Granite(US:GVA)2024-02-23 00:55Part I Item 1. Business Granite Construction is a diversified U.S. construction and materials company focused on public and private infrastructure projects - Granite operates through two reportable segments: Construction (infrastructure projects like roads, bridges, transit) and Materials (aggregates, asphalt production)15 - The company's largest customer is the California Department of Transportation (Caltrans), accounting for 13.1% of total revenue in 202317 Revenue from Caltrans (2021-2023) | Year | Revenue (millions) | % of Total Revenue | | :--- | :--- | :--- | | 2023 | $458.2 | 13.1% | | 2022 | $348.0 | 10.5% | | 2021 | $337.1 | 9.6% | - Key business strategies include selective bidding on projects, risk-balanced growth, vertical integration of materials into construction, diversification of projects, and performance-based incentives202122 - Committed and Awarded Projects (CAP) totaled $5.5 billion at the end of 2023, a significant increase from $4.5 billion at the end of 2022. Approximately $2.3 billion of the 2023 unearned revenue is expected to be completed in 202444 Item 1A. Risk Factors The company faces risks from government funding, fixed-price contracts, operational performance, cybersecurity, and climate change - Approximately 70% of construction revenue in 2023 was funded by government agencies, making the business highly susceptible to disruptions in public funding, budget constraints, or changes in government priorities92113 - The majority of contracts are fixed price or fixed unit price, which exposes the company to risks of cost overruns due to inflation, incorrect estimates, or project delays, potentially reducing profits or causing losses5892 - The company faces risks from its Central operating group's performance, which includes the former Heavy Civil operating group that was subject to a strategic review and prior financial misstatements97110 - Cybersecurity incidents, reliance on third-party software, and breaches of IT systems pose significant risks that could lead to business interruptions, remediation costs, and legal claims116117 - Climate change presents physical, transition, and regulatory risks. Failure to achieve sustainability targets could result in loss of investors and customers, reputational damage, and a negative impact on the stock price121122 Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments124 Item 1C. Cybersecurity Granite's Board oversees cybersecurity risk management via a NIST-based program led by the CIO, with no material impact to date - The Audit/Compliance Committee of the Board of Directors has primary oversight responsibility for cybersecurity risk125 - The company's cybersecurity program is based on recognized frameworks like NIST and includes technical safeguards, incident response planning, third-party assessments, and employee training125127128 - The Chief Information Officer (CIO), who has over 25 years of experience, leads a multidisciplinary Cybersecurity Committee that reports to senior leadership132133 - The company has concluded that cybersecurity threats have not materially affected and are not reasonably likely to materially affect its business strategy, results of operations, or financial condition134 Item 2. Properties The company owns numerous quarry properties with substantial mineral reserves and resources, and operates various production plants Quarry Properties by State/Province (as of Dec 31, 2023) | State/Province | Number of Properties | Total Resources (million tons) | Total Reserves (million tons) | Acreage | | :--- | :--- | :--- | :--- | :--- | | California | 31 | 475.3 | 285.0 | 10,498 | | Utah | 10 | 117.3 | 37.4 | 1,497 | | All other | 57 | 187.4 | 187.3 | 14,712 | | Total | 98 | 780.0 | 509.7 | 26,707 | Total Mineral Reserves and Resources (as of Dec 31, 2023) | Category | Amount (million tons) | | :--- | :--- | | Mineral Resources | | | Measured & Indicated | 235.6 | | Inferred | 41.4 | | Total Resources | 277.0 | | Mineral Reserves | | | Proven & Probable | 1,012.7 | Owned Plant Properties | Plant Type | 2023 Count | 2022 Count | | :--- | :--- | :--- | | Aggregate crushing plants | 35 | 28 | | Asphalt concrete plants | 59 | 48 | | Cement concrete batch plants | 6 | 5 | Item 3. Legal Proceedings Legal proceedings information is incorporated by reference from Note 20 of the Consolidated Financial Statements - Details on legal proceedings are provided in Note 20 of the financial statements157 Item 4. Mine Safety Disclosures Information concerning mine safety violations and other regulatory matters is included in Exhibit 95 of the Annual Report - Mine safety disclosures are included in Exhibit 95 to this Form 10-K158 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Granite's common stock trades on NYSE (GVA), with a history of dividends and a significant