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Note 3 - Revisions in Estimates

12 Months Ended

Dec. 31, 2021

3. Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.

When we experience significant revisions in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future.

In our review of these changes for the years ended December 31, 2021 and 2020, we did not identify any material amounts that should have been recorded in a prior period. Other than those identified in the 2019 Annual Report on Form 10-K, we did not identify any material amounts that should have been recorded in a prior period for the year ended December 31, 2019.

The net changes in project profitability from revisions in estimates, both increases and decreases, which individually had an impact of $5.0 million or more on gross profit were net decreases of $70.6 million, $143.5 million and $199.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. The projects are summarized as follows (dollars in millions except per share data):

Increases

Years Ended December 31,	*2021*		*2020*		*2019*
Number of projects with upward estimate changes		2		—		—
Range of increase in gross profit from each project, net	$	6.2 - 9.2	$	—	$	—
Increase to project profitability	$	15.4	$	—	$	—
Increase to net income/decrease to net loss attributable to Granite Construction Incorporated from continuing operations	$	11.4	$	—	$	—
Increase to net income/decrease to net loss per diluted share attributable to common shareholders from continuing operations	$	0.25	$	—	$	—

The increases during the year ended December 31, 2021 were due to production at a higher rate than anticipated and a decrease in estimated cost from mitigated risks as well as settlement of outstanding customer affirmative claims. There were no amounts attributable to non-controlling interests for any of the periods presented.

Decreases

Years Ended December 31,	*2021*		*2020*		*2019*
Number of projects with downward estimate changes		6		7		10
Range of reduction in gross profit from each project, net	$	5.3 - 34.6	$	6.7 - 49.9	$	5.5 - 52.6
Decrease to project profitability	$	86.0	$	143.4	$	199.1
Decrease to net income/increase to net loss from continuing operations	$	69.1	$	114.7	$	150.3
Amounts attributable to non-controlling interests	$	20.5	$	31.9	$	9.8
Decrease to net income/increase to net loss attributable to Granite Construction Incorporated from continuing operations	$	48.6	$	82.9	$	140.5
Decrease to net income/increase to net loss per diluted share attributable to common shareholders from continuing operations (1)	$	1.06	$	1.79	$	3.02

(1) The prior period amounts have been adjusted to correctly present the per share impact attributable to common shareholders.

The decreases during the year ended December 31, 2021 were due primarily to additional costs from acceleration of work coupled with lower productivity and higher costs than originally anticipated, unfavorable weather and extended project duration. The decreases during the year ended December 31, 2020 were due to increases in design, production, weather-related and labor contingency costs. The decreases during the year ended December 31, 2019 were due to increased project completion costs, schedule delays, lower productivity than originally anticipated, performance of a significant amount of unresolved disputed work, an unfavorable court ruling on a designer back charge claim and additional weather-related costs partially offset by an increase in estimated recovery from customer affirmative claims.