10-Q 1 gva20230331_10q.htm FORM 10-Q gva20230331_10q.htm
0000861459 GRANITE CONSTRUCTION INC false --12-31 Q1 2023 112,340 102,547 25,488 39,281 86,027 80,306 7,540 7,834 43,009 57,534 46,943 62,675 7,570 8,451 0.01 0.01 3,000,000 3,000,000 0 0 0.01 0.01 150,000,000 150,000,000 43,880,224 43,880,224 43,743,907 43,743,907 0.13 0.13 0 1,512 0 1,512 0 5.0 12 56,329 55,272 65,943 64,584 2.75 230,000 311,880 230,000 281,365 50,000 49,110 50,000 49,536 2.75 7 2 73.3 1,016,327 994,602 531,457 509,210 2.75 2.75 5 0.3 7,309,000 This amount represents employee tax withholding for RSUs vested under our 2012 and 2021 Equity Incentive Plans in 2022 and 2023 and stock repurchased under the Board approved repurchase plan in 2022. This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments. All marketable securities as of March 31, 2023 and December 31, 2022 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in two months to three years. The fair value of our 2.75% convertible senior notes due 2024 (the "2.75% Convertible Notes") is based on the median price of the notes in an active market. The fair value of the Fourth Amended and Restated Credit Agreement (the "Credit Agreement") is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14 for more information about the 2.75% Convertible Notes and the Credit Agreement. During the three months ended March 31, 2023 and 2022, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences. These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes. Included in this balance as of March 31, 2023 and December 31, 2022 was $104.3 million and $104.3 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $2.6 million and $2.7 million related to Granite’s share of estimated recovery of back charge claims as of March 31, 2023 and December 31, 2022, respectively. Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 was $58.2 million and $64.7 million, respectively, related to performance guarantees (see Note 13). Partners’ interest and adjustments includes 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 and estimates primarily related to contract forecast and/or actual differences. Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $14.5 million, and $14.0 million as of March 31, 2023 and December 31, 2022, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses. 00008614592023-01-012023-03-31 xbrli:shares 00008614592023-04-26 iso4217:USD 0000861459gva:ConsolidatedConstructionCorporateJointVentureMember2023-03-31 0000861459gva:ConsolidatedConstructionCorporateJointVentureMember2022-12-31 00008614592023-03-31 00008614592022-12-31 iso4217:USDxbrli:shares 0000861459us-gaap:ConstructionMember2023-01-012023-03-31 0000861459us-gaap:ConstructionMember2022-01-012022-03-31 0000861459gva:MaterialsMember2023-01-012023-03-31 0000861459gva:MaterialsMember2022-01-012022-03-31 00008614592022-01-012022-03-31 0000861459us-gaap:CommonStockMember2022-12-31 0000861459us-gaap:AdditionalPaidInCapitalMember2022-12-31 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 For the quarterly period ended March 31, 2023

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 For the transition period from ___________ to ___________
  
 Commission File Number: 1-12911

GRANITE CONSTRUCTION INCORPORATED

State of Incorporation:

I.R.S. Employer Identification Number:

Delaware

77-0239383

Address of principal executive offices:

585 W. Beach Street

Watsonville, California 95076

(831) 724-1011

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value 

GVA

New York Stock Exchange

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. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

 Accelerated filer ☐

 Non-accelerated filer ☐

 Smaller reporting company ☐

 Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 26, 2023.

Class

 

Outstanding

Common stock, $0.01 par value

 

43,880,771

 

 

 
Table of Contents
 

 

 

 

TABLE OF CONTENTS

EXPLANATORY NOTE

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2023 and 2022

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

 

 

Notes to the Condensed Consolidated Financial Statements

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Item 1A.

Risk Factors

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

Item 4.

Mine Safety Disclosures

 

Item 6.