share repurchase program remaining - The company's common stock is traded on the New York Stock Exchange under the ticker symbol GVA160 - A share repurchase program authorized in February 2022 for up to $300.0 million had $231.5 million remaining available as of December 31, 2023162 - During Q4 2023, 5,477 shares were repurchased at an average price of $40.90 per share, solely in connection with employee tax withholding for vested restricted stock units161 Item 6. [Reserved] This item is intentionally left blank Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Granite's 2023 revenue grew to $3.51 billion, but net income decreased due to a debt extinguishment loss, despite record CAP Consolidated Results of Operations (2021-2023) | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total revenue | $3,509,138 | $3,301,256 | $3,501,865 | | Gross profit | $396,399 | $369,494 | $362,645 | | Operating income | $80,062 | $85,381 | $24,718 | | Net income attributable to Granite | $43,599 | $83,302 | $10,096 | - The public funding environment is strong, supported by the federal Infrastructure Investment and Jobs Act (IIJA), which is expected to drive project lettings in 2024 and beyond181 - In November 2023, the company acquired Lehman-Roberts Company and Memphis Stone & Gravel Company (LRC/MSG) for $278.0 million to expand its vertically integrated operations in the Memphis market188 - Committed and Awarded Projects (CAP) grew by 24% to a record $5.5 billion at year-end 2023, up from $4.5 billion in 2022, driven by strong award volume in the California and Mountain operating groups201 - Net income was significantly impacted by a $51.1 million loss on debt extinguishment related to the refinancing of a portion of the 2.75% Convertible Notes211 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on variable-rate debt and foreign currency volatility - The company's primary market risks are interest rate changes affecting its variable-rate debt and investment income, and foreign currency fluctuations from its Canadian operations241244 - Borrowings under the Revolver and Term Loan are tied to the SOFR term rate, exposing the company to higher interest expenses as rates rise245246 Debt Obligations Principal Amounts by Maturity (as of Dec 31, 2023) | Debt Instrument | 2024 | 2025 | 2026 | 2027 | 2028 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Credit Agreement Revolver | $— | $— | $— | $100,000 | $— | $100,000 | | Credit Agreement Term Loan | $7,500 | $7,500 | $7,500 | $127,500 | $— | $150,000 | | 3.75% Convertible Notes | $— | $— | $— | $— | $373,750 | $373,750 | | 2.75% Convertible Notes | $31,338 | $— | $— | $— | $— | $31,338 | Item 8. Financial Statements and Supplementary Data Consolidated financial statements and the independent auditor's report are incorporated by reference - The consolidated financial statements and the independent auditor's report are included in Part IV, Item 15 of this report250 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - There were no disagreements with accountants on accounting and financial disclosure251 Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, excluding recent acquisitions - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of December 31, 2023252 - Management assessed internal control over financial reporting as effective as of December 31, 2023254 - The assessment of internal controls excluded the newly acquired LRC/MSG businesses, which were acquired on November 30, 2023255 Item 9B. Other Information No directors or officers adopted, modified, or terminated trading arrangements in Q4 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q4 2023257 Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections The company reports that this item is not applicable - There is no disclosure required under this item258 Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the proxy statement - Information is incorporated by reference from the company's definitive proxy statement261 Item 11. Executive Compensation Executive compensation information is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement262 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement263 Item 13. Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the proxy statement - Information is incorporated by reference from the company's definitive proxy statement264 Item 14. Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement265 Part IV Item 15. Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including financial statements and an index of exhibits - The consolidated financial statements and the Report of Independent Registered Public Accounting Firm are filed as part of this report267 - An index of exhibits, including agreements, bylaws, and certifications, is provided, with many documents incorporated by reference from previous filings268272