our profitability because of losses that may result from a sale, the loss of revenue or a decrease in cash flows;

following the completion of a divestiture, we may have less diversity in our business and in the markets we serve as well as our client base.

Failure to successfully manage divestitures may generate fewer benefits than expected and could harm our business, results of operations and financial condition.

In connection with acquisitions or divestitures, we may become subject to liabilities.

In connection with any acquisitions, we may acquire liabilities or defects such as legal claims, including but not limited to third party liability and other tort claims;

claims for breach of contract;

employment-related claims;

environmental liabilities, conditions or damage;

permitting, regulatory or other compliance with law issues;

or tax liabilities.

In connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any agreement for a divestiture.

We may also retain exposure on financial or performance guarantees, contractual, employment, pension and severance obligations or other liabilities of the divested business and potential liabilities that may arise under law because of the disposition or the subsequent failure of an acquiror.

As a result, performance by the divested businesses or other conditions outside of our control could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the divested business or operations subject to the divestiture transaction.

These liabilities, if they materialize, could have a material adverse effect on our business, results of operations and financial condition.

RISKS RELATED TO OUR HUMAN CAPITAL, JOINT VENTURES AND SUBCONTRACTORS

Our success depends on attracting and retaining qualified personnel, joint venture partners and subcontractors in a competitive environment .

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We may be required to contribute cash to meet our unfunded pension obligations in certain multi-employer plans.

 As of December 31, 2021, three of our wholly-owned subsidiaries within our continuing operations, Granite Construction Company, Granite Construction Northeast, Inc.

and Granite Industrial, Inc. participate in various domestic multi-employer pension plans on behalf of union employees. Union employee benefits generally are based on a fixed amount for each year of service.

 As of December 31, 2022, three of our wholly-owned subsidiaries, Granite Construction Company, Layne Christensen Company and Granite Industrial, Inc., participate in various domestic multi-employer pension plans on behalf of union employees. Union employee benefits generally are based on a fixed amount for each year of service.

We are required to make contributions to the plans in amounts established under collective bargaining agreements. Pension expense is recognized as contributions are made.

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Under ERISA, a contributor to a multi-employer plan may be liable, upon termination or withdrawal from a plan, for its proportionate share of a plan’s unfunded vested liability. While we currently have no intention of withdrawing from a plan and unfunded pension obligations have not significantly affected our operations in the past, there can be no assurance that we will not be required to make material cash contributions to one or more of these plans to satisfy certain underfunded benefit obligations in the future.

RISKS RELATED TO THE RESTATEMENT

We have restated our consolidated financial statements for certain prior periods, which has affected and may continue to affect our business, results of operations and financial condition.

This Form 10-K includes restated unaudited quarterly financial information for the Restated Periods that corrects (a) errors related to deferred taxes and the calculation of income tax expense in connection with the sale of Inliner and (b) other immaterial errors.

For additional information, see the Supplementary Data included in Part IV, Item 15(a) of this Form 10-K.

Additionally, we previously restated certain periods in 2019 and prior to correct misstatements associated with project forecasts in our former Heavy Civil operating group, which is now part of our Central operating group.

Taken collectively, such restatements:

had and may continue to have the effect of eroding investor confidence in us and our financial reporting and accounting practices and processes;

negatively impacted and may continue to negatively impact the trading price of our common stock;

diverted and may continue to divert management’s attention from the operation of our business;

required that we incur significant expenses and may require that we incur significant additional expenses relating to any litigation or regulatory examinations, investigations, proceedings or orders;

may make it more difficult, expensive and time consuming for us to raise capital, if necessary, on acceptable terms, if at all;

may make it more difficult to pursue transactions or implement business strategies that might otherwise be beneficial to our business;

may negatively impact our reputation with our customers.

The occurrence or continued occurrence of any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

We have identified a material weakness in our internal control over financial reporting which could, if not remediated, adversely impact the reliability of our financial statements , result in material misstatements in our financial statements and cause current and potential stockholders to lose confidence in our financial reporting, which in turn could adversely affect the trading price of our common stock.

