Note 3 - Revisions in Estimates

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Revisions in Estimates [Text Block]

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, 2022, 2021 and 2020, we did not identify any material amounts that should have been recorded in a prior period.

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 $80.1 million, $70.6 million and $143.4 million for the years ended  December 31, 2022, 2021 and 2020, respectively. The projects are summarized as follows (dollars in millions except per share data):

Increases

Years Ended December 31,	2022		2021		2020
Number of projects with upward estimate changes		2		2		—
Range of increase in gross profit from each project, net	$	5.4 - 6.8	$	6.2 - 9.2	$	—
Increase to project profitability, net	$	12.1	$	15.4	$	—
Increase to net income/decrease to net loss	$	9.7	$	11.4	$	—
Amounts attributable to non-controlling interests	$	2.7		—		—
Increase to net income/decrease to net loss attributable to Granite Construction Incorporated	$	7.0	$	11.4		—
Increase to net income/decrease to net loss per diluted share attributable to common shareholders	$	0.13	$	0.24	$	—

The increases during the year ended December 31, 2022 were due to production at a higher rate than anticipated and a decrease in estimated cost from mitigated risks. 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 2021.

Decreases

Years Ended December 31,	2022		2021		2020
Number of projects with downward estimate changes		8		6		7
Range of reduction in gross profit from each project, net	$	5.6 - 32.2	$	5.3 - 34.6	$	6.7 - 49.9
Decrease to project profitability, net	$	92.2	$	86.0	$	143.4
Decrease to net income/increase to net loss	$	74.1	$	69.1	$	114.7
Amounts attributable to non-controlling interests	$	21.7	$	20.5	$	31.9
Decrease to net income/increase to net loss attributable to Granite Construction Incorporated	$	52.4	$	48.6	$	82.9
Decrease to net income/increase to net loss per diluted share attributable to common shareholders	$	1.00	$	1.02	$	1.79

The decreases during the year ended December 31, 2022 were due to additional costs related to extended project duration, increased labor and materials costs, and disputed work being performed where there are ongoing legal claims. The decreases during the year ended December 31, 2021 were primarily due 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.