Exhibits

SIGNATURES

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32
EXHIBIT 95

EXHIBIT 101.INS

EXHIBIT 101.SCH

EXHIBIT 101.CAL

EXHIBIT 101.DEF

EXHIBIT 101.LAB

EXHIBIT 101.PRE
EXHIBIT 104

 

 

 

2
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EXPLANATORY NOTE

 

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed on February 21, 2023, the restatement of our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2022 is necessary to correct for (a) errors related to deferred taxes and the calculation of income tax expense in connection with the sale of the Company’s trenchless and pipe rehabilitation services business (“Inliner”), which was completed in the first quarter of 2022 and was classified within discontinued operations in the Company’s condensed consolidated statement of operations during the first and second quarters of 2022 and (b) other immaterial errors, including certain errors that had previously been adjusted for as out of period corrections.

The financial information for the three months ended March 31, 2022 presented herein also includes adjustments to retrospectively reclassify the results of the former Water and Mineral Services businesses from discontinued operations to continuing operations.

We have reflected the impact of the restatement and reclassification of discontinued operations on our unaudited condensed consolidated financial information as of and for the three months ended March 31, 2022 herein. See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for additional information.

 

3
Table of Contents

 

 

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - in thousands, except share and per share data)

  

March 31, 2023

  

December 31, 2022

 

ASSETS

        

Current assets

        

Cash and cash equivalents ($112,340 and $102,547 related to consolidated construction joint ventures (“CCJVs”))

 $199,751  $293,991 

Short-term marketable securities

  39,754   39,374 

Receivables, net ($25,488 and $39,281 related to CCJVs)

  397,231   463,987 

Contract assets ($86,027 and $80,306 related to CCJVs)

  288,146   241,916 

Inventories

  97,893   86,809 

Equity in construction joint ventures

  182,063   183,808 

Other current assets ($3,145 and $5,694 related to CCJVs)

  41,397   37,411 

Total current assets

  1,246,235   1,347,296 

Property and equipment, net ($7,540 and $7,834 related to CCJVs)

  531,457   509,210 

Long-term marketable securities

  16,575   26,569 

Investments in affiliates

  83,335   80,725 

Goodwill

  73,703   73,703 

Right of use assets

  43,886   49,079 

Deferred income taxes, net

  22,080   22,208 

Other noncurrent assets

  60,116   59,143 

Total assets

 $2,077,387  $2,167,933 
         

LIABILITIES AND EQUITY

        

Current liabilities

        

Current maturities of long-term debt

 $1,456  $1,447 

Accounts payable ($43,009 and $57,534 related to CCJVs)

  295,125   334,392 

Contract liabilities ($46,943 and $62,675 related to CCJVs)

  160,245   173,286 

Accrued expenses and other current liabilities ($7,570 and $8,451 related to CCJVs)

  266,541   288,469 

Total current liabilities

  723,367   797,594 

Long-term debt

  287,000   286,934 

Long-term lease liabilities

  27,934   32,170 

Deferred income taxes, net

  1,678   1,891 

Other long-term liabilities

  64,997   64,199 

Commitments and contingencies (see Note 17)

          

Equity

        

Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding

  —   — 

Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 43,880,224 shares as of March 31, 2023 and 43,743,907 shares as of December 31, 2022

  439   437 

Additional paid-in capital

  471,782   470,407 

Accumulated other comprehensive income

  653   788 

Retained earnings

  452,583   481,384 

Total Granite Construction Incorporated shareholders’ equity

  925,457   953,016 

Non-controlling interests

  46,954   32,129 

Total equity

  972,411   985,145 

Total liabilities and equity

 $2,077,387  $2,167,933 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4
Table of Contents
 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - in thousands, except per share data)

       

As Restated and Recast

Three Months Ended March 31,

  

2023

    

2022

  

Revenue

                

Construction

   $ 503,416     $ 578,266  

Materials

     56,652       75,620  

Total revenue

     560,068       653,886  

Cost of revenue

                

Construction

     466,711       519,787  

Materials

     60,998       74,007  

Total cost of revenue

     527,709       593,794  

Gross profit

     32,359       60,092  

Selling, general and administrative expenses

     73,122       70,120  

Other costs, net

     4,523       6,279  

Gain on sales of property and equipment, net

     (2,037 )     (598 )

Operating loss

     (43,249 )     (15,709 )

Other (income) expense

                

Interest income

     (3,762 )     (570 )

Interest expense

     2,891       3,585  

Equity in income of affiliates, net

     (5,187 )     (1,289 )

