GRANITE CONSTRUCTION INC 10-K

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the New York Stock Exchange under the ticker symbol GVA. As of February 15, 2022, 43,744,536 shares of our common stock were outstanding and held by 653 shareholders of record. We have paid quarterly cash dividends since the second quarter of 1990, and we expect to continue to do so. The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended December 31, 2022: Period   Total number of shares purchased (1)     Average price paid per share     Total number of shares purchased as part of publicly announced plans or programs     Approximate dollar value of shares that may yet be purchased under the plans or programs (2)   October 1, 2022 through October 31, 2022     3,156     $ 27.40       —     $ 231,535,405   November 1, 2022 through November 30, 2022     320     $ 32.22       —     $ 231,535,405   December 1, 2022 through December 31, 2022     2,168     $ 35.64       —     $ 231,535,405         5,644     $ 30.84       —           (1) The number of shares purchased was in connection with employee tax withholding for restricted stock units vested under our equity incentive plans. (2) 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 specific timing and amount of any future purchases will vary based on market conditions, securities law limitations and other factors. 22 Table of Contents Performance Graph The following graph compares the cumulative five-year total return provided to Granite Construction Incorporated’s common stockholders relative to the cumulative total returns of the S&P 500 index and the Dow Jones U.S. Heavy Construction index. The Dow Jones U.S. Heavy Construction index includes the following companies: AECOM, EMCOR Group Inc., MDU Resources Group Inc, MasTec Inc., Quanta Services Inc., Valmont Industries Inc. and WillScot Mobile Mini Holdings Corp. Certain of these companies differ from Granite in that they derive more revenue and profit from non-U.S. operations and have customers in different markets. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2017 through December 31, 2022.     23 Table of Contents Item 6. RESERVED Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General 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, water well drilling and other infrastructure-related projects. Within the private sector, we perform various services such as site preparation, mining services and infrastructure services for commercial and industrial sites, railways, residential development, energy development, as well as provide construction management professional services.  Our reportable segments are the same as our operating segments and correspond with how our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews financial information to allocate resources and assess performance. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer. Our reportable segments are: Construction and Materials. The Construction segment focuses on construction and rehabilitation of roads, pavement preservation, bridges, rail lines, airports, marine ports, dams, reservoirs, aqueducts, infrastructure and site development for use by the general public and water-related construction for municipal agencies, commercial water suppliers, industrial facilities and energy companies. It also provides construction of various complex projects including infrastructure / site development, mining, public safety, tunnel, solar, battery storage and other power-related projects. The Materials segment focuses on production of aggregates and asphalt production for internal use and for sale to third parties. See Note 21 of “Notes to the Consolidated Financial Statements” for additional information about our reportable segments. In addition to reportable segments, we also review our business by operating groups. In alphabetical order, our operating groups are as follows:    • California, which is comprised of vertically integrated businesses in home markets across the state;   • Central, which includes the vertically integrated Arizona region and regional civil construction businesses in Illinois, Florida and Texas. The Central group also includes the Federal division which performs civil construction across the continental United States and Guam, and the Tunnel division; and   • Mountain, which is comprised of vertically integrated regional businesses in Alaska, Washington, Oregon, Utah and Nevada. The Mountain Group also includes national businesses in the Industrial & Energy division, which primarily focuses on commercial solar construction projects, Water Resources, which performs water well drilling and rehabilitation services and Mineral Services, which performs mineral exploration services for mining clients. The five primary economic drivers of our business are (i) the overall health of the U.S. economy including access to resources (labor, supplies and subcontractors); (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. A stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector. This reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector. In addition, a stagnant or declining economy tends to produce less tax revenue for public agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements. Some funding sources that have been specifically earmarked for infrastructure spending, such as diesel and gasoline taxes, are not as directly affected by a stagnant or declining economy, unless actual consumption is reduced or gasoline sales tax revenues decline consistent with fuel prices. However, even these can be temporarily at risk as federal, state and local governments take actions to balance their budgets. Conversely, increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement. 24 Table of Contents Critical Accounting Estimate The financial statements included in “Item 8. Financial Statements and Supplementary Data” have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our estimates and related judgments and assumptions are continually evaluated based on available information and experiences; however, actual amounts could differ from those estimates. We consider revenue recognition a critical accounting estimate. It involves significant management judgment and can significantly affect our reported results of operations. Revenue Recognition Our revenue is primarily derived from construction contracts that can span several quarters or years in our Construction segment and from sales of construction related materials in our Materials segment. We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers,  and subsequently issued additional related ASUs. The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the forecasted revenue and cost to complete each project. Cost estimates for all of our significant projects use a detailed “bottom up” approach. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include:   • changes in costs of labor and/or materials;   • subcontractor costs, availability and/or performance issues;   • extended overhead and other costs due to owner, weather and other delays;   • changes in productivity expectations;   • changes from original design on design-build projects;   • our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs;   • a change in the availability and proximity of equipment and materials;   • complexity in original design;   • length of time to complete the project;   • the availability and skill level of workers in the geographic location of the project;   • site conditions that differ from those assumed in the original bid;   • costs associated with scope changes; and   • the customer’s ability to properly administer the contract. The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit and gross profit margin from period to period. Significant changes in revenue and cost estimates, particularly in our larger, more complex, multi-year projects have had, and in the future could have, a significant effect on our profitability. Due to the number of factors that can contribute to changes in estimates of contract cost and profitability, the sensitivity of reported amounts to the assumptions underlying the estimate’s calculation is not reasonably available or meaningful. However, Note 3 of “Notes to the Consolidated Financial Statements” presents the impact material revisions in estimates had on the periods covered by this report. 25 Table of Contents Current Economic Environment and Outlook Funding for our public work projects, which accounts for approximately  70%  of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, the rollout of the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) has started with the appropriation of funds included in the 2022 federal spending bill enacted in March 2022. 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. In October 2022, the U.S. Department of Transportation announced that it released $59.9 billion in Fiscal Year 2023 apportionments directly to all 50 states, all of which is available for states to authorize following the passing of the FY 2023 omnibus appropriations bill in December 2022. We continue to believe that the increased multi-year spending commitment will improve the programming visibility for state and local governments and drive an increase in project lettings starting in 2023 and then more meaningfully in 2024 and beyond. We anticipate the impact to our financial statements to gradually grow in 2023 and beyond as funds are allocated first to quicker turn projects and then later to more complex larger projects.  At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. While each market is unique, we see a strong funding environment at the state and local levels currently and we expect that environment to improve with the impact of the IIJA. 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 without any sunset provisions. Over the recent years, inflation, supply chain and labor constraints have had a significant impact on the global economy including the construction industry in the United States. While it is impossible to fully eliminate the impact of these factors, we have applied proactive measures such as fixed forward purchase contracts of oil related inputs, energy surcharges, and adjustment of project schedules for constraints related to construction materials such as concrete. While we actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future.  Our Committed and Awarded Projects (“CAP”) continues to be strong with $4.5  billion at the end of the fourth quarter of 2022.  Our CAP is supported by a positive public funding environment and resilient private market which we believe will provide further opportunities in 2023 to continue to grow CAP. Strategic Actions During the fourth quarter of 2021, we concluded that the assets and liabilities of our former Water and Mineral Services operating group (“WMS”) met the criteria for classification as held for sale and the results of operations were presented as discontinued operations at that time. This included: our trenchless and pipe rehabilitation services business (“Inliner”); our water supply, treatment, delivery and maintenance business (“Water Resources”); and our mineral exploration drilling business (“Mineral Services”). The sale of Inliner was completed on March 16, 2022 for a purchase price of $159.7 million, subject to certain adjustments. As a result of the sale and post-closing adjustments, we received cash proceeds of $140.6 million and recognized a gain of $1.8 million.  In September 2022, we announced our decision to retain the Water Resources and Mineral Services businesses that were previously classified as held for sale and reported in discontinued operations. This change to our plan of sale was due to unfavorable market conditions which undermined our efforts to secure an appropriate value for the businesses. In connection with the reclassification of the WMS businesses from discontinued operations to continuing operations, the Consolidated Statements of Operations have been revised to include Inliner through the date of sale, as well as the ongoing operations of Water Resources and Mineral Services in the Mountain operating group for all periods presented. The Water Resources and Mineral Services businesses are included in the Construction segment. Inliner had both Construction and Materials operations. See Note 1 and Note 2 of “Notes to the Consolidated Financial Statements” for further information. Litigation Matter As further discussed in Note 20 of “Notes to the Consolidated Financial Statements,” our wholly owned subsidiary, Layne Christensen Company (“Layne”), has been sued for $100 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. For additional information, 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.” Results of Operations 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. Years Ended December 31,   2022     2021     2020   (in thousands)                         Total revenue   $ 3,301,256     $ 3,501,865     $ 3,562,459   Gross profit   $ 369,494     $ 362,645     $ 344,788   Selling, general and administrative expenses   $ 272,610     $ 303,015     $ 316,284   Non-cash impairment charges (see Note 1 of “Notes to the Consolidated Financial Statements”)   $ —     $ —     $ 156,690   Other costs, net (see Note 1 of “Notes to the Consolidated Financial Statements”)   $ 24,120     $ 101,351     $ 37,089   Gain on sales of property and equipment, net (see Note 11 of “Notes to the Consolidated Financial Statements”)   $ (12,617 )   $ (66,439 )   $ (6,930 ) Operating income (loss)   $ 85,381     $ 24,718     $ (158,345 ) Total other (income) expense, net   $ (6,436 )   $ 2,591     $ 8,118   Amount attributable to non-controlling interests   $ 4,445     $ 7,682     $ 21,064   Net income (loss) attributable to Granite Construction Incorporated   $ 83,302     $ 10,096     $ (145,117 )   26 Table of Contents   Revenue Total Revenue by Segment Years Ended December 31,   2022     2021     2020   (dollars in thousands)                               Construction   $ 2,803,935 85.0 %   $ 3,076,190 87.8 %   $ 3,181,697 89.4 % Materials     497,321 15.0       425,675 12.2       380,762 10.6   Total   $ 3,301,256 100.0 %   $ 3,501,865 100.0 %   $ 3,562,459 100.0 % Construction Revenue Years Ended December 31,   2022     2021     2020   (dollars in thousands)                               California   $ 811,623 28.9 %   $ 822,448 26.7 %   $ 928,193 29.2 % Central     851,779 30.4       1,058,448 34.4       1,145,725 36.0   Mountain     1,140,533 40.7       1,195,294 38.9       1,107,779 34.8   Total   $ 2,803,935 100.0 %   $ 3,076,190 100.0 %   $ 3,181,697 100.0 % Construction revenue in  2022   decreased  by $ 272.3  million, or  8.9% , compared to 2021  primarily due to the wind down of several large projects in the Central operating group, as well as the sale of Inliner in the first quarter of 2022.  Revenue from the Mountain operating group decreased $54.8 million primarily due to the sale of Inliner which contributed $33 million in 2022 prior to its sale compared to $206 million in 2021. This decrease was partially offset by increased revenue driven by higher beginning CAP levels and stronger market conditions in the current year. California operating group revenue decreased $10.8 million in 2022, mainly due to delays in project starts and less favorable weather conditions in the first quarter of   2022.  During  2022  and 2021 , approximately 70% and 75%, respectively, of revenue earned in the Construction segment was from the public sector. Materials Revenue Years Ended December 31,   2022     2021     2020   (dollars in thousands)                               California   $ 273,314 54.9 %   $ 242,552 57.0 %   $ 222,021 58.3 % Central     46,531 9.4       33,270 7.8       25,181 6.6   Mountain     177,476 35.7       149,853 35.2       133,560 35.1   Total   $ 497,321 100.0 %   $ 425,675 100.0 %   $ 380,762 100.0 % Materials revenue in 2022 increased by $71.6 million, or 16.8%, when compared to 2021 driven by price increases inclusive of energy surcharges and overall market demands driving higher sales volumes of aggregates, slightly offset by decreased sales volumes for asphalt. 27 Table of Contents   Committed and Awarded Projects 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. 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. Other awards include the general construction portion of construction management/general contractor ("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, respectively. All CAP is in the Construction segment. December 31,   2022     2021 (1)   (dollars in thousands)             Unearned revenue   $ 2,877,478 64.2 %   $ 2,595,085 64.7 % Other awards     1,607,661 35.8       1,414,979 35.3   Total   $ 4,485,139 100.0 %   $ 4,010,064 100.0 %   December 31,   2022     2021 (1)   (dollars in thousands)             California   $ 1,747,163 39.0 %   $ 1,476,066 36.8 % Central     1,661,613 37.0       1,585,309 39.5   Mountain     1,076,363 24.0       948,689 23.7   Total   $ 4,485,139 100.0 %   $ 4,010,064 100.0 % (1) These balances do not include amounts held for sale (see Note 2 of "“Notes to the Consolidated Financial Statements”). The unearned revenue balance in CAP related to businesses held for sale at December 31, 2021 was $252.7 million and there was no balance for other awards.  CAP of $4.5 billion at December 31, 2022 was $475.1 million, or 11.8% higher than 2021 primarily due to higher CAP in all of our operating groups due to higher award volume during the fourth quarter of 2022. Including CAP that was classified as held for sale as of December 31, 2021 of $252.7 million and excluding CAP related to Inliner of $199.3 million as of December 31, 2021, which was sold during the first quarter of 2022, comparable CAP increased $421.7 million, or 10.4%, over the prior year. Significant new additions to CAP during the fourth quarter of 2022 included a $174 million runway project in California, a $170 million highway project in Arizona, a $160 million CM/GC railway project in Illinois and $142 million for multiple road projects in California. Non-controlling partners’ share of CAP as of December 31, 2022 and 2021 was $85.0 million and $214.3 million, respectively. At December 31, 2022 and 2021 , five and three contracts with remaining CAP of $10 million or more per project had total forecasted losses with remaining revenue of $134.2 million, or 3.0% of total CAP, and $204.2 million, or 5.1% of total CAP, respectively.  Provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue. Gross Profit The following table presents gross profit by reportable segment for the respective periods: Years Ended December 31,   2022     2021     2020   (dollars in thousands)                         Construction   $ 303,881     $ 303,228     $ 280,169   Percent of segment revenue     10.8 %     9.9 %     8.8 % Materials     65,613       59,417       64,619   Percent of segment revenue     13.2       14.0       17.0   Total gross profit   $ 369,494     $ 362,645     $ 344,788   Percent of total revenue     11.2 %     10.4 %     9.7 % Construction gross profit for the year ended December 31, 2022  increased by $0.7 million, or 0.2% , when compared to 2021  primarily driven by strong performance in the vertically integrated businesses in the California and Mountain operating groups. These increases were largely offset by decreases in the Central operating group related to negative net impacts from revisions in estimates (see Note 3 of “Notes to the Consolidated Financial Statements”) as well as the impact of the sale of Inliner in the first quarter of 2022 . Materials gross profit for the year ended December 31, 2022 increased by $6.2 million, or 10.4%, when compared to 2021 due to higher revenue and greater volumes while gross profit margin decreased due to the impact of higher fuel and energy costs earlier in the year. Although fuel and liquid asphalt costs increased in 2022 as compared to 2021, we implemented energy surcharges in the second quarter of 2022 to cover these increases on new orders.   28 Table of Contents Selling, General and Administrative Expenses The following table presents the components of selling, general and administrative expenses for the respective periods: Years Ended December 31,   2022     2021     2020   (dollars in thousands)                         Selling                         Salaries and related expenses   $ 57,921     $ 65,758     $ 69,530   Incentive compensation     4,316       5,160       5,297   Restricted stock unit amortization     1,277       1,415       1,280   Other selling expenses     8,627       4,632       9,661   Total selling     72,141       76,965       85,768   General and administrative                         Salaries and related expenses     103,161       111,149       111,188   Incentive compensation     12,108       8,908       10,519   Restricted stock unit amortization     5,084       3,792       3,408   Other general and administrative expenses     80,116       102,201       105,401   Total general and administrative     200,469       226,050       230,516   Total selling, general and administrative   $ 272,610     $ 303,015     $ 316,284   Percent of revenue     8.3 %     8.7 %     8.9 % Selling Expenses 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 salaries and related expenses for 2022 decreased by $7.8 million compared to 2021, primarily due to the sale of Inliner on March 16, 2022 as well as other cost reduction efforts. This decrease was partially offset by an increase of $4.0 million in other selling expenses driven by increased bidding activity in 2022. General and Administrative Expenses General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses for 2022 decreased by $25.6 million, or 11.3%, compared to 2021, primarily due to the sale of Inliner on March 16, 2022, as well as decreases in the fair market value of our Non-Qualified Deferred Compensation plan liability, which is mostly offset in other (income) expense, net, through our own company-owned life insurance policy. These decreases were partially offset by an increase in incentive compensation due to improved financial performance. Other Costs, net The following table presents other costs for the respective periods: Years Ended December 31,   2022     2021     2020   (in thousands)                         Other costs, net   $ 24,120     $ 101,351     $ 37,089   Other costs for the year ended December 31, 2022 decreased by $77.2 million when compared to 2021 primarily due to the securities litigation settlement charge of $66.0 million that occurred in 2021, settlement of the shareholder derivative lawsuit and related receipt of $5.0 million in 2022 as well as decreases in non-recurring legal and accounting fees of $7.4 million, net divestiture expenses of $8.0 million and personnel costs in connection with our operating group reorganization during 2021 of $2.8 million. These decreases were partially offset by a $12.0 million charge for the resolution of the SEC investigation in 2022. See Note 20 of "Notes to the Consolidated Financial Statements" for information related to settlements of certain legal matters and investigations.  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: Years Ended December 31,   2022     2021     2020   (in thousands)                         Gain on sales of property and equipment, net   $ (12,617 )   $ (66,439 )   $ (6,930 ) Gain on sales of property and equipment, net for the year ended December 31, 2022  decreased  by $53.8 million when compared to 2021 due to fewer properties sold and lower gains per property sold in 2022. The properties sold were part of our ongoing asset optimization plan. See Note 11 of “Notes to the Consolidated Financial Statements” for more information. 29 Table of Contents Other (Income) Expense The following table presents the components of other (income) expense, net for the respective periods: Years Ended December 31,   2022     2021     2020   (in thousands)                         Interest income   $ (6,528 )   $ (1,176 )   $ (3,096 ) Interest expense     12,624       20,739       24,200   Equity in income of affiliates     (13,571 )     (12,586 )     (8,783 ) Other income, net     1,039       (4,386 )     (4,203 ) Total other (income) expense, net   $ (6,436 )   $ 2,591     $ 8,118   Interest income for 2022 increased by $5.4 million when compared to 2021 primarily due to higher interest rates on our investments. Interest expense for 2022 decreased by $8.1 million, or 39.1%, when compared to 2021 because we are no longer recording the amortization of the debt discount on our 2.75% Convertible Notes due to the implementation of ASU 2020-06.   Equity in income of affiliates was relatively flat when compared to 2021. Other income, net decreased by $5.4 million primarily due to increases in the fair market value of our company owned life insurance policy, which is mostly offset in general and administrative expenses through our Non-Qualified Deferred Compensation plan liability.  Income Taxes The following table presents the provision for (benefit from) income taxes for the respective periods: Years Ended December 31,   2022     2021     2020   (dollars in thousands)                         Provision for (benefit from) income taxes   $ 12,960     $ 19,713     $ (282 ) Effective tax rate     14.1 %     89.1 %     0.2 % Our effective tax rate  decreased  from  89.1 % to 14.1 % when compared to 2021  primarily due  to the tax benefit associated with the reversal of net deferred tax liabilities related to businesses no longer held for sale and the release of valuation allowances related to the utilization of capital loss carryforwards. The impacts of those items were partially offset by nondeductible goodwill associated with the sale of Inliner and the impact of the relative change in income before income taxes to the provision for income taxes. Amount Attributable to Non-controlling Interests The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods: Years Ended December 31,   2022     2021     2020   (in thousands)                         Amount attributable to non-controlling interests   $ 4,445     $ 7,682     $ 21,064   The amount attributable to non-controlling interests represents the non-controlling owners’ share of the net loss of our consolidated construction joint ventures. The change during 2022 was primarily due to increased profits from new and existing joint ventures, partially offset by a net negative impact from revisions in estimates on one project.  (See Note 3 of “Notes to the Consolidated Financial Statements”) . Prior Years Comparison (2021 to 2020) Revenue :  Construction revenue in  2021   decreased  $ 105.5  million, or 3.3% , compared to 2020  primarily due to lower CAP in the California operating group and inclement weather conditions in California near the end of 2021. Lower CAP was reflective of an extended competitive bidding environment that existed through the first half of 2021. Additionally, the Central operating group revenue decreased as we remain disciplined in our project bidding selection criteria and certain projects neared completion. These decreases were partially offset by increases in the Mountain operating group primarily driven by increased demand for water supply and maintenance services and mineral exploration, 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.  Materials revenue in 2021   increased  $ 44.9  million, or 11.8% , when compared to 2020  from increased volumes in both aggregates and asphalt sales combined with increased pricing in certain markets. Gross Profit:  Construction gross profit for the year ended  December 31,   2021   increased by $ 23.1  million, or 8.2% , when compared to  2020 primarily due to a decrease in the negative net impact from revisions in estimates in our Central operating group (see Note 3 of “Notes to the Consolidated Financial Statements”), and increased activity in water supply and maintenance services and mineral exploration, partially offset by decreases in gross profit from our vertically-integrated businesses from an extended competitive bidding environment. Materials gross profit for the year ended December 31,   2021   decreased  by $ 5.2 million, or 8.1% , when compared to 2020  driven primarily by higher fuel and liquid asphalt costs in 2021 compared to 2020 combined with lower volumes in California due to inclement weather during the fourth quarter of 2021. Selling, General and Administrative Expenses: Selling expenses for 2021   decreased  $ 8.8 million, or 10.3% , compared to 2020  primarily due to reduced estimating and bidding activity following the implementation of our new project bidding selection criteria. General and administrative expenses were relatively flat year over year. Non-cash Impairment Charges:  The change during 2021 was primarily due to goodwill impairment charges as well as an impairment in our investment in affiliates in 2020.  Other Costs:  Other costs for the year ended December 31,2021   increased  by $ 64.3  million when compared to 2020 primarily due to $66.0 million in net settlement charges incurred during 2021 as further described in Note 20 of "Notes to the Consolidated Financial Statements." Other costs also decreased  by $ 13.5  million in 2021 due to a reduction in non-recurring legal and accounting fees. The majority of these non-recurring fees related to the lawsuits discussed in Note 20 of "Notes to the Consolidated Financial Statements." This decrease in non-recurring legal and accounting fees was offset by increases of $ 3.3  million in personnel costs incurred in connection with our operating group reorganization and $ 8.5  million of divestiture expenses related to the planned sale of the businesses within our former WMS operating group during 2021.  Gain on Sales of Property and Equipment : Gain on Sales of Property and Equipment increased $59.5 million compared to  2020  primarily due to sales of properties in California related to our ongoing asset optimization plan.  Other (Income) Expense:  Interest income for 2021   decreased  $ 1.9  million, or 62.0% , compared to 2020  primarily due to the settlement of two notes receivable. Interest expense for 2021   decreased  $ 3.5  million, or 14.3% , when compared to 2020  as no amount was drawn on the revolver in 2021 and due to a decrease in the effective interest rate on our credit facility. Equity in income of affiliates for 2021   increased  $ 3.8  million, or 43.3% , compared to 2020  primarily due to an increase in income from our foreign affiliates, which was partially offset by a decrease in income from a real estate investment entity.  Income Taxes:  Our tax rate increased   from 0.2%  to  89.1 % when compared to 2020 . The change in tax rate was due primarily to the tax expense associated with the non-cash impairment charges in 2020 (see Note 1 of "Notes to the Consolidated Financial Statements") and the income tax expense associated with the held for sale classification of the assets and liabilities of the former WMS operating group in 2021. Amount Attributable to Non-controlling Interests:  The change during 2021 was primarily due to a decrease in the net negative impact from revisions in estimates on two projects (see Note 3 of "Notes to the Consolidated Financial Statements"). 30 Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are cash and cash equivalents, investments, available borrowing capacity under our credit facility 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 or assets. 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 and acquire assets or businesses that are complementary to our operations. Our primary contractual obligations are as follows and are further discussed in the referenced “Notes to the Consolidated Financial Statements:”    • Asset retirement obligations - see Note 11, Property and Equipment, net   • Long-term debt and the associated interest payments – see Note 14, Long-Term Debt   • Operating lease and royalty future minimum payments - see Note 15, Leases   • Non-Qualified Deferred Compensation Plan obligations – see Note 16, Employee Benefit Plans 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 the debt and equity capital markets 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  December 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. At the end of the second quarter of 2022, we had $16.5 million of past due receivables and $27.1 million of contract retention receivable from Brightline Trains Florida LLC ("Brightline") and they were experiencing delays in securing additional funding at that time. During the third quarter of 2022, Brightline obtained additional funding and paid their past due receivables balances. As of December 31,   2022 , we had $6.8 million of receivables and $28.4 million of contract retention receivable from Brightline (see Note 6 of “Notes to the Consolidated Financial Statements”). $3.4 million of the receivables were past due as of December 31, 2022 but were paid in January 2023 . Brightline continues to experience challenges and delays in securing additional funding. As of the date of this report, the remaining $3.4 million that was due in January is past due and $2.8 million has been billed since December 31, 2022. The timing and probability of future payments may be affected and our liquidity impacted if Brightline faces additional funding difficulties. During the first half of 2022, we prepaid 100% of our outstanding term loan and replaced the Third Amended and Restated Credit Agreement dated May 31, 2018 with the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) maturing June 2, 2027. The Credit Agreement is a $350.0 million senior secured, five-year revolving credit facility (the “Revolver”). As of December 31, 2022 , the total unused availability under the Credit Agreement was $ 269.3  million, resulting from $ 30.7  million in issued and outstanding letters of credit and $ 50.0  million drawn under the Revolver. See Note 14 of “Notes to the Consolidated Financial Statements” for further discussion regarding the Revolver. 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, as of the respective dates: December 31,   2022     2021   (in thousands)                 Cash and cash equivalents excluding CCJVs   $ 191,444     $ 302,864   CCJV cash and cash equivalents (1)     102,547       92,783   Total consolidated cash and cash equivalents     293,991       395,647   Short-term and long-term marketable securities (2)     65,943       15,600   Total cash, cash equivalents and marketable securities   $ 359,934     $ 411,247   (1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed. (2) All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations and corporate commercial paper as of all periods presented. Granite’s portion of CCJV cash and cash equivalents was $62.5 million and $54.4 million as of December 31, 2022 and 2021, respectively. Excluded from the table above is:   • $ 40.4  million and $ 56.5  million as of December 31,   2022  and 2021 , respectively, in Granite’s portion of unconsolidated construction joint venture cash and cash equivalents and   • $16.5 million of cash and cash equivalents as of  December 31,   2021  that was included in current assets held for sale. Capital Expenditures 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. During the year ended December 31, 2022, we had capital expenditures of $121.6 million, compared to $94.8 million during 2021 for an increase of $26.8 million. The increase year over year is primarily due to acquisitions of materials reserves in 2022. We currently anticipate 2023 capital expenditures to be between approximately $100 million and $120 million. 31 Table of Contents   Cash Flows Years Ended December 31,   2022     2021     2020   (in thousands)                         Net cash provided by (used in):                         Operating activities   $ 55,647     $ 21,931     $ 268,460   Investing activities   $ (11,000 )   $ (21,478 )   $ (41,262 ) Financing activities   $ (164,311 )   $ (24,446 )   $ (57,658 ) Operating activities 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 seasonal cycles, 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. Customers in the private sector can be slower paying than those in the public sector; 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. Cash provided by operating activities of $55.6 million during 2022 represents a $33.7 million increase when compared to 2021. The change was primarily due to a $105.1 million increase in cash provided by net income after adjusting for non-cash items and a $76.6 million decrease in cash provided by working capital. The decrease in cash provided by working capital was primarily due to an increase in contract assets, largely due to unresolved disputed work, as well as increased retention balances related to certain ongoing projects. This was partially offset by a decrease in receivables due to improvement in our billing and collection timing. Investing activities Cash used in investing activities of $ 11.0  million during 2022  represents a $ 10.5 million  decrease  when compared to 2021 . The change was primarily due to proceeds from the sale of the Inliner business in March 2022, partially offset by a decrease in proceeds from sales of property and equipment as well as increased purchases of marketable securities and property and equipment in the current year. Financing activities Cash used in financing activities of $ 164.3 million during  2022  represents a $ 139.9  million  increase  when compared to  2021 . The change was primarily due to the prepayment of our term loan of $123.8 million in the first half of 2022 and repurchases of common stock (inclusive of our accelerated share repurchase) of $70.9 million, partially offset by $50.0 million drawn on our Revolver. The net debt paydown was completed at the time the Credit Agreement was entered (see Note 14 to “Notes to the Consolidated Financial Statements” for further information), to bring our cash balance in line with projected cash needs for the rest of 2022. 32 Table of Contents Derivatives We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value using Level 2 inputs. See Note 8 to “Notes to the 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 consolidated balance sheets based on the cash proceeds. See Note 14 to “Notes to the Consolidated Financial Statements” for further information. Surety Bonds and Real Estate Mortgages We are generally required to provide various types of surety bonds that provide an additional measure of security for our performance under certain public and private sector contracts. At December 31, 2022, approximately  $2.5 billion  of our $4.5 billion CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties. Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. 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. The debt associated with our unconsolidated non-construction entities is included in Note 10 of “Notes to the 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 failure to comply with these covenants would constitute an event of default under the Credit Agreement. 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; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. 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 December 31,   2022 , the Consolidated Leverage Ratio was 1.46 , which did not exceed the maximum of 3.25. Our Consolidated Interest Coverage Ratio was 15.06 , which exceeded the minimum of 3.00.  Share Purchase Program 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. In March 2022 we repurchased 611,000 shares under this authorization. On May 2, 2022, we entered into an accelerated share repurchase transaction with Bank of Montreal. The Accelerated Share Repurchase was entered into pursuant to the existing share repurchase program. On May 2, 2022, we paid $50.0 million to the bank and received 80% of the notional amount, or $40.0 million, in shares using the closing price on the trade date. This equated to approximately 1.32 million shares, which were immediately retired. On August 31, 2022, the reference period ended and on September 2, 2022 we received an additional 0.37 million shares, which were immediately retired. The final share delivery was based on the average of the daily volume-weighted average price of Granite's common stock, less a discount, during the reference period. The average price of all shares purchased under the Accelerated Share Repurchase was $29.63. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors. Recently Issued and Adopted Accounting Pronouncements See Note 1 of “Notes to the Consolidated Financial Statements” under the caption Recently Issued and Adopted Accounting Pronouncements.   33 Table of Contents