10-Q 1 gva20220331_10q.htm FORM 10-Q gva20220331_10q.htm
0000861459 GRANITE CONSTRUCTION INC false --12-31 Q1 2022 100,080 92,783 110,486 48,795 49,534 32,539 63,952 50,054 37,683 6,841 8,091 12,298 13,458 14,920 22,457 57,955 55,012 52,217 55,085 69,328 70,968 7,535 5,514 4,460 0.01 0.01 0.01 3,000,000 3,000,000 3,000,000 0 0 0 0.01 0.01 0.01 150,000,000 150,000,000 150,000,000 45,364,137 45,364,137 45,840,260 45,840,260 45,791,712 45,791,712 0.13 0.13 1,512 1,512 1,512 1,512 1,512 1,512 16.4 6,234 12 50 2.75 9 9 7.5 7.5 0 0.3 7,309,000 129.0 This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments. This amount represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 and 2021 Equity Incentive Plans and stock repurchased in 2022 under the Board-approved repurchase plan. Excluded from the carrying value is debt discount of $22.6 million and $28.0 million as of December 31, 2021 and March 31, 2021, respectively, related to the 2.75% Convertible Notes (see Notes 2 and 15). Included in this balance as of March 31, 2022, December 31, 2021 and March 31, 2021, was $107.5 million, $103.8 million and $95.4 million, respectively, related to Granite's share of estimated cost recovery of customer affirmative claims. In addition, this balance included $2.9 million, $10.7 million and $12.9 million related to Granite’s share of estimated recovery of back charge claims as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively. 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. The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market. The fair value of 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 15 for more information about the 2.75% Convertible Notes and the Credit Agreement. Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of March 31, 2022, December 31, 2021 and March 31, 2021 was $82.1 million, $82.1 million and $82.3 million, respectively, related to performance guarantees. During 2021, we completed a sale-leaseback transaction for two properties in California. The sale of these properties resulted in a reduction in net property and equipment of $11.1 million and a $2.4 million addition to both right of use assets and lease liabilities on the held-for-sale balance sheets, as well as a $29.7 million gain on sales of property and equipment on the discontinued operations statements of operations. All marketable securities as of March 31, 2022, December 31, 2021 and March 31, 2021 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in three months to five years. In accordance with ASC Topic 360, Property, Plant, and Equipment, we ceased recording depreciation and amortization for WMS property, plant and equipment, finite-lived tangible assets and right-of-use lease assets as of December 31, 2021. Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $14.9 million, $28.6 million and $55.6 million as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses. 00008614592022-01-012022-03-31 xbrli:shares 00008614592022-04-22 iso4217:USD 0000861459gva:ConsolidatedConstructionCorporateJointVentureMember2022-03-31 0000861459gva:ConsolidatedConstructionCorporateJointVentureMember2021-12-31 0000861459gva:ConsolidatedConstructionCorporateJointVentureMember2021-03-31 00008614592022-03-31 00008614592021-12-31 00008614592021-03-31 iso4217:USDxbrli:shares 0000861459us-gaap:ConstructionMember2022-01-012022-03-31 0000861459us-gaap:ConstructionMember2021-01-012021-03-31 0000861459gva:MaterialsMember2022-01-012022-03-31 0000861459gva:MaterialsMember2021-01-012021-03-31 00008614592021-01-012021-03-31 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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, 2022

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 22, 2022.

Class

 

Outstanding

Common stock, $0.01 par value

 

45,364,428

 



 

 

 

 

 

 

 

 

Index

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022, December 31, 2021 and March 31, 2021

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

 

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

 

 

 

 

 

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, 2022

  

December 31, 2021

  

March 31, 2021

 

ASSETS

            

Current assets

            

Cash and cash equivalents ($100,080, $92,783 and $110,486 related to consolidated construction joint ventures (“CCJVs”))

 $360,911  $395,647  $440,833 

Short-term marketable securities

  14,953       

Receivables, net ($48,795, $49,534 and $32,539 related to CCJVs)

  380,502   464,588   393,283 

Contract assets ($63,952, $50,054 and $37,683 related to CCJVs)

  180,023   145,437   144,780 

Inventories

  74,356   61,965   65,977 

Equity in construction joint ventures

  191,183   189,911   186,536 

Other current assets ($6,841, $8,091 and $12,298 related to CCJVs)

  179,024   177,210   59,938 

Current assets held-for-sale

  211,774   392,641   159,394 

Total current assets

  1,592,726   1,827,399   1,450,741 

Property and equipment, net ($13,458, $14,920 and $22,457 related to CCJVs)

  450,250   433,504   426,953 

Long-term marketable securities

  21,775   15,600   11,300 

Investments in affiliates

  22,987   23,368   27,760 

Goodwill

  53,715   53,715   53,715 

Right of use assets

  48,920   49,312   48,688 

Deferred income taxes, net

  25,880   24,141   40,306 

Other noncurrent assets

  65,888   67,888   69,291 

Noncurrent assets held-for-sale

        244,930 

Total assets

 $2,282,141  $2,494,927  $2,373,684 
             

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

 $8,735  $8,727  $8,700 

Accounts payable ($57,955, $55,012 and $52,217 related to CCJVs)

  285,390   324,313   269,497 

Contract liabilities ($55,085, $69,328 and $70,968 related to CCJVs)

  165,358   200,041   153,633 

Accrued expenses and other current liabilities ($7,535, $5,514 and $4,640 related to CCJVs)

  439,525   452,829   499,827 

Current liabilities held-for-sale

  40,246   83,408   68,478 

Total current liabilities

  939,254   1,069,318   1,000,135 

Long-term debt

  290,549   331,191   331,647 

Long-term lease liabilities

  32,682   32,928   35,540 

Other long-term liabilities

  62,493   65,927   64,442 

Long-term liabilities held-for-sale

        10,725 

Commitments and contingencies (see Note 18)

               

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: 45,364,137 shares as of March 31, 2022, 45,840,260 shares as of December 31, 2021 and 45,791,712 shares as of March 31, 2021

  454   458   458 

Additional paid-in capital

  515,262   559,752   554,186 

Accumulated other comprehensive income (loss)

  1,573   (3,359)  (3,714)

Retained earnings

  402,550   410,831   352,610 

Total Granite Construction Incorporated shareholders’ equity

  919,839   967,682   903,540 

Non-controlling interests

  37,324   27,881   27,655 

Total equity

  957,163   995,563   931,195 

Total liabilities and equity

 $2,282,141  $2,494,927  $2,373,684 

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

 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - in thousands, except per share data)

Three Months Ended March 31,

 

2022

  

2021

 

Revenue

        

Construction

 $474,935  $506,971 

Materials

  72,651   59,361 

Total revenue

  547,586   566,332 

Cost of revenue

        

Construction

  426,743   454,202 

Materials

  71,068   58,418 

Total cost of revenue

  497,811   512,620 

Gross profit

  49,775   53,712 

Selling, general and administrative expenses

  58,501   61,161 

Other costs (see Note 7)

  8,214   74,309 

Gain on sales of property and equipment, net

  (332)  (2,245)

Operating loss

  (16,608)  (79,513)

Other (income) expense

        

Interest income

  (623)  (233)

Interest expense

  3,575   5,372 

Equity in (income) loss of affiliates, net

  306   (268)

Other (income) expense, net

  1,382   (226)

Total other expense, net

  4,640   4,645 

Loss from continuing operations before benefit from income taxes

  (21,248)  (84,158)

Benefit from income taxes on continuing operations

  (5,331)  (21,757)

Net loss from continuing operations

  (15,917)  (62,401)

Net income (loss) from discontinued operations

  6,096   (2,922)

Net loss

  (9,821)  (65,323)

Amount attributable to non-controlling interests from continuing operations

  (3,118)  (872)

Net loss attributable to Granite Construction Incorporated from continuing operations

  (19,035)  (63,273)

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

  6,096   (2,922)

Net loss attributable to Granite Construction Incorporated

 $(12,939) $(66,195)
         

Net income (loss) per share attributable to common shareholders (see Note 16):

        

Basic continuing operations per share

 $(0.42) $(1.38)

Basic discontinued operations per share

  0.13   (0.07)

Basic loss per share

 $(0.29) $(1.45)
         

Diluted continuing operations per share

 $(0.42) $(1.38)

Diluted discontinued operations per share

  0.13   (0.07)

Diluted loss per share

 $(0.29) $(1.45)
         

Weighted average shares outstanding:

        

Basic

  45,730   45,697 

Diluted

  45,730   45,697 

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

 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - in thousands)

Three Months Ended March 31,

 

2022

  

2021

 

Net loss

 $(9,821) $(65,323)

Other comprehensive income, net of tax:

        

Net unrealized gain on cash flow hedges

 $2,436  $934 

Less: reclassification for net gains included in interest expense

  1,760   610 

Net change

 $4,196  $1,544 

Foreign currency translation adjustments, net

  736   (225)

Other comprehensive income

 $4,932  $1,319 

Comprehensive loss

 $(4,889) $(64,004)

Non-controlling interests in comprehensive income

  (3,118)  (872)

Comprehensive loss attributable to Granite Construction Incorporated

 $(8,007) $(64,876)

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

 

 

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, 2021

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

Cumulative effect of newly adopted accounting standard (see Note 2)

        (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)

              (12,939)  (12,939)  3,118   (9,821)

Other comprehensive income

           4,932      4,932      4,932 

Purchases 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

  45,364,137  $454  $515,262  $1,573  $402,550  $919,839  $37,324  $957,163 
                                 

Balances at December 31, 2020

  45,668,541  $457  $555,407  $(5,035) $424,835  $975,664  $15,946  $991,610 

Net loss

              (66,195)  (66,195)  872   (65,323)

Other comprehensive income

           1,319      1,319      1,319 

Purchases of common stock (1)

  (57,618)  (1)  (2,298)        (2,299)     (2,299)

RSUs vested

  181,575   2   (2)               

Dividends on common stock ($0.13 per share)

              (5,953)  (5,953)     (5,953)

Transactions with non-controlling interests

                    10,837   10,837 

Stock-based compensation expense and other

  (786)     1,079   2   (77)  1,004      1,004 

Balances at March 31, 2021

  45,791,712  $458  $554,186  $(3,714) $352,610  $903,540  $27,655  $931,195 
(1) This amount represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 and 2021 Equity Incentive Plans and stock repurchased in 2022 under the Board-approved repurchase plan. 

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

 

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

Three Months Ended March 31,

 

2022

  

2021

 

Operating activities

        

Net loss

 $(9,821) $(65,323)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

        

Depreciation, depletion and amortization

  16,737   24,581 

Amortization related to long-term debt (see Note 15)

  652   2,314 

Gain on sale of discontinued operations (see Note 3)

  (6,234)   

Gain on sales of property and equipment, net

  (598)  (2,554)

Deferred income taxes

  2,545    

Stock-based compensation

  2,614   1,065 

Equity in net (income) loss from unconsolidated joint ventures

  3,627   (418)

Net income from affiliates

  (1,289)  (1,808)

Other non-cash adjustments

  (299)  (573)

Changes in assets and liabilities:

        

Deposit/insurance receivable for legal settlement (see Note 18)

     (63,000)

Receivables

  85,957   123,749 

Contract assets, net

  (72,632)  (33,432)

Inventories

  (13,805)  (4,249)

Contributions to unconsolidated construction joint ventures

  (12,840)  (22,180)

Distributions from unconsolidated construction joint ventures and affiliates

  250   1,684 

Other assets, net

  1,264   (21,116)

Accounts payable

  (44,028)  (49,399)

Accrual for legal settlement (see Note 18)

     129,000 

Accrued expenses and other liabilities, net

  (2,280)  19,746 

Net cash provided by (used in) operating activities

 $(50,180) $38,087 

Investing activities

        

Purchases of marketable securities

  (19,940)  (5,000)

Purchases of property and equipment

  (31,269)  (18,777)

Proceeds from sales of property and equipment

  2,483   3,004 

Proceeds from the sale of discontinued operations (see Note 3)

  142,571    

Issuance of notes receivable

  (4,560)   

Collection of notes receivable

  111   4,470 

Net cash provided by (used in) investing activities

 $89,396  $(16,303)

Financing activities

        

Debt principal repayments

  (63,059)  (2,150)

Cash dividends paid

  (5,959)  (5,937)

Repurchases of common stock

  (20,212)  (2,299)

Contributions from non-controlling partners

  6,325   8,361 

Distributions to non-controlling partners

     (2,902)

Other financing activities, net

  1   (65)

Net cash used in financing activities

 $(82,904) $(4,992)

Net increase (decrease) in cash, cash equivalents and restricted cash

  (43,688)  16,792 

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

  413,655   437,648 

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

 $369,967  $454,440 

Less: Cash, cash equivalents and $1,512 in restricted cash included in current assets held-for-sale at end of each period