Other (income) expense, net

     (1,950 )     1,308  

Total other (income) expense, net

     (8,008 )     3,034  

Loss before income taxes

     (35,241 )     (18,743 )

Provision for (benefit from) income taxes

     (9,469 )     6,352  

Net loss

     (25,772 )     (25,095 )

Amount attributable to non-controlling interests

     2,749       (1,638 )

Net loss attributable to Granite Construction Incorporated

   $ (23,023 )   $ (26,733 )
                 

Net loss per share attributable to common shareholders (see Note 15):

                

Basic

   $ (0.53 )   $ (0.58 )

Diluted

   $ (0.53 )   $ (0.58 )

Weighted average shares outstanding:

                

Basic

     43,764       45,730  

Diluted

     43,764       45,730  

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
Table of Contents
 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - in thousands)

       

As Restated

  

Three Months Ended March 31,

  

2023

    

2022

  

Net loss

   $ (25,772 )   $ (25,095 )

Other comprehensive income (loss), net of tax:

                

Net unrealized gain (loss) on cash flow hedges, net of tax

   $ (192 )   $ 2,436  

Less: reclassification for net gains included in interest expense, net of tax

     —       1,760  

Net change

   $ (192 )   $ 4,196  

Foreign currency translation adjustments, net

     57       736  

Other comprehensive income (loss), net of tax

   $ (135 )   $ 4,932  

Comprehensive loss, net of tax

   $ (25,907 )   $ (20,163 )

Non-controlling interests in comprehensive income, net of tax

     2,749       (1,638 )

Comprehensive loss attributable to Granite Construction Incorporated, net of tax

   $ (23,158 )   $ (21,801 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

6
Table of Contents
 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited - in thousands, except share data)

  Outstanding Shares  Common Stock  Additional Paid-In Capital  Accumulated Other Comprehensive Income (Loss)  Retained Earnings  Total Granite Shareholders’ Equity  Non-controlling Interests  Total Equity 

Balances at December 31, 2022

  43,743,907  $437  $470,407  $788  $481,384  $953,016  $32,129  $985,145 

Net loss

  —   —   —   —   (23,023)  (23,023)  (2,749)  (25,772)

Other comprehensive loss

  —   —   —   (135)  —   (135)  —   (135)

Repurchases of common stock (1)

  (87,260)  —   (3,523)  —   —   (3,523)  —   (3,523)

RSUs vested

  223,967   2   (2)  —   —   —   —   — 

Dividends on common stock ($0.13 per share)

  —   —   74   —   (5,778)  (5,704)  —   (5,704)

Transactions with non-controlling interests

  —   —   —   —   —   —   17,574   17,574 

Stock-based compensation expense and other

  (390)  —   4,826   —   —   4,826   —   4,826 

Balances at March 31, 2023

  43,880,224  $439  $471,782  $653  $452,583  $925,457  $46,954  $972,411 
                                 

Balances at December 31, 2021

  45,840,260  $458  $559,752  $(3,359) $410,831  $967,682  $27,881  $995,563 

Cumulative effect of newly adopted accounting standard

  —   —   (26,961)  —   10,543   (16,418)  —   (16,418)

Balances at January 1, 2022

  45,840,260   458   532,791   (3,359)  421,374   951,264   27,881   979,145 

Net income (loss) (as restated)

  —   —   —   —   (26,733)  (26,733)  1,638   (25,095)

Other comprehensive income

  —   —   —   4,932   —   4,932   —   4,932 

Repurchases of common stock (1)

  (665,880)  (6)  (20,206)  —   —   (20,212)  —   (20,212)

RSUs vested

  190,170   2   (2)  —   —   —   —   — 

Dividends on common stock ($0.13 per share)

  —   —   69   —   (5,885)  (5,816)  —   (5,816)

Transactions with non-controlling interests

  —   —   —   —   —   —   6,325   6,325 

Stock-based compensation expense and other

  (413)  —   2,610   —   —   2,610   —   2,610 

Balances at March 31, 2022 (as restated)

  45,364,137  $454  $515,262  $1,573  $388,756  $906,045  $35,844  $941,889 
(1) This amount represents employee tax withholding for restricted stock units ("RSUs") vested under our equity incentive plans in 2022 and 2023 and stock repurchased in 2022 under the Board approved repurchase plan. During the three months ended March 31, 2023 and 2022, there were 87,260 shares and 54,880 shares, respectively, withheld related to employee taxes for RSUs. During the three months ended March 31, 2022, we also repurchased 611,000 shares under the share repurchase program.

