What changed in this filing

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Item 1. Financial Statements

2022-04-28 compared with 2021-10-28 · 791 added, 978 removed, 972 unchanged (65% of the section changed)

3 unchanged sentences

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

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

March 31, 2021

Current assets

3 unchanged sentences

$ 440,833  

Short-term marketable securities

14,953  

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

17 unchanged sentences

59,938  

Current assets held-for-sale

211,774  

392,641  

159,394  

Total current assets

8 unchanged sentences

21,775  

15,600  

11,300  

Investments in affiliates

17 unchanged sentences

69,291  

Noncurrent assets held-for-sale

244,930  

1 unchanged sentence

$ 2,494,927  

$ 2,373,684  

LIABILITIES AND EQUITY

16 unchanged sentences

499,827  

Current liabilities held-for-sale

40,246  

83,408  

68,478  

Total current liabilities

10 unchanged sentences

35,540  

Deferred income taxes, net

Other long-term liabilities

2 unchanged sentences

64,442  

Long-term liabilities held-for-sale

10,725  

Commitments and contingencies (see Note 18)

2 unchanged sentences

issued and outstanding:

45,826,409 shares as of September 30, 2021, 45,668,541 shares as of December 31, 2020 and 45,655,682 shares as of September 30, 2020

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

Additional paid-in capital

2 unchanged sentences

554,186  

Accumulated other comprehensive loss

( 3,468 )  

Accumulated other comprehensive income (loss)

( 3,359 )  

22 unchanged sentences

(Unaudited - in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Transportation

$ 568,186  

$ 623,999  

$ 1,444,450  

$ 1,510,001  

121,968  

106,599  

335,153  

317,980  

234,300  

205,134  

590,245  

513,087  

Three Months Ended March 31,

$ 474,935  

5 unchanged sentences

566,332  

2,696,214  

2,616,887  

Cost of revenue

Transportation

426,743  

2 unchanged sentences

58,418  

112,092  

94,042  

306,148  

283,497  

203,442  

171,842  

517,693  

465,234  

116,977  

103,631  

281,610  

230,904  

Total cost of revenue

3 unchanged sentences

53,712  

119,935  

125,997  

300,199  

238,139  

Selling, general and administrative expenses

1 unchanged sentence

61,161  

227,400  

224,128  

Non-cash impairment charges (see Note 3)

132,277  

156,690  

Other costs (see Note 7)

74,309  

28,513  

Gain on sales of property and equipment, net (see Note 12)

( 5,159 )  

( 3,057 )  

( 39,349 )  

Operating income (loss)

43,732  

Gain on sales of property and equipment, net

( 332 )  

Operating loss

( 16,608 )  

2 unchanged sentences

( 623 )  

( 755 )  

( 737 )  

Interest expense

16,019  

17,902  

Equity in income of affiliates, net

( 2,539 )  

( 2,353 )  

( 10,578 )  

Other expense (income), net

( 1,967 )  

( 3,018 )  

Equity in (income) loss of affiliates, net

Other (income) expense, net

Total other expense, net

10,766  

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

41,327  

( 87,085 )  

24,915  

Provision for (benefit from) income taxes

11,272  

Net income (loss)

Loss from continuing operations before benefit from income taxes

( 21,248 )  

Benefit from income taxes on continuing operations

( 5,331 )  

Net loss from continuing operations

( 15,917 )  

Amount attributable to non-controlling interests

Net income (loss) from discontinued operations

( 9,821 )  

Net income (loss) attributable to Granite Construction Incorporated

Amount attributable to non-controlling interests from continuing operations

( 3,118 )  

Net loss attributable to Granite Construction Incorporated from continuing operations

( 19,035 )  

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

Net loss attributable to Granite Construction Incorporated

$ ( 12,939 )  

$ ( 153,127 )

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

$ 0.76  

$ ( 2.00 )  

$ 0.51  

$ 0.73  

$ ( 2.00 )  

$ 0.49  

Weighted average shares of common stock

Basic continuing operations per share

$ ( 0.42 )  

Basic discontinued operations per share

Basic loss per share

$ ( 0.29 )  

Diluted continuing operations per share

$ ( 0.42 )  

Diluted discontinued operations per share

Diluted loss per share

$ ( 0.29 )  

Weighted average shares outstanding:

45,730  

6 unchanged sentences

(Unaudited - in thousands)

Three Months Ended September 30,  

Nine Months Ended September 30,  

Net income (loss)

$ 32,423  

$ ( 98,357 )  

$ 22,847  

$ ( 171,868 )

Other comprehensive (loss) income, net of tax:

Net unrealized (loss) gain on derivatives

$ ( 945 )  

Three Months Ended March 31,

$ ( 9,821 )  

reclassification for net losses included in interest expense

Other comprehensive income, net of tax:

Net unrealized gain on cash flow hedges

$ 2,436  

reclassification for net gains included in interest expense

$ 4,196  

1 unchanged sentence

Foreign currency translation adjustments, net

( 151 )  

( 273 )  

Other comprehensive (loss) income

$ ( 717 )  

$ ( 202 )  

$ 1,566  

Comprehensive income (loss)

Other comprehensive income

$ 4,932  

$ 1,319  

Comprehensive loss

$ ( 4,889 )  

$ ( 175,225 )

Non-controlling interests in comprehensive income

( 3,118 )  

Comprehensive income (loss) attributable to Granite Construction Incorporated

$ 34,326  

$ ( 91,364 )  

Comprehensive loss attributable to Granite Construction Incorporated

$ ( 8,007 )  

$ ( 156,484 )

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

5 unchanged sentences

Additional Paid-In Capital  

Accumulated Other Comprehensive (Loss) Income  

Accumulated Other Comprehensive Income (Loss)  

Retained Earnings  

3 unchanged sentences

Total Equity  

Balances at June 30, 2021

45,818,719  

$ 556,615  

$ ( 2,750 )  

$ 401,061  

$ 955,384  

$ 32,858  

$ 988,242  

Net income (loss)

35,043  

( 2,620 )  

32,423  

Other comprehensive loss

( 717 )  

Purchases of common stock (1)

( 2,683 )  

( 105 )  

Restricted stock units (“RSUs”) vested

10,399  

Dividends on common stock ( $0.13 per share)

( 5,958 )  

Transactions with non-controlling interests

Amortized RSUs and other

( 26 )  

( 72 )  

Balances at September 30, 2021

45,826,409  

$ 558,121  

$ ( 3,468 )  

$ 430,074  

$ 985,185  

$ 37,169  

$ 1,022,354  

Balances at June 30, 2020

45,651,914  

$ 553,038  

$ ( 5,800 )  

$ 520,025  

$ 1,067,721  

$ 23,039  

$ 1,090,760  

( 91,162 )  

( 7,195 )  

Other comprehensive loss

( 202 )  

Purchases of common stock (1)

( 1,352 )  

( 25 )  

Dividends on common stock ( $0.13 per share)

( 5,935 )  

Balances at December 31, 2021

45,840,260  

Transactions with non-controlling interests

Amortized RSUs and other

$ 559,752  

$ ( 3,359 )  

Balances at September 30, 2020

$ 410,831  

2 unchanged sentences

$ 995,563  

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

( 26,961 )  

1 unchanged sentence

$ ( 16,418 )  

Balances at December 31, 2020

Balances at January 1, 2022

45,840,260  

8 unchanged sentences

( 12,939 )  

( 462 )  

22,847  

Other comprehensive income

8 unchanged sentences

Transactions with non-controlling interests

21,685  

Amortized RSUs and other

( 815 )  

Stock-based compensation expense and other

( 413 )  

Balances at September 30, 2021

Balances at March 31, 2022

45,364,137  

15 unchanged sentences

( 66,195 )  

( 18,741 )  

Other comprehensive loss

( 3,357 )  

Other comprehensive income

Purchases of common stock (1)

6 unchanged sentences

( 5,953 )  

Effect of adopting Topic 326

( 366 )  

Transactions with non-controlling interests

10,837  

Amortized RSUs and other

10,837  

Stock-based compensation expense and other

( 786 )  

Balances at September 30, 2020

( 77 )  

Balances at March 31, 2021

45,791,712  

4 unchanged sentences

$ 27,655  

(1) On June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan, which replaced the Amended and Restated 2012 Equity Incentive Plan.

This amount represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 and 2021 Equity Incentive Plans. 

$ 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.

2 unchanged sentences

( Unaudited - in thousands )

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Net income (loss)

$ ( 9,821 )  

$ ( 171,868 )

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

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

Depreciation, depletion and amortization

1 unchanged sentence

24,581  

Amortization related to the 2.75% Convertible Notes (see Note 13)

Gain on sales of property and equipment, net (see Note 12)

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

Gain on sale of discontinued operations (see Note 3)

( 6,234 )  

Gain on sales of property and equipment, net

( 598 )  

Deferred income taxes

Stock-based compensation

Equity in net (income) loss from unconsolidated joint ventures

( 8,027 )  

38,529  

Net income from affiliates

( 1,289 )  

Non-cash impairment charges (see Note 3)

156,690  

Other non-cash adjustments

Changes in assets and liabilities:

Accrual for legal settlement (see Note 16)

( 299 )  

Insurance receivable for legal settlement (see Note 16)

Changes in assets and liabilities:

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

85,957  

6 unchanged sentences

Distributions from unconsolidated construction joint ventures and affiliates

14,379  

Other assets, net

( 102 )  

Accounts payable

( 44,028 )  

Accrual for legal settlement (see Note 18)

129,000  

Accrued expenses and other liabilities, net

1 unchanged sentence

19,746  

Net cash provided by operating activities

Net cash provided by (used in) operating activities

$ ( 50,180 )  

3 unchanged sentences

( 19,940 )  

Maturities of marketable securities

10,000  

Proceeds from called marketable securities

24,996  

Purchases of property and equipment

( 31,269 )  

Proceeds from sales of property and equipment (see Note 12)

Proceeds from sales of property and equipment

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

142,571  

Issuance of notes receivable

( 4,560 )  

Other investing activities, net

Net cash used in investing activities

Collection of notes receivable

Net cash provided by (used in) investing activities

$ 89,396  

Financing activities

Proceeds from debt

50,000  

Debt principal repayments

5 unchanged sentences

Contributions from non-controlling partners

15,701  

Distributions to non-controlling partners

( 3,022 )  

Other financing activities, net

Net cash used in financing activities

$ ( 82,904 )  

Net cash (used in) provided by financing activities

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

( 43,688 )  

16,792  

Net increase in cash, cash equivalents and restricted cash

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

413,655  

437,648  

Cash, cash equivalents and $1,512 and $5,835 in restricted cash at beginning of period

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

$ 369,967  

$ 454,440  

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

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

13,607  

Cash and cash equivalents of continuing operations at end of period

$ 360,911  

$ 440,833  

Supplementary Information

1 unchanged sentence

$ 3,502  

$ 9,486  

Cash paid for operating lease liabilities

7 unchanged sentences

$ 6,606  

$ 4,685  

Dividends declared but not paid

Contributions from non-controlling partners

$ 5,897  

$ 5,953  

Accrued equipment purchases

$ 5,511  

$ 2,443  

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

6 unchanged sentences

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, 2020 . 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.

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 

September 30, 2021  and 

March 31, 2022  and 

2021  and the results of our operations and cash flows for the periods presented.

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.

We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements.

Our policy related to derivative instruments was expanded, as follows, to reflect treatment of the interest rate swap de-designation that occurred during the three months ended June 30, 2021, which is further discussed in Note 9.

Derivative Instruments:

We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value using Level 2 inputs.

To receive hedge accounting treatment, derivative instruments that are designated as cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

We formally document our hedge relationships at inception, including identification of the hedging instruments and the hedged items, our risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument’s effectiveness in offsetting changes in the fair value of the hedged items.

The effective portion of the gain or loss on cash flow hedges is reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statements of operations when the periodic hedged cash flows are settled. Adjustments to fair value on derivatives that are not  part of a designated hedging relationship are reported through the consolidated statements of operations. We do not enter into derivative instruments for speculative or trading purposes.

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 nine months ended September 30, 2021  are not necessarily indicative of the results to be expected for the full year.

Cash, Cash Equivalents and Restricted Cash:

The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):

Nine months ended September 30,

Cash, cash equivalents and restricted cash, beginning of period

$ 437,648  

$ 268,108  

End of the period

Cash and cash equivalents

464,049  

388,024  

Restricted cash

Total cash, cash equivalents and restricted cash, end of period

465,561  

389,536  

Net increase in cash, cash equivalents and restricted cash

$ 27,913  

$ 121,428  

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 

2020 - 06,  

Debt —

Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging —

Contracts in Entity ’

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 Entity ’

s Own Equity (Subtopic 815 - 40 ):

Accounting for Convertible Instruments and Contracts in an Entity ’

s Own Equity (“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.

This change will also reduce reported interest expense and increase reported net income as we issued a convertible instrument that was bifurcated according to previously existing rules.

In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method for convertible debt.

The ASU is effective commencing with our quarter ending 

March 31, 2022.

We currently anticipate adopting this ASU using the modified retrospective transition approach.

Upon issuance of the 

2.75 % convertible senior notes due 2024 ( “2.75%  Convertible Notes”), cash received was separated into a $ 192.6 million debt component and a $ 27.9  million (net of $ 9.5  million in taxes) equity component.

We have been increasing the debt component for the difference between the principal amount and the $ 192.6 million (“debt discount”) with an offset to interest expense over the life of the loan using an effective interest rate.

Upon adoption of ASU 2020 - 06, interest expense previously recorded and remaining to be recorded from the debt discount will be reversed through retained earnings with an offset to debt, net of tax.

We estimate this impact to long-term debt and retained earnings to be between $ 20 million and $ 40 million.

In addition, using the if-converted method as compared to the treasury stock method may have a material impact to diluted earnings per share if the Company is in a net income position.

In March 2020, the FASB issued ASU 2020 - 04,  Reference Rate Reform (Topic 848 ):

s 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.

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.

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.

3 unchanged sentences

These ASUs are effective at our option beginning with our quarter ended March 31, 2020 through December 31, 2022, 

and we expect to adopt in the second quarter of 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.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 Impairment Charges and Other Costs

We perform our goodwill impairment tests annually as of 

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, 

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 

and more frequently when events and circumstances occur that indicate a possible impairment of goodwill.

There were no events or circumstances during the nine months ended September 

30, 2021  that would indicate a possible goodwill impairment. 

We performed an interim goodwill impairment test on the March 

31, 2020 balances of our Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation during the three months ended March 31, 2020, exacerbated by economic disruption and market conditions associated with the COVID- 19 pandemic.

These factors led to reductions in the revenue and margin growth rates used in our quantitative goodwill tests.

The goodwill impairment test resulted in a $ 14.8  million impairment charge during the three  months ended March 

31, 2020 associated with our Water and Mineral Services Group Materials reporting unit and no impairment charge associated with our Water and Minerals Services Group Specialty reporting unit as its estimated fair value exceeded its net book value (i.e., headroom) by over 15%.

Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment. 

We performed a 

second  interim goodwill impairment test on the 

September 

2020  balances of our Midwest Group Specialty, Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnel during the 

three  months ended 

September 30, 2020 .

 These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests.

The goodwill impairment test resulted in a non-cash impairment charge of an additional $ 117.9  million and $ 14.4  million associated with our Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units, respectively, during the 

three  months ended 

September 30, 2020 .

 The goodwill impairment test for the Midwest Group Specialty reporting unit indicated that its estimated fair value exceeded its net book value (i.e., headroom) by over 15%;

 therefore, 

no  impairment charge was recorded.

Interim goodwill impairment tests were 

not  performed on our remaining reporting units as there was 

no  indication of a possible goodwill impairment. 

Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherent in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five -year financial forecasts developed internally by management adjusted for market participant-based assumptions.

Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.

Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs. 

Investments in Affiliates

Investments in affiliates are evaluated for impairment using the other-than-temporary impairment model, which requires an impairment charge to be recognized if our investments’ carrying amounts exceed their fair value, and the decline in fair value is deemed to be other than temporary.

There were no events or changes in circumstances which would cause us to assess our investments for impairment during the nine months ended September 

30, 2021 or during the three months ended September 30, 2020.

During the three months ended March 

31, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand.

The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary declines in fair value below the carrying values.

Therefore, we recorded a non-cash impairment charge of $ 9.6  million during the nine months ended September 30, 2020 using assumptions classified as Level 3 inputs.

Other costs included on the condensed consolidated statements of operations primarily consisted of $ 66.0  million in net settlement charges for the nine months ended September 

30, 2021 as further described in Note 16.

Other costs also included $ 3.5  million and $ 16.9  million for the 

three and nine months ended September 30, 2021 , respectively, and $ 9.7  million and $ 28.4  million for the three and nine months ended September 30, 2020 , respectively, of legal, accounting and investigation fees related to the lawsuits discussed in Note 16 and to the independent investigation undertaken by the Audit/Compliance Committee.

The remaining Other costs were primarily related to restructuring in the Heavy Civil operating group and integration expenses related to the Layne Christensen Company (“Layne”) acquisition.

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 changes 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 nine months ended September 30, 2021  and 2020 , we did 

not  identify any material amounts that should have been recorded in a prior period. 

There were no increases from revisions in estimates, which individually had an impact of $ 5.0 million or more on gross profit, for the periods presented.

Decreases for all periods presented were in our Transportation segment except for one project in the Water segment during the nine months ended September 30, 2021 and one project in the Specialty segment during each period in 2020 and the nine months ended September 30, 2021. 

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 September 30,

Nine Months Ended September 30,

Number of projects with downward estimate changes

Amount/range of reduction in gross profit from each project, net

$ 5.7 - 10.9  

$ 7.2 - 17.8  

$ 5.5 - 16.2  

$ 6.5 - 37.6  

Decrease to project profitability

Decrease to net income/increase to net loss

Amounts attributable to non-controlling interests

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

Decrease to net income/increase to net loss per diluted share attributable to common shareholders (1)

( 1 ) The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued September 30, 2020  condensed consolidated financial statements.

The decreases during the three and nine months ended September 30, 2021 were due to additional costs from acceleration of work coupled with lower productivity and higher costs than originally anticipated.

The decreases during the nine months ended September 30, 2021 were also due to unfavorable weather and extended project duration.

The decreases during the three and nine months ended September 30, 2020 were due to additional costs from differing site conditions, lower productivity than originally anticipated and unfavorable weather.

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 

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, 

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

Disaggregation of Revenue

The following tables present our disaggregated revenue (in thousands): 

Three Months Ended September 30,

Transportation

$ 191,146  

$ 8,531  

$ 56,364  

$ 76,029  

$ 332,070  

29,347  

33,798  

138,201  

34,424  

180,424  

34,767  

25,608  

60,375  

199,630  

61,030  

56,403  

319,187  

Water and Mineral Services

103,505  

27,527  

136,275  

$ 568,186  

$ 121,968  

$ 234,300  

$ 137,675  

$ 1,062,129  

Transportation

$ 224,636  

$ 10,498  

$ 62,623  

$ 75,901  

$ 373,658  

28,765  

32,246  

165,434  

12,892  

188,311  

43,896  

24,392  

68,288  

186,893  

57,247  

48,674  

293,258  

Water and Mineral Services

85,331  

19,215  

109,428  

$ 623,999  

$ 106,599  

$ 205,134  

$ 129,457  

$ 1,065,189  

Nine Months Ended September 30,

Transportation

$ 478,823  

$ 27,512  

$ 153,497  

$ 188,475  

$ 848,307  

70,280  

80,039  

 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  

1 unchanged sentence

$ 12,095  

Receivables, net

54,652  

1 unchanged sentence

81,877  

Contract assets

16,700  

3 unchanged sentences

19,625  

Water and Mineral Services

20,635  

Other current assets

Property and equipment, net

40,490  

1 unchanged sentence

101,220  

Investments in affiliates

50,453  

3 unchanged sentences

63,063  

Transportation

63,092  

Right of use assets

12,365  

Other noncurrent assets

16,176  

24,857  

Total assets classified as held-for-sale

$ 211,774  

1 unchanged sentence

$ 404,324  

Accounts payable

$ 16,682  

1 unchanged sentence

$ 37,337  

Contract liabilities

Other current liabilities

15,808  

1 unchanged sentence

24,625  

Long-term lease liabilities

Other long-term liabilities

Total liabilities classified as held-for-sale

$ 40,246  

1 unchanged sentence

$ 79,203  

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

Three Months Ended March 31,

$ 102,961  

$ 103,581  

Water and Mineral Services

Cost of revenue

88,727  

1 unchanged sentence

14,234  

Selling, general and administrative expenses

11,618  

14,568  

Gain on sale of discontinued operations

( 6,234 )  

Gain on sales of property and equipment, net

( 266 )  

Operating income (loss)

Other income, net

( 1,608 )  

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

Provision for (benefit from) income taxes

Net income (loss) from discontinued operations

$ 6,096  

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,

Depreciation, depletion and amortization (1)

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

Unearned Revenue

The following tables present our unearned revenue as of the respective periods (in thousands):

September 30, 2021

Transportation

$ 695,445  

$ 35,972  

$ 114,178  

$ 845,595  

40,477  

75,827  

116,369  

513,590  

154,005  

124,026  

791,621  

85,755  

287,144  

372,899  

468,397  

273,622  

745,750  

Water and Mineral Services

159,958  

$ 1,803,664  

$ 353,731  

$ 874,797  

$ 3,032,192  

June 30, 2021

Transportation

$ 769,260  

$ 44,066  

$ 150,178  

$ 963,504  

102,972  

110,348  

622,491  

161,632  

172,818  

956,941  

107,630  

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.

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.

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

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,

$ 144,387  

3 unchanged sentences

10,362  

Water and Mineral Services

234,455  

4 unchanged sentences

$ 72,651  

September 30, 2020

Transportation

$ 547,586  

9 unchanged sentences

$ 566,332  

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

$ 768,013  

4 unchanged sentences

1,798,761  

Water and Mineral Services

530,712  

4 unchanged sentences

$ 3,171,552  

Approximately $ 2.3  billion of the September 30, 2021  unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.

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.

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

1 unchanged sentence

Contract Assets and Liabilities

As work is performed, revenue is recognized and the corresponding contract liabilities are reduced.

We recognized revenue of $ 5.8  million and $ 181.4  million during the 

three and nine months ended September 30, 2021 , respectively, and $ 3.5  million and $ 117.5 million during the three and nine months ended September 30, 2020 , respectively, that was included in the contract liability balances at December 31, 2020  and 2019, respectively.

As a result of changes in contract transaction price from items such as executed or estimated change orders and resolution of contract modifications and claims, we recognized revenue of $ 37.2  million and $ 153.6 million during the 

three and nine months ended September 30, 2021 , respectively, and $ 55.5  million and $ 149.3  million during the 

three and nine months ended September 30, 2020 , respectively, related to performance obligations that were satisfied or partially satisfied prior to the end of the periods.

The prior period amounts have been adjusted to correct an immaterial disclosure error in the previously issued September 30, 2020  condensed consolidated financial statements.

September 30, 2021 , December 31, 2020  and September 30, 2020 , the aggregate claim recovery estimates included in contract asset balances were $ 40.4  million, $ 37.7  million and $ 29.2  million, respectively.

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.

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)

September 30, 2021  

March 31, 2022  

December 31, 2021  

September 30, 2020  

March 31, 2021  

Costs in excess of billings and estimated earnings

10 unchanged sentences

$ 144,780  

September 30, 2021 , December 31, 2020  and September 30, 2020 , no contract retention receivable individually exceeded 15% of total contract assets at any of the presented dates.

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:

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

(in thousands)

September 30, 2021  

March 31, 2022  

December 31, 2021  

September 30, 2020  

March 31, 2021  

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

11 unchanged sentences

 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 do not bear interest.

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)

September 30, 2021  

December 31, 2020  

September 30, 2020  

March 31, 2022

December 31, 2021

March 31, 2021

Contracts completed and in progress:

9 unchanged sentences

248,828  

Material sales

Materials sales

45,967  

14 unchanged sentences

Included in other receivables at 

September 30, 2021 , December 31, 2020  and September 30, 2020 , were items such as estimated recovery from insurance receivable, notes receivable and income tax refunds.

Other than the $ 63.0 million insurance receivable related to the settlement discussed in Note 16 included in the September 30, 2021 balance, no other receivables individually exceeded 5% of total net receivables at any of these dates.

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

1 unchanged sentence

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):

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

September 30, 2021

March 31, 2022

Cash equivalents

2 unchanged sentences

$ 21,237  

Other noncurrent assets

Restricted cash

Other current assets

Commodity swap

$ 21,237  

$ 3,047  

$ 24,284  

Accrued and other current liabilities

Interest rate swap

$ 5,001  

Total liabilities

$ 5,001  

December 31, 2021

3 unchanged sentences

$ 65,233  

Other noncurrent assets

Restricted cash

$ 65,233  

7 unchanged sentences

$ 3,514  

September 30, 2020

March 31, 2021

Cash equivalents

2 unchanged sentences

$ 42,488  

Other noncurrent assets

Restricted cash

Other current assets

Commodity swap

$ 42,488  

$ 1,106  

$ 43,594  

Accrued and other current liabilities

5 unchanged sentences

$ 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 

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

Interest Rate Swaps

In connection with entering into the Credit Agreement, we entered into two interest rate swaps with an effective date of May 2018 that were designated as cash flow hedges through the three months ended March 31, 2021. 

These interest rate swaps had a combined initial notional amount of $ 150.0 million and mature in May 2023.

The interest rate swaps are designed to convert the interest rate on the term loan from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 

2.76 % plus the same applicable margin. The interest rate swaps are measured at fair value on the condensed consolidated balance sheets using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value.

These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.

During the three months ended 

June 30, 

2021, we determined that the interest rate swaps were no longer highly effective in offsetting changes to expected future cash flows on hedged transactions and were therefore de-designated as cash flow hedges.

As a result of this de-designation, the $ 5.4 million unrealized loss recorded to accumulated other comprehensive loss prior to de-designation will continue to be amortized to interest expense through the maturity date of May 2023.

The impact from the interest rate swap de-designation that was included in interest expense on the condensed consolidated statements of operations was immaterial for the three and nine months ended September 30, 2021.

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:

September 30, 2021

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

September 30, 2020

March 31, 2021

(in thousands)

25 unchanged sentences

$ 130,645  

Credit Agreement - revolving credit facility (2)

75,000  

76,180  

( 1 ) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations maturing in one to five years.

( 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.

1 unchanged sentence

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 $ 24.5  million, $ 29.7  million and $ 31.4  million as of September 30, 2021 , December 31, 2020 and September 30, 2020, respectively, related to the 2.75% Convertible Notes (see Note 13 ).

During the three and nine months ended September 30, 2021 , we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

As disclosed in Note 3, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2020, we did not record any fair value adjustments related to nonfinancial liabilities measured at fair value on a nonrecurring basis.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

( 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.

Construction Joint Ventures

3 unchanged sentences

Based on our assessments during the 

three and nine months ended September 30, 2021 , 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 the 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).

September 30, 2021 , there was approximately $ 0.8  billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $ 0.3  billion represented our share and the remaining $ 0.5  billion represented our partners’

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).

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’

We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed.

2 unchanged sentences

Consolidated Construction Joint Ventures (“CCJVs”)

September 30, 2021 , we were engaged in 

eight active CCJV projects with total contract values ranging from $ 2.3  million to $ 437.5  million and a combined total of $ 1.6  billion of which our share was $ 914.8  million.

As of September 30, 2021, our share of revenue remaining to be recognized on these CCJVs was $ 292.6  million and ranged from $ 0.8  million to $ 97.3  million by project.

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 

1 unchanged sentence

During the 

three and nine months ended September 30, 2021 , total revenue from CCJVs was $ 117.4  million and $ 314.9 million, respectively, and during the 

three and nine months ended September 30, 2020 , total revenue from CCJVs was $ 79.2  million and $ 219.9 million, respectively.

three months ended March 31, 2022  and 2021 , total revenue from CCJVs was $ 107.6  million and $ 82.6 million, respectively.

During the 

nine months ended September 30, 2021  and 2020 , CCJVs provided $ 17.5  million and $ 17.0  million of operating cash flows, respectively.

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

Unconsolidated Construction Joint Ventures

September 30, 2021 , we were engaged in ten  active unconsolidated joint venture projects with total contract values ranging from $ 13.7  million to $ 3.8  billion for a combined total of $ 11.6  billion of which our share was $ 3.4  billion.

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 %.

September 30, 2021 , our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 225.8  million and ranged from $ 1.2  million to $ 52.8  million by project.

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

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)

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

March 31, 2021

Cash, cash equivalents and marketable securities

$ 157,869  

$ 182,891  

$ 161,574  

Other current assets (1)

663,187  

661,342  

768,127  

Noncurrent assets

92,153  

103,579  

150,273  

Less partners’

604,157  

633,634  

719,634  

Granite’s interest (1),(2)

$ 309,052  

$ 314,178  

$ 360,340  

Current liabilities

$ 263,213  

$ 307,674  

$ 470,667  

Less partners’

interest and adjustments (3)

130,443  

154,771  

241,250  

Granite’s interest

$ 132,770  

$ 152,903  

$ 229,417  

Equity in construction joint ventures (4)

( 1 ) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $ 82.3  million as of 

September 30, 2021 , 

$ 176,282  

$ 161,275  

$ 130,923  

( 1 ) 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 

September 30, 2020  related to performance guarantees.

( 2 ) Included in this balance as of September 30, 2021 , December 31, 2020  and September 30, 2020 , was $ 101.9  million, $ 88.7  million and $ 86.2  million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims.

In addition, this balance included $ 14.1  million, $ 13.1  million and $ 13.8  million as of 

September 30, 2021 , 

March 31, 2021  was $ 82.1  million, $ 82.1  million and $ 82.3  million, respectively, related to performance guarantees.

( 2 ) 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 

September 30, 2020 , respectively, related to Granite’s share of estimated recovery of back charge claims.

March 31, 2021 , respectively.

( 3 ) Partners’

1 unchanged sentence

( 4 ) 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 

September 30, 2021 , 

December 31, 2020  and September 30, 2020 , respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.

Three Months Ended September 30,

Nine Months Ended September 30,

March 31, 2022 , 

December 31, 2021  and March 31, 2021 , respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.

Three Months Ended March 31,

(in thousands)

$ 161,139  

$ 232,042  

Less partners’

interest and adjustments (1)

111,484  

152,320  

Granite’s interest

$ 49,655  

$ 79,722  

Cost of revenue

$ 157,921  

$ 248,070  

Less partners’

interest and adjustments (1)

104,652  

168,734  

Granite’s interest

$ 53,269  

$ 79,336  

Granite’s interest in gross profit (loss)

( 3,614 )  

Net Income (Loss)

$ 3,167  

Less partners’

interest and adjustments (1)

Granite’s interest in net income (loss)

$ ( 3,627 )  

( 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 differences.

During the three and nine months ended September 30, 2021 , unconsolidated construction joint venture net loss was $( 9.3 ) million and $( 11.5 ) million, respectively, of which our share was net income of $ 1.0  million and $ 8.0 million, respectively.

During the 

three and nine months ended September 30, 2020 , unconsolidated construction joint venture net loss was $( 6.0 ) million and $( 144.5 ) million, respectively, of which our share was $( 8.0 ) million and $( 38.5 ) million, respectively.

During both 2021  and 2020, there were variances on five  projects between our estimated total revenue and cost of revenue when compared to that of our partners’ due to timing of recognition from differing accounting policies and public company quarterly reporting requirements.

During each of the three months ended March 31, 

2022 and 2021 , there was a material variance on one  project between our estimated and/or actual total revenue and cost of revenue when compared to that of our partners’ due to timing of recognition from differing accounting policies and public company quarterly reporting requirements.

These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.

Line Item Joint Ventures

As of September 30, 2021 , we were engaged in 

As of March 31, 2022 , we were engaged in 

three  active line item joint venture construction projects with a total contract value of $ 339.2 million of which our portion was $ 221.4  million.

September 30, 2021 , our share of revenue remaining to be recognized on these line item joint ventures was $ 84.6  million.

March 31, 2022 , our share of revenue remaining to be recognized on these line item joint ventures was $ 64.9  million.

During the 

three and nine months ended September 30, 2021 ,  

our portion of revenue from line item joint ventures was $ 26.3  million and $ 55.0 million, respectively.

During the three and nine months ended September 30, 2020 , our portion of revenue from line item joint ventures was $ 27.5  million and $ 58.7 million, respectively.

three months ended March 31, 2022  and 

our portion of revenue from line item joint ventures was $ 6.4  million and $ 8.6  million, respectively.

GRANITE CONSTRUCTION INCORPORATED

3 unchanged sentences

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

$ 49,089  

$ 47,650  

March 31, 2021

$ 9,629  

11 unchanged sentences

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

March 31, 2021

Current assets

28 unchanged sentences

$ 27,760  

( 1 ) The balance primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates, as well as debt associated with our real estate investments.

Of the $ 324.2  million of total affiliate assets as of September 30, 2021 , we had investments in thirteen  foreign entities with total assets ranging from $ 0.1  million to $ 84.4  million, 

two  real estate entities with total assets of $ 75.5  million and the asphalt terminal entity that had total assets of $ 33.4  million.

We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25 % to 50 % as of September 30, 2021 . During the nine months ended September 

30, 2020, we recorded a $ 9.6  million impairment charge related to our investment in foreign affiliates.

See Note 

3  for further discussion of the impairment charge. As of 

September 30, 2021  and 

December 31, 2020 , all of the investments in real estate affiliates were in residential real estate in Texas.

September 30, 2020 , $ 13.2  million of the investments in real estate affiliates was in residential real estate in Texas and the remaining balance was in commercial real estate in Texas.

Our percent ownership in the real estate entities was between 

10 % and 

25 % as of 

September 30, 2021 .

( 1 ) This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments.

Of the $ 107.0  million of total affiliate assets as of March 31, 2022 , we had investments in 

two  real estate entities with total assets of $ 76.9  million and the asphalt terminal entity had total assets of $ 30.1  million. As of 

March 31, 2022 , 

December 31, 2021  and 

March 31, 2021 , all of the investments in real estate affiliates were in residential real estate in Texas.

As of March 31, 2022 , our percent ownership in the real estate entities ranged from 10 % to 

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 and were as follows:

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)

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

March 31, 2021

Equipment and vehicles

30 unchanged sentences

$ 426,953  

On June 30, 2021, we completed a sale-leaseback transaction associated with two properties in California.

Sale of these properties resulted in a reduction in net property and equipment of $ 11.1  million and a $ 2.4 million addition to right of use assets and lease liabilities on the condensed consolidated balance sheets, as well as a $ 29.7 million gain on sales of property and equipment on the condensed consolidated statements of operations.

 Accrued Expenses and Other Current Liabilities

(in thousands)

March 31, 2022

December 31, 2021

March 31, 2021

Accrued insurance

$ 87,265  

$ 76,999  

$ 73,831  

Deficits in unconsolidated construction joint ventures

14,901  

28,636  

55,613  

Payroll and related employee benefits

78,731  

87,460  

109,169  

Performance guarantees

82,112  

82,280  

Accrued legal settlement (see Note 18)

129,000  

47,516  

48,622  

49,934  

$ 439,525  

$ 452,829  

$ 499,827  

Other includes short-term lease liabilities, dividends payable, warranty reserves, asset retirement obligations, remediation reserves and other miscellaneous accruals, 

none  of which are greater than 

5%  of total current liabilities.

GRANITE CONSTRUCTION INCORPORATED

2 unchanged sentences

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

March 31, 2021

2.75% Convertible Notes

6 unchanged sentences

129,375  

Credit Agreement - revolving credit facility

75,000  

Debt issuance costs and other

7 unchanged sentences

$ 331,647  

During the three months ended March 31, 2022, $ 60.9 million of our term loan was repaid prior to its stated maturity.

As of each 

September 30, 2021 , December 31, 2020  and September 30, 2020 , $ 7.5  million of the term loan portion of the Credit Agreement was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $ 118.1  million, $ 123.8  million and $ 125.6  million, respectively, was included in long-term debt.

September 30, 2021 , the total unused availability under the Credit Agreement was $ 227.9  million resulting from $ 47.1  million in issued and outstanding letters of credit and no amount drawn under the revolving credit facility.

The letters of credit had expiration dates between October 2021  and 

March 31, 2022 , December 31, 2021  and March 31, 2021 , $ 7.5  million of the term loan balance of the Credit Agreement was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $ 53.4  million, $ 116.3  million and $ 121.9  million, respectively, was included in long-term debt.

March 31, 2022 , the total unused availability under the Credit Agreement was $ 242.1  million resulting from $ 32.9  million in issued and outstanding letters of credit and no amount drawn under the revolving credit facility.

The letters of credit had expiration dates between June 2022  and 

December 2025 . 

As of September 30, 2021, the Applicable Rate was 1.63 % for loans under the Credit Agreement bearing interest based on LIBOR and 0.63 % for loans bearing interest at the Base Rate.

As of March 31, 2022 , the Applicable Rate was 2.00 % for loans under the Credit Agreement bearing interest based on LIBOR and 1.00 % for loans bearing interest at the Base Rate.

Accordingly, the effective interest rates at 

September 30, 2021 , for LIBOR and Base Rate loans were 

March 31, 2022  for LIBOR and Base Rate loans were 

3.01 % and 4.50 %, respectively. We elected to use LIBOR for the term loan.

As of September 30, 2021 , the Consolidated Leverage Ratio (as defined in the Credit Agreement) was 1.73 , which did not exceed the maximum of 3.00 and the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) was 8.52 , which exceeded the minimum of 4.00 .

As of September 30, 2021 , 

December 31, 2020  and September 30, 2020 , the carrying amount of the liability component of the 2.75% Convertible Notes was $ 205.5  million, $ 200.3  million and $ 198.6  million, respectively. As of September 30, 2021 , December 31, 2020  and September 30, 2020 , the unamortized debt discount was $ 24.5  million, $ 29.7  million and $ 31.4  million, respectively.

During the three months ended September 30, 2021  and 2020, we recorded $ 1.7  million of amortization related to the debt discount on the 2.75 % Convertible Notes to interest expense in our condensed consolidated statements of operations and $ 0.6  million and $ 0.5 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations.

During the nine months ended September 31, 2021 and 2020, we recorded $ 5.2  million and $ 4.9  million, respectively, of amortization related to the debt discount on the 2.75 % Convertible Notes to interest expense in our condensed consolidated statements of operations and $ 1.8 million and $ 1.6  million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. These nine -month amounts were presented as amortization related to the 2.75 % Convertible Notes on our condensed consolidated statements of cash flows.

As of March 31, 2022 , the Consolidated Leverage Ratio (as defined in the Credit Agreement) was 2.58 , which did not exceed the maximum of 3.00 and the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) was 6.07 , which was above the minimum of 4.00 .

Effective January 1, 2022, we implemented ASU 2020 - 06 (see Note 2 ), which updated our accounting for the 2.75% Convertible Notes.

As of March 31, 2022 , 

December 31, 2021  and March 31, 2021 , the carrying amount of the 2.75 % Convertible Notes was $ 230.0  million, $ 207.4  million and $ 202.0  million, respectively.

During the three months ended Mach 31, 2022, we did not record amortization of the debt discount due to the implementation of ASU 2020 - 06, and during the three months ended March 31, 

2021, we recorded $ 1.7  million of amortization of the debt discount.

During each of the three months ended March 31, 2022 and 

2021 , we recorded $ 0.3  million of amortization related to debt issuance costs.

 Weighted Average Shares Outstanding and Net Income (Loss) Per Share

The following table presents a reconciliation of the weighted average shares outstanding 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 September 30,

Nine Months Ended September 30,

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 March 31,

(in thousands, except per share amounts)

Numerator (basic and diluted)

Net income (loss) allocated to common shareholders for basic calculation

$ 35,043  

Net loss from continuing operations allocated to common shareholders

$ ( 19,035 )  

Net income (loss) from discontinued operations allocated to common shareholders

Net loss allocated to common shareholders

$ ( 12,939 )  

$ ( 153,127 )

Weighted average common shares outstanding, basic

1 unchanged sentence

45,697  

45,773  

45,598  

Dilutive effect of RSUs (1)

Dilutive effect of 2.75% Convertible Notes (2)

Weighted average common shares outstanding, diluted

1 unchanged sentence

45,697  

47,522  

45,598  

Net income (loss) per share, basic

$ 0.76  

$ ( 2.00 )  

Net loss from continuing operations per share

$ ( 0.42 )  

Net income (loss) per share, diluted

Net income (loss) from discontinued operations per share

Net loss per share

$ ( 0.29 )  

Net loss from continuing operations per share

$ ( 0.42 )  

Net income (loss) from discontinued operations per share

Net loss per share

$ ( 0.29 )  

( 1 ) Due to the net losses for the three and nine months ended 

September 30, 2020 , RSUs representing approximately 636,000  and 580,000  shares, respectively, have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.

( 2 ) The number of shares used in calculating diluted net loss per share for the three and nine months ended September 30, 2020 excluded the potential dilution from the 2.75 % Convertible Notes converting into shares of common stock as the average price of our common stock was below $ 31.47 per share for those periods.

Due to the net loss from continuing operations for the three months ended 

March 31, 2022  and 2021 , RSUs representing 554,000  and 

554,000 shares, respectively, and the potential dilution from the 2.75 % Convertible Notes converting into 

7,309,000 shares of common stock (see Note 1 ) for both periods have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would have been antidilutive.

 Income Taxes

The following table presents the provision for (benefit from) income taxes for the respective periods:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the benefit from income taxes on continuing operations for the respective periods:

Three Months Ended March 31,

(dollars in thousands)

Provision for (benefit from) income taxes

$ 8,904  

$ 11,272  

Benefit from income taxes on continuing operations

$ ( 5,331 )  

Effective tax rate

21.5 %  

( 12.9 )%  

Our effective tax rate for the 

three and nine months ended September 30, 2021  increased to 21.5 % and 

8.3 % from ( 12.9 )% and 

2.9 %, respectively, when compared to the same periods in 2020 .

These changes were primarily due to the goodwill impairments and the investment in affiliates impairments during the three months ended March 31, 2020 and September 30, 2020 which were discrete to those periods and resulted in no  discrete tax benefit.

See Note 3 for discussion of the impairment charges. The $ 66.0  million in settlement charges discussed in Note 16 are discrete to the nine  months ended September 

30, 2021 which resulted in a discrete tax benefit of $ 17.0 million.

three months ended March 31, 2022  was consistent with the same period in 

GRANITE CONSTRUCTION INCORPORATED

2 unchanged sentences

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 either 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 recorded, net of insurance receivable, as of September 30, 2021 

were $ 66.0 million and as of December 31, 

2020  and June 30, 2020 were immaterial.

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.

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 previously have been reasonably estimated.

Such changes could be material to our financial condition, results of operations and/or cash flows in any reporting period.

Disclosure of loss contingencies is provided 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 recorded as of March 31, 2022 and 

December 31, 2021 

were $ 129.0  million, $ 63 million of which was paid through insurance proceeds, which have been fully funded into a settlement escrow account.

The balance of the settlement escrow account is included in other current assets in the consolidated balance sheets.

March 31, 

2021, the total liabilities recorded for legal proceedings, net of insurance receivable, were $ 66.0 million. 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 reasonably estimable.

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 “Notes to the Consolidated Financial Statements”

in our Annual Report on Form 10 -K for the year ended December 31, 2020.

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.

Securities Litigation, Derivative Lawsuits and Other Matters

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 

include 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  considered probable to be incurred or cannot currently be reasonably estimated.

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.

Securities Litigation and  

Derivative Lawsuits

August 13, 2019, 

a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H.

Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An amended complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant.

The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between 

Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and Executive Vice President and Chief Strategy Officer. An amended complaint was filed on 

February 20, 2020 

that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant.

The amended complaint was brought on behalf of an alleged class of persons or entities that acquired our common stock between 

April 30, 2018 

October 24, 2019, 

and alleges claims arising under Sections 

and alleged claims arising under Sections 

10 (b) and 

2 unchanged sentences

10b - 5  thereunder.

After the filing of the amended complaint, this case was re-titled Police Retirement System of St.

After the filing of the amended complaint, this case was re-titled 

Police Retirement System of St.

Granite Construction Incorporated, et.

The amended complaint seeks damages based on allegations that the defendants made false and/or misleading statements and failed to disclose material adverse facts in the Company’s SEC filings about its business, operations and prospects.

On May 20, 2020, the court denied, in part, our motion to dismiss the amended complaint. On January 21, 2021, the court granted plaintiff’s motion for class certification. 

On October 23, 2019, a putative class action lawsuit, titled Nasseri v.

al . The amended complaint sought damages based on allegations that the defendants made false and/or misleading statements and failed to disclose material adverse facts in the Company’s SEC filings about its business, operations and prospects.

May 20, 2020, 

the court denied, in part, our motion to dismiss the amended complaint. On 

January 21, 2021, 

the court granted plaintiff’s motion for class certification. 

October 23, 2019, 

a putative class action lawsuit, titled 

Granite Construction Incorporated, et.

, was filed in the Superior Court of California, County of Santa Cruz against the Company, James H.

Roberts, our former President and Chief Executive Officer, Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne.

The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed.

On August 10, 2020, the court sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint. We filed a demurrer seeking to dismiss the amended complaint. On April 9, 2021, the court entered an order overruling our demurrer seeking to dismiss the amended complaint.

On May 14, 2021, the plaintiff filed a motion for class certification.

The hearing on the motion has been continued to March 25, 2022 in light of the settlement proceedings in 

June 2018 

merger with Layne Christensen Company (“Layne”).

The complaint asserted causes of action under the Securities Act of 

1933  and alleged that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed and seeks monetary damages based on the allegations.

August 10, 2020, 

the court sustained our demurrer dismissing the complaint with leave to amend. On 

September 16, 2020, 

the plaintiff filed an amended complaint. We filed a demurrer seeking to dismiss the amended complaint. On 

April 9, 2021, 

the court entered an order overruling our demurrer seeking to dismiss the amended complaint.

May 14, 2021, 

the plaintiff filed a motion for class certification.

April 29, 2021, 

we entered into a stipulation of settlement (the “Settlement Agreement”) to settle 

Police Retirement System of St.

Granite Construction Incorporated, et al. 

On April 29, 2021, we entered into a stipulation of settlement (the “Settlement Agreement”) to settle Police Retirement System of St.

Granite Construction Incorporated, et al . The Settlement Agreement also settled claims alleged in 

Granite Construction Incorporated, et al . As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $ 66  million in the quarter ended 

March 31, 2021.

Under the Settlement Agreement, the Company agreed to pay or cause to be paid a total of $ 129.0  million in cash to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’

fees and expenses, and cash payments to members of the settlement class.

The settlement class agreed to release us, the other defendants named in the lawsuits and certain of their respective related parties from any and all claims, rights, causes of action, liabilities, actions, suits, damages or demands of any kind whatsoever, that relate in any way to the purchase, acquisition, holding, sale or disposition of our common stock during the period between 

February 17, 2017 

October 24, 2019 

that arose out of or are based upon or related to the facts alleged or the claims or allegations set forth in 

Police Retirement System of St.

Granite Construction Incorporated, et al.

The Settlement Agreement also settles claims alleged in Nasseri v.

 or relate in any way to any alleged violation of the Securities Act of 

1933,  the Securities Exchange Act of 

1934,  or any other state, federal or foreign jurisdiction’s securities or other laws, any alleged misstatement, omission or disclosure (including in financial statements) or other alleged securities-related wrongdoing or misconduct, including all claims alleged in 

Granite Construction Incorporated, et al . The Settlement Agreement contained 

no  admission of liability, wrongdoing or responsibility by any of the parties.

April 30, 2021, 

the class representative in 

Police Retirement System of St.

Granite Construction Incorporated, et al.

The settlement is subject to court approval.

Under the Settlement Agreement, the Company will pay or cause to be paid a total of $ 129.0 million in cash, $ 63.0 million of which it expects to be paid through insurance proceeds. The payment will be paid to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’

fees and expenses, and cash payments to members of the settlement class.

The settlement class has agreed to release us, the other defendants named in the lawsuits and certain of their respective related parties from any and all claims, rights, causes of action, liabilities, actions, suits, damages or demands of any kind whatsoever, that relate in any way to the purchase, acquisition, holding, sale or disposition of our common stock during the period between February 17, 2017 and October 24, 2019 that arose out of or are based upon or related to the facts alleged or the claims or allegations set forth in Police Retirement System of St.

 filed a motion for preliminary approval of the settlement.

The plaintiff in 

Granite Construction Incorporated, et al.

or relate in any way to any alleged violation of the Securities Act of 1933, the Securities Exchange Act of 1934, or any other state, federal or foreign jurisdiction’s securities or other laws, any alleged misstatement, omission or disclosure (including in financial statements) or other alleged securities-related wrongdoing or misconduct, including all claims alleged in Nasseri v.

 was permitted to intervene, although the court denied the plaintiff's application to be appointed as additional lead plaintiff. On 

October 6, 2021, 

the court issued an order granting preliminary approval of the settlement and, pursuant to the terms of the Settlement Agreement, $ 129  million was paid to the settlement escrow account.

$ 66  million was paid by the Company and $ 63  million was paid through insurance proceeds.

The total $ 129  million is included in the condensed consolidated balance sheet as deposits and an accrued liability. Members of the settlement class had the opportunity to object to the settlement at a fairness hearing held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered.

The fairness hearing occurred on February 24, 2022.

On March 17, 2022, the court granted final approval of the settlement, granted the request for attorneys’ fees by class representative's counsel, granted in part and denied in part the request for attorneys’

fees by the plaintiff in 

Granite Construction Incorporated, et al ., and entered final judgment.

On April 12, 2022, the plaintiff in Nasseri v.

Granite Construction Incorporated, et al.

The Settlement Agreement contains no admission of liability, wrongdoing or responsibility by any of the parties.

On April 30, 2021, the class representative in Police Retirement System of St.

requested that the Nasseri case be dismissed with prejudice in light of the final approval of the settlement. 

On April 15, 2022, the plaintiff in Nasseri v.

Granite Construction Incorporated, et al.

filed a motion for preliminary approval of the settlement.

The plaintiff in Nasseri v.

filed a notice of appeal in Police Retirement System of St.

Granite Construction Incorporated, et al.

has been permitted to intervene, although the court has denied his application to be appointed as additional lead plaintiff. On October 6, 2021, the court issued an order granting preliminary approval of the settlement.

Pursuant to the terms of the Settlement Agreement, payment was made to the settlement fund after preliminary approval in October 2021.

Members of the settlement class will now be provided notice of, and an opportunity to object to, the settlement at a fairness hearing to be held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered.

The fairness hearing is scheduled for February 24, 2022.

If the court approves the settlement, including the payment and release described above, and enters such order and final judgment, and such judgment is no longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court and the release will be effective to all members of the settlement class.

As a result of entering into the Settlement Agreement, we recorded a pre-tax charge of approximately $ 66.0 million in the quarter ended March 31, 2021.

May 6, 2020, a stockholder derivative lawsuit, titled English v.

Roberts, et al., was filed in the United States District Court for the Northern District of California against James H.

Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that allegedly occurred between April 30, 2018 and October 24, 2019. 

, naming Class Representative Police Retirement System of St.

Louis as appellee.

May 6, 2020, 

a stockholder derivative lawsuit, titled 

Roberts, et al.

, was filed in the United States District Court for the Northern District of California against James H.

Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 

1934  that allegedly occurred between 

April 30, 2018 

October 24, 2019. 

The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S.

GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. The court has ordered that the lawsuit in the derivative action be stayed until further order of the court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California.

On May 12, 2021, a stockholder derivative lawsuit, titled Davydov v.

GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms. Pursuant to court order, this action was stayed until the court's entry of final judgment on March 17, 2022 in the putative securities class action lawsuit filed in the Northern District of California.

May 12, 2021, 

a stockholder derivative lawsuit, titled 

Roberts, et al.

5 unchanged sentences

GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms.

On July 16, 2021, we filed a motion to dismiss the complaint.

The plaintiff’s response is due on November 22, 2021.

We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of these cases.

As of September 

30, 2021, other than the $66.0 million charge described above, we did not record any liability related to the above matters because we concluded such liabilities were not probable and the amounts of such liabilities are not reasonably estimable.

We were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages.

Our subsidiary, Layne, was a subcontractor on the foundation for the Salesforce Tower office building 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.

On April 14, 2022, the parties in Davydov v.

Roberts et al.

, the plaintiff in English v.

Roberts et al.

, and the Company entered into a Stipulation of Compromise and Settlement that, if approved by the court in Davydov and not subject to termination under its terms, provides that (i) defendants will cause insurers to pay $ 7.5 million, which amount, less court-awarded attorneys’

fees and expenses, will be paid to the Company, (ii), the Company shall implement agreed upon corporate governance provisions within 30 days of final approval of the settlement, and (iii) all claims that were asserted or could have been asserted against the defendants or their related persons in Davydov v.

Roberts, et al.

, or any other proceeding on behalf of the Davydov plaintiff, the English plaintiff, the Company or any Granite stockholder, will be released. 

On April 14, 2022, the plaintiff in Davydov v.

Roberts, et al.

filed the Stipulation of Compromise and Settlement and a proposed scheduling order for a hearing in the Delaware Court of Chancery for review of the settlement. 

The Court in English v.

Roberts, et al.

has entered the parties’

stipulation to stay that case in light of the settlement filed in Davydov v.

Roberts, et al.

As of March 31, 2022, 

December 

2021 and March 31, 2021, 

other than the Settlement Agreement charge described above, we did 

not  record any liability related to the above matters because we concluded such liabilities were 

not  probable and the amounts of such liabilities were 

not  reasonably estimable.

Other Matters

In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the former Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation.

The SEC has issued subpoenas for documents in connection with the accounting issues identified in the Investigation.

We have produced documents to the SEC and continue to cooperate with the SEC in its investigation.

Our wholly-owned subsidiary, Layne, was a subcontractor on the foundation for the Salesforce Tower office building in San Francisco in 

2013  and 

 Certain anomalies were discovered in 

March 2014 

in the foundation’s structural concrete, which were remediated by the general contractor during 

 Layne assigned any insurance claims it 

have had under the project’s builder’s risk insurance policy to the general contractor.

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. Although we were not a party to this legal proceeding, we believe, based on court filings and developments in the arbitration, that the project owner and the general contractor asserted a claim for damages against the project’s builder’s risk insurers for approximately $ 100  million.

In connection with our acquisition of Layne in June 2018, we assumed any potential liability relating to this project.

Based on the arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building and related damages, management believes it is probable that claims could be brought against the Company by the general contractor related to Layne’s involvement in the original project.

We believe we have multiple defenses and counterclaims to any claims that are brought against us and intend to defend against the claims and prosecute any counterclaims vigorously.

As of the date of this report, no action has been filed against us.

While we believe a claim is probable, we do not believe the amount of any liabilities related to the claim are reasonably estimable at this time.

Accordingly, no provision has been made in our consolidated financial statements.

In connection with our prior disclosure of the Audit/Compliance Committee’s independent investigation of prior-period reporting for the Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation.

The SEC has issued us subpoenas for documents in connection with the accounting issues identified in the Investigation.

We have produced documents to the SEC and will continue to cooperate with the SEC in its investigation.

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 ”

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. On April 8, 2022, we filed a demurrer seeking to dismiss the Steadfast lawsuit.

We believe Granite and Layne have multiple defenses and Layne has counterclaims to the claims at issue. 

Both companies intend to vigorously defend against the claims, and Layne intends to prosecute its counterclaims, but, we cannot provide assurance that Granite and Layne will be successful in these efforts.

not  believe it is probable this matter will result in a material loss, however if we are unsuccessful we believe the range of reasonably possible loss upon final resolution of this matter could be up to approximately $ 100 million.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Business Segment Information

Summarized segment information is as follows (in thousands):

Three Months Ended September 30,

Transportation

Total revenue from reportable segments

$ 568,186  

$ 121,968  

$ 234,300  

$ 201,419  

$ 1,125,873  

Elimination of intersegment revenue

( 63,744 )  

Revenue from external customers

568,186  

121,968  

234,300  

137,675  

1,062,129  

58,503  

30,858  

20,698  

119,935  

Depreciation, depletion and amortization

25,244  

Total revenue from reportable segments

$ 623,999  

$ 106,599  

$ 205,134  

$ 194,298  

$ 1,130,030  

Elimination of intersegment revenue

( 64,841 )  

Revenue from external customers

623,999  

106,599  

205,134  

129,457  

1,065,189  

54,322  

12,557  

33,292  

25,826  

125,997  

Depreciation, depletion and amortization

24,692  

Nine Months Ended September 30,

Transportation

Reportable Segment Information

During the 

fourth  quarter of 

2021, we updated our strategy to focus on our core business capabilities, to leverage our current geographic based home markets in the civil construction and materials business and to target expansion based upon that combined strategy.

In addition, we revised the financial information our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews to allocate resources and assess our performance. This change is consistent with our new strategic plan and better aligns with our continuing civil construction and materials business.

Our CODM now regularly reviews financial information regarding our 

two  primary product lines, construction and materials as well as our operating groups.

We identified our CODM as our Chief Executive Officer and our Chief Operating Officer.

As a result of these changes, in accordance with FASB ASC Topic 

Segment Reporting , our reportable segments, which are the same as our operating segments, were changed to:

Construction and Materials.

The Construction segment replaces the previous Transportation, Water and Specialty reportable segments, with the composition of our Materials segment for our continuing operations remaining unchanged.

These changes have been applied retrospectively for all periods presented.

Summarized segment information is as follows:

Three months ended March 31,

Construction  

Materials  

Total revenue from reportable segments

2 unchanged sentences

$ 564,489  

$ 457,409  

$ 2,827,257  

Elimination of intersegment revenue

7 unchanged sentences

$ 49,775  

29,005  

72,552  

44,756  

300,199  

Depreciation, depletion and amortization

2 unchanged sentences

$ 14,127  

19,329  

72,495  

Segment assets

2 unchanged sentences

$ 717,449  

355,936  

869,342  

Total revenue from reportable segments

2 unchanged sentences

$ 577,423  

$ 400,808  

$ 2,741,876  

Elimination of intersegment revenue

6 unchanged sentences

$ 53,712  

110,888  

34,483  

47,853  

44,915  

238,139  

Depreciation, depletion and amortization

2 unchanged sentences

$ 11,955  

16,563  

76,813  

Segment assets

2 unchanged sentences

$ 690,709  

361,862  

929,225  

A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Total gross profit from reportable segments

$ 119,935  

$ 125,997  

A reconciliation of segment gross profit from continuing operations to consolidated loss from continuing operations before benefit from income taxes is as follows:

Three Months Ended March 31,

Total gross profit from continuing operations

$ 49,775  

3 unchanged sentences

61,161  

227,400  

224,128  

Non-cash impairment charges (see Note 3)

132,277  

156,690  

Other costs (see Note 7)

74,309  

28,513  

Gain on sales of property and equipment (see Note 12)

( 5,159 )  

( 3,057 )  

Gain on sales of property and equipment

( 332 )  

Total other expense, net

10,766  

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

$ 41,327  

$ ( 87,085 )  

Loss from continuing operations before benefit from income taxes

$ ( 21,248 )  

$ ( 177,088 )

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein.

Forward-Looking Disclosure

16 unchanged sentences

and the negatives thereof or other comparable terminology or by the context in which they are made.

In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A.

Risk Factors.”

Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason .

We are one of the largest diversified infrastructure companies in the United States.

We are engaged in a wide array of projects including the construction of streets, roads, highways, mass transit facilities, bridges, trenchless and underground utilities, power-related facilities, water-related facilities, well drilling, utilities, tunnels, dams, site preparation, mining services, and construction management professional services.

We are also engaged in a variety of infrastructure services including those for airports, residential development, energy development, commercial and industrial sites.

We have four reportable business segments:

Transportation, Water, Specialty and Materials (see Note 17 of “Notes to the Condensed Consolidated Financial Statements”).

In addition to business segments, we review our business by operating groups.

Our operating groups are California, Federal, Heavy Civil, Northwest, Midwest and Water and Mineral Services.

We deliver infrastructure solutions for public and private clients primarily in the United States. We are one of the largest diversified infrastructure companies in the United States.

Within the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels and other infrastructure-related projects.

Within the private sector, we perform site preparation, mining services and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as provide construction management professional services.

During the fourth quarter of 2021, we updated our strategy to focus on our core business capabilities, to leverage our current geographic based home markets in the civil construction and materials business and to target expansion based upon that combined strategy. Also related to our new strategic plan, during the fourth quarter of 2021, we reorganized our operating groups to improve operating efficiencies and better position the Company for long-term growth.

In alphabetical order, our continuing business operating groups are California, Central and Mountain.

In addition, we revised the financial information our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews to allocate resources and assess our performance.

This change is consistent with our strategic plan update and better aligns with our continuing civil construction and materials business. Our CODM now regularly reviews financial information regarding our two primary product lines, construction and materials, as well as our operating groups.

We identified our CODM as our Chief Executive Officer and our Chief Operating Officer.

As a result of these changes, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, 

Segment Reporting , our reportable segments, which are the same as our operating segments, were changed to two reportable segments:

Construction and Materials (see Note 19 of “Notes to the Condensed Consolidated Financial Statements”).

The five primary economic drivers of our business are (i) the overall health of the U.S.

5 unchanged sentences

Current Economic Environment and Outlook

While the COVID-19 pandemic continues to have a significant impact around the country and the world, Granite’s approach has been consistent led by prioritizing the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Although certain projects are periodically affected by the pandemic, our business has largely returned to pre-pandemic levels of activity.

The future developments of the pandemic are highly uncertain and could adversely impact our operations and financial results in future periods.

We are closely monitoring federal, state, regional and local guidelines, orders and regulations and will take necessary steps to comply with new regulations as required.

We are continually monitoring the supply and demand related to labor and supplies, including materials such as concrete and steel. During 2021, certain segments of the construction industry were adversely affected by inflation as well as supply chain and labor constraints. The actual and expected impact to Granite was limited to oil price inflation through our use of diesel fuel and liquid asphalt, which we are monitoring and pricing into our contracts accordingly.

Our consolidated balance sheet and liquidity continue to be strong through the third quarter of 2021 and we expect it to continue to remain strong providing us the flexibility to reinvest in our businesses and execute upon our capital allocation strategy.

Funding for our public work projects, which is around 75% of our portfolio, is dependent on federal, state, regional and local revenues.

At the federal level, public work projects benefit from a $10 billion relief spending bill for state departments of transportations approved by Congress in December 2020 as part of the Coronavirus Response and Relief Act and a $360 billion Coronavirus State and Local Fiscal Recovery Funds approved by Congress in March 2021.

The Fixing America’s Surface Transportation (“FAST”) was extended for one year through September 30, 2021 with flat funding levels and for another month through October 31, 2021 as the Biden Administration and Congress work to pass a long-term solution.

In late June 2021, the Biden Administration and members of a bipartisan Senate group agreed to a roughly $1.2 trillion Bipartisan Infrastructure Framework (Infrastructure Investment and Jobs Act), proposing for $579 billion in new spending which includes significant new funding proposals for roads, bridges, airports, ports and inland waterway infrastructures.

We remain optimistic that Congress and the Administration will jointly move forward in 2021 to pass a long-term solution that addresses infrastructure investment, which we believe will meaningfully improve the programming visibility for state and local governments, starting in mid to late 2022 and then building in following years.

Funding for our public work projects, which accounts for approximately 75% of our portfolio, is dependent on federal, state, regional and local revenues.

At the federal level, President Biden signed the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) on November 15, 2021.

The five-year IIJA provides the largest increase in federal highway, bridge and transit funding in more than six decades and includes $550 billion in incremental funding.

With the 2022 federal spending bill passed by Congress and signed by President Biden in March 2022, the first installment of IIJA can begin to be appropriated to infrastructure spending programs.

We believe the increased multi-year spending commitment will improve the programming visibility for state and local governments and bring meaningful impact to project lettings starting in late 2022 and then growing in 2023 and beyond.

At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending.

In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements.

In California, our top revenue-generating state, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program.

Revenue collected through SB-1 is on track to increase over the next 5 years.

While we are encouraged by these funding supports, our markets are diverse with some being more impacted by the pandemic. We closely monitor these funding trends in all our markets and manage our pursuit pipeline accordingly.

As further discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,”

we were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages.

Layne was a subcontractor on this project and in connection with our acquisition of Layne in June 2018, we assumed any liability related to it.

See “Item 1A.

Risk Factors - In connection with acquisitions or divestitures, we may become subject to liabilities”

and “Item 1A.

Risk Factors - We are involved in lawsuits and legal proceedings in the ordinary course of our business and may in the future be subject to other litigation and legal proceedings, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations”

in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report on Form 10-K”) for additional information.

In the November 2021 elections, voters in 17 states approved 89% of state and local ballot initiatives that will provide an additional $6.9 billion in one-time and recurring revenue for transportation improvements.

Revenue collected through SB-1 is on track to increase over the next five years and supports our expected growth in the state.

Over the past year, segments of the construction industry were adversely affected by inflation as well as supply chain and labor constraints. Inflation has impacted the cost of inputs such as oil related items, concrete and steel. We continually monitor the expected movement of our construction input costs and apply strategies to mitigate the impacts including adjusting the pricing of our contracts.

One of the most significant impacts to our results of operations has been the increase in price of diesel fuel and liquid asphalt. The conflict in Ukraine has further increased oil prices since late February 2022.

While we actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future.

Granite’s Committed and Awarded Projects (“CAP”) continues to be strong.

During 2021, we saw increased interest in best-value or alternative delivery procurement work by state departments of transportation, such as California and Utah, along with other state agencies. This shift in delivery procurement methodology creates a delay in certain project bookings and project start times in the short term, but we believe will give us the opportunity for larger future work with more sustainable margins and less inherent risk. 

While we are encouraged by the growth outlook, the COVID-19 pandemic continues to create uncertainties to the economy and the normal cadence of project bids, and could adversely impact our operations and financial results in future periods.

Strategic Actions

The planned divestitures of the businesses in our former Water and Mineral Services operating group (“WMS”) reflects our new strategy to focus on our core civil construction and materials businesses by using sale proceeds to invest in these two businesses.

The divestitures also create opportunities to streamline operational support functions, improve overhead efficiency and better leverage efficiencies of scale.

The current and projected strong demand for civil construction supports the decision to grow our vertically integrated business.

Through our newly reorganized operational structure, our focus is to pursue opportunities in markets where our operating groups’

presence, capabilities and resources provide strategic advantages, with improved and consistent margin expectations.

The sale of our trenchless and pipe rehabilitation services business (“Inliner”) was completed on March 16, 2022 for a purchase price of $159.7 million, and we received cash proceeds of $142.6 million based on preliminary post-closing adjustments (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”).

We ended the first quarter of 2022 with a strong balance sheet and liquidity providing flexibility to invest to strengthen and expand our home market footprint.

Litigation Matter

As further discussed in Note 18 of “Notes to the Condensed Consolidated Financial Statements,”

in early February 2022, our wholly-owned subsidiary, Layne Christensen Company (“Layne”), was sued for $70 million and Granite received an arbitration demand for $30 million relating to Layne’s work on the Salesforce Tower foundation.

Layne was a subcontractor on this project and potential liability for this project remained with Layne in connection with our acquisition of Layne in June 2018. 

See Note 18 and "In connection with acquisitions or divestitures, we may become subject to liabilities”

and "We are involved in lawsuits and legal proceedings in the ordinary course of our business and may in the future be subject to other litigation and legal proceedings, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations”

Risk Factors in our Annual Report for additional information.

Results of Operations

1 unchanged sentence

Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.

The following table presents a financial summary for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents a financial summary for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

Selling, general and administrative expenses

Non-cash impairment charges (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”)

Other costs (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”)

Gain on sales of property and equipment, net (see Note 12 of “Notes to the Condensed Consolidated Financial Statements”)

Operating income (loss)

Operating loss

Total other expense, net

Amount attributable to non-controlling interests

Net income (loss) attributable to Granite Construction Incorporated

Net loss from continuing operations

Net income (loss) from discontinued operations (see Note 3 of "Notes to the Condensed Consolidated Financial Statements")

Amount attributable to non-controlling interests from continuing operations

Net loss attributable to Granite Construction Incorporated

Total Revenue by Segment  

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Transportation

Transportation Revenue

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

Transportation revenue for the three and nine months ended September 30, 2021 decreased by $55.8 million, or 8.9%, and $65.6 million, or 4.3%, respectively, when compared to 2020.

These decreases were primarily driven by lower Committed and Awarded Projects (“CAP”) levels in the Heavy Civil operating group as well as certain Heavy Civil operating group projects, including those in the Old Risk Portfolio (1) , nearing completion and decreases in the California operating group due to owner worksite accommodations in the third quarter of 2020 that are not present in 2021. These decreases were partially offset by a decrease in the net negative impact of revisions in estimates when compared to 2020 (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”

for more information). During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Transportation segment was from the public sector.

(1)  Old Risk Portfolio includes projects with risk criteria that do not align with Granite's new project selection criteria for the Heavy Civil operating group.

Table of Content

Water Revenue

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Water and Mineral Services

Water revenue for the three and nine months ended September 30, 2021 increased by $15.4 million, or 14.4%, and $17.2 million, or 5.4%, respectively, when compared to 2020.

The increases were primarily driven by increased demand for water supply and maintenance services, as well as lower activity levels in 2020 as a result of the COVID-19 pandemic which caused delays in awarded projects and deferrals in bidding processes. During the three and nine months ended September 30, 2021 and 2020, the majority of revenue earned in the Water segment was from the public sector.

Specialty Revenue

Three Months Ended September 30,

Nine Months Ended September 30,

Construction Revenue

Three Months Ended March 31,

(dollars in thousands)

Water and Mineral Services

Specialty revenue for the three and nine months ended September 30, 2021 increased by $29.2 million, or 14.2%, and $77.2 million, or 15.0%, respectively, when compared to 2020.

These increases were primarily driven by project progression of a federal site development project in the Heavy Civil operating group and increased activity in the Water and Mineral Services operating group’s mineral exploration business. During the three and nine months ended September 30, 2021 and 2020, revenue earned in the Specialty segment was from both the public and private sectors.

Construction revenue for the three months ended March 31, 2022 decreased by $32.0 million, or 6.3%, when compared to 2021.

These decreases were primarily driven by lower Committed and Awarded Projects (“CAP”) and progression on existing projects in the Central operating group and less favorable weather conditions in the current year in the California operating group.

These decreases were partially offset by increased revenue in the Mountain operating group. During the three months ended March 31, 2022 and 2021, the majority of revenue earned in the Construction segment was from the public sector.

Materials Revenue 

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

Water and Mineral Services

Materials revenue for the three and nine months ended September 30, 2021 increased by $8.2 million, or 6.3%, and $50.5 million, or 18.3%, when compared to 2020 primarily due to an increase in volume and an increase in prices in both asphalt and aggregates.

Materials revenue for the three months ended March 31, 2022 increased by $13.3 million, or 22.4%, when compared to 2021 driven by increases in aggregate and asphalt volumes in all three operating groups.

Committed and Awarded Projects

Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog (consisting of the revenue we expect to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts) to CAP and added the general construction portion of construction management/general contractor contracts to the extent contract execution and funding is probable.

This is the same presentation used in our quarterly earnings calls and press releases.

Effective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog to CAP and added the general construction portion of construction management/general contractor (“CM/GC”) contracts.

This is the same presentation used in our quarterly reports, earnings calls and press releases.

Prior period amounts have been revised to reflect this change.

We generally include a project in our unearned revenue at the time a contract is awarded and to the extent we believe contract execution and funding is probable.

Certain government contracts where funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed.

In line with the revised reportable segments, all CAP is now in the Construction segment.

CAP consists of two components:

(1) unearned revenue and (2) other awards.

Unearned revenue includes the revenue we expect to record in the future on executed contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts.

We generally include a project in unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable.

Contract options and task orders are included in unearned revenue when exercised or issued, respectively.

Other awards in the tables below include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively.

Other awards also include the general construction portion of construction management/general contractor projects to the extent award, contract execution and funding are probable.

Total CAP by Segment 

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Transportation

Transportation CAP 

Other awards include the general construction portion of CM/GC contracts and awarded contracts with unexercised contract options or unissued task orders.

The general construction portion of CM/GC contracts are included in other awards to the extent contract execution and funding is probable.

Contracts with unexercised contract options or unissued task orders are included in other awards to the extent option exercise or task order issuance is probable.

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

March 31, 2022

December 31, 2021

March 31, 2021

Unearned revenue

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Transportation CAP of $2.9 billion at September 30, 2021 was $20.1 million, or 0.7%, higher than at June 30, 2021 primarily due to new awards in the California operating group and new awards in the Northwest operating group, including a $25 million airport transformation project in Arizona, partially offset by progress on existing projects and fewer awarded contracts in the Heavy Civil operating group, consistent with our strategy to narrow the footprint of this group.

March 31, 2022

December 31, 2021

March 31, 2021

CAP of $3.9 billion at March 31, 2022 remained relatively unchanged when compared to December 31, 2021.

Significant new awards during the three months ended March 31, 2022 included a $32 million highway realignment project in the California operating group, a $22 million train station track and platform expansion project in the California operating group and a $20 million road improvement contract in Arizona for the Central operating group.

Non-controlling partners’

share of Transportation CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $184.1 million, $212.1 million and $282.4 million, respectively.

Four  contracts in our Transportation segment had total forecasted losses with remaining revenue of $252.1 million, or 8.7%, of Transportation CAP at  September 30, 2021 .

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Unearned revenue

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Water and Mineral Services

Water CAP of $0.5 billion as of September 30, 2021 was $7.8 million, or 1.5%, lower than at June 30, 2021 primarily due to progress on existing projects in the California operating group.

Specialty CAP

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Unearned revenue

(dollars in thousands)

September 30, 2021

June 30, 2021

September 30, 2020

Specialty CAP of $0.9 billion as of September 30, 2021 was $129.7 million, or 12.7%, lower than at June 30, 2021 due to progress on existing projects in all operating groups. Non-controlling partners’

share of Specialty CAP as of September 30, 2021, June 30, 2021 and September 30, 2020 was $46.0 million, $61.5 million and $64.8 million, respectively.

The following table presents gross profit by business segment for the respective periods:

Three Months Ended September 30,

Nine Months Ended September 30,

share of CAP as of March 31, 2022, December 31, 2021 and March 31, 2021 was $177.1 million, $214.3 million and $321.3 million, respectively.

At March 31, 2022, four contracts had total forecasted losses with remaining revenue of $176.4 million, or 4.5%, of total CAP.

The following table presents gross profit by reportable segment for the respective periods:

Three Months Ended March 31,

(dollars in thousands)

Transportation

Percent of segment revenue

Total gross profit

Percent of total revenue

Transportation gross profit for the three and nine months ended September 30, 2021 increased by $4.2 million, or 7.7%, and $43.0 million, or 38.8%, respectively, when compared to 2020 primarily due to a decrease in the negative net impact from revisions in estimates in our Heavy Civil operating group Old Risk Portfolio (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Water gross profit for the three and nine months ended September 30, 2021 decreased by $2.7 million, or 21.4%, and $5.5 million, or 15.9%, respectively, when compared to 2020.

This decrease is primarily due to the increase in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Specialty gross profit for the three and nine months ended September 30, 2021 decreased by $2.4 million, or 7.3%, and increased by $24.7 million, or 51.6%, respectively, when compared to 2020.

The year-to-date increase was primarily due to increased revenue from project progression in the Heavy Civil operating group, increased activity in the Water and Mineral Services operating group’s mineral exploration business and a decrease in the negative net impact from revisions in estimates (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Materials gross profit for the three months ended September 30, 2021 decreased by $5.0 million, or 19.5% when compared to 2020 as rising fuel and liquid asphalt costs were not able to be fully mitigated during the quarter.

Construction gross profit for the three months ended March 31, 2022 decreased by $4.6 million, or 8.7%, when compared to 2021 primarily due to lower revenue and progression of lower margin work early in the year.

Materials gross profit for the three months ended March 31, 2022 increased by $0.6, or 67.9% when compared to 2021 due to increases in aggregate and asphalt volumes as well as price increases and oil price mitigation efforts such as bulk purchases and forward contracts that offset the impact of higher fuel and liquid asphalt costs.

Selling, General and Administrative Expenses

The following table presents the components of selling, general and administrative expenses for the respective periods:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Selling Expenses

Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits.

Selling expenses include the costs for estimating and bidding including offsetting customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits.

Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses.

Selling expenses for the three and nine months ended September 30, 2021 decreased by $2.2 million, or 10.9%, and $5.5 million, or 9.0%, respectively, when compared to 2020 from reduced estimating and bidding costs, which impacted other selling expenses for the nine months, and salaries and related expenses for both periods.

Selling expenses for the three months ended March 31, 2022 remained relatively unchanged when compared to 2021.

General and Administrative Expenses

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Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses.

Total general and administrative expenses for the three and nine months ended September 30, 2021 increased by $7.2 million, or 13.8%, and $9.1 million, or 5.6%, respectively, when compared to 2020, primarily due to increases in other general and administrative expenses from increases in incentive compensation as a result of improved financial performance.

Gain on Sales of Property and Equipment, net

The following table presents the gain on sales of property and equipment, net for the respective periods:

Three Months Ended September 30,

Nine Months Ended September 30,

Total general and administrative expenses for the three months ended March 31, 2022 decreased by $2.6 million, or 5.9%, when compared to 2021, primarily due to decreases in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is offset in other (income) expense, net, through our own company-owned life insurance policy.

The following table presents other costs for the respective periods:

Three Months Ended March 31,

(dollars in thousands)

Gain on sales of property and equipment, net

Gain on sales of property and equipment, net for the three and nine months ended September 30, 2021 increased by $2.1 million and $34.5 million, respectively, when compared to 2020.

The increase during the nine months was primarily due to the sale of two properties in California as part of our ongoing asset optimization plan.

See Note 12 of “Notes to the Condensed Consolidated Financial Statements”

for more information.

The following table presents the provision for (benefit from) income taxes for the respective periods:

Three Months Ended September 30,

Nine Months Ended September 30,

Other costs (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”) for the three months ended March 31, 2022 decreased $66 million when compared to 2021, primarily due to the legal settlement charge during the three months ended March 31, 2021.

The following table presents the benefit from income taxes on continuing operations for the respective periods:

Three Months Ended March 31,

(dollars in thousands)

Provision for (benefit from) income taxes

Benefit from income taxes on continuing operations

Effective tax rate

We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our income (loss) before provision for (benefit from) income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs.

See Note 15 of “Notes to the Condensed Consolidated Financial Statements”

We calculate our income tax provision for continuing operations at the end of each interim period by estimating our annual effective tax rate and applying that rate to our loss before benefit from income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs.

See Note 17 of “Notes to the Condensed Consolidated Financial Statements”

for more information.

Certain Legal Proceedings

As discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,”

under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.

Amount Attributable to Non-controlling Interests

The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods:

Three Months Ended March 31,

(in thousands)

Amount attributable to non-controlling interests

The amount attributable to non-controlling interests represents the non-controlling owners’

share of the income or loss of our consolidated construction joint ventures. The amount for the three months ended March 31, 2022 increased $2.2 million, primarily due to net negative impacts from revisions in estimates on two projects in the prior year, neither of which had an impact of $5 million or more on gross profit.

Net Income (Loss) from Discontinued Operations

Net income (loss) from discontinued operations for the three months ended March 31, 2022 increased $9.0 million when compared to 2021 primarily due to the gain on sale of Inliner as well as ceasing depreciation and amortization on WMS property, plant and equipment, finite-lived intangible assets and right-of-use lease assets in the current year due to the classification of these assets as held-for-sale beginning December 31, 2021 (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”).

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash generated from operations.

We may also from time to time issue and sell equity, debt or hybrid securities, engage in other capital markets transactions or sell one or more business units, divisions or assets.

As of September 30, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and our marketable securities consisted of U.S. Government and agency obligations.

Our primary sources of liquidity are cash and cash equivalents, investments, available borrowing capacity and cash generated from operations.

We may also from time to time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions or sell one or more business units, divisions or assets including the WMS businesses.

Our material cash requirements include paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock.

We may also from time to time prepay or repurchase outstanding indebtedness, repurchase shares of our common stock or acquire assets or businesses that are complementary to our operations.

We believe our primary sources of liquidity will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments and other liquidity requirements associated with our existing operations for the next twelve months.

We believe our primary sources of liquidity, access to debt and equity capital markets, proceeds from the sales of the WMS businesses and cash expected to be generated from operations will be sufficient to meet our long-term requirements and plans.

However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.

As of March 31, 2022, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisting primarily of U.S. Government and agency obligations and corporate commercial paper.

Our credit facility consists of a term loan and a revolving credit facility.

Of the $275.0 million revolving credit facility capacity, $227.9 million was available for borrowing at September 30, 2021.

This difference between capacity and amount available for borrowing is due to letters of credit taken out primarily for insurance;

During the three months ended March 31, 2022, $60.9 million of the term loan was repaid prior to its stated maturity. Of the $275.0 million revolving credit facility capacity, $242.1 million was available for borrowing at March 31, 2022.

See Note 15 of “Notes to the Condensed Consolidated Financial Statements”

for further discussion regarding our credit facility.

Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock.

We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected operating requirements for the next twelve months from the date of this filing.

This includes the payment that was made pursuant to the terms of the settlement agreement to the settlement fund after preliminary approval in October 2021, as discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements.” There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.

In evaluating our liquidity position and needs, we consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”).

The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:

for further discussion regarding the credit agreement.

In evaluating our liquidity position and needs, we also consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”).

The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, for continuing operations as of the respective dates:

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

September 30, 2020

March 31, 2021

Cash and cash equivalents excluding CCJVs

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(2) All marketable securities were classified as held-to-maturity and consisted of U.S.

and agency obligations as of all periods presented.

Granite’s portion of CCJV cash and cash equivalents was $69.2 million, $42.6 million and $53.4 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $48.0 million, $58.9 million and $66.2 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. 

Nine Months Ended September 30,

and agency obligations and corporate commercial paper as of all periods presented.

Granite’s portion of CCJV cash and cash equivalents was $57.7 million, $54.4 million and $64.2 million as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively. Excluded from the table above is:

 •

$53.6 million, $56.5 million and $54.1 million as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively, in Granite’s portion of unconsolidated construction joint venture cash and cash equivalents

 •

$7.5 million, $16.5 million and $12.1 million as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively, that is included in current assets held-for-sale

Capital Expenditures

During the 

three months ended March 31, 2022, we had capital expenditures of $

31.3 million, including $

3.4 million related to discontinued operations, compared t

o $18.8 mi llion, including $

3.3 million related to discontinued operations during the three months ended March 31, 

Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems.

The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors.

We currently anticipate 2022 capital expenditures for continuing operations to be between approximately $100 million and $115 million.

Three months ended March 31,

(in thousands)

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Operating activities

progressions toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.

As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including project progression toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.

Our working capital assets result from both public and private sector projects.

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however, private sector projects generally have higher gross profit as a percentage of revenue.

While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer which can cause fluctuations in operating cash flows.

Cash provided by operating activities of $

Cash used in operating activities of $

50.2 million for the 

nine months ended September 30, 2021 represents a $

78.7 million decrease when compared to cash provided by operating activities in the same period of 

2020. The decrease was primarily due to a $

54.7 million decrease (including the $66.0 million in net securities litigation settlement charges) in cash provided by net income after adjusting for non-cash items, a $

71.4 million increase (excluding the $66.0 million net increase in working capital related to the securities litigation settlement) in cash used in working capital and an $

18.6 million increase in contributions, net of distributions, to unconsolidated joint ventures and affiliates.

The decrease in cash used in working capital was primarily due to increases to contract assets, net, partially offset by a decrease in cash used by accounts payable from payment timing differences.

Related to the securities litigation settlement , discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,”

we have separately presented the $129.0 million liability and the associated $63.0 million insurance receivable in the condensed consolidated statement of cash flows.

three months ended March 31, 2022 represents an $

88.3 million increase in cash used when compared to cash provided in the same period of 

2021. This change was primarily due to an increase in cash used of $

80.9 million due to changes in working capital (excluding the $66.0 million net decrease in working capital related to the securities litigation settlement), partially offset by a decrease in cash used of $

50.7 million (including the $66.0 million in net securities litigation settlement charges) due to lower net loss and adjustments for non-cash items and a decrease of $

7.9 million in contributions, net of distributions, to unconsolidated joint ventures and affiliates.

The decrease in cash used in working capital was primarily due to increases of receivables and contract assets, net.

Related to the securities litigation settlement discussed in Note 18 of “Notes to the Condensed Consolidated Financial Statements,”

we have separately presented the $129.0 million liability and the associated $63.0 million insurance receivable in the condensed consolidated statement of cash flows for the three months ended March 31, 2021.

The liability was paid and the receivable was collected in October 2021;

therefore, the impact on operating cash flow will occur in the fourth quarter of 2021 and there was no impact during the nine months ended September 30, 2021.

therefore, the impact on operating cash flow occurred in the fourth quarter of 2021 and there was no impact during the three months ended March 31, 2022 or 2021.

Investing activities

Cash used in investing activities of $17.4 million for the nine months ended September 30, 2021 represents a $24.5 million decrease from cash used in investing activities when compared to the same period of 2020 primarily from a decrease in proceeds from maturities of, and proceeds from called, marketable securities, partially offset by proceeds from the sale of two properties in California.

Cash provided by investing activities of $89.4 million for the three months ended March 31, 2022 represents a $105.7 million increase when compared to 2021.

The change was primarily due to proceeds from the sale of the Inliner business.

Financing activities

Cash used in financing activities of $14.6 million for the nine months ended September 30, 2021 represents a $39.3 million decrease when compared to cash provided by financing activities in the same period of 2020 primarily due to a draw on our revolver of $50 million in the prior year, partially offset by an increase in contributions from non-controlling partners, net of distributions.

Capital Expenditures

During the nine months ended September 30, 2021, we had capital expenditures of $73.0 million compared t o $74.9 mi llion during 2020.

The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors.

We currently anticipate 2021 capital expenditures to be approximately $100 million for the full year.

We recognize interest rate and commodity swap derivative instruments as either assets or liabilities at fair value using Level 2 inputs in the condensed consolidated balance sheets.

Cash used in financing activities of $82.9 million for the three months ended March 31, 2022 represents a $77.9 million increase when compared to 2021.

The change was primarily due to the prepayment of $60.9 million of our term loan as well as repurchases of common stock of $20.2 million.

We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs.

See Note 10 to “Notes to the Condensed Consolidated Financial Statements”

for further information.

The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds.

The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds.

Surety Bonds and Real Estate Mortgages

We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts.

At September 30, 2021, approximatel y $2.6 billion of our CAP was bonded.

At March 31, 2022, approximatel y $2.2 billion of our $3.9 billion CAP was bonded.

Performance bonds do not have stated expiration dates;

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The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development.

Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt.

Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital.

This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 11 of “Notes to the Condensed Consolidated Financial Statements.”

Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. The debt associated with our unconsolidated non-construction entities is included in Note 12 of “Notes to the Condensed Consolidated Financial Statements.”

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below.

Our Third Amended and Restated Credit Agreement dated May 18, 2021, as subsequently amended (the “Credit Agreement”) requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below.

Our failure to comply with these covenants would constitute an event of default under the Credit Agreement.

Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility;

Additionally, the 2.75% Convertible Notes are governed by the terms and conditions of the indenture. Our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the 2.75% Convertible Notes indenture or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility;

(ii) termination of such facility;

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and/or (v) foreclosure on any lien securing the obligations under such facility.

A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

A default under the 2.75% Convertible Notes indenture could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio.

As of September 30, 2021, the Consolidated Leverage Ratio was 1.73, which did not exceed the maximum of 3.00.

Our Consolidated Interest Coverage Ratio was 8.52, which exceeded the minimum of 4.00.

As of March 31, 2022, the Consolidated Leverage Ratio was 2.58, which did not exceed the maximum of 3.00.

Our Consolidated Interest Coverage Ratio was 6.07, which was above the minimum of 4.00.

Share Repurchase Program

As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization, we have established a plan to facilitate common stock repurchases.

As of September 30, 2021, $157.2 million of the authorization remained available.

As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion (the “2016 authorization”). As part of the 2016 authorization, we established a plan to facilitate common stock repurchases. As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”).

The 2022 authorization replaced the 2016 authorization, including the amount available for repurchase, and no further repurchases will take place under the 2016 authorization.

During the three months ended March 31, 2022, we repurchased 611,000 shares under the 2022 authorization. As of March 31, 2022, $281.5 million of the authorization remained available.

The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

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Our website address is www.graniteconstruction.com.

On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).

On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).

The information on our website is not incorporated into, and is not part of, this report.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our exposure to market risk from what was previously disclosed in our 2020 Annual Report on Form 10-K.

There has been no material change in our exposure to market risk from what was previously disclosed in our Annual Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements