Granite(GVA) - 2022 Q4 - Annual Report

Revenue Sources - In 2022, approximately 70% of the company's construction-related revenue was derived from contracts funded by government agencies[59] - Approximately 70% of the company's construction revenue for the year ended December 31, 2022, was funded by federal, state, and local government agencies[94] Contract Types and Risks - The percentage of fixed unit price contracts in unearned revenue increased to 72.7% in 2022 from 53.3% in 2021[63] - The percentage of fixed price contracts in unearned revenue decreased to 23.5% in 2022 from 44.3% in 2021[63] - The company faces risks related to government contracts, including potential delays or cancellations, which could adversely affect financial performance[93] - The company faces risks from fixed price and fixed unit price contracts, which can lead to increased project costs due to inflation and inefficiencies[94] Financial Position and Performance - Economic factors such as inflation and rising interest rates could negatively impact the company's financial position and results of operations[96] - The company's ability to win new contracts and renew existing ones is critical, as failure to do so could materially affect its financial condition[94] - The company's Central operating group results could adversely affect its overall financial performance if underperformance occurs[96] - The company has identified a material weakness in its internal control over financial reporting, which could lead to material misstatements in financial statements and adversely affect investor confidence[106] - The company has restated its consolidated financial statements for certain prior periods, correcting errors related to deferred taxes and income tax expense, which may continue to impact business operations and financial condition[108] Regulatory Compliance and Risks - The company is subject to various government regulations, including the Davis-Bacon Act and the Walsh-Healy Act, which impose specific wage and working condition requirements[60] - The company is subject to various regulatory requirements, including the Davis-Bacon Act and the Walsh-Healy Act, which could lead to suspension or debarment from government contracting if violated[109] - The company is exposed to potential penalties for non-compliance with environmental laws, which could adversely affect operations in the future[58] - The company faces significant risks related to environmental regulations, including potential substantial penalties for noncompliance, which could adversely affect financial position and operations[109] Operational Management - The company has implemented proactive measures to mitigate the impact of inflation and supply chain constraints, including fixed forward purchase contracts for oil-related inputs[77] - The company utilizes several project delivery methods, including design-build and construction management at-risk, to enhance efficiency and risk mitigation[64] - The company continuously monitors and adjusts its fleet size to align with current and expected future work, indicating a proactive approach to resource management[79] - The company’s strategic focus includes leasing or renting equipment to adapt to construction activity cycles, enhancing operational flexibility[79] Equipment and Capital Expenditure - As of December 31, 2022, the company owned 2,471 pieces of heavy construction equipment, a decrease from 2,736 in 2021, and 5,059 vehicles, down from 5,460 in 2021[78] - The company purchased $73.9 million worth of construction equipment and vehicles in 2022, compared to $60.1 million in 2021, indicating a 22% increase in capital expenditure[79] - The company sold 393 pieces of heavy construction equipment and 720 vehicles during the first quarter of 2022 as part of the sale of a business classified as held for sale[78] - The company has a diverse portfolio of equipment, including backhoes, cranes, and excavators, utilized across its operational segments[79] Market and Economic Factors - The company is exposed to significant commodity price fluctuations, including diesel fuel and steel, which could adversely affect its business[96] - Weather conditions can significantly impact the company's revenues and profitability, particularly in the first and fourth quarters of the year[96] - Seasonal weather conditions significantly impact operations, particularly in the first and fourth quarters, affecting construction schedules and revenue variability[80] - Force majeure events, including natural disasters, could negatively impact the company's operations and financial results[96] Personnel and Management - The executive team includes experienced professionals, with the CEO having been with the company since 1996 and holding various leadership roles[83] - The company must attract and retain qualified personnel and subcontractors, as failure to do so could adversely impact project execution and profitability[104] Financial Instruments and Debt - As of December 31, 2022, the balance in long-term debt for the 2.75% Convertible Notes was $230.0 million, an increase from $207.4 million in 2021[225] - The company had $50.0 million drawn under the Revolver as of December 31, 2022, with an effective interest rate of 5.92%[226] - The estimated fair value of the 2.75% Convertible Notes was approximately $281.4 million as of December 31, 2022, down from $313.8 million in 2021[227] - The weighted average interest rate for cash and cash equivalents and held-to-maturity investments was 3.66% as of December 31, 2022[227] Investment and Market Risks - The company maintains an investment portfolio targeted to an average maturity of no more than one year, with a focus on high credit quality standards[221] - The company’s investment interest rate market risk is managed primarily by controlling portfolio maturity[223] - The fair value of long-term held-to-maturity investments may be affected by changes in interest rates[223] - The company’s investment policy limits credit exposure to any one issue, issuer, or type of instrument[221] Legal and Compliance Risks - The company may incur significant costs and management attention due to litigation and regulatory examinations related to the restatement of financial statements[106] - The company is exposed to liabilities under the Foreign Corrupt Practices Act (FCPA), which could result in fines and sanctions that negatively impact financial condition and operations[110] - Cybersecurity attacks could lead to business interruptions and remediation costs, adversely affecting financial position and results of operations[113] Stock and Market Performance - The company’s stock price has historically been volatile, influenced by market factors and operational results, which could affect investor confidence and market valuation[113] - Delaware law and the company's charter may impede takeovers, potentially reducing increases in the market price of common stock[113] - The company’s stock price and access to capital markets may be adversely affected if it fails to remediate the identified material weakness in internal controls[106] - The company’s reputation and ability to pursue beneficial transactions may be negatively impacted due to the restatement of financial statements and associated issues[108]