The accompanying notes are an integral part of these condensed consolidated financial statements.

7
Table of Contents
 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

    

As Restated

 

Three Months Ended March 31,

  2023   2022 

Operating activities

        

Net loss

 $(25,772) $(25,095)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation, depletion and amortization

  19,733   16,737 

Amortization related to long-term debt

  472   652 

Gain on sale of business

  —   (3,278)

Gain on sales of property and equipment, net

  (2,037)  (598)

Deferred income taxes

  —   2,545 

Stock-based compensation

  4,828   2,614 

Equity in net (income) loss from unconsolidated joint ventures

  (911)  3,627 

Net income from affiliates

  (5,187)  (1,289)

Other non-cash adjustments

  (151)  (299)

Changes in assets and liabilities:

        

Receivables

  66,800   85,957 

Contract assets, net

  (59,307)  (69,819)

Inventories

  (11,083)  (13,805)

Contributions to unconsolidated construction joint ventures

  (3,350)  (12,840)

Distributions from unconsolidated construction joint ventures and affiliates

  2,478   250 

Other assets, net

  (5,724)  9,652 

Accounts payable

  (42,955)  (44,028)

Accrued expenses and other liabilities, net

  (14,522)  (1,163)

Net cash used in operating activities

 $(76,688) $(50,180)

Investing activities

        

Purchases of marketable securities

  —   (19,940)

Maturities of marketable securities

  10,000   — 

Purchases of property and equipment

  (40,461)  (31,269)

Proceeds from sales of property and equipment

  4,518   2,483 

Proceeds from company owned life insurance

  1,545   — 

Proceeds from the sale of business

  —   142,571 

Issuance of notes receivable

  —   (4,560)

Collection of notes receivable

  62   111 

Net cash provided by (used in) investing activities

 $(24,336) $89,396 

Financing activities

        

Debt principal repayments

  (256)  (63,059)

Cash dividends paid

  (5,687)  (5,959)

Repurchases of common stock

  (3,523)  (20,212)

Contributions from non-controlling partners

  17,600   6,325 

Distributions to non-controlling partners

  (1,350)  — 

Other financing activities, net

  —   1 

Net cash provided by (used in) financing activities

 $6,784  $(82,904)

Net decrease in cash, cash equivalents and restricted cash

  (94,240)  (43,688)

Cash, cash equivalents and $0 and $1,512 in restricted cash at beginning of period

  293,991   413,655 

Cash, cash equivalents and $0 and $1,512 in restricted cash at end of period

 $199,751  $369,967 
         

Supplementary Information

        

Right of use assets obtained in exchange for lease obligations

 $3,388  $3,502 

Cash paid during the period for:

        

Operating lease liabilities

 $5,824  $5,862 

Interest

 $1,012  $2,090 

Income taxes

 $166  $2 

Other non-cash operating activities:

        

Performance guarantees

 $(6,513) $— 

Non-cash investing and financing activities:

        

RSUs issued, net of forfeitures

 $9,552  $6,606 

Dividends declared but not paid

 $5,704  $5,897 

Contributions from non-controlling partners

 $1,324  $— 

Accrued equipment purchases

 $3,693  $5,511 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8
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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.  General

Basis of Presentation: The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended  December 31, 2022 (“Annual Report”). 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. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at  March 31, 2023 and 2022 and the results of our operations and cash flows for the periods presented. The  December 31, 2022 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.

Seasonality: 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 months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year.

Subsequent Event: On April 24, 2023, we completed the purchase of Coast Mountain Resources (2020) Ltd. (“CMR”) for approximately $27 million, subject to certain adjustments. CMR is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land. This acquisition is not expected to have a material impact on our results of operations.
 

2.  Recently Issued and Adopted Accounting Pronouncements

We closely monitor all Accounting Standards Updates issued by the Financial Accounting Standards Board and other authoritative guidance. There are currently no recently issued accounting pronouncements that are expected to have a material impact on our financial statements. No new accounting pronouncements were adopted in the three months ended March 31, 2023 that had a material impact on our financial statements.