  9,056   13,607 

Cash and cash equivalents of continuing operations at end of period

 $360,911  $440,833 
         

Supplementary Information

        

Right of use assets obtained in exchange for lease obligations

 $3,502  $603 

Cash paid for operating lease liabilities

 $5,862  $5,457 

Cash paid during the period for:

        

Interest

 $2,090  $2,544 

Income taxes

 $2  $148 

Non-cash investing and financing activities:

        

RSUs issued, net of forfeitures

 $6,606  $(133)

Dividends declared but not paid

 $5,897  $5,953 

Accrued equipment purchases

 $5,511  $2,443 

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

 

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,” 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, 2021 (“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, 2022 and 2021 and the results of our operations and cash flows for the periods presented. The  December 31, 2021 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.

We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements, except for the adoption of Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entitys Own Equity (“ASU 2020-06”) on January 1, 2022, the impact of which is described in Note 2.

Reclassifications: Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

As discussed in more detail in Note 3, we concluded that our former Water and Mineral Services operating group (“WMS”) met the criteria for held for sale during the fourth quarter of 2021 and met the criteria for discontinued operation classification. As a result, WMS is presented in the condensed consolidated statements of operations as discontinued operations for all periods presented. Current and non-current assets and liabilities of these businesses are presented in the condensed consolidated balance sheets as assets and liabilities held for sale.

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, 2022 are not necessarily indicative of the results to be expected for the full year.

 

2. Recently Issued and Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. Also, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which provided clarification guidance to ASU 2020-04. These ASUs are effective at our option beginning with our quarter ended March 31, 2020 through December 31, 2022, and we expect to adopt these ASUs in the second quarter of 2022. As our Third Amended and Restated Credit Agreement dated May 18, 2021, as subsequently amended (the “Credit Agreement”) currently incorporates the use of the secured overnight financing rate as an alternative to LIBOR, we do not expect the adoption of these ASUs to have a material impact on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost and ASU 2020-06 is applicable to our 2.75% convertible senior notes due 2024 (“2.75% Convertible Notes;” see Note 15 for further discussion on these notes). In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method for convertible debt. We adopted ASU 2020-06 effective January 1, 2022, using the modified retrospective transition approach under which financial results reported in prior periods were not adjusted. Upon adoption, we recorded a net cumulative increase to debt of approximately $22.0 million and to deferred tax assets of $5.6 million, offset by a decrease to additional paid-in capital and retained earnings of $16.4 million.

As of March 31, 2022, the 2.75% Convertible Notes comprised our only convertible debt instrument. The 2.75% Convertible Notes were issued in November 2019 in an aggregate principal amount of $230.0 million, with an interest rate of 2.75% and a maturity date of 2024. The 2.75% Convertible Notes are convertible at the option of the holders prior to  May 1, 2024 only during certain periods and upon the occurrence of certain events. After May 1, 2024, the 2.75% Convertible Notes will be convertible at the option of the holders at any time until  October 30, 2024.

The conversion rate applicable to the 2.75% Convertible Notes is 31.7776 shares of Granite common stock per $1,000 principal amount of 2.75% Convertible Notes, which is equivalent to an initial conversion price of approximately $31.47 per share of Granite common stock. Upon conversion, we will pay or deliver shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2.75% Convertible Notes, (the “Indenture”) or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2.75% Convertible Notes in connection with such a make-whole fundamental change or notice of redemption.

On or after  November 7, 2022, we have the option to redeem for cash all or any portion of the 2.75% Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130% of the conversion price for a specified period of time. Upon the occurrence of a “fundamental change” as defined in the Indenture, holders  may require us to repurchase for cash all or any portion of their 2.75% Convertible Notes at a price equal to 100% of the principal amount plus any accrued and unpaid interest. In addition, as described in the Indenture, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization,  may result in the 2.75% Convertible Notes becoming due and payable immediately.

In connection with the adoption of ASU 2020-06, we implemented the following accounting policy as of January 1, 2022:

Computation of Earnings per Share: Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares include common share equivalents issued under the terms of the 2012 and 2021 Equity Incentive Plans and common share equivalents issuable under our 2.75% Convertible Notes using the if-converted method. Dilutive potential common shares also include common share equivalents issuable under the terms of our warrants assuming the share price of our common stock was in excess of $53.44, the exercise price of warrants.

 

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

3.  Discontinued Operations

During the fourth quarter of 2021, our Board of Directors approved a plan to sell the businesses in WMS within the next twelve months. This includes: 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”). After consideration of the relevant facts, we concluded the assets and liabilities of our WMS businesses met the criteria for classification as held for sale. We concluded the proposed disposal activities represented a strategic shift that would have a major effect on our operations and financial results and qualified for presentation as discontinued operations in accordance with FASB Accounting Standards Codification (“ASC”) Topic 205-20, Presentation of financial statements - Discontinued operations. Accordingly, the financial results of these businesses are presented in the condensed consolidated statement of operations as discontinued operations for all periods presented. Current and non-current assets and liabilities of these businesses not sold as of the balance sheet date are presented in the condensed consolidated balance sheets as assets and liabilities held for sale for all periods presented.

On March 16, 2022, we completed the sale of Inliner to Inland Pipe Rehabilitation LLC (“IPR”) and 1000097155 Ontario Inc. (“Ontario” and together with IPR, the “Purchasers”), investment affiliates of J.F. Lehman & Company, for a purchase price of $159.7 million, subject to certain adjustments. As a result of the sale, we received cash proceeds of $142.6 million based on preliminary post-closing adjustments and we recognized a gain of $6.2 million. The gain on sale was included in the net income from discontinued operations in the condensed consolidated statements of operations during the three months ended March 31, 2022. The Water Resources and Mineral Services businesses continued to meet the criteria for classification as held-for-sale and the financial results remain in discontinued operations as of March 31, 2022 and are expected to be sold within the next 12 months.

The following table presents summarized balance sheet information of assets and liabilities held-for-sale:

(in thousands)

 

March 31, 2022

  

December 31, 2021

  

March 31, 2021

 

Cash and cash equivalents

 $7,544  $16,496  $12,095 

Receivables, net

  54,652   102,208   81,877 

Contract assets

  16,700   41,340   40,440 

Inventories

  11,954   19,625   20,635 

Other current assets

  1,270   1,781   4,347 

Property and equipment, net

  40,490   70,912   101,220 

Investments in affiliates

  50,453   48,675   47,399 

Goodwill

  19,982   63,063   63,092 

Right of use assets

  4,839   12,365   8,362 

Other noncurrent assets

  3,890   16,176   24,857 

Total assets classified as held-for-sale

 $211,774  $392,641  $404,324 
             

Accounts payable

 $16,682  $37,997  $37,337 

Contract liabilities

  3,447   7,129   6,516 

Other current liabilities

  15,808   27,764   24,625 

Long-term lease liabilities

  2,641   8,352   6,167 

Other long-term liabilities

  1,668   2,166   4,558 

Total liabilities classified as held-for-sale

 $40,246  $83,408  $79,203 

The following table represents summarized statements of operations information of discontinued operations (in thousands):

Three Months Ended March 31,

 

2022

  

2021

 

Revenue

 $102,961  $103,581 

Cost of revenue

  88,727   93,975 

Gross profit

  14,234   9,606 

Selling, general and administrative expenses

  11,618   14,568 

Other costs

  1,343   1,526 

Gain on sale of discontinued operations

  (6,234)   

Gain on sales of property and equipment, net

  (266)  (310)

Operating income (loss)

  7,773   (6,178)

Other income, net

  (1,608)  (2,558)

Income (loss) from discontinued operations before provision for (benefit from) income taxes

  9,381   (3,620)

Provision for (benefit from) income taxes

  3,285   (698)

Net income (loss) from discontinued operations

 $6,096  $(2,922)

As required per ASC Topic 205-20, Presentation of financial statements - Discontinued operation, components included in the condensed consolidated statement of cash flows for the discontinued operations are as follows (in thousands):

     

Three Months Ended March 31,

2022

2021

Depreciation, depletion and amortization (1)

$$10,059

Gain on sale of discontinued operations

$6,234$

Purchases of property and equipment

$3,376$3,307

Proceeds from sale of discontinued operations

$142,571$

(1) - In accordance with ASC Topic 360, Property, Plant, and Equipment, we ceased recording  depreciation and amortization for WMS property, plant and equipment, finite-lived tangible assets and right-of-use lease assets as of December 31, 2021.

 

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

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, 2022 and 2021, we did not identify any material amounts that should have been recorded in a prior period. 

There were no increases or 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. During the three months ended March 31, 2021, there was one project with a decrease from revisions in estimates that had an impact to gross profit of $5.3 million, to net loss from continuing operations of $4.1 million and to diluted loss per share from continuing operations of $0.09. This decrease was due to additional costs from lower productivity than originally anticipated and weather impacts.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

5. Disaggregation of Revenue

We disaggregate our revenue based on our reportable segments (see Note 19) 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 from continuing operations are: California, Central and Mountain. The following tables present our disaggregated revenue from continuing operations by operating group (in thousands): 

Three Months Ended March 31,

2022

 

Construction

  

Materials

  

Total

 

California

 $144,387  $45,687  $190,074 

Central

  224,093   10,362   234,455 

Mountain

  106,455   16,602   123,057 

Total

 $474,935  $72,651  $547,586 

2021

 

Construction

  

Materials

  

Total

 

California

 $159,266  $41,956  $201,222 

Central

  253,293   8,380   261,673 

Mountain

  94,412   9,025   103,437 

Total

 $506,971  $59,361  $566,332 

 

 

6. Unearned Revenue

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

(in thousands)

 

March 31, 2022

  

December 31, 2021

  

March 31, 2021

 

California

 $768,013  $771,759  $834,815 

Central

  1,192,812   1,334,901   1,798,761 

Mountain

  530,712   488,425   537,976 

Total

 $2,491,537  $2,595,085  $3,171,552 

All unearned revenue is in the Construction segment. Approximately $ 2.0 billion of the  March 31, 2022 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.

 

7. Other Costs

Other costs included in the condensed consolidated statements of operations for the quarter ended March 31, 2022 primarily consisted of non-recurring legal fees related to the lawsuits discussed in Note 18. Other costs included in the condensed consolidated statements of operations for the quarter ended March 31, 2021 primarily consisted of $66 million in net settlement charges incurred during 2021 as further described in Note 18 and non-recurring legal and accounting fees related to the Audit/Compliance Committee’s independent investigation of prior-period reporting for the former Heavy Civil operating group, which was completed in early 2021.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

8. Contract Assets and Liabilities

During the three months ended  March 31, 2022 and 2021, we recognized revenue of $159.9 million and $139.2 million, respectively, that was included in the contract liability balances at  December 31, 2021 and 2020, respectively.

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 $41.1 million and $61.5 million during the three months ended March 31, 2022 and 2021, respectively. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.

As of  March 31, 2022, December 31, 2021 and March 31, 2021, the aggregate claim recovery estimates included in contract asset balances were $38.6 million, $39.0 million and $38.9 million, respectively.

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

(in thousands)

  March 31, 2022   December 31, 2021   March 31, 2021 

Costs in excess of billings and estimated earnings

 $45,393  $14,158  $39,410 

Contract retention

  134,630   131,279   105,370 

Total contract assets

 $180,023  $145,437  $144,780 

As of  March 31, 2022, December 31, 2021 and March 31, 2021, contract retention receivable from Brightline Trains Florida LLC represented 14.6%, 17.2% and 13.5%, 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. 

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

(in thousands)

  March 31, 2022   December 31, 2021   March 31, 2021 

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

 $142,065  $169,542  $126,850 

Provisions for losses

  23,293   30,499   26,783 

Total contract liabilities

 $165,358  $200,041  $153,633 
 

9.  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, 2022

  

December 31, 2021

  

March 31, 2021

 

Contracts completed and in progress:

            

Billed

 $158,762  $236,053  $137,174 

Unbilled

  111,058   126,371   111,654 

Total contracts completed and in progress

  269,820   362,424   248,828 

Materials sales

  45,967   43,746   35,252 

Other

  65,520   59,496   110,487 

Total gross receivables

  381,307   465,666   394,567 

Less: allowance for credit losses

  805   1,078   1,284 

Total net receivables

 $380,502  $464,588  $393,283 

Included in other receivables at  March 31, 2022, December 31, 2021 and March 31, 2021, 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, 2022 and December 31, 2021 also included $24.9 million and $20.4 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 3.00% per annum. Other than the $63.0 million insurance receivable as of March 31, 2021 related to the settlement discussed in Note 18, no other receivable individually exceeded 10% of total net receivables at any of these dates.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

10. 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, 2022

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Cash equivalents

                

Money market funds

 $21,237  $  $  $21,237 

Other current assets

                

Commodity swap

     3,047      3,047 

Total assets

 $21,237  $3,047  $  $24,284 

Accrued and other current liabilities

                

Interest rate swap

 $  $507  $  $507 

Total liabilities

 $  $507  $  $507 

 

December 31, 2021

                

Cash equivalents

                

Money market funds

 $65,233  $  $  $65,233 

Total assets

 $65,233  $  $  $65,233 

Accrued and other current liabilities

                

Interest rate swap

 $  $3,514  $  $3,514 

Total liabilities

 $  $3,514  $  $3,514 

 

 

March 31, 2021

                

Cash equivalents

                

Money market funds

 $42,488  $  $  $42,488 

Other current assets

                

Commodity swap

     1,106      1,106 

Total assets

 $42,488  $1,106  $  $43,594 

Accrued and other current liabilities

                

Interest rate swap

 $  $6,535  $  $6,535 

Total liabilities

 $  $6,535  $  $6,535 

 

Interest Rate Swaps

In connection with entering into the Credit Agreement, we entered into two interest rate swaps with a combined initial notional amount of $150.0 million, an effective date of May 2018 and maturity dates in  May 2023. The interest rate swaps were designated as cash flow hedges through the three months ended March 31, 2021 and de-designated as cash flow hedges during the three months ended June 30, 2021. The impact from the interest rate swap de-designation that was included in interest expense on the condensed consolidated statements of operations was $0.7 million for the three months ended March 31, 2022.

During the three months ended March 31, 2022, we terminated $60.9 million, or 50%, of the notional amount of our floating-to-fixed interest rate swaps in connection with the prepayment of the same amount of our term loan (see Note 15).

Commodity Swaps

As of March 31, 2022, we held commodity swaps for crude oil designated as cash flow hedges with a total outstanding notional amount of $17.9 million maturing by October 31, 2022. The financial statement impact during the three months ended  March 31, 2022 was a realized gain of $0.4 million and an unrealized gain of $3.3 million. As of March 31, 2021, we held commodity swaps for crude oil that were designated as cash flow hedges, maturing in September and October 2021. The total commodity swap gain for these swaps was $1.0 million.

 

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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, 2022

  

December 31, 2021

  

March 31, 2021

 

(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

 $36,728  $35,909  $15,600  $15,459  $11,300  $11,258 

Liabilities (including current maturities):

                         

2.75% Convertible Notes (2),(3)

Level 2

 $230,000  $276,288  $207,354  $313,785  $202,018  $324,013 

Credit Agreement - term loan (2)

Level 3

 $60,938  $62,861  $123,750  $124,598  $129,375  $130,645 

(1) All marketable securities as of March 31, 2022, December 31, 2021 and March 31, 2021 were classified as held-to-maturity and consisted of U.S. Government and agency obligations and corporate commercial paper maturing in three months to five years.

(2) The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market. The fair value of 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 15 for more information about the 2.75% Convertible Notes and the Credit Agreement.

(3) Excluded from the carrying value is debt discount of $22.6 million and $28.0 million as of  December 31, 2021 and March 31, 2021, respectively, related to the 2.75% Convertible Notes (see Notes 2 and 15).

 

During the three months ended March 31, 2022 and 2021, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

 

11. 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, 2022, 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, 2022, there was approximately $0.5 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.2 billion represented our share and the remaining $0.3 billion represented our partners’ 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.

Consolidated Construction Joint Ventures (“CCJVs”)

At  March 31, 2022, we were engaged in nine active CCJV projects with total contract values ranging from $12.0 million to $437.2 million for a combined total of $1.7 billion of which our share was $960.0 million. As of March 31, 2022, our share of revenue remaining to be recognized on these CCJVs was $227.2 million and ranged from $6.5 million to $68.4 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, 2022 and 2021, total revenue from CCJVs was $107.6 million and $82.6 million, respectively. During the three months ended March 31, 2022 and 2021, CCJVs provided $(7.6) million and $13.8 million of operating cash flows, respectively.

 

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Unconsolidated Construction Joint Ventures

As of  March 31, 2022, we were engaged in nine active unconsolidated joint venture projects with total contract values ranging from $13.9 million to $3.8 billion for a combined total of $10.7 billion of which our share was $3.0 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of  March 31, 2022, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $135.7 million and ranged from $1.3 million to $36.1 million by project.

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

(in thousands)

 

March 31, 2022

  

December 31, 2021

  

March 31, 2021

 

Assets

            

Cash, cash equivalents and marketable securities

 $157,869  $182,891  $161,574 

Other current assets (1)