 We have concluded that there is a material weakness in our internal control over financial reporting. For additional information on the material weakness identified and our remedial efforts, see “Item 9A, Controls and Procedures.”

The material weakness resulted in the restatement of our consolidated financial statements and related disclosures for the Restated Periods. Thus, management has determined that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2022. Under Public Company Accounting Oversight Board standards, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a misstatement of our consolidated annual or interim financial statements will not be prevented or detected on a timely basis.

The existence of this issue could adversely affect us, our reputation or investor perceptions of us.

We will take measures to remediate the underlying cause of the material weakness noted above.

As we continue to evaluate and work to remediate the material weakness, we may determine to take additional measures to address the control deficiencies.

Although we plan to complete this remediation process as quickly as possible, we cannot provide any assurance as to when the remediation process will be complete, and our measures may not prove to be successful in remediating the material weakness.

If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain misstatements and we could be required to restate our financial results.

In addition, if we are unable to successfully remediate the material weakness or if we are unable to produce accurate consolidated financial statements in the future, our stock price, liquidity and access to the capital markets may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements. Further, because of its inherent limitations, even our remediated and effective internal control over financial reporting may not prevent or detect all misstatements.

We were involved in, and may in the future be subject to, litigation, regulatory examinations, investigations, proceedings or orders as a result of or relating to the restatement of our financial statements and if any of these are resolved adversely against us, it could harm our business, results of operations and financial condition.

We were involved in, and may in the future be subject to, litigation, regulatory examinations, investigations, proceedings or orders, the assessment of civil monetary penalties, or equitable remedies, and the expenses associated with such matters as a result of or relating to the restatement of our financial statements and reported material weaknesses.

Our management may be required to devote significant time and attention to these matters.

If any of these matters are resolved adversely against us, it could harm our business, results of operations and financial condition.

RISKS RELATED TO LEGAL, REGULATORY, ACCOUNTING AND TAX ISSUES  

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The scope and duration of any suspension or debarment may vary depending upon the facts and the statutory or regulatory grounds for debarment and could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

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 . Any litigation or other legal proceedings could result in an unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, either of which could adversely affect our business, financial condition and results of operations.

We are involved in lawsuits, legal proceedings and indemnity claims in the ordinary course of our business and may in the future be subject to other litigation, legal proceedings and claims, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations . Any litigation, other legal proceedings or indemnity claim could result in an unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, any of which could adversely affect our business, financial condition and results of operations.

We could also suffer an adverse impact on our reputation and a diversion of management's attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.

Government contracts generally have strict regulatory requirements.

Approximately 75% of our construction-related revenue from continuing operations in 2021 was derived from contracts funded by federal, state and local government agencies and authorities.

Approximately 70% of our construction-related revenue in 2022 was derived from contracts funded by federal, state and local government agencies and authorities.

Government contracts are subject to specific procurement regulations, contract provisions and a variety of socioeconomic requirements relating to their formation, administration, performance and accounting and often include express or implied certifications of compliance.

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Accounting for our revenues and costs involves significant estimates.

As further described in “Critical Accounting Policies and Estimates” under “Item 7.

As further described in “Critical Accounting Estimate” under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” accounting for our contract-related revenues and costs, as well as other expenses, requires management to make a variety of significant estimates and assumptions.

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If software or infrastructure vendors decide to discontinue further development, integration or long-term maintenance support for our information systems, or there is any system interruption, delay, breach of security, loss of data or loss of a vendor, we may need to migrate some or all of our accounting, project management and financial information to other systems.

Despite business continuity plans, these disruptions could increase our operational expense as well as impact the management of our business operations, which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

These disruptions could increase our operational expense as well as impact the management of our business operations, which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

Cybersecurity attacks on or breaches of our information technology environment could result in  

business interruptions, remediation costs and/or legal claims .

To protect confidential customer, vendor, financial and employee information, we employ information security measures, including cybersecurity training for all employees, that secure our information systems from cybersecurity attacks or breaches.

Even with these measures, we may be subject to unauthorized access of digital data with the intent to misappropriate information, corrupt data or cause operational disruptions.

 We may be subject to cybersecurity attacks, including through the use of ransomware and other forms of unauthorized access of our digital data with the intent to misappropriate information, corrupt data or cause operational disruptions.

If a failure of our safeguarding measures were to occur, or if software or third-party vendors that support our information technology environment are compromised, it could have a negative impact to our business and result in business interruptions, remediation costs and/or legal claims, which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.

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

If we are unable to service our debt obligations or fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment in us.

If we are unable to service our debt obligations as a result of rising interest rates or any other reason or fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment in us.

See definition of Credit Agreement and 2.75% Convertible Notes in Note 14 to “Notes to the Consolidated Financial Statements.”

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Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 2.75% Convertible Notes and the obligations under our Credit Agreement, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.

Additionally, borrowings under our Credit Agreement bear interest at a variable rate.

As interest rates increase, our interest expense will also increase if we continue to borrow or increase our borrowings under the credit facility.

Our business may not continue to generate sufficient cash flow from operations in the future to service our debt and make necessary capital expenditures.

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In addition, the sale or the availability for sale of a large number of shares of common stock in the public market may cause the price of our common stock to decline.

Delaware law and our charter documents may impede or discourage a takeover, which could reduce the market price of our common stock.

Delaware law and our charter documents may impede or discourage a takeover, which could reduce potential increases in the market price of our common stock.

We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders.

In addition, our Board of Directors has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock.

The ability of our Board of Directors to create and issue a new series of preferred stock and certain provisions of Delaware law and our certificate of incorporation and bylaws could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock.

RISKS RELATED TO CLIMATE CHANGE

Physical, transition and regulatory risks related to climate change could have a material adverse impact on our business, financial condition and results of operations.

 Physical risks related to climate change, such as changing sea levels, temperature fluctuations, severe storms, and energy and technological disruptions, could cause delays and increases in project costs, resulting in variability in our revenue and profitability, as well as potentially adverse impacts to our operating results and financial condition.

In addition, growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on greenhouse gas emissions and climate change issues.

Legislation to regulate greenhouse gas emissions has periodically been introduced in the U.S.

Congress and in the legislatures of various states in which we operate, and there has been a wide-ranging policy debate, both in the United States and internationally, regarding the regulation of greenhouse gas emissions.

Such policy changes, including any enactment of increasingly stringent emissions or other environmental regulations, could increase the costs of projects for us and for our clients and, in some cases, delay or even prevent a project from going forward, thereby potentially reducing demand for our services.

Consequently, this could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to achieve our sustainability commitments and targets which could result in the loss of investors and customers and damage to our reputation.

We are committed to advancing our environmental, social and governance strategy.

However, achievement of our sustainability commitments and targets is subject to risks and uncertainties, many of which are outside of our control.

These risks and uncertainties include, but are not limited to:

our ability to execute our operational strategies and achieve our goals within the currently projected costs and the expected timeframes;

the availability and cost of alternative fuels, availability of renewable energy;

unforeseen design, operational and technological difficulties;

the outcome of research efforts and future technology developments;

compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to greenhouse gas emissions, carbon costs or climate-related goals;

labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third party contractors;

adapting products to customer preferences and customer acceptance of sustainable supply chain solutions;

and the actions of competitors and competitive pressures.

Although we believe that our sustainability commitments and targets are achievable, there is no assurance that we will be able to successfully implement our strategies and achieve our targets.

Investors have recently increased their focus on environmental, social and governance matters, including practices related to greenhouse gas emissions and climate change.

Additionally, an increasing percentage of the investment community considers sustainability factors in making investment decisions.

If we are unable to meet our commitments and targets and appropriately address sustainability enhancement, we may lose investors, customers or partners, our stock price may be negatively impacted, our reputation may be negatively affected and it may be more difficult for us to compete effectively, all of which could have an adverse effect on our business, financial condition and results of operations, as well as on the price of our common stock. 

The foregoing list is not all-inclusive.

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

What changed 10-K

Item 1A. Risk Factors