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3.  Restatement and Recast

Restatement and Recast Background

As disclosed in our Annual Report, we identified errors during the preparation of the Annual Report related to deferred taxes and the calculation of income tax expense of $12.3 million in connection with the sale of Inliner, which was completed in the first quarter of 2022 and was classified within discontinued operations in the Company's condensed consolidated financial statements during the first and second quarters of 2022 and in Other costs, net and Provision for income taxes during the third quarter of 2022. As a result, our previously issued unaudited quarterly financial information for each interim period within the nine months ended  September 30, 2022 require restatement. The restated financial information also includes adjustments to correct other immaterial errors in the first three quarters of 2022, including certain errors (primarily in revenue and cost of revenue, including the associated tax impact) that had previously been adjusted for as out of period corrections in the periods identified.

During the fourth quarter of 2021, we concluded that the assets and liabilities of our former Water and Mineral Services operating group (“WMS”) met the criteria for classification as held for sale and the results of operations were presented as discontinued operations. This included: our trenchless and pipe rehabilitation services business (“Inliner”); our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). During the first quarter of 2022, we completed the sale of Inliner. In  September 2022, we announced our decision to retain the Water Resources and Mineral Services businesses that were previously classified as held for sale and reported in discontinued operations. In connection with the reclassification of the WMS businesses from discontinued operations to continuing operations, the condensed consolidated statement of operations for the period ended March 31, 2022, as previously reported, has been recast to include Inliner through the date of sale, as well as the ongoing operations of Water Resources and Mineral Services in continuing operations.

Description of Restatement and Recast Tables

We have presented below a reconciliation from the previously reported to the restated and recast amounts for the quarter ended  March 31, 2022. The amounts labeled “As Previously Reported” were derived from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed on April 28, 2022.

The impacts to the condensed consolidated statements of shareholders’ equity and comprehensive income (loss) as a result of the restatement were due to the changes in net loss for the three months ended March 31, 2022. In addition, there was no impact to net cash provided by (used in) investing and financing activities for the three months ended March 31, 2022 as a result of the restatement or recast.

The effects of the prior-period errors and the discontinued operations reclassification impacts on our condensed consolidated financial statements are as follows (in thousands, except per share data):

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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Three months ended March 31, 2022

  As Previously Reported   Restatement Impacts   As Restated   Discontinued Operations Reclassification Impacts   As Restated and Recast 

Revenue

                    

Construction

 $474,935  $1,893  $476,828  $101,438  $578,266 

Materials

  72,651   -   72,651   2,969   75,620 

Total revenue

  547,586   1,893   549,479   104,407   653,886 

Cost of revenue

                    

Construction

  426,743   6,019   432,762   87,025   519,787 

Materials

  71,068   -   71,068   2,939   74,007 

Total cost of revenue

  497,811   6,019   503,830   89,964   593,794 

Gross profit

  49,775   (4,126)  45,649   14,443   60,092 

Selling, general and administrative expenses

  58,501   -   58,501   11,619   70,120 

Other costs, net

  8,214   -   8,214   (1,935)  6,279 

Gain on sales of property and equipment, net

  (332)  -   (332)  (266)  (598)

Operating loss

  (16,608)  (4,126)  (20,734)  5,025   (15,709)

Other (income) expense

                    

Interest income

  (623)  -   (623)  53   (570)

Interest expense

  3,575   -   3,575   10   3,585 

Equity in income (loss) of affiliates

  306   -   306   (1,595)  (1,289)

Other income, net

  1,382   -   1,382   (74)  1,308 

Total other expense, net

  4,640   -   4,640   (1,606)  3,034 

Loss from continuing operations before income taxes

  (21,248)  (4,126)  (25,374)  6,631   (18,743)

Provision for (benefit from) income taxes on continuing operations

  (5,331)  (958)  (6,289)  12,641   6,352 

Net loss from continuing operations

  (15,917)  (3,168)  (19,085)  (6,010)  (25,095)

Net Income (loss) from discontinued operations

  6,096   (12,106)  (6,010)  6,010   - 

Net loss

  (9,821)  (15,274)  (25,095)  -   (25,095)

Amount attributable to non-controlling interests

  (3,118)  1,480   (1,638)  -   (1,638)

Net loss attributable to Granite Construction Incorporated from continuing operations

  (19,035)  (1,688)  (20,723)  (6,010)  (26,733)

Net income (loss) attributable to Granite Construction Incorporated from discontinued operations

  6,096   (12,106)  (6,010)  6,010   - 

Net loss attributable to Granite Construction Incorporated

 $(12,939) $(13,794) $(26,733) $-  $(26,733)
                     

Net income (loss) per share attributable to common shareholders

                    

Basic continuing operations per share

 $(0.42) $(0.03) $(0.45) $(0.13) $(0.58)

Basic discontinued operations per share

  0.13   (0.26)  (0.13)  0.13   - 

Basic loss per share

 $(0.29) $(0.29) $(0.58) $-  $(0.58)
                     

Diluted continuing operations per share

 $(0.42) $(0.03) $(0.45) $(0.13) $(0.58)

Diluted discontinued operations per share

  0.13   (0.26)  (0.13)  0.13   - 

Diluted loss per share

 $(0.29) $(0.29) $(0.58) $-  $(0.58)

Weighted average shares outstanding:

                    

Basic

  45,730   -   45,730   -   45,730 

Diluted

  45,730   -   45,730   -   45,730 

 

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Three months ended March 31, 2022

 

As Previously Reported

  

Restatement Impacts

  

As Restated

 

Operating activities

            

Net loss

 $(9,821) $(15,274) $(25,095)

Adjustments to reconcile net loss to net cash used in operating activities:

            

Depreciation, depletion and amortization

  16,737   -   16,737 

Amortization related to long-term debt

  652   -   652 

Gain on sale of business

  (6,234)  2,956   (3,278)

Gain on sales of property and equipment, net

  (598)  -   (598)

Deferred income taxes

  2,545   -   2,545 

Stock-based compensation

  2,614   -   2,614 

Equity in net loss from unconsolidated joint ventures

  3,627   -   3,627 

Net income from affiliates

  (1,289)  -   (1,289)

Other non-cash adjustments

  (299)  -   (299)

Changes in assets and liabilities:

            

Receivables

  85,957   -   85,957 

Contract assets, net

  (72,632)  2,813   (69,819)

Inventories

  (13,805)  -   (13,805)

Contributions to unconsolidated construction joint ventures

  (12,840)  -   (12,840)

Distributions from unconsolidated construction joint ventures and affiliates

  250   -   250 

Other assets, net

  1,264   8,388   9,652 

Accounts payable

  (44,028)  -   (44,028)

Accrued expenses and other liabilities, net

  (2,280)  1,117   (1,163)

Net cash used in operating activities

 $(50,180) $-  $(50,180)

 

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4.  Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of transaction price and 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. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.

When we experience significant revisions in our estimates, 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 revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. 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 revise our estimates in the future.

In our review of these changes for the three months ended March 31, 2023 and 2022, we did not identify any material amounts that should have been recorded in a prior period.

There were no increases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit for the three months ended March 31, 2023 and 2022. 

There were no decreases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit for the three months ended March 31, 2022. 

The projects with decreases from revisions in estimates during the three months ended March 31, 2023, which individually had an impact of $5.0 million or more on gross profit, are summarized as follows (dollars in millions, except per share data):

Three Months Ended March 31,

 

2023

 

Number of projects with downward estimate changes

  2 

Range of reduction in gross profit from each project, net

 $6.2 - 11.4 

Decrease to project profitability, net

 $17.6 

Decrease to net income/increase to net loss

 $13.1 

Amounts attributable to non-controlling interests

 $5.7 

Decrease to net income/increase to net loss attributable to Granite Construction Incorporated

 $7.5 

Decrease to net income/increase to net loss per diluted share attributable to common shareholders

 $0.17 

The decreases during the three months ended March 31, 2023 were due to additional costs related to changes in project duration, increased labor and materials costs, lower productivity than originally anticipated and unfavorable weather. 

