Note 11 - Construction Joint Ventures

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Construction Joint Ventures [Text Block]

11.  Construction Joint Ventures

We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three months ended September 30, 2019, 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). At September 30, 2019, there was approximately $2.8 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $1.0 billion represented our share and the remaining $1.8 billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.

Consolidated Construction Joint Ventures (“CCJVs”)

At September 30, 2019, we were engaged in seven active CCJV projects with total contract values ranging from $0.7 million to $410.5 million for a combined total of $1.2 billion. Our share of revenue remaining to be recognized on these CCJVs was $338.1 million and ranged from $0.3 million to $137.2 million. Our proportionate share of the equity in these joint ventures was between 50.0% and 65.0%. During the three and nine months ended September 30, 2019, total revenue from CCJVs was $71.1 million and $217.0 million, respectively, and during the three and nine months ended September 30, 2018, total revenue from CCJVs was $61.6 million and $173.1 million, respectively. During the nine months ended September 30, 2019 and 2018, CCJVs used $19.3 million and provided $31.5 million of operating cash flows, respectively.

Unconsolidated Construction Joint Ventures

As of  September 30, 2019, we were engaged in nine active unconsolidated joint venture projects with total contract values ranging from $85.2 million to $3.8 billion for a combined total of $11.5 billion of which our share was $3.3 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of  September 30, 2019, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $812.1 million and ranged from $1.7 million to $226.0 million.

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

(in thousands)	September 30, 2019		December 31, 2018		September 30, 2018
Assets
Cash, cash equivalents and marketable securities	$	217,279	$	229,562	$	242,028
Other current assets1		863,182		814,979		806,104
Noncurrent assets		209,865		204,090		204,201
Less partners’ interest		858,235		822,215		810,111
Granite’s interest1,2		432,091		426,416		442,222
Liabilities
Current liabilities		542,278		525,036		511,639
Less partners’ interest and adjustments3		254,901		369,782		331,838
Granite’s interest		287,377		155,254		179,801
Equity in construction joint ventures4	$	144,714	$	271,162	$	262,421

¹ Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $81.9 million, $88.2 million and $88.6 million related to performance guarantees as of September 30, 2019, December 31, 2018 and September 30, 2018.

² Included in this balance as of September 30, 2019, December 31, 2018 and September 30, 2018 was $96.8 million, $78.1 million and $67.1 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $11.8 million, $15.6 million and $12.5 million related to Granite’s share of estimated recovery of back charge claims as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

³ Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.

⁴ Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets were amounts related to deficits in construction joint ventures, which includes provisions for losses, that were $65.1 million, $11.5 million and $ 11.6 million as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Revenue
Total	$	421,977		$	436,093		$	1,273,982		$	1,125,530
Less partners’ interest and adjustments1		323,999			285,064			1,006,667			746,905
Granite’s interest		97,978			151,029			267,315			378,625
Cost of revenue
Total		441,898			485,190			1,309,867			1,289,464
Less partners’ interest and adjustments1		303,455			330,141			868,916			892,892
Granite’s interest		138,443			155,049			440,951			396,572
Granite’s interest in gross loss2	$	(40,465	)	$	(4,020	)	$	(173,636	)	$	(17,947	)

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.

² While total revenue, Granite’s interest in revenue, total cost of revenue, and total net loss were correctly stated, Granite’s interest in cost of revenue, gross loss and net loss for the three and six months ended June 30, 2019 were misstated for the quarter ended June 30, 2019. Granite’s originally reported interest in cost of revenue, gross loss and net loss was: $144.0 million, $107.2 million and $106.3 million, respectively, for the three months ended June 30, 2019 and was $275.5 million, $106.2 million and $105.8 million, respectively, for the six months ended June 30, 2019. Granite’s interest in cost of revenue, gross loss and net loss should have been: $171.0 million, $134.2 million and $133.3 million, respectively, for the three months ended June 30, 2019 and $302.5 million, $133.2 million and $132.8 million, respectively, for the six months ended June 30, 2019. The misstatements did not impact the condensed consolidated balance sheet, statements of operations, statements of comprehensive loss or statements of shareholders’ equity in any period. However, the misstatements did result in a misclassification of $27.0 million within operating activities of the condensed consolidated statements of cash flows for the six months ended June 30, 2019 to equity in net loss from unconsolidated joint ventures from accrued expenses and other current liabilities, net. There was no impact to the net cash used in operating activities for the six months ended June 30, 2019. We assessed the materiality of the errors in accordance with the SEC’s Staff Accounting Bulletin 99 and concluded that the errors were not material to either of these previously issued financial statements. Accordingly, we will revise our previously issued financial statements prospectively to correct these errors.

During the three and nine months ended September 30, 2019, unconsolidated construction joint venture net losses were $(19.6) million and $(33.3) million, respectively, of which our share were net losses of $(40.2) million and $(173.0) million, respectively. During the three and nine months ended September 30, 2018, unconsolidated construction joint venture net losses were $(47.6) million and $(162.0) million, respectively, of which our share were net losses of $(3.1) million and $(16.3) million, respectively. The differences between our share of the joint venture net loss during 2018 and 2019 when compared to the joint venture net loss primarily resulted from differences between our estimated total revenue and cost of revenue when compared to that of our partners’ on four projects. The differences are due to timing differences from varying accounting policies and in public company quarterly reporting requirements. These joint venture net loss amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.