GRANITE CONSTRUCTION INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2014
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to ___________
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Commission File Number: 1-12911
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GRANITE CONSTRUCTION INCORPORATED
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State of Incorporation:
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I.R.S. Employer Identification Number:
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Delaware
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77-0239383
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Address of principal executive offices:
585 W. Beach Street
Watsonville, California 95076
(831) 724-1011
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
October 21, 2014
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Class
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Outstanding
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Common Stock, $0.01 par value
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39,152,547
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Index
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EXHIBIT 101.INS
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EXHIBIT 101.SCH
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EXHIBIT 101.CAL
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EXHIBIT 101.DEF
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EXHIBIT 101.LAB
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EXHIBIT 101.PRE
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2
PART
I.
FINANCIAL INFORMATION
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Item 1.
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FINANCIAL STATEMENTS
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GRANITE CONSTRUCTION INCORPORATED
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(Unaudited - in thousands, except share and per share data)
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September 30,
2014 |
December 31,
2013 |
September 30, 2013
As Revised |
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ASSETS
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Current assets
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Cash and cash equivalents ($29,518, $38,800 and $57,133 related to consolidated construction joint ventures (“CCJVs”))
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$
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167,174
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$
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229,121
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$
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212,463
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Short-term marketable securities
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27,950
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49,968
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22,892
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Receivables, net ($45,483, $38,372 and $47,696 related to CCJVs)
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417,628
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313,598
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422,609
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Costs and estimated earnings in excess of billings ($21,105, $178 and $81 related to CCJVs)
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62,823
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33,306
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40,837
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Inventories
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74,605
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62,474
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61,667
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Real estate held for development and sale
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11,773
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12,478
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50,250
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Deferred income taxes
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55,874
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55,874
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36,687
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Equity in construction joint ventures
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181,259
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162,673
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161,063
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Other current assets
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21,743
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30,711
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32,836
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Total current assets
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1,020,829
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950,203
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1,041,304
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Property and equipment, net ($16,172, $22,216 and $28,194 related to CCJVs)
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424,272
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436,859
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458,024
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Long-term marketable securities
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74,140
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67,234
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64,014
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Investments in affiliates
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34,177
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32,480
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31,338
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Goodwill
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53,799
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53,799
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53,799
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Other noncurrent assets
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75,826
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76,580
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78,655
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Total assets
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$
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1,683,043
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$
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1,617,155
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$
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1,727,134
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LIABILITIES AND EQUITY
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Current liabilities
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Current maturities of long-term debt
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$
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21
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$
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21
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$
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20
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Current maturities of non-recourse debt
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1,226
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1,226
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2,147
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Accounts payable ($22,951, $16,937 and $20,075 related to CCJVs)
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205,493
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160,706
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198,282
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Billings in excess of costs and estimated earnings ($23,138, $60,185 and $70,518 related to CCJVs)
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115,809
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138,375
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146,343
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Accrued expenses and other current liabilities ($3,110, $11,299 and $12,816 related to CCJVs)
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221,618
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197,242
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219,169
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Total current liabilities
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544,167
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497,570
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565,961
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Long-term debt
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270,127
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270,127
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270,148
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Long-term non-recourse debt
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5,822
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6,741
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7,048
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Other long-term liabilities
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45,887
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48,580
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46,474
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Deferred income taxes
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9,977
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7,793
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7,988
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Commitments and contingencies
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Equity
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Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding
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—
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—
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—
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Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 39,152,255 shares as of September 30, 2014, 38,917,728 shares as of December 31, 2013 and 38,878,194 shares as of September 30, 2013
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391
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389
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388
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Additional paid-in capital
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132,396
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126,449
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123,681
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Retained earnings
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648,017
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655,102
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689,181
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Total Granite Construction Incorporated shareholders’ equity
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780,804
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781,940
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813,250
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Non-controlling interests
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26,259
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4,404
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16,265
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Total equity
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807,063
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786,344
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829,515
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Total liabilities and equity
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$
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1,683,043
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$
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1,617,155
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$
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1,727,134
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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GRANITE CONSTRUCTION INCORPORATED
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(Unaudited - in thousands, except per share data)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2014
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2013 As Revised
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2014
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2013 As Revised
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Revenue
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Construction
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$
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447,097
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$
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470,567
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$
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873,357
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$
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956,287
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Large Project Construction
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179,446
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185,997
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611,110
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539,268
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Construction Materials
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93,214
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83,172
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200,985
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173,107
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Real Estate
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7
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16
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29
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141
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Total revenue
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719,764
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739,752
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1,685,481
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1,668,803
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Cost of revenue
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Construction
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398,295
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419,848
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790,584
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868,298
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Large Project Construction
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173,767
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188,160
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538,846
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497,139
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Construction Materials
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81,010
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75,884
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185,536
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167,839
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Real Estate
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—
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—
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—
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14
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||||||||
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Total cost of revenue
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653,072
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683,892
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1,514,966
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1,533,290
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Gross profit
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66,692
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55,860
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170,515
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135,513
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Selling, general and administrative expenses
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47,386
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45,527
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147,731
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149,477
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Gain on sales of property and equipment
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3,004
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3,259
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6,891
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7,653
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Operating income (loss)
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22,310
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13,592
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29,675
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(6,311
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)
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||||||||
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Other income (expense)
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Interest income
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451
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602
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1,343
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1,110
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Interest expense
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(2,488
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)
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(3,736
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)
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(10,426
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)
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(11,081
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)
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Equity in income of affiliates
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1,109
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(2
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)
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2,310
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273
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Other (expense) income, net
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(1,196
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)
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1,022
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450
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1,630
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Total other expense
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(2,124
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)
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(2,114
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)
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(6,323
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)
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(8,068
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)
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Income (loss) before provision for (benefit from) income taxes
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20,186
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11,478
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23,352
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(14,379
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)
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Provision for (benefit from) income taxes
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6,081
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4,946
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8,301
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(2,867
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)
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Net income (loss)
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14,105
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6,532
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15,051
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(11,512
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)
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Amount attributable to non-controlling interests
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1,177
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6,505
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(6,681
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)
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3,986
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Net income (loss) attributable to Granite Construction Incorporated
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$
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15,282
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$
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13,037
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$
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8,370
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$
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(7,526
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)
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Net income (loss) per share attributable to common shareholders
(see Note 12)
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Basic
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$
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0.39
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$
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0.34
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$
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0.21
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$
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(0.19
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)
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Diluted
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$
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0.38
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$
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0.33
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$
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0.21
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$
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(0.19
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)
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Weighted average shares of common stock
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||||||||||||
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Basic
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39,150
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38,876
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39,073
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38,773
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Diluted
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39,813
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39,759
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39,790
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38,773
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Dividends per common share
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$
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0.13
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$
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0.13
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$
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0.39
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$
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0.39
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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GRANITE CONSTRUCTION INCORPORATED
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(
Unaudited - in thousands
)
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Nine Months Ended September 30,
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2014
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2013 As Revised
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|||||||
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Operating activities
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Net income (loss)
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$
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15,051
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$
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(11,512
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)
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Adjustments to reconcile net income (loss) to net cash used in operating activities:
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Depreciation, depletion and amortization
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49,968
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54,788
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Gain on sales of property and equipment
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(6,891
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)
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(7,653
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)
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Stock-based compensation
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8,933
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10,645
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Equity in net income from unconsolidated joint ventures
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(27,001
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)
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(51,826
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)
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Changes in assets and liabilities:
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Receivables
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(103,913
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)
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(99,856
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)
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Costs and estimated earnings in excess of billings, net
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(44,126
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)
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(16,064
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)
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Inventories
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(12,131
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)
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(1,882
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)
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Contributions to unconsolidated construction joint ventures
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(24,797
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)
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(28,514
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)
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Distributions from unconsolidated construction joint ventures
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46,991
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68,033
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Other assets, net
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7,250
|
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(4,820
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)
|
|||||
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Accounts payable
|
43,710
|
|
3,204
|
|
|||||
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Accrued expenses and other current liabilities, net
|
123
|
|
20,942
|
|
|||||
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Net cash used in operating activities
|
(46,833
|
)
|
(64,515
|
)
|
|||||
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Investing activities
|
|
|
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|
|||||
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Purchases of marketable securities
|
(49,975
|
)
|
(34,957
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)
|
|||||
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Maturities of marketable securities
|
40,000
|
|
57,000
|
|
|||||
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Proceeds from sale of marketable securities
|
25,000
|
|
5,000
|
|
|||||
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Purchases of property and equipment
|
(37,471
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)
|
(30,467
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)
|
|||||
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Proceeds from sales of property and equipment
|
12,257
|
|
18,431
|
|
|||||
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Payment of Kenny post-closing adjustments
|
—
|
|
(8,382
|
)
|
|||||
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Other investing activities, net
|
(1,109
|
)
|
1,088
|
|
|||||
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Net cash (used in) provided by investing activities
|
(11,298
|
)
|
7,713
|
|
|||||
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Financing activities
|
|
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|
|||||
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Long-term debt principal repayments
|
(919
|
)
|
(10,900
|
)
|
|||||
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Cash dividends paid
|
(15,229
|
)
|
(15,150
|
)
|
|||||
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Purchases of common stock
|
(4,751
|
)
|
(5,457
|
)
|
|||||
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Contributions from non-controlling partners
|
15,842
|
|
6,007
|
|
|||||
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Distributions to non-controlling partners
|
(686
|
)
|
(28,015
|
)
|
|||||
|
Other financing activities
|
1,927
|
|
790
|
|
|||||
|
Net cash used in financing activities
|
(3,816
|
)
|
(52,725
|
)
|
|||||
|
Decrease in cash and cash equivalents
|
(61,947
|
)
|
(109,527
|
)
|
|||||
|
Cash and cash equivalents at beginning of period
|
229,121
|
|
321,990
|
|
|||||
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Cash and cash equivalents at end of period
|
$
|
167,174
|
|
$
|
212,463
|
|
|||
|
Supplementary Information
|
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|
|||||||
|
Cash paid during the period for:
|
|
|
|||||||
|
Interest
|
$
|
6,911
|
|
$
|
7,940
|
|
|||
|
Income taxes
|
2,293
|
|
2,338
|
|
|||||
|
Other non-cash activities:
|
|||||||||
|
Performance guarantees
|
$
|
21,332
|
|
$
|
24,202
|
|
|||
|
Non-cash investing and financing activities:
|
|
|
|
|
|||||
|
Restricted stock units issued, net of forfeitures
|
$
|
6,862
|
|
$
|
13,942
|
|
|||
|
Accrued cash dividends
|
5,090
|
|
5,054
|
|
|||||
5
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
1.
|
Basis of Presentation
|
The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” “Company” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2013
. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at
September 30, 2014
and
2013
and the results of our operations and cash flows for the periods presented. The
December 31, 2013
condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements. Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three
and nine
months ended
September 30, 2014
are not necessarily indicative of the results to be expected for the full year.
Certain revisions and reclassifications have been made to historical financial data in our condensed consolidated financial statements as follows:
|
•
|
We have revised our condensed consolidated balance sheet as of
September 30, 2013
and our condensed consolidated statements of operations and cash flows for the three
and nine
months ended
September 30, 2013
to correct errors identified during the preparation of our 2013 Annual Report on Form 10-K. For the quarter ended September 30, 2013, the pre-tax adjustments were primarily related to (i) an over-accrual of pre-bid costs which affected selling, general and administrative expenses and accrued and other current liabilities in the amount of $1.4 million and (ii) a revision in equipment-related costs, which affected cost of revenue and property and equipment in the amount of $1.6 million. The Company assessed the materiality of the errors individually and in the aggregate on the prior interim periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin No. 99 and, based on an analysis of quantitative and qualitative factors, determined that the errors were not material to the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2013; therefore, these previously issued condensed consolidated financial statements can continue to be relied upon and an amendment of the previously filed Quarterly Report on Form 10-Q is not required. However, for comparability, the Company has revised its condensed consolidated balance sheet as of
September 30, 2013
and its condensed consolidated statements of operations and cash flows for the three
and nine
months ended
September 30, 2013
as presented herein to correct these errors.
|
|
•
|
Historically, cash flows used in or provided by unconsolidated construction joint ventures were presented as one line item within operating cash flows. To improve transparency in the related balances sheet accounts, we have now presented separately the significant activity. In addition, we reclassified
$24.2 million
related to performance guarantees for the
nine
months ended
September 30, 2013
out of equity in construction joint ventures and accrued expenses and other current liabilities, net to the non-cash supplemental table of the condensed consolidated statements of cash flows. These changes did not impact total cash used in or provided by operating, investing or financing activities.
|
6
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the impact of the correction of accounting errors and reclassification adjustments on the previously reported condensed consolidated balance sheet as of
September 30, 2013
and the condensed consolidated statements of operations and cash flows for the three and
nine
months ended
September 30, 2013
(in thousands):
Condensed Consolidated Balance Sheet
|
September 30, 2013
|
||||||||||||
|
As Reported
|
Revisions
|
Revised
|
||||||||||
|
Total current assets
|
$
|
1,041,672
|
|
$
|
(368
|
)
|
$
|
1,041,304
|
|
|||
|
Noncurrent assets
|
684,330
|
|
1,500
|
|
$
|
685,830
|
|
|||||
|
Total assets
|
$
|
1,726,002
|
|
$
|
1,132
|
|
$
|
1,727,134
|
|
|||
|
|
|
|
|
|||||||||
|
Total current liabilities
|
$
|
565,522
|
|
$
|
439
|
|
$
|
565,961
|
|
|||
|
Noncurrent liabilities
|
331,658
|
|
—
|
|
331,658
|
|
||||||
|
Total Granite Construction Incorporated shareholders’ equity
|
812,509
|
|
741
|
|
813,250
|
|
||||||
|
Non-controlling interests
|
16,313
|
|
(48
|
)
|
16,265
|
|
||||||
|
Total liabilities and equity
|
$
|
1,726,002
|
|
$
|
1,132
|
|
$
|
1,727,134
|
|
|||
Condensed Consolidated Statements of Operations
|
Three Months Ended September 30, 2013
|
||||||||||||
|
As Reported
|
Revisions
|
Revised
|
||||||||||
|
Total revenue
|
$
|
741,575
|
|
$
|
(1,823
|
)
|
$
|
739,752
|
|
|||
|
Total cost of revenue
|
687,179
|
|
(3,287
|
)
|
683,892
|
|
||||||
|
Gross profit
|
54,396
|
|
1,464
|
|
55,860
|
|
||||||
|
Selling, general and administrative expenses
|
47,060
|
|
(1,533
|
)
|
45,527
|
|
||||||
|
Gain on sale of property and equipment
|
3,259
|
|
—
|
|
3,259
|
|
||||||
|
Operating income
|
10,595
|
|
2,997
|
|
13,592
|
|
||||||
|
Income before provision for income taxes
|
8,481
|
|
2,997
|
|
11,478
|
|
||||||
|
Provision for income taxes
|
4,026
|
|
920
|
|
4,946
|
|
||||||
|
Net income
|
4,455
|
|
2,077
|
|
6,532
|
|
||||||
|
Amount attributable to non-controlling interests
|
6,542
|
|
(37
|
)
|
6,505
|
|
||||||
|
Net income attributable to Granite Construction Incorporated
|
$
|
10,997
|
|
$
|
2,040
|
|
$
|
13,037
|
|
|||
|
Net income per share attributable to common shareholders
(see Note 12)
|
||||||||||||
|
Basic
|
$
|
0.28
|
|
$
|
0.06
|
|
$
|
0.34
|
|
|||
|
Diluted
|
$
|
0.28
|
|
$
|
0.05
|
|
$
|
0.33
|
|
|||
7
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Nine Months Ended September 30, 2013
|
||||||||||||
|
As Reported
|
Revisions
|
Revised
|
||||||||||
|
Total revenue
|
$
|
1,670,441
|
|
$
|
(1,638
|
)
|
$
|
1,668,803
|
|
|||
|
Total cost of revenue
|
1,534,791
|
|
(1,501
|
)
|
1,533,290
|
|
||||||
|
Gross profit
|
135,650
|
|
(137
|
)
|
135,513
|
|
||||||
|
Selling, general and administrative expenses
|
150,675
|
|
(1,198
|
)
|
149,477
|
|
||||||
|
Operating loss
|
(7,372
|
)
|
1,061
|
|
(6,311
|
)
|
||||||
|
Loss before benefit from income taxes
|
(15,440
|
)
|
1,061
|
|
(14,379
|
)
|
||||||
|
Benefit from income taxes
|
(3,235
|
)
|
368
|
|
(2,867
|
)
|
||||||
|
Net loss
|
(12,205
|
)
|
693
|
|
(11,512
|
)
|
||||||
|
Amount attributable to non-controlling interests
|
3,938
|
|
48
|
|
3,986
|
|
||||||
|
Net loss attributable to Granite Construction Incorporated
|
$
|
(8,267
|
)
|
$
|
741
|
|
$
|
(7,526
|
)
|
|||
|
Net loss per share attributable to common shareholders
(see Note 12)
|
||||||||||||
|
Basic
|
$
|
(0.21
|
)
|
$
|
0.02
|
|
$
|
(0.19
|
)
|
|||
|
Diluted
|
$
|
(0.21
|
)
|
$
|
0.02
|
|
$
|
(0.19
|
)
|
|||
Condensed Consolidated Statement of Cash Flows
|
Nine months ended September 30, 2013
|
||||||||||||||||
|
As Reported
|
Revisions
|
Reclassifications
|
Revised
|
|||||||||||||
|
Net loss
|
$
|
(12,205
|
)
|
$
|
693
|
|
$
|
—
|
|
$
|
(11,512
|
)
|
||||
|
Depreciation, depletion and amortization
|
54,788
|
|
—
|
|
—
|
|
54,788
|
|
||||||||
|
Non-cash restructuring, net
|
(23
|
)
|
—
|
|
23
|
|
—
|
|
||||||||
|
Gain on sales of property and equipment
|
(7,653
|
)
|
—
|
|
—
|
|
(7,653
|
)
|
||||||||
|
Stock-based compensation
|
10,645
|
|
—
|
|
—
|
|
10,645
|
|
||||||||
|
Equity in net income from unconsolidated joint ventures
|
—
|
|
—
|
|
(51,826
|
)
|
(51,826
|
)
|
||||||||
|
Receivables
|
(99,856
|
)
|
—
|
|
—
|
|
(99,856
|
)
|
||||||||
|
Costs and estimated earnings in excess of billings, net
|
(1,707
|
)
|
137
|
|
(14,494
|
)
|
(16,064
|
)
|
||||||||
|
Inventories
|
(1,882
|
)
|
—
|
|
—
|
|
(1,882
|
)
|
||||||||
|
Equity in construction joint ventures
|
(54,672
|
)
|
—
|
|
54,672
|
|
—
|
|
||||||||
|
Contributions to unconsolidated construction joint ventures
|
—
|
|
—
|
|
(28,514
|
)
|
(28,514
|
)
|
||||||||
|
Distributions from unconsolidated construction joint ventures
|
—
|
|
—
|
|
68,033
|
|
68,033
|
|
||||||||
|
Other assets, net
|
(5,165
|
)
|
368
|
|
(23
|
)
|
(4,820
|
)
|
||||||||
|
Accounts payable
|
5,578
|
|
(1,198
|
)
|
(1,176
|
)
|
3,204
|
|
||||||||
|
Accrued expenses and other current liabilities, net
|
47,637
|
|
—
|
|
(26,695
|
)
|
20,942
|
|
||||||||
|
Net cash used in operating activities
|
$
|
(64,515
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(64,515
|
)
|
||||
8
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
2.
|
Recently Issued Accounting Pronouncements
|
In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,
which changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” For disposals of individually significant components that do not qualify as discontinued operations, an entity must disclose pre-tax earnings of the disposed component. This ASU will be effective for all disposals (or classifications as held for sale) of components of an entity that occur during our year ended December 31, 2015 and interim periods within the year. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which provides guidance for revenue recognition. This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services. The ASU will be effective commencing with our quarter ending March 31, 2017. We are currently assessing the potential impact of this ASU on our consolidated financial statements.
|
3.
|
Revisions in Estimates
|
Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. We recognize revenue on affirmative claims when we have a signed agreement and recognize revenue associated with unapproved change orders to the extent the related costs have been incurred, the amount can be reliably estimated and recovery is probable. We recognize costs associated with affirmative claims and unapproved change orders as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and affirmative claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to further revise our profitability estimates.
For the majority of our contracts, revenue in an amount equal to cost incurred is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty. The gross profit impact from projects that reached initial profit recognition is not included in the tables below. During the three and
nine
months ended
September 30, 2014
, the gross profit impact from projects that reached initial profit recognition was
$21.4 million
and
$50.0 million
, respectively. During the three and
nine
months ended
September 30, 2013
, the gross profit impact from projects that reached initial profit recognition was
$13.5 million
and
$28.8 million
, respectively.
9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Construction
The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of
$1.0 million
or more on gross profit were net decreases of
$1.0 million
and
$9.4 million
for the three and
nine
months ended
September 30, 2014
, respectively. The net changes for the three and
nine
months ended
September 30, 2013
were net increases of
$1.5 million
and
$0.6 million
, respectively. The projects are summarized as follows:
Increases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
Number of projects with upward estimate changes
|
—
|
|
4
|
|
2
|
|
5
|
|
||||||||
|
Range of increase in gross profit from each project, net
|
$
|
—
|
|
$
|
1.3 - 2.7
|
|
$
|
1.1 - 1.2
|
|
$
|
1.1 - 3.0
|
|
||||
|
Increase on project profitability
|
$
|
—
|
|
$
|
7.4
|
|
$
|
2.2
|
|
$
|
11.8
|
|
||||
The increases during the three months ended September 30, 2013 and during the nine months ended September 30, 2014 and 2013 were due to owner-directed scope changes and lower costs than originally anticipated.
Decreases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
Number of projects with downward estimate changes
|
1
|
|
3
|
|
5
|
|
4
|
|
||||||||
|
Reduction in gross profit from each project, net
|
$
|
1.0
|
|
$
|
1.5 - 2.5
|
|
$
|
1.7 - 2.9
|
|
$
|
1.1 - 4.3
|
|
||||
|
Decrease on project profitability
|
$
|
1.0
|
|
$
|
5.9
|
|
$
|
11.6
|
|
$
|
11.2
|
|
||||
The decreases during the three
and nine
months ended
September 30, 2014
and
2013
were due to higher costs than originally anticipated and outstanding claims and change orders.
10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Large Project Construction
The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of
$1.0 million
or more on gross profit were a net decrease of
$8.5 million
and a net increase of
$25.9 million
for the three
and nine
months ended
September 30, 2014
, respectively. The net changes for the three
and nine
months ended
September 30, 2013
were a net decrease of
$6.8 million
and a net increase of
$13.6 million
, respectively. Amounts attributable to non-controlling interests were
$1.8 million
of the net decrease and
$5.8 million
of the net increase for the three
and nine
months ended
September 30, 2014
, respectively. Amounts attributable to non-controlling interests were
$5.9 million
of the net decrease for the three months ended
September 30, 2013
and
$4.3 million
of the net increase for the
nine
months ended
September 30, 2013
. The projects are summarized as follows:
Increases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
Number of projects with upward estimate changes
|
2
|
|
3
|
|
9
|
|
6
|
|
||||||||
|
Range of increase in gross profit from each project, net
|
$
|
1.3 - 3.8
|
|
$
|
1.0 - 10.5
|
|
$
|
1.1 - 11.8
|
|
$
|
2.1 - 26.6
|
|
||||
|
Increase on project profitability
|
$
|
5.1
|
|
$
|
12.9
|
|
$
|
43.0
|
|
$
|
47.5
|
|
||||
The increases during the three
and nine
months ended
September 30, 2014
were due to higher productivity than originally anticipated, owner-directed scope changes and settlement of outstanding claims with contract owners. The increases during the three
and nine
months ended
September 30, 2013
were due to production at a higher rate than anticipated and owner-directed scope changes.
Decreases
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in millions)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
Number of projects with downward estimate changes
|
3
|
|
4
|
|
3
|
|
4
|
|
||||||||
|
Range of reduction in gross profit from each project, net
|
$
|
2.0 - 7.0
|
|
$
|
1.4 - 14.7
|
|
$
|
1.3 - 13.9
|
|
$
|
1.6 - 23.5
|
|
||||
|
Decrease on project profitability
|
$
|
13.6
|
|
$
|
19.7
|
|
$
|
17.1
|
|
$
|
33.9
|
|
||||
The decreases during the three
and nine
months ended
September 30, 2014
and
2013
were due to additional costs, lower productivity than originally anticipated and outstanding claims and change orders.
11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
4.
|
Marketable Securities
|
All marketable securities were classified as held-to-maturity for the dates presented and the carrying amounts of held-to-maturity securities were as follows:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
U.S. Government and agency obligations
|
$
|
12,967
|
|
$
|
10,000
|
|
$
|
1,260
|
|
|||
|
Commercial paper
|
14,983
|
|
39,968
|
|
19,982
|
|
||||||
|
Municipal bonds
|
—
|
|
—
|
|
1,650
|
|
||||||
|
Total short-term marketable securities
|
27,950
|
|
49,968
|
|
22,892
|
|
||||||
|
U.S. Government and agency obligations
|
74,140
|
|
67,234
|
|
64,014
|
|
||||||
|
Total long-term marketable securities
|
74,140
|
|
67,234
|
|
64,014
|
|
||||||
|
Total marketable securities
|
$
|
102,090
|
|
$
|
117,202
|
|
$
|
86,906
|
|
|||
Scheduled maturities of held-to-maturity investments were as follows:
|
(in thousands)
|
September 30,
2014 |
||
|
Due within one year
|
$
|
27,950
|
|
|
Due in one to five years
|
74,140
|
|
|
|
Total
|
$
|
102,090
|
|
12
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
5.
|
Fair Value Measurement
|
Fair value accounting standards describe three levels that may be used to measure fair value:
|
•
|
Level 1 - Quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
•
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
|
Fair Value Measurement at Reporting Date Using
|
||||||||||||||||
|
September 30, 2014
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
50,148
|
|
$
|
—
|
|
$
|
—
|
|
$
|
50,148
|
|
||||
|
Total assets
|
$
|
50,148
|
|
$
|
—
|
|
$
|
—
|
|
$
|
50,148
|
|
||||
|
Fair Value Measurement at Reporting Date Using
|
||||||||||||||||
|
December 31, 2013
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
89,336
|
|
$
|
—
|
|
$
|
—
|
|
$
|
89,336
|
|
||||
|
Total assets
|
$
|
89,336
|
|
$
|
—
|
|
$
|
—
|
|
$
|
89,336
|
|
||||
|
Fair Value Measurement at Reporting Date Using
|
||||||||||||||||
|
September 30, 2013
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
113,220
|
|
$
|
—
|
|
$
|
—
|
|
$
|
113,220
|
|
||||
|
Total assets
|
$
|
113,220
|
|
$
|
—
|
|
$
|
—
|
|
$
|
113,220
|
|
||||
A reconciliation of cash equivalents to consolidated cash and cash equivalents is as follows:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
|
September 30,
2013 |
||||||||
|
Cash equivalents
|
$
|
50,148
|
|
$
|
89,336
|
|
|
$
|
113,220
|
|
||
|
Cash
|
|
117,026
|
|
|
139,785
|
|
|
99,243
|
|
|||
|
Total cash and cash equivalents
|
$
|
167,174
|
|
$
|
229,121
|
|
|
$
|
212,463
|
|
||
13
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets are as follows:
|
September 30, 2014
|
December 31, 2013
|
September 30, 2013
|
||||||||||||||||||||||||
|
(in thousands)
|
Fair Value Hierarchy
|
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||||||||
|
Assets:
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Held-to-maturity marketable securities
1
|
Level 1
|
$
|
102,090
|
|
$
|
101,711
|
|
$
|
117,202
|
|
$
|
116,915
|
|
$
|
86,906
|
|
$
|
86,594
|
|
|||||||
|
Liabilities (including current maturities):
|
||||||||||||||||||||||||||
|
Senior notes payable
2
|
Level 3
|
$
|
200,000
|
|
$
|
225,186
|
|
$
|
200,000
|
|
$
|
225,865
|
|
$
|
200,000
|
|
$
|
226,110
|
|
|||||||
|
Credit Agreement loan
2
|
Level 3
|
70,000
|
|
70,258
|
|
70,000
|
|
69,601
|
|
70,000
|
|
70,166
|
|
|||||||||||||
1
Held-to-maturity marketable securities are periodically assessed for other-than-temporary impairment.