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5.  Disaggregation of Revenue

We disaggregate our revenue based on our reportable segments (see Note 18) and operating groups as these are the formats that are regularly reviewed by management. Our reportable segments are: Construction and Materials. In alphabetical order, our operating groups are: California, Central and Mountain. The following tables present our disaggregated revenue by operating group (in thousands):

Three Months Ended March 31,

2023

 

Construction

  

Materials

  

Total

 

California

 $148,947  $30,138  $179,085 

Central

  171,002   11,556   182,558 

Mountain

  183,467   14,958   198,425 

Total

 $503,416  $56,652  $560,068 

 

2022 (As Restated and Recast)

 

Construction

  

Materials

  

Total

 

California

 $146,309  $45,687  $191,996 

Central

  219,894   10,362   230,256 

Mountain

  212,063   19,571   231,634 

Total

 $578,266  $75,620  $653,886 

 
 

6.  Unearned Revenue

The following table presents our unearned revenue as of the respective periods:

(in thousands)

 

March 31, 2023

  

December 31, 2022

 

California

 $1,011,489  $945,971 

Central

  1,437,759   1,444,983 

Mountain

  714,320   486,524 

Total

 $3,163,568  $2,877,478 

All unearned revenue is in the Construction segment. Approximately $2.1 billion of the  March 31, 2023 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.

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7.  Contract Assets and Liabilities

As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $44.2 million and $35.2 million during the three months ended March 31, 2023 and 2022, respectively. The changes in contract transaction price for the three months ended March 31, 2023 and 2022 were from items such as executed or estimated change orders and unresolved contract modifications and claims.

As of  March 31, 2023 and  December 31, 2022, the aggregate claim recovery estimates included in contract asset and liability balances were $74.0 million and $75.8 million, respectively.

The components of the contract asset balances as of the respective dates were as follows:

(in thousands)

 

March 31, 2023

  

December 31, 2022

 

Costs in excess of billings and estimated earnings

 $125,918  $80,357 

Contract retention

  162,228   161,559 

Total contract assets

 $288,146  $241,916 

As of  March 31, 2023 and  December 31, 2022, contract retention receivable from Brightline Trains Florida LLC represented 10.0% and 11.7%, respectively, of total contract assets. No other contract retention receivable individually exceeded 10% of total contract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.

As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $123.0 million and $166.6 million during the three months ended March 31, 2023, and 2022, respectively, that was included in the contract liability balances at  December 31, 2022 and 2021, respectively.

The components of the contract liability balances as of the respective dates were as follows:

(in thousands)

 

March 31, 2023

  

December 31, 2022

 

Billings in excess of costs and estimated earnings, net of retention

 $141,702  $152,294 

Provisions for losses

  18,543   20,992 

Total contract liabilities

 $160,245  $173,286 
 

8.  Receivables, net 

Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and generally do not bear interest. The following table presents major categories of receivables:

(in thousands)

 

March 31, 2023

  

December 31, 2022

 

Contracts completed and in progress:

        

Billed

 $190,635  $220,809 

Unbilled

  108,931   120,348 

Total contracts completed and in progress

  299,566   341,157 

Materials sales

  31,955   52,182 

Other

  66,807   71,790 

Total gross receivables

  398,328   465,129 

Less: allowance for credit losses

  1,097   1,142 

Total net receivables

 $397,231  $463,987 

Included in other receivables at  March 31, 2023 and  December 31, 2022 were items such as estimated recovery from back charge claims, notes receivable, insurance receivable, fuel tax refunds and income tax refunds. Other receivables at March 31, 2023 and December 31, 2022 also included $24.9 million of working capital contributions in the form of a loan to a partner in one of our unconsolidated joint ventures that bears interest at prime plus 3.0% per annum. None of our customers had a receivable balance in excess of 10% of our total net receivables as of  March 31, 2023 or  December 31, 2022.

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9.  Fair Value Measurement

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

 

March 31, 2023

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Cash equivalents

                

Money market funds

 $42,821  $—  $—  $42,821 

Total assets

 $42,821  $—  $—  $42,821 

Accrued and other current liabilities

                

Diesel collars

 $—  $934  $—  $934 

Commodity swaps

  —   138   —   138 

Total liabilities

 $—  $1,072  $—  $1,072 

 

December 31, 2022

                

Cash equivalents

                

Money market funds

 $99,806  $—  $—  $99,806 

Other current assets

                

Commodity swaps

  —   121   —   121 

Total assets

 $99,806  $121  $—  $99,927 

 

 

Commodity Derivatives

As of March 31, 2023 and December 31, 2022, we held commodity swaps for crude oil designated as cash flow hedges with a total outstanding notional amount of $14.0 million and $7.0 million, respectively, all maturing by October 31, 2023. The realized and unrealized losses associated with commodity swaps for the three months ended March 31, 2023 were immaterial. The realized gain associated with commodity swaps for the three months ended March 31, 2022 was immaterial and the unrealized gain was $3.3 million.

During the three months ended March 31, 2023, we entered into collar contracts to reduce our price exposure on diesel consumption. The collars were not designated as hedges and will be treated as a mark-to-market derivative instruments through the  September 2024 maturity dates. The financial statement impact for the three months ended March 31, 2023 was an unrealized loss of $0.9 million.
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Other Assets and Liabilities

The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:

   

March 31, 2023

  

December 31, 2022

 

(in thousands)

Fair Value Hierarchy

 

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

 

Assets:

                 

Held-to-maturity marketable securities (1)

Level 1

 $56,329  $55,272  $65,943  $64,584 

Liabilities (including current maturities):

                 

2.75% Convertible Notes (2)

Level 2

 $230,000  $311,880  $230,000  $281,365 

Credit Agreement - revolver (2)

Level 3

 $50,000  $49,110  $50,000  $49,536 

 

(1) All marketable securities as of March 31, 2023 and  December 31, 2022 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in two months to three years.

(2) The fair value of our 2.75% convertible senior notes due 2024 (the "2.75% Convertible Notes") is based on the median price of the notes in an active market. The fair value of the Fourth Amended and Restated Credit Agreement (the "Credit Agreement") is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14 for more information about the 2.75% Convertible Notes and the Credit Agreement.

During the three months ended March 31, 2023 and 2022, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
 

10.  Construction Joint Ventures

We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“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 three months ended March 31, 2023, we determined no change was required for existing joint ventures.

Due to the joint and several nature of the performance obligations under the related owner contracts, if any of our partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At  March 31, 2023, there was $245.2 million of remaining contract value on unconsolidated and line item construction joint venture contracts of which $109.4 million represented our share and the remaining $135.8 million represented our partners’ share. We are not able to estimate amounts that may be required beyond the current remaining forecasted cost of the work to be performed. These forecasted costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees. See Note 13 for disclosure of the performance guarantee amounts recorded in the condensed consolidated balance sheets.

Consolidated Construction Joint Ventures (“CCJVs”)

At  March 31, 2023, we were engaged in eleven active CCJV projects with total contract values ranging from $6.1 million to $432.5 million for a combined total of $1.7 billion of which our share was $1.0 billion. As of March 31, 2023, our share of revenue remaining to be recognized on these CCJVs was $181.3 million and ranged from $0.9 million to $85.1 million by project. Our proportionate share of the equity in these joint ventures was between 50.0% and 70.0%. During the three months ended March 31, 2023 and 2022, total revenue from CCJVs was $61.3 million and $104.3 million, respectively. During the three months ended March 31, 2023 and 2022, CCJVs used $24.8 million and $7.6 million of operating cash flows, respectively. 

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Unconsolidated Construction Joint Ventures

As of  March 31, 2023, we were engaged in seven active unconsolidated joint venture projects with total contract values ranging from $12.3 million to $3.8 billion for a combined total of $7.9 billion of which our share was $2.3 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 23.0% to 50.0%. As of  March 31, 2023, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $72.4 million and ranged from $3.2 million to $34.4 million by project.

The following is summary financial information related to unconsolidated construction joint ventures:

(in thousands)

 

March 31, 2023

  

December 31, 2022

 

Assets

        

Cash, cash equivalents and marketable securities

 $110,403  $130,635 

Other current assets (1)

  689,945   681,221 

Noncurrent assets

  71,603   76,204 

Less partners’ interest

  596,487   604,741 

Granite’s interest (1),(2)

 $275,464