GRANITE CONSTRUCTION INC 10-Q

Item 1. FINANCIAL STATEMENTS GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - in thousands, except share and per share data) June 30, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents ($ 85,816 and $ 102,547 related to consolidated construction joint ventures (“CCJVs”)) $ 214,446 $ 293,991 Short-term marketable securities 24,981 39,374 Receivables, net ($ 65,446 and $ 39,281 related to CCJVs) 636,797 463,987 Contract assets ($ 72,912 and $ 80,306 related to CCJVs) 288,349 241,916 Inventories 92,151 86,809 Equity in construction joint ventures 188,093 183,808 Other current assets ($ 2,947 and $ 5,694 related to CCJVs) 46,376 37,411 Total current assets 1,491,193 1,347,296 Property and equipment, net ($ 7,772 and $ 7,834 related to CCJVs) 564,077 509,210 Long-term marketable securities 11,575 26,569 Investments in affiliates 86,611 80,725 Goodwill 78,603 73,703 Right of use assets 53,509 49,079 Deferred income taxes, net 31,304 22,208 Other noncurrent assets 59,706 59,143 Total assets $ 2,376,578 $ 2,167,933 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt $ 1,466 $ 1,447 Accounts payable ($ 52,443 and $ 57,534 related to CCJVs) 382,458 334,392 Contract liabilities ($ 50,162 and $ 62,675 related to CCJVs) 173,288 173,286 Accrued expenses and other current liabilities ($ 7,336 and $ 8,451 related to CCJVs) 310,022 288,469 Total current liabilities 867,234 797,594 Long-term debt 458,692 286,934 Long-term lease liabilities 38,397 32,170 Deferred income taxes, net 4,571 1,891 Other long-term liabilities 66,234 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: 43,918,798 shares as of June 30, 2023 and 43,743,907 shares as of December 31, 2022 439 437 Additional paid-in capital 470,511 470,407 Accumulated other comprehensive income 795 788 Retained earnings 429,797 481,384 Total Granite Construction Incorporated shareholders’ equity 901,542 953,016 Non-controlling interests 39,908 32,129 Total equity 941,450 985,145 Total liabilities and equity $ 2,376,578 $ 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) Three Months Ended June 30, Six Months Ended June 30, 2023 As Restated and Recast 2023 As Restated and Recast 2022 2022 Revenue Construction $ 749,413 $ 713,221 $ 1,252,829 $ 1,291,487 Materials 149,139 136,026 205,791 211,646 Total revenue 898,552 849,247 1,458,620 1,503,133 Cost of revenue Construction 670,259 632,969 1,136,970 1,152,756 Materials 125,207 118,712 186,205 192,719 Total cost of revenue 795,466 751,681 1,323,175 1,345,475 Gross profit 103,086 97,566 135,445 157,658 Selling, general and administrative expenses 64,563 60,121 137,685 130,241 Other costs, net 13,607 16,612 18,130 22,891 Gain on sales of property and equipment, net ( 3,944 ) ( 8,915 ) ( 5,981 ) ( 9,513 ) Operating income (loss) 28,860 29,748 ( 14,389 ) 14,039 Other (income) expense Loss on debt extinguishment 51,052 — 51,052 — Interest income ( 3,232 ) ( 782 ) ( 6,994 ) ( 1,352 ) Interest expense 4,131 3,899 7,022 7,484 Equity in income of affiliates, net ( 7,044 ) ( 4,876 ) ( 12,231 ) ( 6,165 ) Other (income) expense, net ( 1,225 ) 3,261 ( 3,175 ) 4,569 Total other expense, net 43,682 1,502 35,674 4,536 Income (loss) before income taxes ( 14,822 ) 28,246 ( 50,063 ) 9,503 Provision for (benefit from) income taxes 9,024 8,668 ( 445 ) 15,020 Net income (loss) ( 23,846 ) 19,578 ( 49,618 ) ( 5,517 ) Amount attributable to non-controlling interests 6,846 ( 897 ) 9,595 ( 2,535 ) Net income (loss) attributable to Granite Construction Incorporated $ ( 17,000 ) $ 18,681 $ ( 40,023 ) $ ( 8,052 ) Net income (loss) per share attributable to common shareholders (see Note 15): Basic $ ( 0.39 ) $ 0.42 $ ( 0.91 ) $ ( 0.18 ) Diluted $ ( 0.39 ) $ 0.39 $ ( 0.91 ) $ ( 0.18 ) Weighted average shares outstanding: Basic 43,892 44,534 43,829 45,128 Diluted 43,892 52,295 43,829 45,128 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) Three Months Ended June 30, Six Months Ended June 30, 2023 As Restated 2023 As Restated 2022 2022 Net income (loss) $ ( 23,846 ) $ 19,578 $ ( 49,618 ) $ ( 5,517 ) Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on cash flow hedges, net of tax $ ( 366 ) $ ( 377 ) $ ( 558 ) $ 2,059 Less: reclassification for net gains included in interest expense, net of tax 112 1,282 112 3,042 Net change $ ( 254 ) $ 905 $ ( 446 ) $ 5,101 Foreign currency translation adjustments, net 396 ( 90 ) 453 646 Other comprehensive income, net of tax $ 142 $ 815 $ 7 $ 5,747 Comprehensive income (loss), net of tax $ ( 23,704 ) $ 20,393 $ ( 49,611 ) $ 230 Non-controlling interests in comprehensive (income) loss, net of tax 6,846 ( 897 ) 9,595 ( 2,535 ) Comprehensive income (loss) attributable to Granite Construction Incorporated, net of tax $ ( 16,858 ) $ 19,496 $ ( 40,016 ) $ ( 2,305 ) 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 March 31, 2023 43,880,224 $ 439 $ 471,782 $ 653 $ 452,583 $ 925,457 $ 46,954 $ 972,411 Net loss — — — — ( 17,000 ) ( 17,000 ) ( 6,846 ) ( 23,846 ) Other comprehensive income — — — 142 — 142 — 142 Repurchases of common stock (1) ( 6,342 ) ( 1 ) ( 243 ) — — ( 244 ) — ( 244 ) Restricted stock units (“RSUs”) vested 37,394 1 ( 1 ) — — — — — Dividends on common stock ($ 0.13 per share) — — 76 — ( 5,786 ) ( 5,710 ) — ( 5,710 ) Capped call transactions — — ( 39,379 ) — — ( 39,379 ) — ( 39,379 ) Redemption of warrants — — ( 13,201 ) — — ( 13,201 ) — ( 13,201 ) Loss on debt extinguishment 1,390,500 14 49,321 — — 49,335 — 49,335 Exercise of bond hedge ( 1,390,516 ) ( 14 ) 14 — — — — — Transactions with non-controlling interests — — — — — — ( 200 ) ( 200 ) Stock-based compensation expense and other 7,538 — 2,142 — — 2,142 — 2,142 Balances at June 30, 2023 43,918,798 $ 439 $ 470,511 $ 795 $ 429,797 $ 901,542 $ 39,908 $ 941,450 Balances at March 31, 2022 (as restated) 45,364,137 $ 454 $ 515,262 $ 1,573 $ 388,756 $ 906,045 $ 35,844 $ 941,889 Net income (as restated) — — — — 18,681 18,681 897 19,578 Other comprehensive income — — — 815 — 815 — 815 Repurchases of common stock (1) ( 1,325,706 ) ( 13 ) ( 50,151 ) — — ( 50,164 ) — ( 50,164 ) RSUs vested 30,596 — — — — — — — Dividends on common stock ($ 0.13 per share) — — 75 — ( 5,846 ) ( 5,771 ) — ( 5,771 ) Transactions with non-controlling interests — — — — — — ( 3,425 ) ( 3,425 ) Stock-based compensation expense and other 9,442 — 1,973 — 76 2,049 — 2,049 Balances at June 30, 2022 (as restated) 44,078,469 $ 441 $ 467,159 $ 2,388 $ 401,667 $ 871,655 $ 33,316 $ 904,971 (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 June 30, 2023 and 2022, there were 6,342 shares and 5,138 shares, respectively, withheld related to employee taxes for RSUs. During the three months ended June 30, 2022, we also repurchased 1,320,568 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 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 — — — — ( 40,023 ) ( 40,023 ) ( 9,595 ) ( 49,618 ) Other comprehensive income — — — 7 — 7 — 7 Repurchases of common stock (1) ( 93,602 ) ( 1 ) ( 3,766 ) — — ( 3,767 ) — ( 3,767 ) RSUs vested 261,362 3 ( 3 ) — — — — — Dividends on common stock ($ 0.13 per share per quarter) — — 150 — ( 11,564 ) ( 11,414 ) — ( 11,414 ) Capped call transactions — — ( 39,379 ) — — ( 39,379 ) — ( 39,379 ) Redemption of warrants — — ( 13,201 ) — — ( 13,201 ) — ( 13,201 ) Loss on debt extinguishment 1,390,500 14 49,321 — — 49,335 — 49,335 Exercise of bond hedge ( 1,390,516 ) ( 14 ) 14 — — — — — Transactions with non-controlling interests — — — — — — 17,374 17,374 Stock-based compensation expense and other 7,147 — 6,968 — — 6,968 — 6,968 Balances at June 30, 2023 43,918,798 $ 439 $ 470,511 $ 795 $ 429,797 $ 901,542 $ 39,908 $ 941,450 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) — — — — ( 8,052 ) ( 8,052 ) 2,535 ( 5,517 ) Other comprehensive income — — — 5,747 — 5,747 — 5,747 Repurchases of common stock (1) ( 1,991,586 ) ( 19 ) ( 70,357 ) — — ( 70,376 ) — ( 70,376 ) RSUs vested 220,766 2 ( 2 ) — — — — — Dividends on common stock ($ 0.13 per share per quarter) — — 144 — ( 11,731 ) ( 11,587 ) — ( 11,587 ) Transactions with non-controlling interests — — — — — — 2,900 2,900 Stock-based compensation expense and other 9,029 — 4,583 — 76 4,659 — 4,659 Balances at June 30, 2022 (as restated) 44,078,469 $ 441 $ 467,159 $ 2,388 $ 401,667 $ 871,655 $ 33,316 $ 904,971 (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 six months ended June 30, 2023 and 2022, there were 93,602 shares and 60,018 shares, respectively, withheld related to employee taxes for RSUs. During the six months ended June 30, 2022, we also repurchased 1,931,568 shares under the share repurchase program. The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ( Unaudited - in thousands ) Six Months Ended June 30, 2023 As Restated 2022 Operating activities Net loss $ ( 49,618 ) $ ( 5,517 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation, depletion and amortization 41,528 32,328 Amortization related to long-term debt 988 1,423 Non-cash loss on debt extinguishment 51,052 — Gain on sale of business — ( 6,234 ) Gain on sales of property and equipment, net ( 5,981 ) ( 9,513 ) Deferred income taxes — 2,545 Stock-based compensation 6,702 4,376 Equity in net loss from unconsolidated joint ventures 4,005 17,228 Net income from affiliates ( 12,231 ) ( 6,165 ) Other non-cash adjustments ( 7 ) ( 84 ) Changes in assets and liabilities: Receivables ( 171,469 ) ( 69,114 ) Contract assets, net ( 46,469 ) ( 71,282 ) Inventories ( 3,439 ) ( 18,618 ) Contributions to unconsolidated construction joint ventures ( 14,710 ) ( 33,563 ) Distributions from unconsolidated construction joint ventures and affiliates 6,246 6,522 Other assets, net ( 6,464 ) 22,053 Accounts payable 51,552 17,983 Accrual for resolution of SEC investigation — 12,000 Accrued expenses and other liabilities, net 29,367 354 Net cash used in operating activities ( 118,948 ) ( 103,278 ) Investing activities Purchases of marketable securities — ( 49,968 ) Maturities of marketable securities 30,000 — Purchases of property and equipment ( 79,689 ) ( 73,216 ) Proceeds from sales of property and equipment 10,564 15,289 Proceeds from company owned life insurance 1,545 — Proceeds from the sale of business — 142,571 Acquisition of business ( 26,933 ) — Issuance of notes receivable — ( 4,560 ) Collection of notes receivable 135 201 Net cash provided by (used in) investing activities ( 64,378 ) 30,317 Financing activities Proceeds from long-term debt 55,000 50,000 Debt principal repayments ( 249,589 ) ( 124,660 ) Capped call transactions ( 53,035 ) — Redemption of warrants ( 13,201 ) — Proceeds from issuance of 3.75 % Convertible Notes 373,750 — Debt issuance costs ( 9,806 ) — Cash dividends paid ( 11,391 ) ( 11,857 ) Repurchases of common stock ( 3,766 ) ( 70,374 ) 9 Table of Contents Contributions from non-controlling partners 22,400 6,327 Distributions to non-controlling partners ( 6,850 ) ( 6,700 ) Other financing activities, net 269 209 Net cash provided by (used in) financing activities 103,781 ( 157,055 ) Net decrease in cash, cash equivalents and restricted cash ( 79,545 ) ( 230,016 ) Cash, cash equivalents and $ 0 and $ 1,512 in restricted cash at beginning of period 293,991 413,655 Cash, cash equivalents and $ 0 in restricted cash at end of period $ 214,446 $ 183,639 Supplementary Information Right of use assets obtained in exchange for lease obligations $ 19,558 $ 8,167 Cash paid during the period for: Operating lease liabilities $ 11,351 $ 11,667 Interest $ 5,531 $ 6,786 Income taxes $ 4,851 $ 1,553 Other non-cash operating activities: Performance guarantees $ ( 6,513 ) $ ( 4,678 ) Deferred taxes related to capped call transactions $ 13,656 $ — Non-cash investing and financing activities: RSUs issued, net of forfeitures $ 10,981 $ 7,688 Dividends declared but not paid $ 5,709 $ 5,730 Contributions from non-controlling partners $ 1,822 $ 3,274 Accrued equipment purchases $ ( 4,330 ) $ ( 5,149 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 10 Table of Contents 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 June 30, 2023 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. Acquisition : On April 24, 2023, we completed the purchase of Coast Mountain Resources (2020) Ltd. (“CMR”) for approximately $ 26.9 million in cash, subject to certain adjustments. CMR is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land. CMR results are reported in the Materials segment. This acquisition did not have a material impact on our financial statements. In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805, Business Combinations , the total purchase price and assumed liabilities were allocated based on their estimated fair values as of April 24, 2023. The tangible assets acquired and liabilities assumed were approximately $ 29.2 million and $ 7.1 million, respectively, resulting in acquired goodwill of $ 4.8 million. The tangible assets balance consists primarily of equipment, vehicles and the right-to-mine which are reported in Property and equipment, net. The estimated allocation is subject to revision during the measurement period, which may result in adjustments to the values presented herein. We expect to finalize these amounts within 12 months from the acquisition date. 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 and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year. 2.   Recently Issued and Adopted Accounting Pronouncements We closely monitor all Accounting Standards Updates issued by the FASB 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 six months ended June 30, 2023 that had a material impact on our financial statements. 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 our 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, as well as 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 three and six months ended 11 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) June 30, 2022, as previously reported, have 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 three and six months ended June 30, 2022. The amounts labeled “As Previously Reported” were derived from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed on July 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 and six months ended June 30, 2022. In addition, there was no impact to net cash provided by (used in) investing and financing activities for the six months ended June 30, 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): 12 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Three months ended June 30, 2022 As Previously Reported Restatement Impacts As Restated Discontinued Operations Reclassification Impacts As Restated and Recast Revenue Construction $ 632,260 $ ( 1,893 ) $ 630,367 $ 82,854 $ 713,221 Materials 136,026 — 136,026 — 136,026 Total revenue 768,286 ( 1,893 ) 766,393 82,854 849,247 Cost of revenue Construction 571,094 ( 6,018 ) 565,076 67,893 632,969 Materials 118,712 — 118,712 — 118,712 Total cost of revenue 689,806 ( 6,018 ) 683,788 67,893 751,681 Gross profit 78,480 4,125 82,605 14,961 97,566 Selling, general and administrative expenses 53,162 — 53,162 6,959 60,121 Other costs, net 20,177 — 20,177 ( 3,565 ) 16,612 Gain on sales of property and equipment, net ( 385 ) — ( 385 ) ( 8,530 ) ( 8,915 ) Operating income 5,526 4,125 9,651 20,097 29,748 Other (income) expense Interest income ( 782 ) — ( 782 ) — ( 782 ) Interest expense 3,896 — 3,896 3 3,899 Equity in income (loss) of affiliates ( 541 ) — ( 541 ) ( 4,335 ) ( 4,876 ) Other income, net 3,357 — 3,357 ( 96 ) 3,261 Total other expense, net 5,930 — 5,930 ( 4,428 ) 1,502 Income (loss) from continuing operations before income taxes ( 404 ) 4,125 3,721 24,525 28,246 Provision for income taxes on continuing operations 2,549 959 3,508 5,160 8,668 Net income (loss) from continuing operations ( 2,953 ) 3,166 213 19,365 19,578 Net income (loss) from discontinued operations 19,521 ( 156 ) 19,365 ( 19,365 ) — Net income 16,568 3,010 19,578 — 19,578 Amount attributable to non-controlling interests 583 ( 1,480 ) ( 897 ) — ( 897 ) Net income (loss) attributable to Granite Construction Incorporated from continuing operations ( 2,370 ) 1,686 ( 684 ) 19,365 18,681 Net income attributable to Granite Construction Incorporated from discontinued operations 19,521 ( 156 ) 19,365 ( 19,365 ) — Net income attributable to Granite Construction Incorporated $ 17,151 $ 1,530 $ 18,681 $ — $ 18,681 Net income (loss) per share attributable to common shareholders Basic continuing operations per share $ ( 0.05 ) $ 0.03 $ ( 0.02 ) $ 0.44 $ 0.42 Basic discontinued operations per share 0.44 ( 0.01 ) 0.43 ( 0.43 ) — Basic earnings per share $ 0.39 $ 0.02 $ 0.41 $ 0.01 $ 0.42 Diluted continuing operations per share $ ( 0.05 ) $ 0.03 $ ( 0.02 ) $ 0.41 $ 0.39 Diluted discontinued operations per share 0.44 ( 0.01 ) 0.43 ( 0.43 ) — Diluted earnings per share $ 0.39 $ 0.02 $ 0.41 $ ( 0.02 ) $ 0.39 Weighted average shares outstanding: Basic 44,534 — 44,534 — 44,534 Diluted 44,534 — 44,534 — 52,295 13 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Six months ended June 30, 2022 As Previously Reported Restatement Impacts As Restated Discontinued Operations Reclassification Impacts As Restated and Recast Revenue Construction $ 1,107,195 $ — $ 1,107,195 $ 184,292 $ 1,291,487 Materials 208,677 — 208,677 2,969 211,646 Total revenue 1,315,872 — 1,315,872 187,261 1,503,133 Cost of revenue Construction 997,837 — 997,837 154,919 1,152,756 Materials 189,780 — 189,780 2,939 192,719 Total cost of revenue 1,187,617 — 1,187,617 157,858 1,345,475 Gross profit 128,255 — 128,255 29,403 157,658 Selling, general and administrative expenses 111,663 — 111,663 18,578 130,241 Other costs, net 28,391 — 28,391 ( 5,500 ) 22,891 Gain on sales of property and equipment, net ( 717 ) — ( 717 ) ( 8,796 ) ( 9,513 ) Operating income ( 11,082 ) — ( 11,082 ) 25,121 14,039 Other (income) expense Interest income ( 1,405 ) — ( 1,405 ) 53 ( 1,352 ) Interest expense 7,471 — 7,471 13 7,484 Equity in income (loss) of affiliates ( 235 ) — ( 235 ) ( 5,930 ) ( 6,165 ) Other income, net 4,739 — 4,739 ( 170 ) 4,569 Total other expense, net 10,570 — 10,570 ( 6,034 ) 4,536 Income (loss) from continuing operations before income taxes ( 21,652 ) — ( 21,652 ) 31,155 9,503 Provision for (benefit from) income taxes on continuing operations ( 2,782 ) — ( 2,782 ) 17,802 15,020 Net income (loss) from continuing operations ( 18,870 ) — ( 18,870 ) 13,353 ( 5,517 ) Net income from discontinued operations 25,617 ( 12,264 ) 13,353 ( 13,353 ) — Net income (loss) 6,747 ( 12,264 ) ( 5,517 ) — ( 5,517 ) Amount attributable to non-controlling interests ( 2,535 ) — ( 2,535 ) — ( 2,535 ) Net (loss) attributable to Granite Construction Incorporated from continuing operations ( 21,405 ) — ( 21,405 ) 13,353 ( 8,052 ) Net income attributable to Granite Construction Incorporated from discontinued operations 25,617 ( 12,264 ) 13,353 ( 13,353 ) — Net income (loss) attributable to Granite Construction Incorporated $ 4,212 $ ( 12,264 ) $ ( 8,052 ) $ — $ ( 8,052 ) Net income (loss) per share attributable to common shareholders Basic continuing operations per share $ ( 0.47 ) $ — $ ( 0.47 ) $ 0.29 $ ( 0.18 ) Basic discontinued operations per share 0.57 ( 0.27 ) 0.30 ( 0.30 ) — Basic earnings (loss) per share $ 0.10 $ ( 0.27 ) $ ( 0.17 ) $ ( 0.01 ) $ ( 0.18 ) Diluted continuing operations per share $ ( 0.47 ) $ — $ ( 0.47 ) $ 0.29 $ ( 0.18 ) Diluted discontinued operations per share 0.57 ( 0.27 ) 0.30 ( 0.30 ) — Diluted earnings (loss) per share $ 0.10 $ ( 0.27 ) $ ( 0.17 ) $ ( 0.01 ) $ ( 0.18 ) Weighted average shares outstanding: Basic 45,128 — 45,128 — 45,128 Diluted 45,128 — 45,128 — 45,128 14 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six months ended June 30, 2022 As Previously Reported Restatement Impacts As Restated Operating activities Net income (loss) $ 6,747 $ ( 12,264 ) $ ( 5,517 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation, depletion and amortization 32,328 — 32,328 Amortization related to long-term debt 1,423 — 1,423 Gain on sale of business ( 6,234 ) — ( 6,234 ) Gain on sales of property and equipment, net ( 9,513 ) — ( 9,513 ) Deferred income taxes 2,545 — 2,545 Stock-based compensation 4,376 — 4,376 Equity in net loss from unconsolidated joint ventures 17,228 — 17,228 Net loss from affiliates ( 6,165 ) — ( 6,165 ) Other non-cash adjustments ( 84 ) — ( 84 ) Changes in assets and liabilities: Receivables ( 69,114 ) — ( 69,114 ) Contract assets, net ( 71,282 ) — ( 71,282 ) Inventories ( 18,618 ) — ( 18,618 ) Contributions to unconsolidated construction joint ventures ( 33,563 ) — ( 33,563 ) Distributions from unconsolidated construction joint ventures and affiliates 6,522 — 6,522 Other assets, net 15,627 6,426 22,053 Accounts payable 17,983 — 17,983 Accrual for expected resolution of SEC investigation 12,000 — 12,000 Accrued expenses and other liabilities, net ( 5,484 ) 5,838 354 Net cash used in operating activities $ ( 103,278 ) $ — $ ( 103,278 ) 15 Table of Contents 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 and six months ended June 30, 2023 and 2022, we did not identify any material amounts that should have been recorded in a prior period. During the six months ended June 30, 2023, there was one project with an increase from revisions in estimates which had an impact to gross profit of $ 6.9 million and a reduction of net loss of $ 5.2 million, with $ 2.7 million of that amount attributable to non-controlling interests. The revision decreased the net loss per diluted share by $ 0.06 . The increase was due to decreases in estimated costs from mitigated risks. There were no increases to revisions which individually had an impact of $ 5.0 million or more on gross profit during the three months ended June 30, 2023 or during the three and six months ended June 30, 2022. The projects with decreases from revisions in estimates, 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 June 30, Six Months Ended June 30, As Restated 2023 2022 2023 2022 Number of projects with downward estimate changes 1 3 2 5 Range of reduction in gross profit from each project, net $ 20.7 $ 5.9 - 7.6 $ 5.9 - 32.1 $ 5.6 - 10.6 Decrease to project profitability, net $ 20.7 $ 19.5 $ 38.0 $ 35.6 Decrease to net income/increase to net loss $ 15.8 $ 14.9 $ 29.0 $ 27.3 Amounts attributable to non-controlling interests $ 10.4 $ 3.0 $ 16.0 $ 3.0 Decrease to net income/increase to net loss attributable to Granite Construction Incorporated $ 5.4 $ 11.9 $ 13.0 $ 24.2 Decrease to net income/increase to net loss per diluted share attributable to common shareholders $ 0.12 $ 0.23 $ 0.30 $ 0.54 The decreases during the three and six months ended June 30, 2023 were due to additional costs related to changes in project duration and increased labor and materials costs. The decreases during the three and six months ended June 30, 2022 were due to additional costs related to extended project duration, increased labor and materials costs, and disputed work being performed where there were ongoing legal claims. 16 Table of Contents 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 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 June 30, 2023 Construction Materials Total California $ 232,902 $ 77,216 $ 310,118 Central 200,486 12,338 212,824 Mountain 316,025 59,585 375,610 Total $ 749,413 $ 149,139 $ 898,552 2022 (As Restated and Recast) Construction Materials Total California $ 197,435 $ 71,572 $ 269,007 Central 211,605 13,901 225,506 Mountain 304,181 50,553 354,734 Total $ 713,221 $ 136,026 $ 849,247 Six Months Ended June 30, 2023 Construction Materials Total California $ 381,849 $ 107,354 $ 489,203 Central 371,488 23,894 395,382 Mountain 499,492 74,543 574,035 Total $ 1,252,829 $ 205,791 $ 1,458,620 2022 (As Recast) Construction Materials Total California $ 343,744 $ 117,259 $ 461,003 Central 431,499 24,263 455,762 Mountain 516,244 70,124 586,368 Total $ 1,291,487 $ 211,646 $ 1,503,133 6 .  Unearned Revenue The following table presents our unearned revenue as of the respective periods: (in thousands) June 30, 2023 December 31, 2022 California $ 1,266,122 $ 945,971 Central 1,336,341 1,444,983 Mountain 790,043 486,524 Total $ 3,392,506 $ 2,877,478 All unearned revenue is in the Construction segment. Approximately $ 2.3 billion of the June 30, 2023 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter. 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 $ 45.5 million and $ 89.7 million during the three and six months ended June 30, 2023 and $ 79.4 million and $ 114.6 million during the three and six months ended June 30, 2022, respectively. The changes in contract transaction price for the three and six months ended June 30, 2023 and 2022 were from items such as executed or estimated change orders and unresolved contract modifications and claims. 17 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) As of June 30, 2023 and December 31, 2022, the aggregate claim recovery estimates included in contract asset and liability balances were $ 70.3 million and $ 75.8 million, respectively. The components of the contract asset balances as of the respective dates were as follows: (in thousands) June 30, 2023 December 31, 2022 Costs in excess of billings and estimated earnings $ 127,848 $ 80,357 Contract retention 160,501 161,559 Total contract assets $ 288,349 $ 241,916 As of June 30, 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 $ 48.1 million and $ 171.1 million during the three and six months ended June 30, 2023, respectively, and $ 44.1 million and $ 210.7 million during the three and six months ended June 30, 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) June 30, 2023 December 31, 2022 Billings in excess of costs and estimated earnings, net of retention $ 153,181 $ 152,294 Provisions for losses 20,107 20,992 Total contract liabilities $ 173,288 $ 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) June 30, 2023 December 31, 2022 Contracts completed and in progress: Billed $ 279,044 $ 220,809 Unbilled 200,418 120,348 Total contracts completed and in progress 479,462 341,157 Materials sales 84,919 52,182 Other 73,523 71,790 Total gross receivables 637,904 465,129 Less: allowance for credit losses 1,107 1,142 Total net receivables $ 636,797 $ 463,987 Included in other receivables at June 30, 2023 and December 31, 2022 were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. Other receivables at June 30, 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 June 30, 2023 or December 31, 2022. 18 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 June 30, 2023 Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $ 51,489 $ — $ — $ 51,489 Total assets $ 51,489 $ — $ — $ 51,489 Accrued and other current liabilities Diesel collars $ — $ 991 $ — $ 991 Commodity swaps — 479 — 479 Total liabilities $ — $ 1,470 $ — $ 1,470 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 June 30, 2023 and December 31, 2022, we held commodity swaps for crude oil designated as cash flow hedges with a total outstanding notional amount of $ 8.0 million and $ 7.0 million, respectively, all maturing by October 31, 2023. The realized and unrealized losses associated with commodity swaps for the three and six months ended June 30, 2023 were immaterial . The financial statement impact for the three and six months ended June 30, 2022 was a realized gain of $ 2.4 million and $ 2.8 million, respectively. In addition, for the three months ended June 30, 2022, the commodity swaps had an unrealized loss of $ 0.5 million, and for the six months ended June 30, 2022, the commodity swaps had an unrealized gain of $ 2.8 million. In the first and second quarters of 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 December 2024 maturity dates. The financial statement impact for the six months ended June 30, 2023 was an unrealized loss of $ 1.0 million. The unrealized loss for the three months ended June 30, 2023 was immaterial . The realized loss for the three and six months ended June 30, 2023 was immaterial . 19 Table of Contents 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: June 30, 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 $ 36,556 $ 35,458 $ 65,943 $ 64,584 Liabilities (including current maturities): 3.75 % Convertible Notes (2) Level 2 $ 373,750 $ 403,002 $ — $ — 2.75 % Convertible Notes (2) Level 2 $ 31,338 $ 41,841 $ 230,000 $ 281,365 Credit Agreement - revolver (2) Level 3 $ 55,000 $ 54,344 $ 50,000 $ 49,536 (1) All marketable securities as of June 30, 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 values of our 2.75 % convertible senior notes due 2024 (the " 2.75 % Convertible Notes") and the 3.75 % convertible senior notes due 2028 (the " 3.75 % Convertible Notes") are 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, 3.75 % Convertible Notes and the Credit Agreement. During the six months ended June 30, 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 and six months ended June 30, 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 June 30, 2023, there was $ 202.4 million of remaining contract value on unconsolidated and line item construction joint venture contracts of which $ 96.4 million represented our share and the remaining $ 106.0 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 June 30, 2023, we were engaged in eleven active CCJV projects with total contract values ranging from $ 17.7 million to $ 430.8 million for a combined total of $ 1.8 billion of which our share was $ 1.0 billion. As of June 30, 2023, our share of revenue remaining to be recognized on these CCJVs was $ 204.4 million and ranged from $ 0.5 million to $ 84.8 million by project. Our proportionate share of the equity in these joint ventures was between 50.0 % and 70.0 %. During the three and six months ended June 30, 2023 and 2022, total revenue from CCJVs was $ 70.8 million, $ 132.1 million, $ 122.7 million and $ 227.0 million, respectively. During the six months ended June 30, 2023 and 2022, CCJVs used $ 48.3 million and $ 13.4 million of operating cash flows, respectively. Unconsolidated Construction Joint Ventures As of June 30, 2023, we were engaged in seven active unconsolidated joint venture projects with total contract values ranging from $ 5.8 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 20 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) June 30, 2023, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 58.6 million and ranged from $ 1.6 million to $ 34.3 million by project. The following is summary financial information related to unconsolidated construction joint ventures: (in thousands) June 30, 2023 December 31, 2022 Assets Cash, cash equivalents and marketable securities $ 110,275 $ 130,635 Other current assets (1) 694,959 681,221 Noncurrent assets 60,534 76,204 Less partners’ interest 593,218 604,741 Granite’s interest (1),(2) $ 272,550 $ 283,319 Liabilities Current liabilities $ 209,643 $ 244,411 Less partners’ interest and adjustments (3) 111,104 130,911 Granite’s interest $ 98,539 $ 113,500 Equity in construction joint ventures (4) $ 174,011 $ 169,819 (1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 was $ 58.2 million and $ 64.7 million, respectively, related to performance guarantees (see Note 13). (2) Included in this balance as of June 30, 2023 and December 31, 2022 was $ 98.1 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 June 30, 2023 and December 31, 2022, respectively. (3) 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. (4) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $ 14.1 million and $ 14.0 million as of June 30, 2023 and December 31, 2022, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Revenue Total $ 25,211 $ 91,564 $ 63,385 $ 252,703 Less partners’ interest and adjustments (1) 15,691 68,374 39,020 179,858 Granite’s interest $ 9,520 $ 23,190 $ 24,365 $ 72,845 Cost of revenue Total $ 40,564 $ 93,162 $ 84,935 $ 251,083 Less partners’ interest and adjustments (1) 25,912 56,897 56,316 161,549 Granite’s interest 14,652 36,265 28,619 89,534 Granite’s interest in gross loss $ ( 5,132 ) $ ( 13,075 ) $ ( 4,254 ) $ ( 16,689 ) Net Income (Loss) Total $ ( 14,574 ) $ ( 2,871 ) $ ( 20,228 ) $ 296 Less partners’ interest and adjustments (1) ( 9,658 ) 10,730 ( 16,223 ) 17,524 Granite’s interest in net loss (2) $ ( 4,916 ) $ ( 13,601 ) $ ( 4,005 ) $ ( 17,228 ) (1) 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. (2) These joint venture net 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. 21 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 11.   Investments in Affiliates Our investments in affiliates balance consists of equity method investments in the following types of entities: (in thousands) June 30, 2023 December 31, 2022 Foreign $ 64,698 $ 58,579 Real estate 7,460 8,517 Asphalt terminal 14,453 13,629 Total investments in affiliates $ 86,611 $ 80,725 The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis: (in thousands) June 30, 2023 December 31, 2022 Current assets $ 201,508 $ 194,210 Noncurrent assets 175,336 172,560 Total assets 376,844 366,770 Current liabilities 97,837 106,780 Long-term liabilities (1) 59,950 59,356 Total liabilities 157,787 166,136 Net assets 219,057 200,634 Granite’s share of net assets $ 86,611 $ 80,725 (1) This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments. Of the $ 376.8 million of total affiliate assets as of June 30, 2023, we had investments in two real estate entities with total assets of $ 67.0 million, our foreign affiliates had total assets of $ 276.9 million and the asphalt terminal entity had total assets of $ 32.9 million. As of June 30, 2023 and December 31, 2022, all of the investments in real estate affiliates were in residential real estate in Texas. As of June 30, 2023, our percent ownership in the real estate entities ranged from 10 % to 25 %. We have direct and indirect investments in our foreign affiliates, and our percent ownership in foreign affiliates ranged from 25 % to 50 % as of June 30, 2023. 12.   Property and Equipment, net Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets as follows: (in thousands) June 30, 2023 December 31, 2022 Equipment and vehicles $ 1,051,771 $ 994,602 Quarry property 232,117 219,843 Land and land improvements 108,288 105,733 Buildings and leasehold improvements 105,780 103,658 Office furniture and equipment 86,768 82,465 Property and equipment 1,584,724 1,506,301 Less: accumulated depreciation and depletion 1,020,647 997,091 Property and equipment, net $ 564,077 $ 509,210 22 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 13.   Accrued Expenses and Other Current Liabilities (in thousands) June 30, 2023 December 31, 2022 Accrued insurance $ 86,882 $ 78,427 Deficits in unconsolidated construction joint ventures 14,082 13,989 Payroll and related employee benefits 79,567 80,910 Performance guarantees 58,190 64,703 Short-term lease liabilities 17,483 18,662 Other 53,818 31,778 Total $ 310,022 $ 288,469 The decrease in performance guarantees in the current year is due to receiving customer acceptance on two unconsolidated construction joint ventures during the six months ended June 30, 2023. Other includes dividends payable, warranty reserves, asset retirement obligations, remediation reserves, legal accruals and other miscellaneous accruals, none of which were greater than 5% of total current liabilities at any of the presented dates. 14.   Long-Term Debt and Credit Arrangements (in thousands) June 30, 2023 December 31, 2022 3.75 % Convertible Notes $ 373,750 $ — 2.75 % Convertible Notes 31,338 230,000 Credit Agreement - revolver 55,000 50,000 Other, net of debt issuance costs 70 8,381 Total debt $ 460,158 $ 288,381 Less current maturities 1,466 1,447 Total long-term debt $ 458,692 $ 286,934 3.75 % Convertible Notes On May 11, 2023, we issued $ 373.8 million aggregate principal amount of our 3.75 % Convertible Notes. The 3.75 % Convertible Notes bear interest at a rate of 3.75 % per annum payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2023 and mature on May 15, 2028, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 15, 2027, the 3.75 % Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 3.75 % Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The initial conversion rate applicable to the 3.75 % Convertible Notes is 21.6807 shares of Granite common stock per $1,000 principal amount of the 3.75 % Convertible Notes, which is equivalent to an initial conversion price of approximately $ 46.12 per share of Granite common stock, subject to adjustment if certain events occur. Upon conversion, we will pay or deliver, as the case may be, cash, 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 “fundamental change” as defined in the indenture governing the 3.75 % Convertible Notes, holders may require us to repurchase for cash all or any portion of their 3.75 % Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 3.75 % Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If certain corporate events that constitute a “make-whole fundamental change” as set forth in the indenture governing the 3.75 % Convertible Notes occur prior to the maturity date of the 3.75 % Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.75 % Convertible Notes in connection with such event or notice of redemption. We will not be able to redeem the 3.75 % Convertible Notes prior to May 20, 2026. On or after May 20, 2026, we have the option to redeem for cash all or any portion of the 3.75 % 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 at a redemption price equal to 100 % of the principal amount of the 3.75 % Convertible Notes to be redeemed, plus any accrued but unpaid interest to, but excluding, the redemption date. In addition, as described in the indenture governing the 3.75 % Convertible Notes, certain 23 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the 3.75 % Convertible Notes becoming due and payable immediately. The net proceeds from the sale of the 3.75 % Convertible Notes were approximately $ 364.4 million, after deducting the initial purchasers’ discount. We used approximately $ 53.0 million of the net proceeds from the offering to pay the cost of the Capped Call Transactions (as described below). In addition, we used approximately $ 198.8 million of the net proceeds and issued 1,390,500 shares of Granite common stock in exchange for approximately $ 198.7 million aggregate principal amount of our 2.75 % Convertible Notes concurrent with the offering in separate and individually negotiated transactions. We also received 1,390,516 shares from bond option counterparties for the exercise of our bond hedge, corresponding to the portion of the 2.75 % Convertible Notes that were exchanged, and used approximately $ 13.2 million of the net proceeds to pay the cost of terminating the portion of the existing warrant transactions that correspond to the 2.75 % Convertible Notes exchanged. Capped Call Transactions In May 2023, we entered into capped call transactions (the "Capped Call Transactions") in connection with the offering of the 3.75 % Convertible Notes. The Capped Call Transactions are expected generally to reduce the potential dilution to Granite’s common stock upon conversion of the 3.75 % Convertible Notes and/or offset any cash payments Granite is required to make in excess of the principal amount of converted 3.75 % Convertible Notes, as the case may be. If, however, the market price per share of Granite’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions will initially be $ 79.83 per share, which represents a premium of 125 % over the last reported sale price of Granite’s common stock of $ 35.48 per share on the New York Stock Exchange on May 8, 2023, and is subject to certain adjustments under the terms of the Capped Call Transactions. 2.75 % Convertible Notes 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 November 1, 2024, unless earlier converted, redeemed or repurchased. The 2.75 % Convertible Notes are convertible at the option of the holders prior to the close of business on the business day before 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 the close of business on the second scheduled trading day immediately preceding the maturity date. 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 a conversion price of approximately $ 31.47 per share of Granite common stock. Upon conversion, we will pay or deliver, as the case may be, cash, 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 prior to the maturity date of the 2.75 % Convertible Notes or if the Company delivers 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. 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 at a redemption price equal to 100 % of the principal amount of the 2.75 % Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of a “fundamental change” as defined in the indenture governing the 2.75 % Convertible Notes, 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 of the 2.75 % Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, as described in the indenture governing the 2.75 % Convertible Notes, 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. At June 30, 2023, $ 31.3 million remained outstanding of our 2.75 % Convertible Notes. Credit Agreement In June 2022, we entered into the Credit Agreement which matures on June 2, 2027. The Credit Agreement is a $ 350.0 million senior secured, five-year revolving facility (the “Revolver”), including an accordion feature allowing us to increase 24 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) borrowings up to the greater of (a) $ 200.0 million and (b) 100 % of twelve-month trailing consolidated EBITDA, subject to lender approval. The Credit Agreement includes a $ 150.0 million sublimit for letters of credit ($ 75.0 million for financial letters of credit) and a $ 20.0 million sublimit for swingline loans. In May 2023, we entered into Amendment No. 1 to the Credit Agreement (the "Amendment"). The Amendment amended the Credit Agreement to, among other things, permit the Company to exchange its 2.75 % Convertible Notes for cash and shares of its common stock and to clarify that (i) the issuance of the 3.75 % Convertible Notes was permitted under the terms of the Credit Agreement and (ii) that a Swap Contract (as defined in the Credit Agreement) does not include any Permitted Call Spread Transaction (as defined in the Credit Agreement). As of June 30, 2023, the total unused availability under the Credit Agreement was $ 275.9 million, resulting from $ 19.1 million in issued and outstanding letters of credit and $ 55.0 million drawn under the revolver. The letters of credit had expiration dates between July 2023 and December 2026. As of June 30, 2023, the applicable rate was 1.50 % for loans under the Credit Agreement bearing interest based on the Secured Overnight Financing Rate ("SOFR") and 0.50 % for loans bearing interest at the base rate. Accordingly, the effective interest rates at June 30, 2023 for SOFR and base rate loans were 6.70 % and 8.75 %, respectively. The Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants include a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) and a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement). As of June 30, 2023, we were in compliance with the covenants in the Credit Agreement. Debt Issuance Costs During the three and six months ended June 30, 2023, we recorded $ 2.1 million and $ 2.4 million, respectively, of amortization related to debt issuance costs. This included $ 1.7 million of accelerated amortization of debt issuance costs associated with the 2.75 % Convertible Notes that were repaid and are included in the loss on debt extinguishment. We also capitalized $ 9.8 million in third party offering costs related to the issuance of the 3.75 % Convertible Notes. These debt issuance costs will be amortized over the expected life of the 3.75 % Convertible Notes. During the three and six months ended June 30, 2022, we recorded $ 0.4 million, and $ 0.7 million, respectively, of amortization related to debt issuance costs. 15.   Weighted Average Shares Outstanding and Net Income (Loss) Per Share The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share: Three Months Ended June 30, Six Months Ended June 30, As Restated As Restated (in thousands, except per share amounts) 2023 2022 2023 2022 Numerator (basic and diluted) Net income (loss) attributable to common shareholders $ ( 17,000 ) $ 18,681 $ ( 40,023 ) $ ( 8,052 ) Add: Interest expense related to Convertible Notes — 1,468 — — Net income (loss) attributable to common shareholders for diluted earnings per share $ ( 17,000 ) $ 20,149 $ ( 40,023 ) $ ( 8,052 ) Denominator Weighted average common shares outstanding, basic 43,892 44,534 43,829 45,128 Add: Dilutive effect of RSUs — 452 — — Add: Dilutive effect of Convertible Notes — 7,309 — — Weighted average common shares outstanding, diluted 43,892 52,295 43,829 45,128 Net income (loss) per share, basic $ ( 0.39 ) $ 0.42 $ ( 0.91 ) $ ( 0.18 ) Net income (loss) per share, diluted $ ( 0.39 ) $ 0.39 $ ( 0.91 ) $ ( 0.18 ) 25 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Due to the net losses for the three and six months ended June 30, 2023 and six months ended June 30, 2022, RSUs representing 586,000 , 584,000 and 493,000 shares, respectively, and the potential dilution from the convertible notes converting into 10,095,000 , 10,095,000 and 7,309,000 shares of common stock for each period, respectively, have been excluded from the number of shares used in calculating diluted earnings per share, as their inclusion would have been antidilutive. In connection with the issuance of the 3.75 % Convertible Notes, we entered into Capped Calls Transactions, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. 16.   Income Taxes The following table presents the provision for (benefit from) income taxes for the respective periods: Three Months Ended June 30, Six Months Ended June 30, As Restated and Recast As Restated and Recast (dollars in thousands) 2023 2022 2023 2022 Provision for (benefit from) income taxes $ 9,024 $ 8,668 $ ( 445 ) $ 15,020 Effective tax rate ( 60.9 %) 30.7 % 0.9 % 158.1 % Our effective tax rate for the three and six months ended June 30, 2023 was lower than the prior year primarily due to a $ 49.3 million non-deductible expense associated with the refinancing of a portion of the Company's 2.75 % Convertible Notes in the second quarter of 2023. See Note 14 for more information. 17.   Contingencies - Legal Proceedings Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition, disclosure is required when a material loss is probable but not reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded. The total liabilities for legal proceedings are recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheet (see Note 13). The total range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined. Ordinary Course Legal Proceedings In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of our Annual Report. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which often cannot be predicted with certainty. Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed. 26 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Salesforce Tower Matter Our wholly-owned subsidiary, Layne Christensen Company ("Layne"), was a subcontractor on the foundation for the Salesforce Tower office building in San Francisco in 2013 and 2014. Certain anomalies were discovered in March 2014 in the foundation’s structural concrete, which were remediated by the general contractor during 2015. Layne assigned any insurance claims it may have had under the project’s builder’s risk insurance policy to the general contractor. During 2014, the project owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and related damages. The claim was denied by the builder’s risk insurers. The project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy, which proceeding was then transferred by agreement to arbitration. On July 20, 2021, we were informed of an arbitration award denying insurance coverage for claims related to the remedial measures undertaken by the general contractor of the Salesforce Tower and related damages. On February 3, 2022, a lawsuit titled Steadfast Insurance Company (“Steadfast”), a subrogee of Clark/Hathaway Dinwiddie, a Joint Venture (“CHDJV”) v. Layne Christensen Company (“Layne”) , was filed in the Superior Court of the State of California, County of San Francisco, seeking damages of approximately $ 70 million for costs incurred by Steadfast on behalf of CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower. On February 4, 2022, CHDJV submitted an arbitration demand with the American Arbitration Association against Granite Construction Incorporated seeking to recover approximately $ 30 million for costs incurred by CHDJV to cure Layne’s allegedly defective work on the foundation of the Salesforce Tower. CHDJV subsequently dismissed Granite and added Layne as a respondent to the arbitration. On May 6, 2022, CHDJV consolidated its claims with those of Steadfast and joined as a plaintiff in the Steadfast lawsuit, and on May 16, 2022, the arbitration was stayed. Both Layne and CHDJV have moved for summary adjudication on potentially dispositive issues. The parties have agreed to attend a mediation on August 4, 2023, and, as a result, the hearing for the summary adjudication motions has been postponed to September 13, 2023. Layne opposes the motions filed against it and believes it has multiple defenses and counterclaims to the plaintiffs' claims. Layne intends to vigorously defend against plaintiffs' claims and prosecute its counterclaims, but we cannot provide assurance that Layne will be successful in these efforts. As of June 30, 2023, we have determined that a loss related to this matter is probable, have estimated a range of loss and recorded a liability based on the low end of the range, as there were no facts and circumstances to support a different point in the range. In the second quarter of 2023, we recorded a pre-tax charge of $ 12.0 million, net of estimated insurance recovery, which is reflected in other costs on the condensed consolidated statements of operations for the three and six months ended June 30, 2023. 18.  Reportable Segment Information Our reportable segments are the same as our operating segments and correspond with how our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews financial information to allocate resources and assess performance. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer. Our reportable segments are: Construction and Materials. Summarized segment information is as follows (in thousands): Three months ended June 30, Construction Materials Total 2023 Total revenue from reportable segments $ 749,413 $ 206,832 $ 956,245 Elimination of intersegment revenue — ( 57,693 ) ( 57,693 ) Revenue from external customers $ 749,413 $ 149,139 $ 898,552 Gross profit $ 79,154 $ 23,932 $ 103,086 Depreciation, depletion and amortization $ 10,238 $ 7,090 $ 17,328 2022 (As Restated and Recast) Total revenue from reportable segments $ 713,221 $ 180,444 $ 893,665 Elimination of intersegment revenue — ( 44,418 ) ( 44,418 ) Revenue from external customers $ 713,221 $ 136,026 $ 849,247 Gross profit $ 80,252 $ 17,314 $ 97,566 Depreciation, depletion and amortization $ 5,595 $ 6,804 $ 12,399 27 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Six Months Ended June 30, Construction Materials Total 2023 Total revenue from reportable segments $ 1,252,829 $ 278,752 $ 1,531,581 Elimination of intersegment revenue — ( 72,961 ) ( 72,961 ) Revenue from external customers $ 1,252,829 $ 205,791 $ 1,458,620 Gross profit $ 115,859 $ 19,586 $ 135,445 Depreciation, depletion and amortization $ 19,993 $ 13,213 $ 33,206 Segment assets as of period end $ 443,112 $ 414,858 $ 857,970 2022 (As Recast) Total revenue from reportable segments $ 1,291,487 $ 272,967 $ 1,564,454 Elimination of intersegment revenue — ( 61,321 ) ( 61,321 ) Revenue from external customers $ 1,291,487 $ 211,646 $ 1,503,133 Gross profit $ 138,731 $ 18,927 $ 157,658 Depreciation, depletion and amortization $ 13,389 $ 13,137 $ 26,526 Segment assets as of period end $ 369,160 $ 357,922 $ 727,082 A reconciliation of segment gross profit to consolidated income (loss) before income taxes is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, As Restated and Recast As Recast (in thousands) 2023 2022 2023 2022 Total gross profit from reportable segments $ 103,086 $ 97,566 $ 135,445 $ 157,658 Selling, general and administrative expenses 64,563 60,121 137,685 130,241 Other costs, net 13,607 16,612 18,130 22,891 Gain on sales of property and equipment ( 3,944 ) ( 8,915 ) ( 5,981 ) ( 9,513 ) Total other (income) expense, net 43,682 1,502 35,674 4,536 Income (loss) before income taxes $ ( 14,822 ) $ 28,246 $ ( 50,063 ) $ 9,503 28 Table of Contents