2
The fair values of the senior notes payable and Credit Agreement (defined in Note 11) loan are based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk.
The carrying values of receivables, other current assets, and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these instruments. In addition, the fair value of non-recourse debt measured using Level 3 inputs approximates its carrying value due to its relative short-term nature and competitive interest rates. During the three
and nine
months ended
September 30, 2014
and
2013
, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
In March 2014, we entered into an interest rate swap with a notional amount of
$100.0 million
which matures in June 2018 to convert the interest rate of our 2019 Notes (defined in Note 11) from a fixed rate of
6.11%
to a floating rate of
4.15%
plus six-month LIBOR. The interest rate swap is reported at fair value using Level 2 inputs, and gains or losses are recorded in other income (expense), net in our condensed consolidated statement of operations and were losses of
$0.6 million
and gains of
$0.3 million
during the three and
nine
months ended
September 30, 2014
, respectively.
In March 2014, we entered into two diesel commodity swaps covering May to October, 2014 and 2015 which represented roughly 25% of our forecasted purchase for diesel. In May 2014, we entered into two natural gas commodity swaps covering June to October 2014 and May to October 2015 representing roughly 25% of our forecasted purchase of natural gas. The commodity swaps are reported at fair value using Level 2 inputs, and gains or losses are recorded in other income (expense), net in our condensed consolidated statement of operations and were losses of
$0.6 million
and
$0.7 million
during the three and nine months ended September 30, 2014, respectively.
14
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
6.
|
Receivables, net
|
Receivables, net at
September 30, 2014
,
December 31, 2013
and
September 30, 2013
are as follows:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
Construction and Large Project Construction contracts:
|
|
|
|
|||||||||
|
Completed and in progress
|
$
|
274,203
|
|
$
|
193,538
|
|
$
|
275,182
|
|
|||
|
Retentions
|
79,475
|
|
73,103
|
|
76,114
|
|
||||||
|
Total construction contracts
|
353,678
|
|
266,641
|
|
351,296
|
|
||||||
|
Construction Material sales
|
54,718
|
|
36,813
|
|
55,466
|
|
||||||
|
Other
|
9,740
|
|
12,657
|
|
18,412
|
|
||||||
|
Total gross receivables
|
418,136
|
|
316,111
|
|
425,174
|
|
||||||
|
Less: allowance for doubtful accounts
|
508
|
|
2,513
|
|
2,565
|
|
||||||
|
Total net receivables
|
$
|
417,628
|
|
$
|
313,598
|
|
$
|
422,609
|
|
|||
Receivables include amounts billed and billable to clients for services provided and/or according to contract terms as of the end of the applicable period and do not bear interest. Certain contracts include provisions that permit us to submit invoices in advance of providing services, based on the passage of time, achievement of milestones or upon completion of the project and, to the extent not collected, are included in receivables. To the extent the related costs have not been billed, the contract balance is included in costs and estimated earnings in excess of billings on the condensed consolidated balance sheets. Included in other receivables at
September 30, 2014
,
December 31, 2013
and
September 30, 2013
were items such as notes receivable, fuel tax refunds and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates.
Financed receivables consisted of long-term notes receivable and retentions receivable. Long-term notes receivable were not material at any of the presented dates. No retention receivable individually exceeded 10% of total net receivables at any of the presented dates. As of
September 30, 2014
, the majority of the retentions receivable is expected to be collected within one year.
We segregate our retention receivables into two categories: escrow and non-escrow. The balances in each category were as follows:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
Escrow
|
$
|
26,128
|
|
$
|
25,124
|
|
$
|
23,794
|
|
|||
|
Non-escrow
|
53,347
|
|
47,979
|
|
52,320
|
|
||||||
|
Total retention receivables
|
$
|
79,475
|
|
$
|
73,103
|
|
$
|
76,114
|
|
|||
The escrow receivables include amounts due to Granite which have been deposited into an escrow account and bear interest. Typically, escrow retention receivables are held until work on a project is complete and has been accepted by the owner who then releases those funds, along with accrued interest, to us. There is minimal risk of not collecting on these amounts.
As of September 30, 2014, the non-escrow retention receivables aged over 90 days have not materially changed since
December 31, 2013
. In addition, our allowance for doubtful accounts contained no material provision related to non-escrow retention receivables as we determined there were no significant collectability issues at any of the presented dates.
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
7.
|
Construction and Line Item Joint Ventures
|
We participate in various construction joint ventures, partnerships and a limited liability company of which we are a limited member (“joint ventures”). We also participate in various “line item” joint venture agreements under which each member is responsible for performing certain discrete items of the total scope of contracted work.
Due to the joint and several nature of the performance obligations under the related owner contracts, if one of the members fails to perform, we and the remaining members would be responsible for performance of the outstanding work. At
September 30, 2014
, there was approximately
$6.1 billion
of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which
$1.8 billion
represented our share and the remaining
$4.3 billion
represented our members’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.
Construction Joint Ventures
Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the venture partners. The associated agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities resulting from the performance of the contracts, are limited to our stated percentage interest in the venture. Under our contractual arrangements, we provide capital to these joint ventures in return for an ownership interest. In addition, partners dedicate resources to the ventures necessary to complete the contracts and are reimbursed for their cost. The operational risks of each construction joint venture are passed along to the joint venture partners. As we absorb our share of these risks, our investment in each venture is exposed to potential losses.
We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary, or because they are not VIEs and we hold the majority voting interest.
We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the
nine
months ended
September 30, 2014
, we determined no change was required for existing construction joint ventures.
16
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Construction Joint Ventures
The carrying amounts and classification of assets and liabilities of consolidated construction joint ventures are included in our condensed consolidated balance sheets as follows:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
Cash and cash equivalents
1
|
$
|
29,518
|
|
$
|
38,800
|
|
$
|
57,133
|
|
|||
|
Receivables, net
|
45,483
|
|
38,372
|
|
47,696
|
|
||||||
|
Costs and estimated earnings in excess of billings
1
|
21,105
|
|
178
|
|
81
|
|
||||||
|
Other current assets
|
1,910
|
|
4,600
|
|
3,734
|
|
||||||
|
Total current assets
|
98,016
|
|
81,950
|
|
108,644
|
|
||||||
|
Property and equipment, net
|
16,172
|
|
22,216
|
|
28,194
|
|
||||||
|
Total assets
2
|
$
|
114,188
|
|
$
|
104,166
|
|
$
|
136,838
|
|
|||
|
Accounts payable
|
$
|
22,951
|
|
$
|
16,937
|
|
$
|
20,075
|
|
|||
|
Billings in excess of costs and estimated earnings
1
|
23,138
|
|
60,185
|
|
70,518
|
|
||||||
|
Accrued expenses and other current liabilities
|
3,110
|
|
11,299
|
|
12,816
|
|
||||||
|
Total liabilities
2
|
$
|
49,199
|
|
$
|
88,421
|
|
$
|
103,409
|
|
|||
1
The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in cash and cash equivalents as well as billings in excess of costs and estimated earnings between periods.
2
The assets and liabilities of each consolidated joint venture relate solely to that joint venture. The decision to distribute joint venture cash and cash equivalents and assets must generally be made jointly by a majority of the members and, accordingly, these cash and cash equivalents and assets generally are not available for the working capital needs of Granite until distributed.
At
September 30, 2014
, we were engaged in
three
active consolidated construction joint venture projects with total contract values ranging from
$32.4 million
to
$364.3 million
. Our share of revenue remaining to be recognized on these consolidated joint ventures ranged from
$0.1 million
to
$43.9 million
. Our proportionate share of the equity in these joint ventures was between
55.0%
and
65.0%
. During the three
and nine
months ended
September 30, 2014
, total revenue from consolidated construction joint ventures was
$23.8 million
and
$122.0 million
, respectively. During the three
and nine
months ended
September 30, 2013
, total revenue from consolidated construction joint ventures was
$42.4 million
and
$131.1 million
, respectively. Total cash used in consolidated construction joint venture operations was
$44.7 million
and
$10.4 million
during the
nine
months ended
September 30, 2014
and
2013
, respectively.
Unconsolidated Construction Joint Ventures
We account for our share of construction joint ventures that we are not required to consolidate on a pro rata basis in the condensed consolidated statements of operations and as a single line item on the condensed consolidated balance sheets. As of
September 30, 2014
, these unconsolidated joint ventures were engaged in
eleven
active unconsolidated construction joint ventures with total contract values ranging from
$72.8 million
to
$3.1 billion
. Our proportionate share of the equity in these unconsolidated joint ventures ranged from
20.0%
to
50.0%
. As of
September 30, 2014
, our share of the revenue remaining to be recognized on these unconsolidated joint ventures ranged from
$0.3 million
to
$696.9 million
.
As of
September 30, 2014
, one of our unconsolidated construction joint ventures was located in Canada and, therefore, the associated disclosures throughout this footnote include amounts that were translated from Canadian dollars to U.S. dollars using the spot rate in effect as of the reporting date for balance sheet items, and the average rate in effect during the reporting period for the results of operations. The associated foreign currency translation adjustments did not have a material impact on the condensed consolidated financial statements for any of the dates or periods presented.
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following is summary financial information related to unconsolidated construction joint ventures:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
Assets:
|
|
|
|
|||||||||
|
Cash and cash equivalents
1
|
$
|
286,040
|
|
$
|
385,094
|
|
$
|
412,506
|
|
|||
|
Other assets
|
538,012
|
|
523,827
|
|
439,655
|
|
||||||
|
Less partners’ interest
|
530,585
|
|
612,530
|
|
557,857
|
|
||||||
|
Granite’s interest
|
293,467
|
|
296,391
|
|
294,304
|
|
||||||
|
Liabilities:
|
|
|
|
|||||||||
|
Accounts payable
|
141,630
|
|
155,985
|
|
127,695
|
|
||||||
|
Billings in excess of costs and estimated earnings
1
|
178,781
|
|
245,341
|
|
274,052
|
|
||||||
|
Other liabilities
|
61,061
|
|
104,152
|
|
68,379
|
|
||||||
|
Less partners’ interest
|
269,264
|
|
371,760
|
|
336,885
|
|
||||||
|
Granite’s interest
|
112,208
|
|
133,718
|
|
133,241
|
|
||||||
|
Equity in construction joint ventures
|
$
|
181,259
|
|
$
|
162,673
|
|
$
|
161,063
|
|
|||
1
The volume and stage of completion of contracts from our unconsolidated construction joint ventures may cause fluctuations in cash and cash equivalents as well as billings in excess of costs and estimated earnings between periods. The decision to distribute joint venture cash and cash equivalents and assets must generally be made jointly by all of the partners and, accordingly, these cash and cash equivalents and assets generally are not available for the working capital needs of Granite until distributed.
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
Revenue:
|
|
|
|
|
||||||||||||
|
Total
|
$
|
313,945
|
|
$
|
363,523
|
|
$
|
1,055,276
|
|
$
|
848,082
|
|
||||
|
Less partners’ interest and adjustments
1
|
213,068
|
|
259,655
|
|
741,451
|
|
586,016
|
|
||||||||
|
Granite’s interest
|
100,877
|
|
103,868
|
|
313,825
|
|
262,066
|
|
||||||||
|
Cost of revenue:
|
|
|
|
|
||||||||||||
|
Total
|
338,848
|
|
290,112
|
|
982,014
|
|
661,587
|
|
||||||||
|
Less partners’ interest and adjustments
1
|
239,661
|
|
203,804
|
|
696,633
|
|
452,784
|
|
||||||||
|
Granite’s interest
|
99,187
|
|
86,308
|
|
285,381
|
|
208,803
|
|
||||||||
|
Granite’s interest in gross profit
|
$
|
1,690
|
|
$
|
17,560
|
|
$
|
28,444
|
|
$
|
53,263
|
|
||||
1
Partners’ interest represents amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies.
During the three
and nine
months ended
September 30, 2014
, unconsolidated construction joint venture net loss (net of adjustments) was
$25.2 million
and net income (net of adjustments) was
$75.2 million
, respectively, of which our share was net income (net of adjustments) of
$1.8 million
and
$28.1 million
, respectively. During the three
and nine
months ended
September 30, 2013
, the net income (net of adjustments) of unconsolidated construction joint ventures was
$71.1 million
and
$182.8 million
, respectively, of which our share was
$21.3 million
and
$53.2 million
, respectively.
Line Item Joint Ventures
The revenue for each line item joint venture partner’s discrete items of work is defined in the contract with the project owner and each venture partner bears the profitability risk associated with its own work. There is not a single set of books and records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We include only our portion of these contracts in our condensed consolidated financial statements. As of
September 30, 2014
, we had
four
active line item joint venture construction projects with total contract values ranging from
$42.6 million
to
$86.1 million
of which our portion ranged from
$28.7 million
to
$63.8 million
. As of
September 30, 2014
, our share of revenue remaining to be recognized on these line item joint ventures ranged from less than
$0.1 million
to
$27.6 million
.
18
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
8.
|
Real Estate Entities and Investments in Affiliates
|
The operations of our Real Estate segment are conducted through our wholly-owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects.
We have determined that certain of these entities are consolidated because they are VIEs and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the
nine
months ended
September 30, 2014
and
2013
, we determined no change was required for existing real estate entities.
Our real estate entities include limited partnerships or limited liability companies of which we are a limited partner or member. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility in the project. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. However, if one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume, at its option, full management and/or financial responsibility for the project.
All of the assets of these real estate entities in which we are a participant through our GLC subsidiary are classified as real estate held for development and sale and are pledged as collateral for the associated debt. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt (i.e., the limited partnership or limited liability company of which we are a limited partner or member).
To determine if impairment charges should be recognized, the carrying amount of each real estate development project is reviewed on a quarterly basis. Based on our quarterly evaluations of each project’s business plan, we recorded no material impairment charges to our real estate development projects or investments during the three
and nine
months ended
September 30, 2014
and
2013
.
During 2013, we concluded the majority of our 2010 Enterprise Improvement Plan (“EIP”) which included the impairment and planned orderly divestiture of our real estate investment business consistent with our strategy to focus on our core business. Consequently, during 2013 we recorded impairment charges on certain real estate assets in accordance with our EIP. When real estate assets which we continue to have a financial interest are sold, we may recognize additional restructuring charges or gains; however, we do not expect these charges or gains to be material to our consolidated financial statements. No restructuring charges were recorded during the three
and nine
months ended
September 30, 2014
and an immaterial restructuring gain was recorded during the three
and nine
months ended
September 30, 2013
.
19
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Real Estate Entities
As of
September 30, 2014
,
December 31, 2013
and
September 30, 2013
, real estate held for development and sale associated with consolidated real estate entities included in our condensed consolidated balance sheets was
$11.8 million
,
$12.5 million
and
$50.3 million
, respectively. Non-recourse debt, including current maturities, associated with these entities was
$7.0 million
,
$8.0 million
and
$9.2 million
as of
September 30, 2014
,
December 31, 2013
and
September 30, 2013
, respectively. All other amounts associated with these entities were insignificant as of the dates presented. Residential real estate held for development and sale in Washington State was
$11.6 million
as of both
September 30, 2014
and
December 31, 2013
, and was
$40.8 million
as of
September 30, 2013
. The remaining balances were in various commercial projects in California and Texas. During 2014, we sold or otherwise disposed of three consolidated real estate entities in connection with our 2010 Enterprise Improvement Plan. The associated gain was not material.
Investments in Affiliates
We have determined that certain real estate entities are not consolidated because they are VIEs and we are not the primary beneficiary. We have determined that certain non-real estate joint ventures are not consolidated because they are not VIEs and we do not hold the majority voting interest. As such, these entities are accounted for using the equity method. We account for our share of the operating results of these equity method investments in other income in the condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as investments in affiliates.
Our investments in affiliates balance consists of the following:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
Equity method investments in real estate affiliates
|
$
|
24,040
|
|
$
|
21,392
|
|
$
|
20,488
|
|
|||
|
Equity method investments in other affiliates
|
10,137
|
|
11,088
|
|
10,850
|
|
||||||
|
Total investments in affiliates
|
$
|
34,177
|
|
$
|
32,480
|
|
$
|
31,338
|
|
|||
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
|||||||||
|
Total assets
|
$
|
172,220
|
|
$
|
173,988
|
|
$
|
166,601
|
|
|||
|
Net assets
|
103,651
|
|
99,444
|
|
95,490
|
|
||||||
|
Granite’s share of net assets
|
34,177
|
|
32,480
|
|
31,338
|
|
||||||
The equity method investments in real estate included
$17.8 million
,
$14.9 million
and
$14.0 million
in residential real estate in Texas as of
September 30, 2014
,
December 31, 2013
and
September 30, 2013
, respectively. The remaining balances were in commercial real estate in Texas. Of the
$172.2 million
in total assets as of
September 30, 2014
, real estate entities had total assets ranging from
$1.9 million
to
$57.0 million
and non-real estate entities had total assets ranging from
$0.3 million
to
$22.5 million
. As of each of the periods presented, the most significant non-real estate equity method investment was a 50% interest in a limited liability company which owns and operates an asphalt terminal and operates an emulsion plant in Nevada.
20
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
9.
|
Property and Equipment, net
|
Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net on our condensed consolidated balance sheets as follows:
|
(in thousands)
|
September 30,
2014 |
December 31,
2013 |
September 30, 2013 As Revised
|
|||||||||
|
Equipment and vehicles
|
$
|
771,934
|
|
$
|
765,971
|
|
$
|
756,098
|
|
|||
|
Quarry property
|
169,982
|
|
170,442
|
|
180,205
|
|
||||||
|
Land and land improvements
|
118,985
|
|
119,917
|
|
125,606
|
|
||||||
|
Buildings and leasehold improvements
|
83,813
|
|
83,494
|
|
83,743
|
|
||||||
|
Office furniture and equipment
|
70,837
|
|
70,156
|
|
69,265
|
|
||||||
|
Property and equipment
|
1,215,551
|
|
1,209,980
|
|
1,214,917
|
|
||||||
|
Less: accumulated depreciation and depletion
|
791,279
|
|
773,121
|
|
756,893
|
|
||||||
|
Property and equipment, net
|
$
|
424,272
|
|
$
|
436,859
|
|
$
|
458,024
|
|
|||
|
10.
|
Intangible Assets
|
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets primarily consist of goodwill and use rights. Use rights of
$0.4 million
are included in other noncurrent assets on our condensed consolidated balance sheets as of
September 30, 2014
,
December 31, 2013
and
September 30, 2013
.
The following table presents the goodwill balance by reporting segment (in thousands):
|
September 30,
2014 |
December 31,
2013 |
September 30,
2013 |
||||||||||
|
Construction
|
$
|
29,260
|
|
$
|
29,260
|
|
$
|
28,398
|
|
|||
|
Large Project Construction
|
22,593
|
|
22,593
|
|
23,287
|
|
||||||
|
Construction Materials
|
1,946
|
|
1,946
|
|
2,114
|
|
||||||
|
Total goodwill
|
$
|
53,799
|
|
$
|
53,799
|
|
$
|
53,799
|
|
|||
21
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortized Intangible Assets
The detail of our amortized intangible assets that are included in other noncurrent assets on our condensed consolidated balance sheets is as follows (in thousands):
|
|
Accumulated
|
|
||||||||||
|
September 30, 2014
|
Gross Value
|
Amortization
|
Net Book Value
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(12,835
|
)
|
$
|
16,878
|
|
|||
|
Acquired backlog
|
7,900
|
|
(7,226
|
)
|
674
|
|
||||||
|
Customer lists
|
4,398
|
|
(2,711
|
)
|
1,687
|
|
||||||
|
Trade name
|
4,100
|
|
(755
|
)
|
3,345
|
|
||||||
|
Covenants not to compete and other
|
2,459
|
|
(2,426
|
)
|
33
|
|
||||||
|
Total amortized intangible assets
|
$
|
48,570
|
|
$
|
(25,953
|
)
|
$
|
22,617
|
|
|||
|
|
Accumulated
|
|
||||||||||
|
December 31, 2013
|
Gross Value
|
Amortization
|
Net Book Value
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(11,992
|
)
|
$
|
17,721
|
|
|||
|
Acquired backlog
|
7,900
|
|
(6,835
|
)
|
1,065
|
|
||||||
|
Customer lists
|
4,398
|
|
(2,491
|
)
|
1,907
|
|
||||||
|
Trade name
|
4,100
|
|
(432
|
)
|
3,668
|
|
||||||
|
Covenants not to compete and other
|
2,459
|
|
(2,408
|
)
|
51
|
|
||||||
|
Total amortized intangible assets
|
$
|
48,570
|
|
$
|
(24,158
|
)
|
$
|
24,412
|
|
|||
|
|
Accumulated
|
|
||||||||||
|
September 30, 2013
|
Gross Value
|
Amortization
|
Net Book Value
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(11,711
|
)
|
$
|
18,002
|
|
|||
|
Acquired backlog
|
7,900
|
|
(5,147
|
)
|
2,753
|
|
||||||
|
Customer lists
|
4,398
|
|
(2,418
|
)
|
1,980
|
|
||||||
|
Trade name
|
4,100
|
|
(324
|
)
|
3,776
|
|
||||||
|
Covenants not to compete and other
|
2,459
|
|
(2,378
|
)
|
81
|
|
||||||
|
Total amortized intangible assets
|
$
|
48,570
|
|
$
|
(21,978
|
)
|
$
|
26,592
|
|
|||
Amortization expense related to amortized intangible assets for the three
and nine
months ended
September 30, 2014
was
$0.6 million
and
$1.8 million
respectively. Amortization expense related to amortized intangible assets for the three
and nine
months ended
September 30, 2013
was
$2.2 million
and
$6.7 million
, respectively. Based on the amortized assets balance at
September 30, 2014
, amortization expense expected to be recorded in the future is as follows:
$0.9 million
for the remainder of 2014;
$2.1 million
in 2015;
$1.8 million
in 2016;
$1.7 million
in 2017;
$1.7 million
in 2018; and
$14.4 million
thereafter.
22
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
11.
|
Covenants and Events of Default
|
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the agreements; (2) termination of the agreements; (3) the requirement that any letters of credit under the agreements be cash collateralized; (4) acceleration of the maturity of outstanding indebtedness under the agreements; and/or (5) foreclosure on any collateral securing the obligations under the agreements.
As of
September 30, 2014
, we were in compliance with the covenants contained in our note purchase agreement governing our senior notes payable (“2019 NPA”) and the credit agreement governing the
$215.0 million
committed revolving credit facility, with a sublimit for letters of credit of
$100.0 million
(“Credit Agreement”), as well as the debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.
|
12.
|
Weighted Average Shares Outstanding and Earnings Per Share
|
A reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share in the accompanying condensed consolidated statements of operations is as follows (in thousands):
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||
|
Weighted average shares outstanding:
|
|
|
|
|
||||||||
|
Weighted average common stock outstanding
|
39,150
|
|
38,876
|
|
39,073
|
|
38,773
|
|
||||
|
Total basic weighted average shares outstanding
|
39,150
|
|
38,876
|
|
39,073
|
|
38,773
|
|
||||
|
Diluted weighted average shares outstanding:
|
|
|
|
|
||||||||
|
Weighted average common stock outstanding, basic
|
39,150
|
|
38,876
|
|
39,073
|
|
38,773
|
|
||||
|
Effect of dilutive securities:
|
||||||||||||
|
Common stock options and restricted stock units
1
|
663
|
|
883
|
|
717
|
|
—
|
|
||||
|
Total weighted average shares outstanding assuming dilution
|
39,813
|
|
39,759
|
|
39,790
|
|
38,773
|
|
||||
1
Due to the net loss for the
nine
months ended
September 30, 2013
, restricted stock units and common stock options representing approximately
863,000
shares have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.
23
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnings Per Share
We calculate earnings per share (“EPS”) under the two-class method by allocating earnings to both common shares and unvested restricted stock which are considered participating securities. However, net losses are not allocated to participating securities for purposes of computing EPS under the two-class method. During the three and
nine
months ended
September 30, 2014
and
2013
, there were no participating securities; therefore, net income was not allocated to participating securities. Following is a calculation of basic and diluted EPS (in thousands, except per share amounts):
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
|||||||||||||
|
Basic
|
|
|
|
|
|
|||||||||||
|
Numerator:
|
|
|
|
|
|
|||||||||||
|
Net income (loss) allocated to common shareholders for basic calculation
|
$
|
15,282
|
|
$
|
13,037
|
|
$
|
8,370
|
|
$
|
(7,526
|
)
|
||||
|
Denominator:
|
|
|
|
|
|
|||||||||||
|
Weighted average common shares outstanding, basic
|
39,150
|
|
38,876
|
|
39,073
|
|
38,773
|
|
||||||||
|
Net income (loss) per share, basic
|
$
|
0.39
|
|
$
|
0.34
|
|
$
|
0.21
|
|
$
|
(0.19
|
)
|
||||
|
Diluted
|
|
|
|
|
|
|||||||||||
|
Numerator:
|
|
|
|
|
|
|||||||||||
|
Net income (loss) allocated to common shareholders for diluted calculation
|
$
|
15,282
|
|
$
|
13,037
|
|
$
|
8,370
|
|
$
|
(7,526
|
)
|
||||
|
Denominator:
|
|
|
|
|
|
|||||||||||
|
Weighted average common shares outstanding, diluted
|
39,813
|
|
39,759
|
|
39,790
|
|
38,773
|
|
||||||||
|
Net income (loss) per share, diluted
|
$
|
0.38
|
|
$
|
0.33
|
|
$
|
0.21
|
|
$
|
(0.19
|
)
|
||||
24
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
13.
|
Equity
|
The following tables summarize our equity activity for the periods presented (in thousands):
|
Granite Construction Incorporated
|
Non-controlling Interests
|
Total Equity
|
||||||||||
|
Balance at December 31, 2013
|
$
|
781,940
|
|
$
|
4,404
|
|
$
|
786,344
|
|
|||
|
Purchase of common stock
1
|
(4,751
|
)
|
—
|
|
(4,751
|
)
|
||||||
|
Other transactions with shareholders and employees
3
|
10,505
|
|
—
|
|
10,505
|
|
||||||
|
Transactions with non-controlling interests, net
|
—
|
|
15,174
|
|
15,174
|
|
||||||
|
Net income
|
8,370
|
|
6,681
|
|
15,051
|
|
||||||
|
Dividends on common stock
|
(15,260
|
)
|
—
|
|
(15,260
|
)
|
||||||
|
Balance at September 30, 2014
|
$
|
780,804
|
|
$
|
26,259
|
|
$
|
807,063
|
|
|||
|
|
|
|
||||||||||
|
Balance at December 31, 2012
|
$
|
829,953
|
|
$
|
41,905
|
|
$
|
871,858
|
|
|||
|
Purchase of common stock
2
|
(5,457
|
)
|
—
|
|
(5,457
|
)
|
||||||
|
Other transactions with shareholders and employees
3
|
11,430
|
|
—
|
|
11,430
|
|
||||||
|
Transactions with non-controlling interests, net
|
—
|
|
(21,654
|
)
|
(21,654
|
)
|
||||||
|
Net loss
|
(7,526
|
)
|
(3,986
|
)
|
(11,512
|
)
|
||||||
|
Dividends on common stock
|
(15,150
|
)
|
—
|
|
(15,150
|
)
|
||||||
|
Balance at September 30, 2013 As Revised
|
$
|
813,250
|
|
$
|
16,265
|
|
$
|
829,515
|
|
|||
1
Represents
123,000
shares purchased in connection with employee tax withholding for shares/units vested under our Amended and Restated 1999 Equity Incentive Plan.
2
Represents
181,000
shares purchased in connection with employee tax withholding for shares/units vested under our Amended and Restated 1999 Equity Incentive Plan.
3
Amounts are comprised primarily of amortized restricted stock and units.
25
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
14.
|
Legal Proceedings
|
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, public liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes of which cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to settle, whether or when any legal proceeding will be resolved through settlement is neither predictable nor guaranteed.
Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, we also disclose certain matters where the loss is considered reasonably possible and is reasonably estimable.
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in our condensed consolidated balance sheets. The aggregate liabilities recorded as of
September 30, 2014
,
December 31, 2013
and
September 30, 2013
related to these matters were approximately
$9.9 million
,
$16.3 million
and
$18.0 million
, respectively, and were primarily included in accrued expenses and other current liabilities. The aggregate range of possible loss related to matters considered reasonably possible was
zero
to approximately
$5.0 million
as of
September 30, 2014
. Our view as to such matters could change in future periods.
Investigation Related to Grand Avenue Project Disadvantaged Business Enterprise (“DBE”) Issues:
On March 6, 2009, the U.S. Department of Transportation, Office of Inspector General served upon our wholly-owned subsidiary, Granite Construction Northeast, Inc. (“Granite Northeast”), a United States District Court, Eastern District of New York Grand Jury subpoena to produce documents. The subpoena sought all documents pertaining to the use of a DBE firm (the “Subcontractor”), and the Subcontractor’s use of a non-DBE subcontractor/consultant, on the Grand Avenue Bus Depot and Central Maintenance Facility for the Borough of Queens Project (the “Grand Avenue Project”), a Granite Northeast project, that began in 2004 and was substantially complete in 2008. The subpoena also sought any documents regarding the use of the Subcontractor as a DBE on any other projects and any other documents related to the Subcontractor or to the subcontractor/consultant. Granite Northeast produced the requested documents, together with other requested information. Subsequently, Granite Northeast was informed by the Department of Justice (“DOJ”) that it is a subject of an investigation, along with others, and that the DOJ believes that Granite Northeast’s claim of DBE credit for the Subcontractor was improper. In addition to the documents produced in response to the Grand Jury subpoena, Granite Northeast has provided requested information to the DOJ, along with other federal and state agencies (collectively the “Agencies”), concerning other DBE entities for which Granite Northeast has historically claimed DBE credit. The Agencies have informed Granite Northeast that they believe that the claimed DBE credit taken for some of those other DBE entities was improper. Granite Northeast has met several times since January 2013 with the DOJ and the Agencies’ representatives to discuss the government’s criminal investigation of the Grand Avenue Project participants, including Granite Northeast, and to discuss their respective positions on, and potential resolution of, the issues raised in the investigation. In connection with this investigation, Granite Northeast is subject to potential civil, criminal, and/or administrative penalties or sanctions, as well as additional future DBE compliance activities and the costs associated therewith. Granite believes that the incurrence of some form of penalty or sanction is probable, and has therefore recorded what it believes to be the most likely amount of liability it may incur in its condensed consolidated balance sheet as of
September 30, 2014
. Granite believes that it is reasonably possible that it may incur liability in relation to this matter that is in excess of such accrual. The resolution of the matters under investigation could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations and/or liquidity.
26
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
15.
|
Business Segment Information
|
Our reportable segments are: Construction, Large Project Construction, Construction Materials and Real Estate.
The Construction segment performs various construction projects with a large portion of the work focused on new construction and improvement of streets, roads, highways, bridges, site work, underground, power related facilities, utilities and other infrastructure projects. These projects are typically bid-build projects completed within two years with a contract value of less than
$75 million
.
The Large Project Construction segment focuses on large, complex infrastructure projects which typically have a longer duration than our Construction segment work. These projects include major highways, mass transit facilities, bridges, tunnels, waterway locks and dams, pipelines, canals, power related facilities, utilities and airport infrastructure. This segment primarily includes bid-build, design-build, construction management/general contractor contracts, and various contract methods relating to public, private partnerships, generally with contract values in excess of
$75 million
.
The Construction Materials segment mines and processes aggregates and operates plants that produce construction materials for internal use and for sale to third parties.
The Real Estate segment develops, operates, and sells real estate related projects and provides real estate services for the Company’s operations. The Real Estate segment’s current portfolio consists of residential, retail and office site development projects for sale to home and commercial property developers in Washington and California.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies contained in our 2013 Annual Report on Form 10-K. We evaluate segment performance based on gross profit or loss, and do not include selling, general and administrative expenses nor non-operating income or expense. Segment assets include property and equipment, intangibles, goodwill, inventory, equity in construction joint ventures and real estate held for development and sale.
27
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summarized segment information for the three
and nine
months ended
September 30, 2014
and
2013
is as follows (in thousands):
|
|
Three Months Ended September 30,
|
|||||||||||||||||||
|
Construction
|
Large Project Construction
|
Construction Materials
|
Real Estate
|
Total
|
||||||||||||||||
|
2014
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue from reportable segments
|
$
|
447,097
|
|
$
|
179,446
|
|
$
|
146,782
|
|
$
|
7
|
|
$
|
773,332
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(53,568
|
)
|
—
|
|
(53,568
|
)
|
||||||||||
|
Revenue from external customers
|
447,097
|
|
179,446
|
|
93,214
|
|
7
|
|
719,764
|
|
||||||||||
|
Gross profit
|
48,802
|
|
5,679
|
|
12,204
|
|
7
|
|
66,692
|
|
||||||||||
|
Depreciation, depletion and amortization
|
4,621
|
|
4,777
|
|
5,408
|
|
—
|
|
14,806
|
|
||||||||||
|
2013 As Revised
|
|
|
|
|
|
|||||||||||||||
|
Total revenue from reportable segments
|
$
|
470,567
|
|
$
|
185,997
|
|
$
|
146,286
|
|
$
|
16
|
|
$
|
802,866
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(63,114
|
)
|
—
|
|
(63,114
|
)
|
||||||||||
|
Revenue from external customers
|
470,567
|
|
185,997
|
|
83,172
|
|
16
|
|
739,752
|
|
||||||||||
|
Gross profit (loss)
|
50,719
|
|
(2,163
|
)
|
7,288
|
|
16
|
|
55,860
|
|
||||||||||
|
Depreciation, depletion and amortization
|
8,502
|
|
3,634
|
|
5,631
|
|
—
|
|
17,767
|
|
||||||||||
|
|
Nine Months Ended September 30,
|
|||||||||||||||||||
|
Construction
|
Large Project Construction
|
Construction Materials
|
Real Estate
|
Total
|
||||||||||||||||
|
2014
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue from reportable segments
|
$
|
873,357
|
|
$
|
611,110
|
|
$
|
286,669
|
|
$
|
29
|
|
$
|
1,771,165
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(85,684
|
)
|
—
|
|
(85,684
|
)
|
||||||||||
|
Revenue from external customers
|
873,357
|
|
611,110
|
|
200,985
|
|
29
|
|
1,685,481
|
|
||||||||||
|
Gross profit
|
82,773
|
|
72,264
|
|
15,449
|
|
29
|
|
170,515
|
|
||||||||||
|
Depreciation, depletion and amortization
|
12,865
|
|
12,001
|
|
16,267
|
|
—
|
|
41,133
|
|
||||||||||
|
Segment assets
|
150,070
|
|
247,694
|
|
310,731
|
|
11,773
|
|
720,268
|
|
||||||||||
|
2013 As Revised
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total revenue from reportable segments
|
$
|
956,287
|
|
$
|
539,268
|
|
$
|
282,547
|
|
$
|
141
|
|
$
|
1,778,243
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(109,440
|
)
|
—
|
|
(109,440
|
)
|
||||||||||
|
Revenue from external customers
|
956,287
|
|
539,268
|
|
173,107
|
|
141
|
|
1,668,803
|
|
||||||||||
|
Gross profit
|
87,989
|
|
42,129
|
|
5,268
|
|
127
|
|
135,513
|
|
||||||||||
|
Depreciation, depletion and amortization
|
20,194
|
|
8,792
|
|
17,087
|
|
—
|
|
46,073
|
|
||||||||||
|
Segment assets
|
155,440
|
|
212,644
|
|
340,172
|
|
50,250
|
|
758,506
|
|
||||||||||
A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
|
(in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||
|
Total gross profit from reportable segments
|
$
|
66,692
|
|
$
|
55,860
|
|
$
|
170,515
|
|
$
|
135,513
|
|
||||
|
Selling, general and administrative expenses
|
47,386
|
|
45,527
|
|
147,731
|
|
149,477
|
|
||||||||
|
Gain on sales of property and equipment
|
3,004
|
|
3,259
|
|
6,891
|
|
7,653
|
|
||||||||
|
Other expense
|
(2,124
|
)
|
(2,114
|
)
|
(6,323
|
)
|
(8,068
|
)
|
||||||||
|
Income (loss) before provision for (benefit from) income taxes
|
$
|
20,186
|
|
$
|
11,478
|
|
$
|
23,352
|
|
$
|
(14,379
|
)
|
||||
28
|
Item 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
Forward-Looking Disclosure
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements which constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.”
Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason
.
29
Overview
We are one of the largest diversified heavy civil contractors and construction materials producers in the United States, engaged in the construction and improvement of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, power related facilities, utilities, tunnels, dams and other infrastructure-related projects. We own aggregate reserves and plant facilities to produce construction materials for use in our construction business and for sale to third parties. We also operate a real estate investment business that we have been divesting of over the past three years as part of our 2010 Enterprise Improvement Plan (“EIP”). Our permanent offices are located in Alaska, Arizona, California, Colorado, Florida, Illinois, Nevada, New York, Texas, Utah and Washington. We have four reportable business segments: Construction, Large Project Construction, Construction Materials and Real Estate (see Note 15 of “Notes to the Condensed Consolidated Financial Statements”).
Our construction contracts are obtained through competitive bidding in response to solicitations by both public agencies and private parties and on a negotiated basis as a result of solicitations from private parties. Project owners use a variety of methods to make contractors aware of new projects, including posting bidding opportunities on agency websites, disclosing long-term infrastructure plans, advertising and other general solicitations. Our bidding activity is affected by such factors as the nature and volume of advertising and other solicitations, contract backlog, available personnel, current utilization of equipment and other resources, our ability to obtain necessary surety bonds and competitive considerations. Our contract review process includes identifying risks and opportunities during the bidding process and managing these risks through mitigation efforts such as insurance and pricing. Contracts fitting certain criteria of size and complexity are reviewed by various levels of management and, in some cases, by the Executive Committee of our Board of Directors. Bidding activity, contract backlog and revenue resulting from the award of new contracts may vary significantly from period to period.
Our typical construction project begins with the preparation and submission of a bid to a customer. If selected as the successful bidder, we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as identified in the contract. We usually invoice our customers on a monthly basis. Our contracts frequently call for retention that is a specified percentage withheld from each payment until the contract is completed and the work accepted by the customer. Additionally, we generally defer recognition of profit on projects until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty (see “Gross Profit” discussion below) and our profit recognition is based on estimates that may change over time. Our revenue, gross margin and cash flows can differ significantly from period to period due to a variety of factors, including the projects’ stage of completion, the mix of early and late stage projects, our estimates of contract costs, outstanding contract change orders and claims and the payment terms of our contracts. The timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital.
30
The four primary economic drivers of our business are (1) the overall health of the economy; (2) federal, state and local public funding levels; (3) population growth resulting in public and private development; and (4) the need to replace or repair aging infrastructure. 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. Greater competition can reduce our revenues and/or have a downward impact on our gross profit margins. 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. However, even these can be temporarily at risk as federal, state and local governments take actions to balance their budgets. Additionally, high fuel prices and more fuel efficient vehicles can have a dampening effect on consumption, resulting in overall lower tax revenue. Conversely, increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement.
In addition to business segments, we review our business by operating groups and by public and private market sectors. Our operating groups are defined as follows: (1) California; (2) Northwest, which primarily includes offices in Alaska, Arizona, Nevada, Utah and Washington; (3) Heavy Civil, which primarily includes offices in California, Florida, New York and Texas; and (4) Kenny, which primarily includes offices in Colorado and Illinois. Each of these operating groups may include financial results from our Construction and Large Project Construction segments. A project’s results are reported in the operating group that is responsible for the project, not necessarily the geographic area where the work is located. In some cases, the operations of an operating group include the results of work performed outside of that geographic region. Our California and Northwest operating groups include financial results from our Construction Materials segment.
Effective in the third quarter of 2013, we made certain changes to the organizational structure of the four operating groups. The most significant changes were to move our Arizona business from the Heavy Civil operating group to the Northwest operating group, and to reclassify the majority of the complex heavy-civil construction contracts to the Heavy Civil operating group. These changes were designed to improve operating efficiencies and better position the Company for long-term growth. Prior period amounts associated with these changes have been reclassified to conform to the current year presentation. These changes had no impact on our reportable business segments.
31
Current Economic Environment and Outlook
Public funding at the federal level was recently stabilized with a patchwork federal highway bill continuing resolution which covers spending obligations into May 2015. This funding stabilized current projects and select federal highway/public transportation programs in the procurement phase. However, given the lack of long-term visibility, state and local government letting programs may prioritize maintenance projects over the letting of major capital projects. In some Western markets, state and local agencies have delayed projects, pushing bidding opportunities out from one to three quarters. Projects are moving forward, but at a slower pace than anticipated earlier this year. Notably, this has not yet had an impact on the market for Large Projects, especially those that involve alternative procurement methods.
Executing on record backlog of
$3.0 billion
, our business is expected to deliver improved financial performance in 2014. The Construction business should perform aligned with the varied economic and public funding environments in the Western states and local communities we serve. Our Large Project Construction segment is expected to drive improved profitability late in 2014. Revenue growth from the Construction Materials segment continues to out-pace prior expectations, and continued margin improvement is expected compared to last year.
Private sector market improvement continues to be largely offset by varied funding and financing environments and a continued highly competitive bidding environment. We continue to expect to grow our portfolio of new work across all segments in the next twelve months. Opportunities for profitable growth are expected to be driven by continued significant near and long-term bidding activity.
Strong attention is needed from Congress to provide short-term funding for the Highway Trust Fund, as well as the long-term stability of a new highway bill. Funding and financing stability ultimately remains critical to driving progress on important infrastructure investment at the federal, state and local levels. Without resolution of these issues, the near and long-term recovery and growth expectations of the construction industry are at risk.
Results of Operations
Our business is seasonal and can be affected by weather conditions in certain geographies. In addition, annual maintenance on our equipment and plants is typically performed during the first quarter, causing down time in operations. These factors can create variability in revenue and profit. Therefore, the results of operations for the three
and nine
months of a given year are not necessarily indicative of the results to be expected for the full year.
The following table presents a financial summary on a comparative basis for the three
and nine
months ended
September 30, 2014
and
2013
. Financial data included herein for the three
and nine
months ended
September 30, 2013
reflect the correction of accounting errors and reclassification adjustments to the condensed consolidated financial statements for the three
and nine
months ended
September 30, 2013
as described in Note 1 of “Notes to Condensed Consolidated Financial Statements.”
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
|||||||||||
|
Total revenue
|
$
|
719,764
|
|
$
|
739,752
|
|
$
|
1,685,481
|
|
$
|
1,668,803
|
|
|||
|
Gross profit
|
66,692
|
|
55,860
|
|
170,515
|
|
135,513
|
|
|||||||
|
Operating income (loss)
|
22,310
|
|
13,592
|
|
29,675
|
|
(6,311
|
)
|
|||||||
|
Total other expense
|
(2,124
|
)
|
(2,114
|
)
|
(6,323
|
)
|
(8,068
|
)
|
|||||||
|
Amount attributable to non-controlling interests
|
1,177
|
|
6,505
|
|
(6,681
|
)
|
3,986
|
|
|||||||
|
Net income (loss) attributable to Granite Construction Inc.
|
$
|
15,282
|
|
$
|
13,037
|
|
$
|
8,370
|
|
$
|
(7,526
|
)
|
|||
32
Revenue
Total revenue by segment for the three
and nine
months ended
September 30, 2014
and
2013
is as follows:
|
Total Revenue by Segment
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||||||||||||||
|
Construction
|
$
|
447,097
|
|
62.1
|
%
|
$
|
470,567
|
|
63.6
|
%
|
$
|
873,357
|
|
51.8
|
%
|
$
|
956,287
|
|
57.3
|
%
|
||||||||
|
Large Project Construction
|
179,446
|
|
24.9
|
|
185,997
|
|
25.2
|
|
611,110
|
|
36.3
|
|
539,268
|
|
32.3
|
|
||||||||||||
|
Construction Materials
|
93,214
|
|
13.0
|
|
83,172
|
|
11.2
|
|
200,985
|
|
11.9
|
|
173,107
|
|
10.4
|
|
||||||||||||
|
Real Estate
|
7
|
|
—
|
|
16
|
|
—
|
|
29
|
|
—
|
|
141
|
|
—
|
|
||||||||||||
|
Total
|
$
|
719,764
|
|
100.0
|
%
|
$
|
739,752
|
|
100.0
|
%
|
$
|
1,685,481
|
|
100.0
|
%
|
$
|
1,668,803
|
|
100.0
|
%
|
||||||||
|
Construction Revenue
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||||||||||||||
|
California:
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Public sector
|
$
|
134,365
|
|
30.1
|
%
|
$
|
126,334
|
|
26.9
|
%
|
$
|
293,640
|
|
33.5
|
%
|
$
|
282,693
|
|
29.5
|
%
|
||||||||
|
Private sector
|
27,649
|
|
6.2
|
|
28,421
|
|
6.0
|
|
63,345
|
|
7.3
|
|
62,262
|
|
6.5
|
|
||||||||||||
|
Northwest:
|
|
|
|
|
|
|||||||||||||||||||||||
|
Public sector
|
194,187
|
|
43.4
|
|
209,445
|
|
44.5
|
|
308,307
|
|
35.3
|
|
353,962
|
|
37.0
|
|
||||||||||||
|
Private sector
|
39,794
|
|
8.9
|
|
51,868
|
|
11.0
|
|
82,693
|
|
9.5
|
|
97,528
|
|
10.2
|
|
||||||||||||
|
Heavy Civil:
|
|
|
|
|
||||||||||||||||||||||||
|
Public sector
|
8,652
|
|
1.9
|
|
1,525
|
|
0.3
|
|
14,507
|
|
1.7
|
|
3,481
|
|
0.4
|
|
||||||||||||
|
Private sector
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
528
|
|
0.1
|
|
||||||||||||
|
Kenny:
|
||||||||||||||||||||||||||||
|
Public sector
|
30,020
|
|
6.7
|
|
18,836
|
|
4.0
|
|
75,942
|
|
8.7
|
|
48,536
|
|
5.1
|
|
||||||||||||
|
Private sector
|
12,430
|
|
2.8
|
|
34,138
|
|
7.3
|
|
34,923
|
|
4.0
|
|
107,297
|
|
11.2
|
|
||||||||||||
|
Total
|
$
|
447,097
|
|
100.0
|
%
|
$
|
470,567
|
|
100.0
|
%
|
$
|
873,357
|
|
100.0
|
%
|
$
|
956,287
|
|
100.0
|
%
|
||||||||
Construction revenue for the three and
nine
months ended
September 30, 2014
decreased by
$23.5 million
, or
5.0%
, and
$82.9 million
, or
8.7%
, respectively, compared to the same periods in
2013
. The decreases were primarily due to lower volumes from entering the year with less backlog and timing of new awards in the Kenny private sector and in both sectors of the Northwest. The decreases were partially offset by increases in the Heavy Civil and California groups due to entering the year with higher backlog from bid successes during 2013.
33
|
Large Project Construction Revenue
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||||||||||||||
|
California
1
|
$
|
15,142
|
|
8.4
|
%
|
$
|
14,720
|
|
7.9
|
%
|
$
|
49,950
|
|
8.1
|
%
|
$
|
54,730
|
|
10.2
|
%
|
||||||||
|
Northwest
1
|
1,219
|
|
0.7
|
|
3,198
|
|
1.7
|
|
9,676
|
|
1.6
|
|
21,184
|
|
3.9
|
|
||||||||||||
|
Heavy Civil
1
|
133,783
|
|
74.6
|
|
157,757
|
|
84.8
|
|
467,954
|
|
76.6
|
|
425,312
|
|
78.9
|
|
||||||||||||
|
Kenny
|
|
|
||||||||||||||||||||||||||
|
Public sector
|
24,742
|
|
13.8
|
|
9,633
|
|
5.2
|
|
66,531
|
|
10.9
|
|
$
|
37,405
|
|
6.9
|
|
|||||||||||
|
Private sector
|
4,560
|
|
2.5
|
|
689
|
|
0.4
|
|
16,999
|
|
2.8
|
|
$
|
637
|
|
0.1
|
|
|||||||||||
|
Total
|
$
|
179,446
|
|
100.0
|
%
|
$
|
185,997
|
|
100.0
|
%
|
$
|
611,110
|
|
100.0
|
%
|
$
|
539,268
|
|
100.0
|
%
|
||||||||
1
For the periods presented, Large Project Construction revenue was primarily earned from the public sector.
Large Project Construction revenue for the three and
nine
months ended
September 30, 2014
decreased by
$6.6 million
, or
3.5%
, and increased by
$71.8 million
, or
13.3%
, respectively, compared to the same periods in
2013
. The decrease in the quarter was due to ongoing projects nearing completion while new projects were in the early stages of construction. The increase during the
nine
months ended
September 30, 2014
was due to entering 2014 with greater backlog than 2013 and settlement of outstanding claims. Decreases in the California and Northwest groups were from ongoing projects nearing completion coupled with delayed starts on other work.
|
Construction Materials Revenue
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||||||||||||||
|
California
|
$
|
52,268
|
|
56.1
|
%
|
$
|
42,221
|
|
50.8
|
%
|
$
|
116,429
|
|
57.9
|
%
|
$
|
94,619
|
|
54.7
|
%
|
||||||||
|
Northwest
|
40,946
|
|
43.9
|
|
40,951
|
|
49.2
|
|
84,556
|
|
42.1
|
|
78,488
|
|
45.3
|
|
||||||||||||
|
Total
|
$
|
93,214
|
|
100.0
|
%
|
$
|
83,172
|
|
100.0
|
%
|
$
|
200,985
|
|
100.0
|
%
|
$
|
173,107
|
|
100.0
|
%
|
||||||||
Construction Materials revenue for the three and
nine
months ended
September 30, 2014
increased by
$10.0 million
, or
12.1%
, and
$27.9 million
, or
16.1%
, respectively, compared to the same periods in
2013
primarily due to increased volume and pricing.
Real Estate Revenue
Real Estate revenue was immaterial during all periods presented.
Contract Backlog
Our contract backlog consists of the unearned revenue on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in our contract backlog at the time it is awarded and funding is in place. Certain federal government contracts where funding is appropriated on a periodic basis are included in contract backlog at the time of the award to the extent we believe funding is probable. Contracts that include unexercised contract options and unissued task orders are included in contract backlog as task orders are issued or options are exercised. Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past.
34
The following tables illustrate our contract backlog as of the respective dates:
|
Total Contract Backlog by Segment
|
|
|
|||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2014
|
June 30, 2014
|
September 30, 2013
|
||||||||||||||||||
|
Construction
|
$
|
817,365
|
|
27.5
|
%
|
$
|
974,986
|
|
38.1
|
%
|
$
|
705,839
|
|
25.6
|
%
|
||||||
|
Large Project Construction
|
2,154,289
|
|
72.5
|
|
1,586,879
|
|
61.9
|
|
2,049,003
|
|
74.4
|
|
|||||||||
|
Total
|
$
|
2,971,654
|
|
100.0
|
%
|
$
|
2,561,865
|
|
100.0
|
%
|
$
|
2,754,842
|
|
100.0
|
%
|
||||||
|
Construction Contract Backlog
|
|
|
|||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2014
|
June 30, 2014
|
September 30, 2013
|
||||||||||||||||||
|
California:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
$
|
307,351
|
|
37.6
|
%
|
$
|
352,760
|
|
36.1
|
%
|
$
|
406,503
|
|
57.5
|
%
|
||||||
|
Private sector
|
72,906
|
|
8.9
|
|
76,777
|
|
7.9
|
|
39,403
|
|
5.6
|
|
|||||||||
|
Northwest:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
227,417
|
|
27.8
|
|
321,748
|
|
33.0
|
|
153,419
|
|
21.7
|
|
|||||||||
|
Private sector
|
48,003
|
|
5.9
|
|
50,673
|
|
5.2
|
|
30,089
|
|
4.3
|
|
|||||||||
|
Heavy Civil:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
33,633
|
|
4.1
|
|
41,347
|
|
4.2
|
|
2,141
|
|
0.3
|
|
|||||||||
|
Kenny:
|
|||||||||||||||||||||
|
Public sector
|
62,698
|
|
7.7
|
|
62,890
|
|
6.5
|
|
46,351
|
|
6.6
|
|
|||||||||
|
Private sector
|
65,357
|
|
8.0
|
|
68,791
|
|
7.1
|
|
27,933
|
|
4.0
|
|
|||||||||
|
Total
|
$
|
817,365
|
|
100.0
|
%
|
$
|
974,986
|
|
100.0
|
%
|
$
|
705,839
|
|
100.0
|
%
|
||||||
Construction contract backlog of
$817.4 million
at
September 30, 2014
was
$157.6 million
, or
16.2%
, lower than at
June 30, 2014
and
$111.5 million
, or
15.8%
, higher than at
September 30, 2013
due to progress on existing projects and timing of new awards. Significant new awards during the three months ended
September 30, 2014
, included a $20.8 million freeway project in California, a $23.8 million water system improvement project in Illinois and a $29.6 million runway rehabilitation project in Utah. The increase at
September 30, 2014
when compared to
September 30, 2013
was primarily due to improved success rates on bidding activity, partially offset by progress on existing projects, in all operating groups and sectors except the California public sector. The decrease in the California public sector was due to progress on existing projects without the offset of new awards due to a focused effort to not bid certain public entities in markets where margins do not meet our minimum requirements. Not included in Construction contract backlog as of
September 30, 2014
is
$88.1 million
associated with Kenny underground contracts that will be booked into contract backlog as additional task orders are issued by the owners, the majority of which is expected to occur within the next twelve months.
35
|
Large Project Construction Contract Backlog
|
|
|
|||||||||||||||||||
|
(dollars in thousands)
|
September 30, 2014
|
June 30, 2014
|
September 30, 2013
|
||||||||||||||||||
|
California
1
|
$
|
30,130
|
|
1.4
|
%
|
$
|
35,183
|
|
2.2
|
%
|
$
|
68,271
|
|
3.3
|
%
|
||||||
|
Northwest
1
|
42,668
|
|
2.0
|
|
1,667
|
|
0.1
|
|
10,024
|
|
0.5
|
|
|||||||||
|
Heavy Civil
1
|
1,830,875
|
|
85.0
|
|
1,262,349
|
|
79.6
|
|
1,618,026
|
|
79.0
|
|
|||||||||
|
Kenny:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
2
|
165,542
|
|
7.7
|
|
198,046
|
|
12.5
|
|
172,893
|
|
8.4
|
|
|||||||||
|
Private sector
|
85,074
|
|
3.9
|
|
89,634
|
|
5.6
|
|
179,789
|
|
8.8
|
|
|||||||||
|
Total
|
$
|
2,154,289
|
|
100.0
|
%
|
$
|
1,586,879
|
|
100.0
|
%
|
$
|
2,049,003
|
|
100.0
|
%
|
||||||
1
For all dates presented, Large Project Construction contract backlog was related to contracts in the Public sector.
2
As of
September 30, 2014
,
June 30, 2014
and
September 30, 2013
,
$41.6 million
,
$44.2 million
and
$60.5 million
, respectively, of Kenny public sector contract backlog was translated from Canadian dollars to U.S. dollars at the spot rate in effect at the date of reporting.
Large Project Construction contract backlog of
$2.2 billion
as of
September 30, 2014
was
$567.4 million
, or
35.8%
, higher than at
June 30, 2014
and
$105.3 million
, or
5.1%
, higher than at
September 30, 2013
. The increases were primarily due to the award of a $696.6 million design/build highway improvement project in Florida partially offset by progress on existing projects. In October 2014, Granite’s joint venture team was selected for the Rapid Bridge replacement project in Pennsylvania. Granite’s 40% share of the $899 million contract will be booked into contract backlog when a final contract is approved and a notice to proceed is issued, which is expected to be in the fourth quarter of 2014.
Non-controlling partners’ share of Large Project Construction contract backlog as of
September 30, 2014
,
June 30, 2014
, and
September 30, 2013
was
$28.0 million
,
$36.5 million
and
$71.6 million
, respectively.
36
Gross Profit (Loss)
The following table presents gross profit (loss) by business segment for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||
|
Construction
|
$
|
48,802
|
|
$
|
50,719
|
|
$
|
82,773
|
|
$
|
87,989
|
|
||||
|
Percent of segment revenue
|
10.9
|
%
|
10.8
|
%
|
9.5
|
%
|
9.2
|
%
|
||||||||
|
Large Project Construction
|
5,679
|
|
(2,163
|
)
|
72,264
|
|
42,129
|
|
||||||||
|
Percent of segment revenue
|
3.2
|
|
(1.2
|
)
|
11.8
|
|
7.8
|
|
||||||||
|
Construction Materials
|
12,204
|
|
7,288
|
|
15,449
|
|
5,268
|
|
||||||||
|
Percent of segment revenue
|
13.1
|
|
8.8
|
|
7.7
|
|
3.0
|
|
||||||||
|
Real Estate
|
7
|
|
16
|
|
29
|
|
127
|
|
||||||||
|
Percent of segment revenue
|
100.0
|
|
100.0
|
|
100.0
|
|
90.1
|
|
||||||||
|
Total gross profit
|
$
|
66,692
|
|
$
|
55,860
|
|
$
|
170,515
|
|
$
|
135,513
|
|
||||
|
Percent of total revenue
|
9.3
|
%
|
7.6
|
%
|
10.1
|
%
|
8.1
|
%
|
||||||||
Revenue in an amount equal to cost incurred is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty. Gross profit can vary significantly in periods when deferred profit is recognized on one or more projects or, conversely, in periods where contract backlog is growing rapidly and a higher percentage of projects are in their early stages with no associated gross profit recognition. In addition, gross profit can vary significantly if we have outstanding claims that are not resolved or executed.
The following table presents revenue from projects that have not yet recognized profit:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
|
Construction
|
$
|
14,130
|
|
$
|
22,572
|
|
$
|
16,502
|
|
$
|
32,879
|
|
||||
|
Large Project Construction
|
42,761
|
|
37,971
|
|
110,801
|
|
50,747
|
|
||||||||
|
Total revenue from contracts with deferred profit
|
$
|
56,891
|
|
$
|
60,543
|
|
$
|
127,303
|
|
$
|
83,626
|
|
||||
37
When we experience significant changes in our estimates of costs to complete, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as a revision in estimates for the current period. In our review of these changes for the three
and nine
months ended
September 30, 2014
and
2013
, we did not identify any amounts that should have been recorded in a prior period.
Construction gross profit for the three and
nine
months ended
September 30, 2014
decreased by
$1.9 million
, or
3.8%
, and
$5.2 million
, or
5.9%
, respectively, compared to the same periods in
2013
. Construction gross profit as a percentage of segment revenue for the three months ended
September 30, 2014
remained relatively unchanged during the three and
nine
months ended
September 30, 2014
when compared to the same periods in
2013
with the decreases in gross profit due to volume reductions.
Large Project Construction gross profit for the three and nine months ended
September 30, 2014
increased by
$7.8 million
, or over 100%, and
$30.1 million
, or
71.5%
, respectively, when compared to the same periods in
2013
. The increase for the three months ended September 30, 2014 was due to project progression. The increase for the nine months ended September 30, 2014 was due to project progression as well as claims settlements despite a $60.0 million increase in revenue from projects that have not yet recognized profit and remaining outstanding claims.
Construction Materials gross profit for the three and
nine
months ended
September 30, 2014
increased by
$4.9 million
, or
67.5%
, and
$10.2 million
, or over 100%, respectively, compared to the same periods in
2013
. The increases were primarily due to operating cost reductions in both the California and Northwest groups.
38
Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||
|
Selling
|
|
|
|
|
|
|
|
|
||||||||
|
Salaries and related expenses
|
$
|
9,255
|
|
$
|
8,702
|
|
$
|
30,701
|
|
$
|
29,942
|
|
||||
|
Other selling expenses
|
2,907
|
|
1,795
|
|
6,911
|
|
3,908
|
|
||||||||
|
Total selling
|
12,162
|
|
10,497
|
|
37,612
|
|
33,850
|
|
||||||||
|
General and administrative
|
|
|
|
|
|
|
|
|
||||||||
|
Salaries and related expenses
|
16,198
|
|
15,383
|
|
51,143
|
|
53,512
|
|
||||||||
|
Restricted stock amortization
|
2,234
|
|
2,564
|
|
10,114
|
|
12,202
|
|
||||||||
|
Other general and administrative expenses
|
16,792
|
|
17,083
|
|
48,862
|
|
49,913
|
|
||||||||
|
Total general and administrative
|
35,224
|
|
35,030
|
|
110,119
|
|
115,627
|
|
||||||||
|
Total selling, general and administrative
|
$
|
47,386
|
|
$
|
45,527
|
|
$
|
147,731
|
|
$
|
149,477
|
|
||||
|
Percent of revenue
|
6.6
|
%
|
6.2
|
%
|
8.8
|
%
|
9.0
|
%
|
||||||||
Selling, general and administrative expenses for the three and
nine
months ended
September 30, 2014
increased
$1.9 million
, or
4.1%
and decreased
$1.7 million
, or
1.2%
, respectively, compared to the same periods in
2013
.
Selling Expenses
Selling expenses include the costs for materials facility permits, business development, estimating and bidding. 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 during the three and
nine
months ended
September 30, 2014
increased
$1.7 million
, or
15.9%
, and
$3.8 million
, or
11.1%
, respectively, compared to the same periods in
2013
primarily due to increased bidding activity during the 2014 periods.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Salaries and related expenses include salaries, fringe and cash incentive compensation. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses none of which individually exceeded 10% of total general and administrative expenses.
General and administrative expenses for the three months ended
September 30, 2014
increased
$0.2 million
, or
0.6%
, and decreased
$5.5 million
, or
4.8%
for the three and
nine
months ended
September 30, 2014
compared to the same periods in
2013
. The decrease during the nine months was primarily due to the timing of restricted stock unit vesting and incentive compensation partially offset by increases in costs associated with continuous improvement efforts.
39
Other Income (Expense)
The following table presents the components of other income (expense) for the respective periods:
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
(in thousands)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Interest income
|
|
$
|
451
|
|
|
$
|
602
|
|
|
$
|
1,343
|
|
|
$
|
1,110
|
|
|
Interest expense
|
|
(2,488
|
)
|
|
(3,736
|
)
|
|
(10,426
|
)
|
|
(11,081
|
)
|
||||
|
Equity in income (loss) of affiliates
|
|
1,109
|
|
|
(2
|
)
|
|
2,310
|
|
|
273
|
|
||||
|
Other (expense) income, net
|
|
(1,196
|
)
|
|
1,022
|
|
|
450
|
|
|
1,630
|
|
||||
|
Total other expense
|
|
$
|
(2,124
|
)
|
|
$
|
(2,114
|
)
|
|
$
|
(6,323
|
)
|
|
$
|
(8,068
|
)
|
Total other expense remained relatively unchanged for the three months ended
September 30, 2014
and decreased
$1.7 million
, or
21.6%
, for the
nine
months ended
September 30, 2014
compared to the same periods in
2013
. The decrease for the nine months was primarily due to a $2.0 million increase in equity in income of affiliates from the sale of real estate assets.
Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(dollars in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||
|
Provision for (benefit from) income taxes
|
$
|
6,081
|
|
$
|
4,946
|
|
$
|
8,301
|
|
$
|
(2,867
|
)
|
||||
|
Effective tax rate
|
30.1
|
%
|
43.1
|
%
|
35.5
|
%
|
19.9
|
%
|
||||||||
We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our year-to-date ordinary earnings. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs.
Our effective tax rate decreased to
30.1%
from
43.1%
and increased to
35.5%
from
19.9%
for the three and nine months ended
September 30, 2014
, respectively, primarily due to adjusting our estimate of our annual effective tax rate and a decrease in nondeductible expenses. The increase for the
nine
months ended
September 30, 2014
was partially offset by the effect of state tax laws which were enacted during 2014.
Non-controlling Interests
The following table presents the amount attributable to non-controlling interests in consolidated entities for the respective periods:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in thousands)
|
2014
|
2013 As Revised
|
2014
|
2013 As Revised
|
||||||||||||
|
Amount attributable to non-controlling interests
|
$
|
1,177
|
|
$
|
6,505
|
|
$
|
(6,681
|
)
|
$
|
3,986
|
|
||||
The amount attributable to non-controlling interests represents the non-controlling owners’ share of the income or loss of our consolidated construction joint ventures and real estate entities. The change for the three
and nine
months ended
September 30, 2014
was primarily due to the settlement of outstanding claims with contract owners partially offset with contract losses in the 2014 periods. The change during the nine months was also due to certain profitable projects nearing completion.
40
Certain Legal Proceedings
As discussed in Note 14 of “Notes to the Condensed Consolidated Financial Statements,” under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.
Liquidity and Capital Resources
We believe our cash and cash equivalents, short-term investments and cash 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 through the next twelve months. We maintain a collateralized revolving credit facility of
$215.0 million
, of which
$134.3 million
was available at
September 30, 2014
, primarily to provide capital needs to fund growth opportunities, generated either internally or through acquisitions (see “Credit Agreement” section below for further information). We do not anticipate that this credit facility will be required to fund future working capital needs associated with our existing operations within the next twelve months. If we experience a prolonged change in our business operating results or make a significant acquisition, we may need to acquire additional sources of financing, which, if available, may be limited by the terms of our existing debt covenants, or may require the amendment of our existing debt agreements. There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.
The following table presents our cash, cash equivalents and marketable securities, including amounts from our consolidated joint ventures, as of the respective dates:
|
(in thousands)
|
|
September 30,
2014 |
|
December 31,
2013 |
|
September 30,
2013 |
||||||
|
Cash and cash equivalents excluding consolidated joint ventures
|
|
$
|
137,656
|
|
|
$
|
190,321
|
|
|
$
|
155,330
|
|
|
Consolidated construction joint venture cash and cash equivalents
1
|
|
29,518
|
|
|
38,800
|
|
|
57,133
|
|
|||
|
Total consolidated cash and cash equivalents
|
|
167,174
|
|
|
229,121
|
|
|
212,463
|
|
|||
|
Short-term and long-term marketable securities
2
|
|
102,090
|
|
|
117,202
|
|
|
86,906
|
|
|||
|
Total cash, cash equivalents and marketable securities
|
|
$
|
269,264
|
|
|
$
|
346,323
|
|
|
$
|
299,369
|
|
1
The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in joint venture cash and cash equivalents between periods. These funds generally are not available for the working capital or other liquidity needs of Granite until distributed.
2
See Note 4 of “Notes to the Condensed Consolidated Financial Statements” for the composition of our marketable securities.
Our primary sources of liquidity are cash and cash equivalents and marketable securities. We may also from time to time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions.
Our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Marketable securities consist of U.S. Government and agency obligations and commercial paper, with the
September 30, 2013
balance including municipal bonds as well.
Consolidated joint ventures were responsible for
$9.3 million
, or
15.0%
, of the
$61.9 million
decrease in cash and cash equivalents during the
nine
months ended
September 30, 2014
. Consolidated joint venture cash and cash equivalents available to Granite was $18.1 million, $23.8 million and $33.8 million as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. Unconsolidated joint venture cash and cash equivalents available to Granite was $89.8 million, $112.8 million and $128.2 million as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. Cash and cash equivalents held by our joint ventures are primarily used to fulfill the working capital needs of each joint venture’s project, and generally cannot be distributed to any of the venture partners without the consent of the majority of the venture partners.
41
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations, such as with the acquisition of Kenny in December 2012.
In March 2014, we entered into an interest rate swap with a notional amount of
$100.0 million
which matures in June 2018 to convert the interest rate of our 2019 Notes (as defined in “Senior Notes Payable” section below) from a fixed rate of
6.11%
to a floating rate of
4.15%
plus six-month LIBOR. LIBOR floating rate is variable and subject to market changes over the life of the swap with no guarantees to settle as forecasted. The interest rate swap is reported at fair value. During the three and
nine
months ended
September 30, 2014
, we recorded losses of
$0.6 million
and gains of
$0.3 million
, respectively, related to this interest rate swap in other (expense) income, net in our condensed consolidated statement of operations.
In March 2014, we entered into two diesel commodity swaps covering May to October, 2014 and 2015 which represented roughly 25% of our forecasted purchase for diesel. In May 2014, we entered into two natural gas commodity swaps covering June to October 2014 and May to October 2015 representing roughly 25% of our forecasted purchase of natural gas. The commodity swaps are reported at fair value using Level 2 inputs, and gains or losses are recorded in other income (expense), net in our condensed consolidated statement of operations and were losses of $0.6 million and $0.7 million during the three and nine months ended September 30, 2014, respectively.
|
Cash Flows
|
Nine Months Ended September 30,
|
|||||||
|
(in thousands)
|
2014
|
2013 As Revised
|
||||||
|
Net cash (used in) provided by:
|
|
|
||||||
|
Operating activities
|
$
|
(46,833
|
)
|
$
|
(64,515
|
)
|
||
|
Investing activities
|
(11,298
|
)
|
7,713
|
|
||||
|
Financing activities
|
(3,816
|
)
|
(52,725
|
)
|
||||
Cash flows from operating activities result primarily from our earnings or losses, and are also impacted by changes in operating assets and liabilities. As a large construction and heavy civil contractor and construction materials producer, our operating cash flows are subject to seasonal cycles as well as the cycles are primarily associated with winning, performing and closing projects. 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.
Cash used in operating activities of
$46.8 million
for the
nine
months ended
September 30, 2014
represents a
$17.7 million
decrease from the amount of cash used in operating activities during the same period in
2013
. The favorable change was mainly attributable to a $43.7 million increase in net income after adjusting for non-cash items, offset by a $17.3 million decrease in net cash from unconsolidated construction joint ventures and a $10.2 million increase in inventories.
Cash used in investing activities of
$11.3 million
for the
nine
months ended
September 30, 2014
represents an
$19.0 million
change from the $7.7 million of cash provided by investing activities during the same period in
2013
. The change in net cash related to investing activities was primarily due to an increase in capital expenditures as well as a decrease in net proceeds from marketable securities driven by the Company’s cash flow requirements and/or the maturities of investments.
Cash used in financing activities of
$3.8 million
for the
nine
months ended
September 30, 2014
decreased
$48.9 million
compared to the same period in
2013
. The change was primarily driven by a decrease in net distributions to non-controlling partners related to consolidated construction joint ventures and a $10.0 million decrease in long-term debt principal payments.
Capital Expenditures
During the
nine
months ended
September 30, 2014
, we had capital expenditures of
$37.5 million
compared to
$30.5 million
during the same period in
2013
. 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 investing between $50.0 million and $60.0 million in capital expenditures during
2014
. During the year ended
December 31, 2013
, we had capital expenditures of $43.7 million.
42
Credit Agreement
We have a
$215.0 million
committed revolving credit facility, with a sublimit for letters of credit of
$100.0 million
(the “Credit Agreement”), which expires on October 11, 2016, of which
$134.3 million
was available at
September 30, 2014
. At
September 30, 2014
,
December 31, 2013
and
September 30, 2013
, there was a revolving loan of
$70.0 million
outstanding under the Credit Agreement related to financing the Kenny acquisition, which is included in long-term debt on our condensed consolidated balance sheets. In addition, there were standby letters of credit totaling approximately
$10.8 million
as of
September 30, 2014
. The letters of credit will expire between
October 2014
and
December 2016
.
Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at our option), plus an applicable margin based on certain financial ratios calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was
2.25%
for loans bearing interest based on LIBOR and
1.25%
for loans bearing interest at the base rate at
September 30, 2014
. Accordingly, the effective interest rate was between
2.48%
and
4.50%
at
September 30, 2014
. Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Credit Agreement’s maturity date. Borrowings at a LIBOR rate have a term no less than one month and no greater than one year. Typically, at the end of such term, such borrowings may be paid off or rolled over at our discretion into either a borrowing at the base rate or a borrowing at a LIBOR rate with similar terms, not to exceed the maturity date of the Credit Agreement. On a periodic basis, we assess the timing of payment depending on facts and circumstances that exist at the time of our assessment. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the obligations under the 2019 Notes (defined below) by first priority liens (subject only to other liens permitted under the Credit Agreement) on substantially all of the assets of the Company and our subsidiaries that are guarantors or borrowers under the Credit Agreement.
The Credit Agreement provides for the release of the liens securing the obligations at our option and expense, so long as certain conditions as defined by the terms in the Credit Agreement are satisfied (“Collateral Release Period”). However, if subsequent to exercising the option, our Consolidated Fixed Charge Coverage Ratio is less than 1.25 or our Consolidated Leverage Ratio is greater than 2.50, then we will be required to promptly re-pledge substantially all of the assets of the Company and our subsidiaries that are guarantors or borrowers under the Credit Agreement. As of
September 30, 2014
, the conditions for the exercise of this option were not satisfied.
Senior Notes Payable
As of
September 30, 2014
, senior notes payable in the amount of
$200.0 million
were due to a group of institutional holders in five equal annual installments beginning in 2015 and bear interest at
6.11%
per annum (“2019 Notes”).
Our obligations under the note purchase agreement governing the 2019 Notes (the “2019 NPA”) are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the Credit Agreement by liens on substantially all of the assets of the Company and subsidiaries that are guarantors or borrowers under the Credit Agreement. The 2019 NPA provides for the release of liens and re-pledge of collateral on substantially the same terms and conditions as those set forth in the Credit Agreement.
Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At
September 30, 2014
, approximately
$2.3 billion
of our contract backlog 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.
A significant portion of our real estate held for development and sale is subject to mortgage indebtedness. All of this indebtedness is non-recourse to Granite but is recourse to the real estate entities that incurred the indebtedness. 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 entities to repay portions of the debt. As of
September 30, 2014
, the principal amount of debt of our consolidated real estate entities secured by mortgages was $7.0 million, of which approximately
$1.2 million
was included in current liabilities and approximately
$5.8 million
was included in long-term liabilities on our condensed consolidated balance sheets.
43
Covenants and Events of Default
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the agreements; (2) termination of the agreements; (3) the requirement that any letters of credit under the agreements be cash collateralized; (4) acceleration of the maturity of outstanding indebtedness under the agreements and/or (5) foreclosure on any collateral securing the obligations under the agreements.
The most significant financial covenants under the terms of our Credit Agreement and 2019 NPA require the maintenance of a minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. The calculations and terms of such financial covenants are defined in the amendments to the Credit Agreement and 2019 NPA, which were filed as Exhibits 10.31 and 10.32, respectively, to our Form 10-K filed March 3, 2014. As of September 30, 2014 and pursuant to the definitions in the agreements, our Consolidated Tangible Net Worth was
$755.9 million
, which exceeded the minimum of
$617.4 million
, the Consolidated Leverage Ratio was
2.21
, which did not exceed the maximum of
3.25
and the Consolidated Interest Coverage Ratio was
8.94
which exceeded the minimum of
4.00
.
As of
September 30, 2014
, we were in compliance with all covenants contained in the Credit Agreement and 2019 NPA, as amended, and the debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.
Share Purchase Program
In 2007, our Board of Directors authorized us to purchase up to $200.0 million of our common stock at management’s discretion. As of
September 30, 2014
,
$64.1 million
remained available under this authorization. We did not purchase shares under the share purchase program in any of the periods presented.
Website Access
Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.
44
|
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There has been no significant change in our exposure to market risks since
December 31, 2013
.
|
Item 4.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
Our management carried out, as of
September 30, 2014
, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2014
, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During quarter ended
September 30, 2014
, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
45
|
Item 1.
|
LEGAL PROCEEDINGS
|
The description of the matters set forth in Part I, Item 1 of this Report under “Note 14 - Legal Proceedings” is incorporated herein by reference.
There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2013
.
During the three months ended
September 30, 2014
, we did not sell any of our equity securities that were not registered under the Securities Act of 1933, as amended. The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended
September 30, 2014
:
|
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
|
|
||||||
|
July 1, 2014 through July 31, 2014
|
|
10,270
|
|
|
$
|
36.75
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
August 1, 2014 through August 31, 2014
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
September 1, 2014 through September 30, 2014
|
|
162
|
|
|
$
|
34.61
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
|
|
10,432
|
|
|
$
|
36.71
|
|
|
—
|
|
|
|
|
||
1
The number of shares purchased is in connection with employee tax withholding for shares/units vested under our Amended and Restated 1999 Equity Incentive Plan.
2
In October 2007, our Board of Directors authorized us to purchase, at management’s discretion, up to $200.0 million of our common stock. Under this purchase program, the Company may purchase shares from time to time on the open market or in private transactions. The specific timing and amount of purchases will vary based on market conditions, securities law limitations and other factors. Purchases under the share purchase program may be commenced, suspended or discontinued at any time and from time to time without prior notice.
|
Item 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None.
|
Item 4.
|
MINE SAFETY DISCLOSURES
|
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
|
Item 5.
|
OTHER INFORMATION
|
Not Applicable.
46
|
†
|
||
|
†
|
||
|
†
|
||
|
†
|
||
|
††
|
||
|
†
|
||
|
101.INS
|
†
|
XBRL Instance Document
|
|
101.SCH
|
†
|
XBRL Taxonomy Extension Schema
|
|
101.CAL
|
†
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
†
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
†
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
†
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
|
|
|
|
†
|
Filed herewith
|
|
|
††
|
Furnished herewith
|
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
GRANITE CONSTRUCTION INCORPORATED
|
|
|
|
|
|
|
|
Date:
|
November 3, 2014
|
|
By:
|
/s/ Laurel J. Krzeminski
|
|
|
|
|
|
Laurel J. Krzeminski
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
||||
48
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits