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20A N N U A L R E P O R T
12
Granite Construction Incorporated
585 West Beach Street
Watsonville, CA 95076
(831) 724 -1011
www.graniteconstruction.com
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CORPORATE PROFILE
Through its offices and subsidiaries nationwide, Granite Construction
Incorporated (NYSE: GVA) is one of the nation’s largest infrastructure
contractors and construction materials producers. Incorporated in
1922, Granite serves public- and private-sector clients on projects
both small and large. Granite’s project teams represent some of the
best in the industry serving owners in the transportation, power, federal,
tunneling, underground, and industrial/mining and water resources
markets. For more information, please visit graniteconstruction.com
BOARd OF dIRECTORs
William H. Powell
Chairman of the Board
Retired Chairman and Chief Executive Officer,
National Starch and Chemical Company
James H. Roberts
President and
Chief Executive Officer
Granite Construction Incorporated
Claes G. Bjork
Retired Chief Executive Officer,
Skanska AB, Sweden
James W. Bradford
Dean and Ralph Owen Professor
for the School of Management,
Owen School of Management,
Vanderbilt University
Gary M. Cusumano
Retired Chairman,
Newhall Land and Farming Company
William G. dorey
Retired President and
Chief Executive Officer,
Granite Construction Incorporated
david H. Kelsey
Chief Financial Officer,
Elevance Renewable Sciences, Inc.
Rebecca A. Mcdonald
Retired Chief Executive Officer,
Laurus Energy Inc.
Gaddi H. Vasquez
Senior Vice President,
Public Affairs, Southern California Edison
OFFICERs
James H. Roberts
President and
Chief Executive Officer
Laurel J. Krzeminski
Senior Vice President and
Chief Financial Officer
Thomas s. Case
Senior Vice President and Group Manager
Philip M. deCocco
Senior Vice President of Human Resources
Michael F. donnino
Senior Vice President and Group Manager
John A. Franich
Senior Vice President and Group Manager
Patrick B. Kenny
Senior Vice President and Group Manager
James d. Richards
Senior Vice President and Group Manager
Richard A. Watts
Senior Vice President, General Counsel,
Corporate Compliance Officer
and Secretary
Jigisha desai
Vice President, Treasurer, and
Assistant Financial Officer
Ronald L Gatto
Vice President, Controller and
Assistant Financial Officer
ANNUAL sHAREHOLdERs’ MEETING
Granite’s Annual Meeting of Shareholders
will be held at 10:30 a.m. PDT on
June 6, 2013, at the Monterey Plaza Hotel
400 Cannery Row, Monterey, CA 93940
Proxy materials are available on our website
at graniteconstruction.com or upon written
request to:
Investor Relations
Granite Construction Incorporated
Box 50085
Watsonville, CA 95077-5085
dIVIdENd POLICY
The company has declared a quarterly cash
dividend of $0.13 per share of common
stock payable on April 15, 2013, to
shareholders of record as of March 29,
2013. Declaration and payment of dividends
are at the sole discretion of the company’s
Board of Directors, subject to limitations
imposed by Delaware law, and will
depend on the company’s earnings, capital
requirements, financial condition, and other
such factors as the Board deems relevant
ELECTRONIC dEPOsIT OF dIVIdENds
Registered holders may have their quarterly
dividends deposited to their checking or
savings account free of charge. Call
Computershare at (877) 520-8549 for
U.S. residents, or (732) 491-0616
for non U.S. residents to enroll.
COMPANY CONTACT
Jacqueline B. Fourchy
Vice President of Investor Relations and
Corporate Communications
(831) 761-4741
Jacque.Fourchy@gcinc.com
REGIsTRAR ANd TRANsFER AGENT
Computershare
250 Royall Street
Canton, MA 02021
(877) 761-4741 (U.S.)
(732) 491-0616 (non U.S.)
FORM 10-K
A copy of the company’s Annual Report on
Form 10-K, which is filed with the Securities
and Exchange Commission, is available free
of charge on our website or upon written
request to:
Investor Relations
Granite Construction Incorporated
Box 50085
Watsonville, CA 95077-5085
INdEPENdENT REGIsTEREd PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Three Embarcadero Center
San Francisco, CA 94111
CERTIFICATIONs
Granite’s Chief Executive Officer (CEO)
and Chief Financial Officer have each
submitted certifications concerning the
accuracy of financial and other information
in Granite’s Annual Report on Form 10-K,
as required by Section 302(a) of the
Sarbanes-Oxley Act of 2002.
After our 2013 Annual Meeting of
Shareholders, we intend to file with the
New York Stock Exchange (NYSE) the CEO
certification regarding our compliance
with the NYSE’s corporate governance
listing standards as required by NYSE Rule
303A.12(a). Last year’s certification was
filed on June 15, 2012.
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Corporate information TO OUR SHAREHOLDERS
Our results in 2012 highlight the strength of our Large Project portfolio as well as the challenging market
conditions our Construction and Construction Materials businesses continue to face in the West. While our
overall business did not perform to our expectations, we remain focused on our strategic growth plan and are
pleased with the progress we have made to diversify our business portfolio, grow the Large Projects segment
and optimize our overall asset base.
Over the course of the year, our teams successfully worked to complete several large infrastructure projects
throughout the country and secured two key projects—the Tappan Zee Bridge project in New York and the
IH-35E highway project in Texas.
Total contract backlog at the end of the year was $1.7 billion compared with $2 billion last year. We expect
to book our approximately $730 million share of the Tappan Zee Bridge project into the first quarter 2013
backlog and our approximately $300 million share of the IH-35E project in the second quarter of 2013.
Overall, we ended the year with earnings per share of $1.15 compared to $1.31 in 2011. Total revenues increased
4 percent to $2.1 billion driven largely by growth in our Large Projects segment. Gross margins decreased 100 basis
points to 11.3 percent. Although the vast majority of our Large Projects performed very well, it was not enough to
offset the margin deterioration we saw in our Construction and Construction Materials businesses. Aside from
these challenges, we maintained a strong balance sheet and successfully amended and expanded our credit facility.
Our new four-year, $215 million senior secured facility replaces our $100 million facility and provides us with ample
liquidity and financial flexibility to pursue our strategic growth initiatives.
Our acquisition of Kenny Construction Company on December 31st is an exciting step in our strategic
diversification effort as well as our plan to grow our Large Projects business. Together with Kenny, we
will expand our presence into targeted end markets such as power delivery and water and wastewater
infrastructure, both of which have attractive long-term fundamentals.
The combined Granite and Kenny company also has the balance sheet, bonding capacity and expertise to
pursue larger—and typically more profitable—projects in all markets. There are opportunities for Kenny to
self-perform more heavy-civil work, or utilize one of Granite’s heavy-civil units to perform this work which
Kenny has historically subcontracted. Also compelling is the opportunity to expand the existing underground
renewal business beyond its current Midwest and Mountain region presence, especially into geographic
markets where Granite currently operates.
Another element of the strategic rationale for the Kenny acquisition is the expansion of the combined companies’
heavy-civil business. Pursuing larger projects in the broader geographic Midwest area will allow us to leverage
existing relationships with contractors and engineers and increase the margin potential of the civil portfolio.
In 2013, Granite expects to bid over $13 billion of work, of which our portion is approximately $6 billion. We have
excellent teams assembled on each of these projects and believe that we will get our share of the work.
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In terms of our Construction and Construction Material businesses in the West, we are cautiously optimistic
that we will see an increase in the private market by 2014. We are encouraged by some positive indicators
that could provide some benefit to us by late 2013. We are also seeking opportunities to maximize the value
of our portfolio both through controlling costs and through rigorous analysis of our fixed assets to ensure
they are meeting our performance expectations.
Although fiscal constraints at the federal, state and local levels remain, interest is increasing in alternative
project delivery methods such as public-private partnerships, or P3s. Underpinning this interest is the
Transportation Innovation Financing Infrastructure Act (TIFIA) which was enhanced in the recent federal
highway bill. It is estimated that the $1.75 billion authorized for the program over the next two years has
the potential to be leveraged into anywhere from $35 to $50 billion in investment for transportation projects.
While TIFIA is not the funding cure for our industry, we do believe it will provide a meaningful benefit to
our business over the near and long-term.
While programs like TIFIA are a positive step, the need for infrastructure investment continues to outpace
funding in all parts of the country, and at all levels of government. Going forward, we will continue to work
closely with our representatives in Washington and in our local states to close this huge gap by advocating for
new revenue sources as well as through the use of innovative financing to support public-private partnerships.
We are excited about the opportunities for our Large Projects business as well as the healthy bidding
environment we see for the Kenny-related markets. Although we will continue to face a challenging
environment for our Construction and Construction Materials businesses this year, we will meet it head-on
with an intense focus on increasing efficiencies in all aspects of our business. In addition, we believe the
timing is right to aggressively pursue all components of our strategic plan through both organic growth
and acquisitions.
In closing, we would like to acknowledge our employees across the country for their hard work and
commitment to Granite. They continue to meet the challenges that we—and the industry—are facing
and we are very proud of our team. Our employees are the reason that we have been recognized for
the fourth year in a row as one of the World’s Most Ethical Companies by Ethisphere Institute. This
recognition not only underscores our core values, it is a testament to the way we have done business
for the past 90-years. On behalf of the Granite team, we can assure you that we are committed to
maintaining this reputation as well delivering shareholder value for generations to come.
Sincerely,
James H. Roberts
President and Chief Executive Officer
William H. Powell
Chairman of the Board
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F O R M
10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-12911
Granite Construction Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0239383
(I.R.S. Employer Identification Number)
585 West Beach Street
Watsonville, California
(Address of principal executive offices)
95076
(Zip Code)
Registrant’s telephone number, including area code: (831) 724-1011
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer
Accelerated filer
Smaller reporting company
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $908.0 million as of June
30, 2012, based upon the price at which the registrant’s Common Stock was last sold as reported on the New York Stock Exchange on such date.
At February 8, 2013, 38,731,910 shares of Common Stock, par value $0.01, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Shareholders of Granite
Construction Incorporated to be held on June 6, 2013, which will be filed with the Securities and Exchange Commission not later than 120 days after
December 31, 2012.
PART I
Index
BUSINESS
RISK FACTORS
Item 1.
Item 1A.
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
Item 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
Item 5.
Item 6.
Item 7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
Item 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 21
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EXHIBIT 95
EXHIBIT 101.INS
EXHIBIT 101.SCH
EXHIBIT 101.CAL
EXHIBIT 101.DEF
EXHIBIT 101.LAB
EXHIBIT 101.PRE
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Annual Report on
Form 10-K, or statements made by its officers or directors, that are not based on historical facts, including statements regarding
future events, occurrences, circumstances, activities, performance, outcomes and results that may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,”
“plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable
terminology or by the context in which they are made. In addition, other written or oral statements which 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, activities, performance, outcomes 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 this report 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 Annual Report on Form 10-K, and, except as required by law, we undertake no obligation to revise or update any
forward-looking statements for any reason.
Item 1. BUSINESS
Introduction
PART I
Granite Construction Company was originally incorporated in 1922. In 1990, Granite Construction Incorporated was formed as the
holding company for Granite Construction Company and its wholly owned subsidiaries and was incorporated in Delaware. Unless
otherwise indicated, the terms “we,” “us,” “our,” “Company” and “Granite” refer to Granite Construction Incorporated and its
consolidated subsidiaries.
We are one of the largest diversified heavy civil contractors and construction materials producers in the United States. We operate
nationwide, serving both public and private sector clients. Within the public sector, we primarily concentrate on heavy-civil
infrastructure projects, including the construction of roads, highways, mass transit facilities, airport infrastructure, bridges, dams
and other infrastructure related projects. Within the private sector, we perform site preparation and infrastructure services for
residential development, commercial and industrial buildings, and other facilities.
We own and lease substantial aggregate reserves and own a number of construction materials processing plants. We also have one
of the largest contractor-owned heavy construction equipment fleets in the United States. We believe that the ownership of these
assets enables us to compete more effectively by ensuring availability of these resources at a favorable cost.
In December 2012, we purchased 100% of the outstanding stock of Kenny Construction Company (“Kenny”), a Northbrook,
Illinois-based national contractor and construction manager, for a purchase price of $141.5 million, subject to possible post-closing
adjustments. Kenny is recognized as a national leader among tunneling and electrical power contractors, and has evolved into an
industry-leading rehabilitation contractor utilizing cutting-edge trenchless and underground construction technologies and
processes. This acquisition expands our presence in the power, tunnel and underground markets, and enables us to leverage our
capabilities and geographic footprint. See Note 21 of the “Notes to the Consolidated Financial Statements” for further information.
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Operating Structure
Our business has been organized into four reportable business segments to reflect our lines of business. These business segments
are: Construction, Large Project Construction, Construction Materials and Real Estate. See Note 20 of “Notes to the Consolidated
Financial Statements” for additional information about our reportable business segments.
Our market sector information reflects four groups defined as follows: 1) California; 2) Northwest, which primarily includes our
offices in Alaska, Nevada, Utah and Washington; 3) East, which primarily includes our offices in Arizona, Florida, New York and
Texas; and 4) Kenny, which primarily includes our offices in Colorado, Illinois, and Pennsylvania. Each of these groups includes
operations from our Construction and Large Project Construction lines of business. Our California, Northwest and East groups
include operations from our Construction Materials line of business. A project’s results are reported in the group that is responsible
for the project, not necessarily the geographic area where the work is located. In some cases, the operations of a group include the
results of work performed outside of that region.
Construction: Revenue from our Construction segment remained relatively unchanged at approximately $1.0 billion
(approximately 47.0% of our total revenue) in 2012 and 2011. Revenue from our Construction segment is derived from both public
and private sector clients. The Construction segment performs various heavy civil construction projects with a large portion of the
work focused on new construction and improvement of streets, roads, highways, bridges, site work and other infrastructure
projects. These are typically bid-build projects completed within two years with a contract value of less than $75 million.
Large Project Construction: Revenue from our Large Project Construction segment was $863.2 million and $725.0 million (41.4%
and 36.1% of our total revenue) in 2012 and 2011, respectively. The Large Project Construction segment focuses on large, complex
infrastructure projects which typically have a longer duration than our Construction segment work. These projects include major
highways, mass transit facilities, bridges, tunnels, waterway locks and dams, pipelines, canals and airport infrastructure. This
segment primarily includes bid-build, design-build and construction management/general contractor contracts, generally with
contract values in excess of $75 million.
We participate in joint ventures with other construction companies mainly on projects in our Large Project Construction segment.
Joint ventures are typically used for large, technically complex projects, including design/build projects, where it is desirable to
share risk and resources. Joint venture partners typically provide independently prepared estimates, shared financing
and equipment and often bring local knowledge and expertise (see “Joint Ventures; Off-Balance-Sheet Arrangements” under “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”).
We also utilize the design/build and construction management/general contract methods of project delivery. Unlike traditional
projects where owners first hire a design firm or design a project themselves and then put the project out to bid for construction,
design/build projects provide the owner with a single point of responsibility and a single contact for both final design and
construction. Although design/build projects carry additional risk as compared to traditional bid/build projects, the profit potential
can also be higher. Under the construction management/general contract method of delivery, we contract with owners to manage
the design phase of the contract with the understanding that we will negotiate a contract on the construction phase when the design
nears completion. Revenue from design/build and construction management/general contract projects represented 74.5% and
58.1% of Large Project Construction revenue in 2012 and 2011, respectively.
Construction Materials: Revenue from our Construction Materials segment was $230.6 million and $220.6 million (11.1% and
11.0% of our total revenue) in 2012 and 2011, respectively. The Construction Materials segment mines and processes aggregates
and operates plants that produce construction materials for internal use and for sale to third parties. We have significant aggregate
reserves that we have acquired by ownership in fee or through long-term leases. Aggregate products used in our construction
projects represented approximately 42.7% of our tons sold during 2012 and ranged from 42.2% to 50.2% over the last five years.
The remainder is sold to third parties.
Real Estate: Granite Land Company (“GLC”) is an investor in a diversified portfolio of land assets and provides real estate
services for other Granite operations. GLC’s current investment portfolio consists of residential as well as retail and office site
development projects for sale to home and commercial property developers. The range of its involvement in an individual project
may vary from passive investment to management of land use rights, development, construction, leasing and eventual sale of the
project. Generally, GLC has teamed with partners who have local knowledge and expertise in the development of each property.
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GLC’s current investments are located in Washington, California and Texas. Revenue from GLC was $5.1 million and $20.3
million (0.2% and 1.0% of our total revenue) in 2012 and 2011, respectively. In October 2010, we announced our Enterprise
Improvement Plan that includes plans to orderly divest of our real estate investment business. See Note 11 of “Notes to the
Consolidated Financial Statements” and “Restructuring Charges” under “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for additional information.
Business Strategy
Our fundamental objective is to increase long-term shareholder value as measured by the appreciation of the value of our common
stock over a period of time as well as dividend yields. A specific measure of our financial success is the achievement of a return on
net assets greater than the cost of capital, creating “Granite Value Added.” The following are key factors in our ability to achieve
these objectives:
Aggregate Materials - We own and lease aggregate reserves and own processing plants that are vertically integrated into our
construction operations. By ensuring availability of these resources and providing quality products, we believe we have a
competitive advantage in many of our markets as well as a source of revenue and earnings from the sale of construction materials
to third parties.
Controlled Growth - We intend to grow our business by working on many types of infrastructure projects as well as by expanding
into new geographic areas organically and through acquisitions. In addition, we focus our efforts on larger projects wherein our
financial strength and project experience provide us with a competitive advantage.
Decentralized Profit Centers - Each of our operating groups is established as an individual profit center which encourages
entrepreneurial activity while allowing the groups to benefit from centralized administrative and support functions.
Diversification - To mitigate the risks inherent in the construction business as the result of general economic factors, we pursue
projects: (i) in both the public and private sectors, (ii) in federal, rail, power and renewable energy markets, (iii) for a wide range of
customers within each sector (from the federal government to small municipalities and from large corporations to individual
homeowners), (iv) in diverse geographic markets, (v) that are construction management/general contractor, design/build, fixed
price and fixed unit price and (vi) of various sizes, durations and complexity. In addition to pursuing opportunities with traditional
project funding, we continue to evaluate other sources of project funding (e.g., public private partnerships).
Employee Development - We believe that our employees are key to the successful implementation of our business strategies.
Significant resources are employed to attract, develop and retain extraordinary talent and fully promote each employee’s
capabilities.
Infrastructure Construction Focus - We concentrate our core competencies on this segment of the construction industry, which
includes the building of roads, highways, bridges, dams, tunnels, mass transit facilities, airport and railroad infrastructure,
underground utilities and site preparation. This focus allows us to most effectively utilize our specialized strengths, which include
grading, paving and construction of concrete structures.
Ownership of Construction Equipment - We own a large fleet of well maintained heavy construction equipment. The ownership of
construction equipment enables us to compete more effectively by ensuring availability of the equipment at a favorable cost.
Profit-based Incentives - Profit center managers are incentivized with cash compensation and restricted equity awards, payable
upon the attainment of pre-established annual financial and non-financial metrics.
Selective Bidding - We focus our resources on bidding jobs that meet our selective bidding criteria, which include analyzing the
risk of a potential job relative to: (i) available personnel to estimate and prepare the proposal, (ii) available personnel to effectively
manage and build the project, (iii) the competitive environment, (iv) our experience with the type of work, (v) our experience with
the owner, (vi) local resources and partnerships, (vii) equipment resources, (viii) the size and complexity of the job and (ix)
profitability.
Our operating principles include:
Accident Prevention - We believe accident prevention is a moral obligation as well as good business. By identifying and
concentrating resources to address jobsite hazards, we continually strive to reduce our incident rates and the costs associated with
accidents.
Quality and High Ethical Standards - We believe in the importance of performing high quality work. Additionally, we believe in
maintaining high ethical standards through an established code of conduct and an effective corporate compliance program.
Sustainability - Our focus on sustainability encompasses many aspects of how we conduct ourselves and practice our core values.
We believe sustainability is important to our customers, employees, shareholders, and communities, and is also a long-term
business driver. By focusing on specific initiatives that address social, environmental and economic challenges, we can minimize
risk and increase our competitive advantage.
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Raw Materials
We purchase raw materials consisting of aggregate products, cement, diesel fuel, liquid asphalt, natural gas, propane and steel from
numerous sources. Our aggregate reserves supply a portion of the raw materials needed in our construction projects. The price and
availability of raw materials may vary from year to year due to market conditions and production capacities. We do not foresee the
lack of availability of any raw materials in the near term.
Seasonality
Our operations are typically affected 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, profitability and the required number of employees.
Customers
Customers in our Construction segment include certain federal agencies, state departments of transportation, county and city public
works departments, school districts and developers and owners of industrial, commercial and residential sites. Customers of our
Large Project Construction segment are predominantly in the public sector and currently include various state departments of
transportation, local transit authorities and federal agencies. Customers of our Construction Materials segment include internal
usage on our own construction, as well as third party customers including, but not limited to, contractors, landscapers,
manufacturers of products requiring aggregate materials, retailers, homeowners, farmers and brokers.
During the years ended December 31, 2012 and 2011, our largest volume customer was the California Department of
Transportation (“Caltrans”). Revenue recognized from contracts with Caltrans represented 13.1% of our total revenue, 27.3% of
our Construction revenue and 0.5% of our Large Project Construction revenue in 2012 and 13.2% of our total revenue, 23.1% of
our Construction revenue and 3.3% of our Large Project Construction revenue in 2011. During the year ended 2010, our largest
volume customer was Maryland State Highway Administration (“MD SHA”). Revenue recognized from contracts with MD SHA
represented 10.3% of our total revenue and 31.0% of our Large Project Construction revenue in 2010. Public sector revenue in
California represented 26.4%, 27.0% and 23.2% of our total revenue in 2012, 2011 and 2010, respectively.
Contract Backlog
Our contract backlog is comprised of the unearned portion of revenue on awarded contracts that have not been completed,
including 100% of the unearned revenue of our consolidated joint ventures and our proportionate share of unconsolidated joint
venture contracts. We generally include a project in our contract backlog at the time a contract is awarded and funding is in
place. Certain federal government contracts where funding is appropriated on a periodic basis are included in contract backlog at
the time of the award. Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the
customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past (see
“Contract Provisions and Subcontracting”). Many projects in our Construction segment are added and completed within a year and
therefore may not be reflected in our beginning or year-end contract backlog. Contract backlog by segment is presented in
“Contract Backlog” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our
contract backlog was approximately $1.7 billion and $2.0 billion at December 31, 2012 and 2011, respectively. Approximately
$1.4 billion of the December 31, 2012 contract backlog is expected to be completed during 2013.
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Equipment
At December 31, 2012 and 2011, we owned the following number of construction equipment and vehicles:
December 31,
Heavy construction equipment
Trucks, truck-tractors, trailers and vehicles
2012
2,566
3,579
2011
2,006
4,206
Our portfolio of equipment includes backhoes, barges, bulldozers, cranes, excavators, loaders, motor graders, pavers, rollers,
scrapers, trucks and tunnel boring machines that are used in our Construction, Large Project Construction and Construction
Materials business segments. We believe that ownership of equipment is generally preferable to leasing because it ensures the
equipment is available as needed and normally results in lower costs. We pool certain equipment for use by our Construction,
Large Project Construction and Construction Materials segments to maximize utilization. We continually monitor and adjust our
fleet size so that it is consistent with the size of our business, considering both existing backlog and expected future work. On a
short-term basis, we lease or rent equipment to supplement existing equipment in response to construction activity peaks. In 2012
and 2011, we spent approximately $19.8 million and $22.3 million, respectively, on purchases of construction equipment and
vehicles.
Employees
On December 31, 2012, we employed approximately 1,700 salaried employees who work in management, estimating and clerical
capacities, plus approximately 2,400 hourly employees. The total number of hourly personnel is subject to the volume of
construction in progress and is seasonal. During 2012, the number of hourly employees ranged from approximately 1,500 to
3,900 and averaged approximately 3,100. Three of our wholly owned subsidiaries, Granite Construction Company, Granite
Construction Northeast, Inc., and Kenny Construction Company, are parties to craft collective bargaining agreements in many areas
in which they work.
We believe our employees are our most valuable resource and that our workforce possesses a strong dedication to and pride in our
company. Among salaried and non-union hourly employees, this dedication is reinforced by an 8.6% equity ownership at
December 31, 2012 through our Employee Stock Purchase Plan, Profit Sharing and 401(k) Plan and performance-based incentive
compensation arrangements. Our managerial and supervisory personnel have an average of approximately eleven years of service
with us.
Competition
Competitors of our Construction segment typically come from small local construction companies as well as large regional,
national and international construction companies. We compete with numerous companies in individual markets, however, there
are few companies which compete in all of our market areas. Many of our Construction segment competitors have the ability to
perform work in either the private or public sectors. When opportunities for work in one sector are reduced, competitors tend to
look for opportunities in the other sector. This migration has the potential to reduce revenue growth and/or increase pressure on
gross profit margins.
The scale and complexity of jobs in the Large Project Construction segment preclude many smaller contractors from bidding such
work. Consequently, our Large Project Construction segment competition typically comes from large regional, national and global
construction companies.
We own and/or have long-term leases on aggregate resources that we believe may provide a competitive advantage in certain
markets for both the Construction and Large Project Construction segments.
Competitors of our Construction Materials segment range from small local materials companies to large regional, national and
global materials companies. We compete with numerous companies in individual markets; however, there are few companies
which compete in all of our market areas. The unprecedented demand for construction materials during 2001 through 2006
prompted many materials suppliers to increase production and sales capacities in many of the markets in which we compete. The
subsequent reduction in demand, primarily driven by a reduction in residential and commercial development, has increased the
level of competition to sell construction materials.
Factors influencing our competitiveness include price, estimating abilities, knowledge of local markets and conditions, project
management, financial strength, reputation for quality, the availability of aggregate materials, and machinery and equipment.
Historically, the construction business has not required large amounts of capital, particularly for the smaller size construction work
pursued by our Construction segment, which can result in relative ease of market entry for companies possessing acceptable
qualifications. Although the construction business is highly competitive, we believe we are well positioned to compete effectively
in the markets in which we operate.
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Contract Provisions and Subcontracting
Our contracts with our customers are primarily “fixed unit price” or “fixed price.” Under fixed unit price contracts, we are
committed to providing materials or services at fixed unit prices (for example, dollars per cubic yard of concrete placed or cubic
yard of earth excavated). While the fixed unit price contract shifts the risk of estimating the quantity of units required for a
particular project to the customer, any increase in our unit cost over the expected unit cost in the bid, whether due to inflation,
inefficiency, errors in our estimates or other factors, is borne by us unless otherwise provided in the contract. Fixed price contracts
are priced on a lump-sum basis under which we bear the risk of performing all the work for the specified amount. The percentage
of fixed price contracts (excluding fixed unit price contracts) in our contract backlog decreased to approximately 56.8% at
December 31, 2012 compared with approximately 69.5% at December 31, 2011.
Our construction contracts are obtained through competitive bidding in response to solicitations by both public agencies and
private parties and on a negotiated basis as a result of solicitations from private parties. Project owners use a variety of methods to
make contractors aware of new projects, including posting bidding opportunities on agency websites, disclosing long-term
infrastructure plans, advertising and other general solicitations. Our bidding activity is affected by such factors as the nature and
volume of advertising and other solicitations, contract backlog, available personnel, current utilization of equipment and other
resources, our ability to obtain necessary surety bonds and competitive considerations. Our contract review process includes
identifying risks and opportunities during the bidding process and managing these risks through mitigation efforts such as contract
negotiation, insurance and pricing. Contracts fitting certain criteria of size and complexity are reviewed by various levels of
management and, in some cases, by the Executive Committee of our Board of Directors. Bidding activity, contract backlog and
revenue resulting from the award of new contracts may vary significantly from period to period.
There are a number of factors that can create variability in contract performance and results as compared to a project’s original bid.
The most significant of these include the completeness and accuracy of the original bid, cost associated with scope changes where
final price negotiations are not complete, extended overhead due to owner, weather and other delays, subcontractor performance
issues, changes in productivity expectations, site conditions that differ from those assumed in the original bid (to the extent
contract remedies are unavailable), the availability and skill level of workers in the geographic location of the project and a change
in the availability and proximity of equipment or materials. All of these factors can impose inefficiencies on contract performance,
which can increase costs and lower profits. Conversely, positive variations in any of these or other factors can decrease costs and
improve profitability. However, the ability to realize improvements on project profitability is often more limited than the
risk of lower profitability. Design/build projects typically incur additional costs such as right-of-way and permit acquisition costs
and carry additional risks such as design error risk and the risk associated with estimating quantities and prices before the project
design is completed. These unknown factors may cause higher than anticipated construction costs and additional liability to the
contract owner. We manage this additional risk by adding contingencies to our bid amounts, obtaining errors and omissions
insurance and obtaining indemnifications from our design consultants where possible. However, there is no guarantee that these
risk management strategies will always be successful.
Most of our contracts, including those with the government, provide for termination at the convenience of the contract owner, with
provisions to pay us for work performed through the date of termination. We have not been materially adversely affected by these
provisions in the past. Many of our contracts contain provisions that require us to pay liquidated damages if specified completion
schedule requirements are not met and these amounts could be significant.
We act as prime contractor on most of our construction projects. We complete the majority of our projects with our own resources
and subcontract specialized activities such as electrical and mechanical work. As prime contractor, we are responsible for the
performance of the entire contract, including subcontract work. Thus, we may be subject to increased costs associated with the
failure of one or more subcontractors to perform as anticipated. Based on our analysis of their construction and financial
capabilities, among other criteria, we determine whether to require the subcontractor to furnish a bond or other type of security to
guarantee their performance. Disadvantaged business enterprise regulations require us to use our best efforts to subcontract a
specified portion of contract work done for governmental agencies to certain types of disadvantaged contractors or suppliers. As
with all of our subcontractors, some may not be able to obtain surety bonds or other types of performance security.
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Insurance and Bonding
We maintain general and excess liability, construction equipment and workers’ compensation insurance; all in amounts consistent
with industry practice.
In connection with our business, we generally are 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. Our ability to obtain surety bonds
depends upon our capitalization, working capital, past performance, management expertise and external factors, including the
capacity of the overall surety market. Surety companies consider such factors in light of the amount of our contract backlog that we
have currently bonded and their current underwriting standards, which may change from time to time. The capacity of the surety
market is subject to market-based fluctuations driven primarily by the level of surety industry losses and the degree of surety
market consolidation. When the surety market capacity shrinks it results in higher premiums and increased difficulty obtaining
bonding, in particular for larger, more complex projects throughout the market. In order to help mitigate this risk, we employ a co-
surety structure involving three sureties. Although we do not believe that fluctuations in surety market capacity have
significantly affected our ability to grow our business, there is no assurance that it will not significantly affect our ability to obtain
new contracts in the future (see “Item 1A. Risk Factors”).
Environmental Regulations
Our operations are subject to various federal, state and local laws and regulations relating to the environment, including those
relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste, the handling of underground
storage tanks and the cleanup of properties affected by hazardous substances. Certain environmental laws impose substantial
penalties for non-compliance and others, such as the federal Comprehensive Environmental Response, Compensation and Liability
Act, impose strict, retroactive, joint and several liability upon persons responsible for releases of hazardous substances. We
continually evaluate whether we must take additional steps at our locations to ensure compliance with environmental laws. While
compliance with applicable regulatory requirements has not materially adversely affected our operations in the past, there can be
no assurance that these requirements will not change and that compliance will not adversely affect our operations in the future. In
addition, our aggregate materials operations require operating permits granted by governmental agencies. We believe that tighter
regulations for the protection of the environment and other factors will make it increasingly difficult to obtain new permits and
renewal of existing permits may be subject to more restrictive conditions than currently exist.
In July 2007, the California Air Resources Board (“CARB”) approved a regulation that will require California equipment owners/
operators to reduce diesel particulate and nitrogen oxide emissions from in-use off-road diesel equipment and to meet
progressively more restrictive emission targets from 2010 to 2020. In December 2008, CARB approved a similar regulation for in-
use on-road diesel equipment that includes more restrictive emission targets from 2010 to 2022. The emission targets will require
California off-road and on-road diesel equipment owners to retrofit equipment with diesel emission control devices or replace
equipment with new engine technology as it becomes available, which will result in higher equipment related expenses. In
December 2010, CARB amended both regulations to grant economic relief to affected fleets by extending initial compliance dates
from 2020 to 2025 as well as adding additional compliance requirements. To date, costs to prepare the Company for compliance
have been minimal. At this time we do not expect the full cost of compliance to be significant and we will continue to manage
compliance costs; however, it is not possible to determine the future cost of compliance.
As is the case with other companies in our industry, some of our aggregate products contain varying amounts of crystalline silica, a
common mineral. Also, some of our construction and material processing operations release, as dust, crystalline silica that is in the
materials being handled. Excessive, prolonged inhalation of very small-sized particles of crystalline silica has allegedly been
associated with respiratory disease (including silicosis). The Mine Safety and Health Administration and the Occupational Safety
and Health Administration have established occupational thresholds for crystalline silica exposure as respirable dust. We have
implemented dust control procedures to measure compliance with requisite thresholds and to verify that respiratory protective
equipment is made available as necessary. We also communicate, through safety information sheets and other means, what we
believe to be appropriate warnings and cautions to employees and customers about the risks associated with excessive, prolonged
inhalation of mineral dust in general and crystalline silica in particular.
Website Access
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”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any
amendments to them, are also available at the website of the SEC, www.sec.gov.
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Executive Officers of the Registrant
Our current executive officers are as follows:
Name
James H. Roberts
Laurel J. Krzeminski
Thomas S. Case
Michael F. Donnino
John A. Franich
James D. Richards
Patrick B. Kenny
Age
56
58
50
58
56
49
62
Position
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Operations Services Manager
Senior Vice President and Group Manager
Senior Vice President and Group Manager
Senior Vice President and Group Manager
Senior Vice President and Group Manager
Granite Construction Incorporated was incorporated in Delaware in January 1990 as the holding company for Granite Construction
Company, which was incorporated in California in 1922. All dates of service for our executive officers include the periods in
which they served for Granite Construction Company.
Mr. Roberts joined Granite in 1981 and has served in various capacities, including President and Chief Executive Officer since
September 2010. He also served as Executive Vice President and Chief Operating Officer from September 2009 to August 2010,
Senior Vice President from May 2004 to September 2009, Granite West Manager from February 2007 to September 2009, Branch
Division Manager from May 2004 to February 2007, Vice President and Assistant Branch Division Manager from 1999 to 2004,
and Regional Manager of Nevada and Utah Operations from 1995 to 1999. Mr. Roberts served as Chairman of The National
Asphalt Pavement Association in 2006. He received a B.S.C.E. in 1979 and an M.S.C.E. in 1980 from the University of
California, Berkeley, and an M.B.A. from the University of Southern California in 1981. He also completed the Stanford Executive
Program in 2009.
Ms. Krzeminski joined Granite in 2008 and has served as Chief Financial Officer since November 2010 and Senior Vice President
since January 2013. She also served as Vice President from July 2008 to December 2012, Interim Chief Financial Officer from
June 2010 to October 2010 and Corporate Controller from July 2008 to May 2010. From 1993 to 2007, she served in various
corporate and operational finance positions with The Gillette Company (acquired by The Procter & Gamble Company in 2005),
including Finance Director for the Duracell and Braun North American business units. Ms. Krzeminski also served as the Director
of Gillette’s Sarbanes-Oxley Section 404 Compliance program and as Gillette’s Director of Corporate Financial Reporting. Her
experience also includes several years in public accounting with an international accounting firm. She received a B.S. degree in
Business Administration - Accounting from San Diego State University in 1978.
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Mr. Case joined Granite in 1987 and has served as Senior Vice President and Operations Services Manager since January 2013. He
also served as Vice President and Group Manager from January 2010 to December 2012, Southwest Operating Group Manager
from November 2007 to December 2009, Utah Operations Branch Manager from August 2001 through November 2007, Utah
Operations Construction Manager during 2001, Utah Operations Materials Manager between 1996 and 2000, and in various
positions at Granite’s Nevada and Santa Barbara, California operations between 1987 and 1996. Mr. Case received a B.S. in
Construction Management from California Polytechnic State University in 1986.
Mr. Donnino joined Granite in 1977 and has served as Senior Vice President and Group Manager since January 2010, Senior Vice
President since January 2005, Manager of Granite East from February 2007 to December 2009, and Heavy Construction Division
Manager from January 2005 to February 2007. He served as Vice President and Heavy Construction Division Assistant Manager
during 2004, Texas Regional Manager from 2000 to 2003 and Dallas Estimating Office Area Manager from 1991 to 2000. Mr.
Donnino received a B.S.C.E. in Structural, Water and Soils Engineering from the University of Minnesota in 1976.
Mr. Franich joined Granite in 2005 and has served as Senior Vice President and Group Manager since January 2013, Vice
President and Group Manager from January 2010 to December 2012, Vice President and Granite West Manager of Construction
from February 2007 to December 2009, and Vice President, Branch Division Construction Manager from January 2005 through
January 2007. Prior to joining Granite in 2005, Mr. Franich has held various positions in the construction industry since 1979 and
was formerly the President of Associated General Contractors of California. Mr. Franich received a B.S. in Business
Administration - Finance from California State University, Chico in 1979.
Mr. Richards joined Granite in January 1992 and has served as Senior Vice President and Group Manager since January 2013. He
also served as Arizona Region Manager from February 2006 through December 2012, Arizona Region Chief Estimator from
January 2000 through January 2006 and in other positions at Granite’s Arizona Branch between 1992 and 2000. Prior to joining
Granite, he served as a U.S. Army Officer. Mr. Richards received a B.S. in Civil Engineering from New Mexico State University
in 1987.
Mr. Kenny has served as Senior Vice President and Group Manager since January 2013. Mr. Kenny previously served as
Executive Vice President of Kenny Construction Company which was acquired by Granite. He was responsible for the Tunnel and
Power Groups from 2005 to 2012, and he managed the Tunnel and Underground Groups from 1990 to 2005. Prior to such time,
Mr. Kenny was Vice President of Engineering for Kenny Construction Company. Mr. Kenny received a B.S in Civil Engineering
from Lehigh University in 1972 and an M.B.A. from Lehigh in 1973.
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Item 1A. RISK FACTORS
Set forth below and elsewhere in this report and in other documents we file with the SEC are various risks and uncertainties that
could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this
report or otherwise adversely affect our business.
• Unfavorable economic conditions have had and are expected to continue to have an adverse impact on our business. The
recent turmoil in the global financial system has had and may continue to have an adverse impact on our business, financial
position, results of operations, cash flows and liquidity. In particular, low tax revenues, budget deficits, financing constraints
and competing priorities have resulted in, and may continue to result in, cutbacks in new infrastructure projects in the public
sector and could have an adverse impact on collectibility of receivables from government agencies. In addition, levels of
new commercial and residential construction projects have been adversely affected by oversupply of existing inventories of
commercial and residential properties, low property values and a restrictive financing environment. The depressed demand
for construction and construction materials in both the public and private sectors has resulted in intensified competition,
which has had an adverse impact on both our revenues and profit margins and could impact growth opportunities. Although
conditions are stabilizing, these factors have also had an adverse impact on the levels of activity and financial position,
results of operations, cash flows and liquidity of our real estate investment and development business.
• Deterioration of the United States economy could have a material adverse effect on our business, financial condition and
results of operations. Congress’ inability to lower United States debt substantially could result in a decrease in government
spending, which could negatively impact the ability of government agencies to fund existing or new infrastructure projects.
In addition, such actions could have a material adverse effect on the financial markets and economic conditions in the
United States as well as throughout the world, which may limit our ability and the ability of our customers to obtain
financing and/or could impair our ability to execute our acquisition strategy. Deterioration in general economic activity and
infrastructure spending or Congress’ deficit reduction measures could have a material adverse effect on our financial
position, results of operations, cash flows and liquidity.
• As a part of our growth strategy we have made and may make future acquisitions, and acquisitions involve many risks.
These risks include difficulties integrating the operations and personnel of the acquired companies, diversion of
management’s attention from ongoing operations, potential difficulties and increased costs associated with completion of
any assumed construction projects, insufficient revenues to offset increased expenses associated with acquisitions and the
potential loss of key employees or customers of the acquired companies. Acquisitions may also cause us to increase our
liabilities, record goodwill or other non-amortizable intangible assets that will be subject to subsequent impairment testing
and potential impairment charges, as well as amortization expenses related to certain other intangible assets. Failure to
manage and successfully integrate acquisitions could harm our financial position, results of operations, cash flows and
liquidity.
• Our strategic diversification plan, as well as, the acquisition of Kenny Construction Company includes growing our
international operations in Canada and U.S. Territories, which are subject to a number of special risks. As part of our
strategic diversification efforts we plan on entering into more construction contracts in Canada or U.S. Territories, which
may subject us to a number of special risks, including risks associated with:
•
•
•
•
•
•
•
•
•
lesser developed legal systems in which to enforce contractual rights;
greater risk of uncollectible accounts and longer collection cycles;
foreign currency exchange volatility;
uncertain and changing tax rules, regulations and rates;
logistical and communication challenges;
potentially adverse changes in laws and regulatory practices;
changes in labor conditions;
general economic, political and financial conditions in foreign markets; and
exposure to civil or criminal liability under the Foreign Corrupt Practices Act, the Canadian Corruption of Foreign
Public Officials Act, anti-boycott rules, trade and export control regulations, and the Corporate Manslaughter and
Corporate Homicide Act, as well as other international regulations.
Due to the special risks associated with non-U.S. operations, our exposure to such risks may not be proportionate to the
percentage of our revenues attributable to such operations.
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• Changes to our outsourced software vendors as well as any sudden loss, breach of security, disruption or unexpected
data or vendor loss associated with our information technology systems could have a material adverse effect on our
business. We rely on third-party software to run critical accounting, project management and financial information systems.
If software vendors decide to discontinue further development, integration or long-term software maintenance support for
our information systems, or there is any system interruption, delay, breach of security, loss of data or loss of a vendor, we
may need to migrate some or all of our accounting, project management and financial information to other systems. Despite
business continuity plans, these disruptions could increase our operational expense as well as impact the management of our
business operations, which could have a material adverse effect on our financial position, results of operations, cash flows
and liquidity.
• An inability to safeguard our information technology environment could result in business interruptions, remediation
costs and/or legal claims. To protect confidential customer, vendor, financial and employee information, we employ
information security measures that secure our information systems from cybersecurity attacks or breaches. Even with these
measures, we may be subject to unauthorized access of digital data with the intent to misappropriate information, corrupt
data or cause operational disruptions. If a failure of our safeguarding measures were to occur, it could have a negative
impact to our business and result in business interruptions, remediation costs and/or legal claims, which could have a
material adverse effect on our financial position, results of operations, cash flow and liquidity.
• We work in a highly competitive marketplace. We have multiple competitors in all of the areas in which we work, and some
of our competitors are larger than we are and may have greater resources than we do. During economic down cycles or
times of lower government funding for public works projects, competition for the fewer available public projects typically
intensifies and this increased competition may result in a decrease in new awards at acceptable profit margins. In addition,
downturns in residential and commercial construction activity increases the competition for available public sector work,
further impacting our revenue, contract backlog and profit margins.
• Our success depends on attracting and retaining qualified personnel, joint venture partners and subcontractors in a
competitive environment. The success of our business is dependent on our ability to attract, develop and retain qualified
personnel, joint venture partners, advisors and subcontractors. Changes in general or local economic conditions and the
resulting impact on the labor market and on our joint venture partners may make it difficult to attract or retain qualified
individuals in the geographic areas where we perform our work. If we are unable to provide competitive compensation
packages, high-quality training programs, attractive work environments or to establish and maintain successful
partnerships, our ability to profitably execute our work could be adversely impacted.
•
Strikes or work stoppages could have a negative impact on our operations and results. We are party to collective
bargaining agreements covering a portion of our craft workforce. Although strikes or work stoppages have not had a
significant impact on our operations or results in the past, such labor actions could have a significant impact on
our operations and results if they occur in the future.
• Failure to maintain safe work sites could result in significant losses. Construction and maintenance sites are potentially
dangerous workplaces and often put our employees and others in close proximity with mechanized equipment, moving
vehicles, chemical and manufacturing processes, and highly regulated materials. On many sites, we are responsible for
safety and, accordingly, must implement safety procedures. If we fail to implement these procedures or if the procedures we
implement are ineffective, we may suffer the loss of or injury to our employees, as well as expose ourselves to possible
litigation. Despite having invested significant resources in safety programs and being recognized as an industry leader, a
serious accident may nonetheless occur on one of our worksites. As a result, our failure to maintain adequate safety
standards could result in reduced profitability or the loss of projects or clients, and could have a material adverse impact on
our financial position, results of operations, cash flows and liquidity.
• Government contracts generally have strict regulatory requirements. Approximately 80.6% of our consolidated revenue in
2012 was derived from contracts funded by federal, state and local government agencies and authorities. Government
contracts are subject to specific procurement regulations, contract provisions and a variety of socioeconomic requirements
relating to their formation, administration, performance and accounting and often include express or implied certifications of
compliance. Claims for civil or criminal fraud may be brought for violations of regulations, requirements or statutes. We
may also be subject to qui tam (“Whistle Blower”) litigation brought by private individuals on behalf of the government
under the Federal Civil False Claims Act, which could include claims for up to treble damages. Further, if we fail to comply
with any of the regulations, requirements or statutes or if we have a substantial number of accumulated Occupational Safety
and Health Administration, Mine Safety and Health Administration or other workplace safety violations, our existing
government contracts could be terminated and we could be suspended from government contracting or subcontracting,
including federally funded projects at the state level. Should one or more of these events occur, it could have a material
adverse effect on our financial position, results of operations, cash flows and liquidity.
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• Government contractors are subject to suspension or debarment from government contracting. Our substantial
dependence on government contracts exposes us to a variety of risks that differ from those associated with private sector
contracts. Various statutes to which our operations are subject, including the Davis-Bacon Act (which regulates wages and
benefits), the Walsh-Healy Act (which prescribes a minimum wage and regulates overtime and working conditions),
Executive Order 11246 (which establishes equal employment opportunity and affirmative action requirements) and the
Drug-Free Workplace Act, provide for mandatory suspension and/or debarment of contractors in certain circumstances
involving statutory violations. In addition, the Federal Acquisition Regulation and various state statutes provide for
discretionary suspension and/or debarment in certain circumstances that might call into question a contractor’s willingness
or ability to act responsibly, including as a result of being convicted of, or being found civilly liable for, fraud or a criminal
offense in connection with obtaining, attempting to obtain or performing a public contract or subcontract. The scope and
duration of any suspension or debarment may vary depending upon the facts and the statutory or regulatory grounds for
debarment and could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.
• We may be unable to identify qualified Disadvantaged Business Enterprise (“DBE”) contractors to perform as
subcontractors. Certain of our government agency projects contain minimum DBE participation clauses. If we subsequently
fail to complete these projects with the minimum DBE participation, we may be held responsible for breach of contract
damages which may include restrictions on our ability to bid on future projects as well as monetary damages. To the extent
we are responsible for monetary damages, the total costs of the project could exceed our original estimates, we could
experience reduced profits or a loss for that project and there could be a material adverse impact to our financial position,
results of operations, cash flows and liquidity.
• Fixed price and fixed unit price contracts subject us to the risk of increased project cost. As more fully described in
“Contract Provisions and Subcontracting” under “Item 1. Business,” the profitability of our fixed price and fixed unit price
contracts can be adversely affected by a number of factors that can cause our actual costs to materially exceed the costs
estimated at the time of our original bid.
• Design/build contracts subject us to the risk of design errors and omissions. Design/build is increasingly being used as a
method of project delivery as it provides the owner with a single point of responsibility for both design and construction. We
generally subcontract design responsibility to architectural and engineering firms. However, in the event of a design error or
omission causing damages, there is risk that the subcontractor or their errors and omissions insurance would not be able to
absorb the liability. In this case we may be responsible, resulting in a potentially material adverse effect on our financial
position, results of operations, cash flows and liquidity.
• Many of our contracts have penalties for late completion. In some instances, including many of our fixed price contracts,
we guarantee that we will complete a project by a certain date. If we subsequently fail to complete the project as scheduled
we may be held responsible for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated
damages. To the extent these events occur, the total cost of the project could exceed our original estimate and we could
experience reduced profits or a loss on that project.
• Accounting for our revenues and costs involves significant estimates. As further described in “Critical Accounting Policies
and Estimates” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
accounting for our contract related revenues and costs, as well as other expenses, requires management to make a variety of
significant estimates and assumptions. Although we believe we have sufficient experience and processes to enable us to
formulate appropriate assumptions and produce reasonably dependable estimates, these assumptions and estimates may
change significantly in the future and could result in the reversal of previously recognized revenue and profit. Such changes
could have a material adverse effect on our financial position and results of operations.
• Failure of our subcontractors to perform as anticipated could have a negative impact on our results. As further described
in “Contract Provisions and Subcontracting” under “Item 1. Business,” we subcontract portions of many of our contracts to
specialty subcontractors, but we are ultimately responsible for the successful completion of their work. Although we seek to
require bonding or other forms of guarantees, we are not always successful in obtaining those bonds or guarantees from our
higher risk subcontractors. In this case we may be responsible for the failures on the part of our subcontractors to perform as
anticipated, resulting in a potentially adverse impact on our cash flows and liquidity. In addition, the total costs of a project
could exceed our original estimates and we could experience reduced profits or a loss for that project, which could have an
adverse impact on our financial position, results of operations, cash flows and liquidity.
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• We use certain commodity products that are subject to significant price fluctuations. Diesel fuel, liquid asphalt and other
petroleum-based products are used to fuel and lubricate our equipment and fire our asphalt concrete processing plants. In
addition, they constitute a significant part of the asphalt paving materials that are used in many of our construction
projects and are sold to third parties. Although we are partially protected by asphalt or fuel price escalation clauses in some
of our contracts, many contracts provide no such protection. We also use steel and other commodities in our construction
projects that can be subject to significant price fluctuations. We pre-purchase commodities, enter into supply agreements
or enter into financial contracts to secure pricing. We have not been significantly adversely affected by price fluctuations in
the past; however, there is no guarantee that we will not be in the future.
• We are subject to environmental and other regulation. As more fully described in “Environmental Regulations” under
“Item 1. Business,” we are subject to a number of federal, state and local laws and regulations relating to the
environment, workplace safety and a variety of socioeconomic requirements. Noncompliance with such laws and
regulations can result in substantial penalties, or termination or suspension of government contracts as well as civil and
criminal liability. In addition, some environmental laws and regulations impose liability and responsibility on present and
former owners, operators or users of facilities and sites for contamination at such facilities and sites without regard to
causation or knowledge of contamination. We occasionally evaluate various alternatives with respect to our facilities,
including possible dispositions or closures. Investigations undertaken in connection with these activities may lead to
discoveries of contamination that must be remediated, and closures of facilities may trigger compliance requirements that
are not applicable to operating facilities. While compliance with these laws and regulations has not materially adversely
affected our operations in the past, there can be no assurance that these requirements will not change and that compliance
will not adversely affect our operations in the future. Furthermore, we cannot provide assurance that existing or future
circumstances or developments with respect to contamination will not require us to make significant remediation or
restoration expenditures.
• Weather can significantly affect our quarterly revenues and profitability. Our ability to perform work is significantly
affected by weather conditions such as precipitation and temperature. Changes in weather conditions can cause delays and
otherwise significantly affect our project costs. The impact of weather conditions can result in variability in our quarterly
revenues and profitability, particularly in the first and fourth quarters of the year.
• Our joint venture contracts with project owners subject us to joint and several liability. As further described in “Joint
Ventures; Off-Balance Sheet Arrangements” under “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” we participate in various construction joint venture partnerships in connection with complex
construction projects. If our joint venture partner fails to perform under one of these contracts, we could be liable for
completion of the entire contract. If the contract were unprofitable, this could have a material adverse effect on our financial
position, results of operations, cash flows and liquidity.
•
Increasing restrictions on securing aggregate reserves could negatively affect our future operations and results. Tighter
regulations and the finite nature of property containing suitable aggregate reserves are making it increasingly challenging
and costly to secure aggregate reserves. Although we have thus far been able to secure reserves to support our business, our
financial position, results of operations, cash flows and liquidity may be adversely affected by an increasingly difficult
permitting process.
14
Table of Contents
• Granite Land Company is greatly affected by the strength of the real estate industry. Our real estate investment and
development activities are subject to numerous factors beyond our control including local real estate market conditions;
substantial existing and potential competition; general national, regional and local economic conditions; fluctuations in
interest rates and mortgage availability and changes in demographic conditions. If our outlook for a project’s forecasted
profitability deteriorates, we may find it necessary to curtail our development activities and evaluate our real estate assets
for possible impairment. Our evaluation includes a variety of estimates and assumptions and future changes in these
estimates and assumptions could affect future impairment analyses. If our real estate assets are determined to be impaired,
the impairment would result in a write-down of the asset in the period of the impairment. See Notes 7 and 11 of “Notes to
the Consolidated Financial Statements” for additional information on impairment charges.
Our decision in October 2010 to orderly divest of our real estate investment business resulted in changes to the business
plans of certain of our real estate affiliates and the recognition of impairment charges primarily in the fourth quarter of 2010,
with no significant impairment charges during the years ended December 31, 2012 and 2011. The business plans of our real
estate affiliates include estimates of our ability to obtain certain development rights, our ability to obtain financing, the
future condition of the real estate and financial markets, and the timing of cash flows. A continued decline in the residential
and/or commercial real estate markets may decrease, or lengthen, the timing of expected cash flows of certain development
projects to the point that we would be required to recognize additional valuation impairments in the future.
• Our real estate investments are subject to mortgage financing and may require additional funding. Granite Land
Company’s real estate investments generally utilize short-term debt financing for their development activities. Such
financing is subject to the terms of the applicable debt or credit agreement and generally is secured by mortgages on the
applicable real property. GLC’s failure to comply with the covenants applicable to such financing or to pay principal,
interest or other amounts when due thereunder would constitute an event of default under the applicable agreement and
could have the effects described in the following risk factor relating to our debt and credit agreements. Due to the tightening
of the credit markets, banks have required lower loan-to-value ratios often resulting in the need to pay a portion of the debt
when short-term financing is renegotiated. If our real estate investment partners are unable to make their proportional share
of a required repayment, GLC may elect to provide the additional funding which could materially affect our financial
position, cash flows and liquidity. Also, if we determine we are the primary beneficiary, as defined by the applicable
accounting guidance, we may be required to consolidate additional real estate investments in our financial statements.
• Failure to remain in compliance with covenants under our debt and credit agreements, service our indebtedness, or fund
our other liquidity needs could adversely impact our business. The recent recession and credit crisis and related turmoil in
the global financial system has had and is expected to continue to have an adverse impact on our business, financial
position, results of operations, cash flows and liquidity. Our debt and credit agreements and related restrictive covenants are
more fully described in Note 12 of “Notes to the Consolidated Financial Statements.” Our failure to comply with any of
these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default
under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our
debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may
constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit
agreements could result in (1) us no longer being entitled to borrow under the agreements, (2) termination of the
agreements, (3) the requirement that any letters of credit under the agreements be cash collateralized, (4) acceleration of the
maturity of outstanding indebtedness under the agreements and/or (5) foreclosure on any collateral securing the obligations
under the agreements. If we are unable to service our debt obligations or fund our other liquidity needs, we could be forced
to curtail our operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or
all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment
in us.
• Force majeure events, including natural disasters and terrorists’ actions, could negatively impact our business, which
may affect our financial condition, results of operations or cash flows. Force majeure or extraordinary events beyond the
control of the contracting parties, such as natural and man-made disasters, as well as terrorist actions, could negatively
impact the economies in which we operate. We typically remain obligated to perform our services after such extraordinary
events unless the contract contains a force majeure clause relieving us of our contractual obligations in such an
extraordinary event. If we are not able to react quickly to force majeure events, our operations may be affected
significantly, which would have a negative impact on our financial position, results of operations, cash flows and liquidity.
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• Unavailability of insurance coverage could have a negative effect on our operations and results. We maintain insurance
coverage as part of our overall risk management strategy and pursuant to requirements to maintain specific coverage that are
contained in our financing agreements and in most of our construction contracts. Although we have been able to obtain
reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do
so in the future, and our inability to obtain such coverage could have an adverse impact on our ability to procure new work,
which could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.
• An inability to obtain bonding could have a negative impact on our operations and results. As more fully described in
“Insurance and Bonding” under “Item 1. Business,” we generally are required to provide surety bonds securing our
performance under the majority of our public and private sector contracts. Our inability to obtain reasonably priced surety
bonds in the future could significantly affect our ability to be awarded new contracts, which could have a material adverse
effect on our financial position, results of operations, cash flows and liquidity.
• A change in tax laws or regulations of any federal, state or international jurisdiction in which we operate could increase
our tax burden and otherwise adversely affect our financial position, results of operations, cash flows and liquidity. We
continue to assess the impact of various U.S. federal, state and international legislative proposals that could result in a
material increase to our U.S. federal, state and/or international taxes. We cannot predict whether any specific legislation will
be enacted or the terms of any such legislation. However, if such proposals were to be enacted, or if modifications were to
be made to certain existing regulations, the consequences could have a material adverse impact on us, including increasing
our tax burden, increasing our cost of tax compliance or otherwise adversely affecting our financial position, results of
operations, cash flows and liquidity.
• We may be required to contribute cash to meet our unfunded pension obligations in certain multi-employer plans. Three
of our wholly owned subsidiaries, Granite Construction Company, Granite Construction Northeast, Inc. and Kenny
Construction Company participate in various multi-employer pension plans on behalf of union employees. Union employee
benefits generally are based on a fixed amount for each year of service. We are required to make contributions to the plans
in amounts established under collective bargaining agreements. Pension expense is recognized as contributions are made.
Under the Employee Retirement Income Security Act, a contributor to a multi-employer plan is liable, upon termination or
withdrawal from a plan, for its proportionate share of a plan’s unfunded vested liability. While we currently have no
intention of withdrawing from a plan and unfunded pension obligations have not significantly affected our operations in the
past, there can be no assurance that we will not be required to make material cash contributions to one or more of these
plans to satisfy certain underfunded benefit obligations in the future.
• Our contract backlog is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our
future earnings. We cannot guarantee that the revenues projected in our contract backlog will be realized or, if realized, will
be profitable. Projects reflected in our contract backlog may be affected by project cancellations, scope adjustments, time
extensions or other changes. Such changes may adversely affect the revenue and profit we ultimately realize on these
projects.
The foregoing list is not all-inclusive. There can be no assurance that we have correctly identified and appropriately assessed all
factors affecting our business or that the publicly available and other information with respect to these matters is complete and
correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also
adversely affect us. These developments could have material adverse effects on our business, financial condition, results of
operations and liquidity. For these reasons, the reader is cautioned not to place undue reliance on our forward-looking statements.
16
Table of Contents
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Quarry Properties
As of December 31, 2012, we had 49 active and 28 inactive permitted quarry properties available for the extraction of sand and
gravel and hard rock, all of which are located in the western United States. All of our quarries are open-pit and are primarily
accessible by road. We process aggregates into construction materials for internal use and for sale to third parties. The following
map shows the approximate locations of our permitted quarry properties as of December 31, 2012.
We estimate our permitted proven1 and probable2 aggregate reserves to be approximately 828.0 million tons with an average
permitted life of approximately 85 years at present operating levels which vary from site to site. Present operating levels are
determined based on a three-year annual average aggregate production rate of 11.4 million tons. Reserve estimates were made by
our geologists and engineers based primarily on drilling studies. Reserve estimates are based on various assumptions, and any
material inaccuracies in these assumptions could have a material impact on the accuracy of our reserve estimates. Our plant
equipment is powered mostly by electricity provided by local utility companies.
1Proven reserves are determined through the testing of samples obtained from closely spaced subsurface drilling and/or exposed pit faces.
Proven reserves are sufficiently understood so that quantity, quality, and engineering conditions are known with sufficient accuracy to be
mined without the need for any further subsurface work. Actual required spacing is based on geologic judgment about the predictability
and continuity of each deposit.
2Probable reserves are determined through the testing of samples obtained from subsurface drilling but the sample points are too widely
spaced to allow detailed prediction of quantity, quality, and engineering conditions. Additional subsurface work may be needed prior to
mining the reserve.
17
Table of Contents
The following tables present information about our quarry properties as of December 31, 2012 (tons in millions):
Quarry Properties
Owned quarry properties
Leased quarry properties1
Type
Sand &
Gravel
30
26
Hard
Rock
5
16
Permitted
Aggregate
Reserves (tons)
493.7
334.3
Unpermitted
Aggregate
Reserves (tons)
347.0
86.6
Three-Year
Annual Average
Production
Rate (tons)
6.0
5.4
Average
Reserve Life
102
59
1 Our leases have expiration dates which range from monthly terms to 88 years, with most including an option to renew.
Permitted Reserves
for Each Product Type (tons)
Percentage of Permitted
Reserves Owned and Leased
State
California
Non-California
Plant Properties
Number
of Properties Sand & Gravel Hard Rock
325.4
147.4
261.8
93.4
40
37
Owned
Leased
61%
56%
39%
45%
We operate plants at our quarry sites to process aggregates into construction materials. Some of our quarry sites may have more
than one crushing, concrete or asphalt processing plant. At December 31, 2012 and 2011, we owned the following plants:
December 31,
Aggregate crushing plants
Asphalt concrete plants
Portland cement concrete batch plants
Asphalt rubber plants
Lime slurry plants
Other Properties
2012
2011
44
58
18
5
9
48
62
20
5
9
The following table provides our estimate of certain information about other properties as of December 31, 2012:
Office and shop space (owned and leased)
Real estate held for development and sale and use
Land Area (acres)
1,700
1,400
Building Square Feet
1,300,000
—
As of December 31, 2012, approximately 61% of our office and shop space was attributable to our Construction segment, 8% to
our Large Project Construction segment and 5% to our Construction Materials segment. The remainder is primarily attributable to
administration.
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Item 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are involved in various legal proceedings that are pending against us and our affiliates
alleging, among other things, breach of contract or tort in connection with the performance of professional services, the various
outcomes of which cannot be predicted with certainty. The most significant of these proceedings are as follows:
• US Highway 20 Project: Our wholly owned subsidiaries, Granite Construction Company (“GCCO”) and Granite
Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which was contracted by the
Oregon Department of Transportation (“ODOT”) to construct a new road alignment of US Highway 20 near Eddyville,
Oregon. During the fall and winter of 2006, extraordinary rain events produced runoff that overwhelmed installed erosion
control measures and resulted in discharges to surface water and alleged violations of YRC’s stormwater permit. During
2012, ODOT and YRC reached a settlement agreement that ended YRC’s responsibility to construct the project. Also during
2012, YRC, GCCO, the United States Environmental Protection Agency and the U.S. Department of Justice (“DOJ”)
entered into a consent decree, which provides for a civil penalty payment after entry of the decree by the court and
environmental monitoring by GCCO of certain Oregon projects. This matter has not and is not expected to have a material
adverse effect on our financial position, results of operations, cash flow and/or liquidity.
•
Investigation Related to Grand Avenue Project Disadvantaged Business Enterprise (“DBE”) Issues: On March 6, 2009,
the U.S. Department of Transportation, Office of Inspector General served upon our wholly-owned subsidiary, Granite
Construction Northeast, Inc. (“Granite Northeast”), a United States District Court Eastern District of New York Grand Jury
subpoena to produce documents. The subpoena sought all documents pertaining to the use of a DBE firm (the
“Subcontractor”), and the Subcontractor’s use of a non-DBE lower tier subcontractor/consultant, on the Grand Avenue Bus
Depot and Central Maintenance Facility for the Borough of Queens Project (the “Grand Avenue Project”), a Granite
Northeast project. The subpoena sought any documents regarding the use of the Subcontractor as a DBE on any other
projects and any other documents related to the Subcontractor or to the lower-tier subcontractor/consultant. Granite
Northeast produced the requested documents, together with other requested information. Subsequently, Granite Northeast
was informed by the DOJ that it is a subject of the investigation, along with others. In January 2013, Granite Northeast met
with Assistant United States Attorneys from the DOJ, along with other federal and state agents (the “Agencies”), to discuss
the status of the government’s criminal investigation of the Grand Avenue Project participants, including Granite Northeast.
In addition to the documents produced in response to the Grand Jury subpoena, Granite Northeast is in the process of
providing information to the DOJ concerning other projects for which Granite Northeast has claimed DBE credit. Granite
Northeast is fully cooperating with the Agencies’ investigation. We cannot, however, rule out the possibility of actions
being brought against Granite Northeast which could result in civil, criminal, and/or administrative penalties or sanctions.
Beyond the amount accrued for this matter, Granite is unable to estimate at this time any additional losses that may be
reasonably probable. However, under certain circumstances the resolution of the matters under investigation could have
direct or indirect consequences that could have a material adverse effect on our financial position, results of operations and/
or liquidity.
• Other Legal Proceedings/Government Inquiries: We are a party to a number of other legal proceedings arising in the
normal course of business. From time to time, we also receive inquiries from public agencies seeking information
concerning our compliance with government construction contracting requirements and related laws and regulations. We
believe that the nature and number of these proceedings and compliance inquiries are typical for a construction firm of our
size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While
management currently believes, after consultation with counsel, that the ultimate outcome of pending proceedings and
compliance inquiries, individually and in the aggregate, will not have a material adverse affect on our financial position,
results of operations or cash flows, litigation is subject to inherent uncertainties. Were one or more unfavorable rulings to
occur, there exists the possibility of a material adverse effect on our financial position, results of operations, cash flows and/
or liquidity for the period in which the ruling occurs. In addition, our government contracts could be terminated, we could
be suspended or debarred, or payment of our costs disallowed. While any one of our pending legal proceedings is subject to
early resolution as a result of our ongoing efforts to settle, whether or when any legal proceeding will be resolved through
settlement is neither predictable nor guaranteed.
We record amounts in our consolidated balance sheets representing our estimated liability relating to legal proceedings and
government inquiries. During the years ended December 31, 2012 and 2011, there were no significant additions or revisions to the
estimated liability that were recorded in our consolidated statements of operations, or significant changes to our accrual for such
litigation loss contingencies on our consolidated balance sheets.
Item 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this
Annual Report on Form 10-K.
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Table of Contents
PART II
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 8, 2013, there were 38,731,910 shares of our common stock outstanding held by 1,347 shareholders of record.
We have paid quarterly cash dividends since the second quarter of 1990, and we expect to continue to do so. However, declaration
and payment of dividends is within the sole discretion of our Board of Directors, subject to limitations imposed by Delaware law
and compliance with our credit agreements (which allow us to pay dividends so long as we have at least $150 million in
unencumbered cash and equivalents and marketable securities on our consolidated balance sheet), and will depend on our earnings,
capital requirements, financial condition and such other factors as the Board of Directors deems relevant.
Market Price and Dividends of Common Stock
2012 Quarters Ended
High
Low
Dividends per share
2011 Quarters Ended
High
Low
Dividends per share
30.88 $
21.58 $
0.13 $
34.62 $
27.50 $
0.13 $
December 31, September 30,
$
$
$
December 31, September 30,
$
$
$
26.78 $
17.52 $
0.13 $
26.08 $
16.92 $
0.13 $
June 30,
March 31,
29.31 $
21.38 $
0.13 $
30.49
23.79
0.13
June 30,
March 31,
28.75 $
23.58 $
0.13 $
29.68
24.33
0.13
During the three months ended December 31, 2012, we did not sell any of our equity securities that were not registered under the
Securities Act of 1933, as amended. The following table sets forth information regarding the repurchase of shares of our common
stock during the three months ended December 31, 2012:
Period
October 1 through October 31, 2012
November 1 through November 30, 2012
December 1 through December 31, 2012
Total
Total
Number of
Shares
Purchased1
Average
Price Paid
per Share
2,063 $
2,255 $
2,386 $
6,704 $
29.09
30.60
31.27
30.37
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 Programs2
64,065,401
64,065,401
64,065,401
$
$
$
1The number of shares purchased is in connection with employee tax withholding for shares granted under our Amended and Restated 1999
Equity Incentive Plan.
2In October 2007, our Board of Directors authorized us to purchase, at management’s discretion, up to $200.0 million of our common stock.
Under this purchase program, the Company may purchase shares from time to time on the open market or in private transactions. The specific
timing and amount of purchases will vary based on market conditions, securities law limitations and other factors. Purchases under the share
purchase program may be commenced, suspended or discontinued at any time and from time to time without prior notice.
20
Table of Contents
Performance Graph
The following graph compares the cumulative 5-year total return provided to shareholders on Granite Construction Incorporated’s
common stock 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 Technology Corp., Aegion Corp,
EMCOR Group Inc., Fluor Corp., Foster Wheeler AG, Granite Construction Inc., Jacobs Engineering Group Inc., KBR Inc.,
Quanta Services Inc. and Shaw Group Inc. Certain of these companies differ from Granite in that they derive revenue and profit
from non-U.S. operations and have customers in different markets. An investment of $100 (with reinvestment of all dividends) is
assumed to have been made in our common stock and in each of the indexes on December 31, 2007 and its relative performance is
tracked through December 31, 2012.
December 31,
Granite Construction Incorporated
S&P 500
Dow Jones U.S. Heavy Construction
2007
2008
2009
2010
2011
2012
$
100.00 $
100.00
100.00
123.23 $
63.00
44.88
95.85 $
79.67
51.30
79.67 $
91.67
65.87
70.46 $
93.61
54.30
101.70
108.59
65.94
21
Table of Contents
Item 6. SELECTED FINANCIAL DATA
Other than contract backlog, the selected consolidated financial data set forth below have been derived from our consolidated
financial statements. Refer to the consolidated financial statements for further reference. These historical results are not necessarily
indicative of the results of operations to be expected for any future period.
Selling, general and administrative expenses
185,099
162,302
191,593
Selected Consolidated Financial Data
Years Ended December 31,
Operating Summary
Revenue
Gross profit
As a percent of revenue
As a percent of revenue
Restructuring (gains) charges, net1
Net income (loss)
Amount attributable to noncontrolling
interests2
Net income (loss) attributable to Granite
As a percent of revenue
Net income (loss) per share attributable to
common shareholders:
Basic
Diluted
Weighted average shares of common stock:
Basic
Diluted
Dividends per common share
Consolidated Balance Sheet3
Total assets
Cash, cash equivalents and marketable
securities
Working capital
Current maturities of long-term debt
Long-term debt
Other long-term liabilities
Granite shareholders’ equity
Book value per share
Common shares outstanding
Contract backlog
2012
$ 2,083,037
234,759
2011
2010
(Dollars In Thousands, Except Per Share Data)
$ 1,762,965
$ 2,009,531
177,784
247,963
$ 1,963,479
349,509
2009
2008
$ 2,674,244
471,949
11.3%
12.3%
10.1 %
8.9%
(3,728)
59,920
(14,637)
45,283
2.2%
8.1%
10.9 %
2,181
66,085
(14,924)
51,161
109,279
(62,448)
3,465
(58,983)
2.5%
(3.3)%
17.8%
228,046
11.6%
9,453
100,201
(26,701)
73,500
3.7%
17.6%
260,761
9.8%
—
165,738
(43,334)
122,404
4.6%
$
$
$
1.17
1.15
38,447
39,076
0.52
$
$
$
1.32
1.31
38,117
38,473
0.52
$
$
$
(1.56)
(1.56)
37,820
37,820
0.52
$
$
$
1.91
1.90
37,566
37,683
0.52
$
$
$
3.19
3.18
37,606
37,709
0.52
$ 1,729,487
$ 1,547,799
$ 1,535,533
$ 1,709,575
$ 1,743,455
433,420
490,785
19,060
271,070
47,124
829,953
21.43
38,731
$ 1,707,315
406,648
461,254
32,173
218,413
49,221
799,197
20.66
38,683
$ 2,022,454
395,728
475,079
38,119
242,351
47,996
761,031
19.64
38,746
$ 1,899,170
458,341
500,605
58,978
244,688
48,998
830,651
21.50
38,635
$ 1,401,988
520,402
475,942
39,692
250,687
43,604
767,509
20.06
38,267
$ 1,699,396
1 During 2012, we recorded a net gain on restructuring of approximately $3.7 million and during 2011 and 2010, we recorded restructuring charges of
approximately $2.2 million and $109.3 million, respectively, related to our Enterprise Improvement Plan. The $9.5 million in restructuring charges in 2009
related to an organizational change.
2 Effective January 1, 2009, we adopted a new accounting standard requiring net income attributable to both the parent and noncontrolling interests to be disclosed
separately as well as the components of equity attributable to the parent and noncontrolling interests. Prior years have been adjusted to conform to this new
standard.
3 Assets acquired and liabilities assumed resulting from the acquisition of Kenny Construction Company are included in our consolidated balance sheet as of
December 31, 2012 (see Note 21 of the “Notes to the Consolidated Financial Statements”).
22
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
We are one of the largest diversified heavy civil contractors and construction materials producers in the United States, engaged in the
construction and improvement of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and
underground utilities, electrical utilities, tunnels, dams and other infrastructure-related projects. We own aggregate reserves and plant
facilities to produce construction materials for use in our construction business and for sale to third parties. We also operate a real estate
investment and development company. Our permanent offices are located in Alaska, Arizona, California, Colorado, Florida, Illinois,
Nevada, New York, Pennsylvania, Texas, Utah and Washington.
Our construction contracts are obtained through competitive bidding in response to solicitations by both public agencies and private
parties and on a negotiated basis as a result of solicitations from private parties. Project owners use a variety of methods to make
contractors aware of new projects, including posting bidding opportunities on agency websites, disclosing long-term infrastructure
plans, advertising and other general solicitations. Our bidding activity is affected by such factors as the nature and volume of
advertising and other solicitations, contract backlog, available personnel, current utilization of equipment and other resources, our
ability to obtain necessary surety bonds and competitive considerations. Our contract review process includes identifying risks and
opportunities during the bidding process and managing these risks through mitigation efforts such as insurance and pricing. Contracts
fitting certain criteria of size and complexity are reviewed by various levels of management and, in some cases, by the Executive
Committee of our Board of Directors. Bidding activity, contract backlog and revenue resulting from the award of new contracts may
vary significantly from period to period.
Our typical construction project begins with the preparation and submission of a bid to a customer. If selected as the successful bidder,
we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as
identified in the contract. We usually invoice our customers on a monthly basis. Our contracts frequently call for retention that is a
specified percentage withheld from each payment until the contract is completed and the work accepted by the customer. Additionally,
we defer recognition of profit on projects until they reach at least 25% completion (see “Revenue and Earnings Recognition for
Construction Contracts” under “Critical Accounting Policies and Estimates”) and our profit recognition is based on estimates that
change over time. Our revenue, gross margin and cash flows can differ significantly from period to period due to a variety of factors
including the projects’ stage of completion, the mix of early and late stage projects, our estimates of contract costs and the payment
terms of our contracts. The timing differences between our cash inflows and outflows require us to maintain adequate levels of working
capital.
The four primary economic drivers of our business are (1) the overall health of the economy, (2) federal, state and local public funding
levels, (3) population growth resulting in public and private development, and (4) the need to replace or repair aging infrastructure. 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. Greater competition can reduce our
revenues and/or have a downward impact on our gross profit margins. 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. However, even these can be temporarily at
risk as state and local governments take actions to balance their budgets. Additionally, high fuel prices can have a dampening effect on
consumption, resulting in overall lower tax revenue. 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.
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In December 2012, we purchased 100% of the outstanding stock of Kenny Construction Company, a Northbrook, Illinois-based
national contractor and construction manager, for a purchase price of $141.5 million, subject to possible post-closing adjustments. This
acquisition expands our presence in the power, tunnel and underground markets, and enables us to leverage our capabilities and
geographic footprint. See Note 21 of the “Notes to the Consolidated Financial Statements” for further information.
In October 2010, we announced our Enterprise Improvement Plan which includes continued actions to reduce our cost structure,
enhance operating efficiencies and strengthen our business to achieve long-term profitable growth. The Enterprise Improvement
Plan includes new business plans to orderly divest of our real estate investment business and certain fixed assets consistent with our
business strategy to focus on our core business. As a result of the Enterprise Improvement Plan, we incurred restructuring charges
related to workforce reductions as well as real estate and fixed asset impairments. The majority of restructuring charges associated with
the Enterprise Improvement Plan were recorded in the fourth quarter of 2010. See Note 11 of “Notes to the Consolidated Financial
Statements” and “Restructuring Charges” below for further information.
Our market sector information reflects four groups defined as follows: 1) California; 2) Northwest, which primarily includes our offices
in Alaska, Nevada, Utah and Washington; 3) East, which primarily includes our offices in Arizona, Florida, New York and Texas; and
4) Kenny, which primarily includes our offices in Colorado, Illinois and Pennsylvania. Each of these groups includes operations from
our Construction and Large Project Construction lines of business. Our California, Northwest and East groups include operations from
our Construction Materials line of business. A project’s results are reported in the group that is responsible for the project, not
necessarily the geographic area where the work is located. In some cases, the operations of a group include the results of work
performed outside of that region.
Critical Accounting Policies and Estimates
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. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. Our estimates, judgments and assumptions are continually
evaluated based on available information and experiences; however, actual amounts could differ from those estimates.
Certain of our accounting policies and estimates require higher degrees of judgment in their application. These include revenue and
earnings recognition for construction contracts, the valuation of real estate held for development and sale and insurance
estimates. The Audit/Compliance Committee of our Board of Directors has reviewed our disclosure of critical accounting
estimates.
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Revenue and Earnings Recognition for Construction Contracts
Revenue and earnings on construction contracts, including construction joint ventures, are recognized under the percentage of
completion method using the ratio of costs incurred to estimated total costs. Revenue in an amount equal to cost incurred is
recognized prior to contracts reaching at least 25% completion, thus deferring the related profit. It is our judgment that until a
project reaches at least 25% completion, there is insufficient information to determine the estimated profit on the project with a
reasonable level of certainty. In the case of large, complex design/build projects we may defer profit recognition beyond the point
of 25% completion based on an evaluation of specific project risks. The factors considered in this evaluation include the stage of
design completion, the stage of construction completion, status of outstanding purchase orders and subcontracts, certainty of
quantities of labor and materials, certainty of schedule and the relationship with the owner.
Revenue from contract claims is recognized when we have a signed agreement and payment is assured. Revenue from contract
change orders, which occur in most large projects, is recognized when the owner has agreed to the change order in writing.
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. All contract
costs, including those associated with claims and change orders, are recorded as incurred and revisions to estimated total costs are
reflected as soon as the obligation to perform is determined. Contract costs consist of direct costs on contracts, including labor and
materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel,
maintenance and repairs). All state and federal government contracts and many of our other contracts provide for termination of the
contract at the convenience of the party contracting with us, with provisions to pay us for work performed through the date of
termination.
The accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the cost to
complete each project. Cost estimates for all of our significant projects use a detailed “bottom up” approach and we believe our
experience allows us to provide materially reliable estimates. There are a number of factors that can contribute to changes in
estimates of contract cost and profitability. The most significant of these include:
•
•
•
•
•
•
•
•
•
•
the completeness and accuracy of the original bid;
costs associated with scope changes where final price negotiations are not complete;
costs of labor and/or materials;
extended overhead due to owner, weather and other delays;
subcontractor performance issues;
changes in productivity expectations;
site conditions that differ from those assumed in the original bid (to the extent contract remedies are unavailable);
continuing changes from original design on design/build projects;
the availability and skill level of workers in the geographic location of the project; and
a change in the availability and proximity of equipment and materials.
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 between periods. Substantial changes in cost estimates, particularly in our larger, more complex
projects have had, and can in future periods have, a significant effect on our profitability.
Our contracts with our customers are primarily either “fixed unit price” or “fixed price.” Under fixed unit price contracts, we are
committed to provide materials or services required by a project at fixed unit prices (for example, dollars per cubic yard of
concrete placed or cubic yards of earth excavated). While the fixed unit price contract shifts the risk of estimating the quantity of
units required for a particular project to the customer, any increase in our unit cost over the expected unit cost in the bid, whether
due to inflation, inefficiency, faulty estimates or other factors, is borne by us unless otherwise provided in the contract. Fixed price
contracts are priced on a lump-sum basis under which we bear the risk that we may not be able to perform all the work profitably
for the specified contract amount. The percentage of fixed price contracts in our contract backlog decreased from approximately
69.5% at December 31, 2011 to approximately 56.8% at December 31, 2012.
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Valuation of Real Estate Held for Development and Sale
The carrying amount of each consolidated real estate development project is reviewed on a quarterly basis in accordance with
Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment, and each real estate development project
accounted for under the equity method of accounting is reviewed in accordance with ASC Topic 323, Investments - Equity Method
and Joint Ventures, to determine if impairment charges should be recognized. The review of each consolidated project includes an
evaluation to determine if events or changes in circumstances indicate that a consolidated project’s carrying amount may not be
recoverable. If events or changes in circumstances indicate that a consolidated project’s carrying amount may not be recoverable,
the future undiscounted cash flows are estimated and compared to the project’s carrying amount. In the event that the project’s
estimated future undiscounted cash flows or investment’s fair value are not sufficient to recover the carrying amounts, it is written
down to its estimated fair value. The projects accounted for under the equity method are evaluated for impairment using the other-
than-temporary impairment model, which requires an impairment charge to be recognized if our investment’s carrying amount
exceeds its fair value, and the decline in fair value is deemed to be other than temporary.
Events or changes in circumstances, which would cause us to review for impairment include, but are not limited to:
•
•
•
•
•
significant decreases in the market price of the asset;
significant adverse changes in legal factors or the business climate;
significant changes to the development or business plans of a project;
accumulation of costs significantly in excess of the amount originally expected for the acquisition, development or
construction of the asset; and
current period cash flow or operating losses combined with a history of losses, or a forecast of continuing losses associated
with the use of the asset.
Future undiscounted cash flows and fair value assessments are estimated based on entitlement status, market conditions, cost of
construction, debt load, development schedules, status of joint venture partners and other factors applicable to the specific project.
Fair value is estimated based on the expected future cash flows attributable to the asset or group of assets and on other assumptions
that market participants would use in determining fair value, such as market discount rates, transaction prices for other comparable
assets, and other market data. Our estimates of cash flows may differ from actual cash flows due to, among other things,
fluctuations in interest rates, decisions made by jurisdictional agencies, economic conditions, or changes to our business
operations.
During the year ended December 31, 2010, the Enterprise Improvement Plan required changes in the business plans of certain real
estate projects to reduce capital expenditures, shorten development timelines, and revise marketing plans for the projects, thus
reducing their estimated future cash flows. Consequently, during the year ended December 31, 2010, we recorded impairment
charges of $86.3 million, of which approximately $20.0 million was attributable to noncontrolling interests, on approximately one-
third of our real estate investments related to the Enterprise Improvement Plan. See Note 11 of “Notes to the Consolidated
Financial Statements” and “Restructuring Charges” below for further information. Additionally, an evaluation of entitlement status,
market conditions, existing offers to purchase, cost of construction, debt load, development schedule, status of joint venture
partners and other factors specific to the remainder of our real estate projects, resulted in no significant impairment charges during
the year ended December 31, 2010. During the years ended December 31, 2012 and 2011, we recorded no significant impairment
charges related to our real estate development projects or investments.
Given the current economic environment surrounding real estate, we regularly evaluate the recoverability of our real estate held for
development and sale and have determined that no further impairment charges were required at December 31, 2012. A continued
decline in the residential and/or commercial real estate markets may decrease the expected cash flow for certain development
activities to the point we would be required to recognize additional impairments in the future.
Insurance Estimates
We carry insurance policies to cover various risks, primarily general liability, automobile liability and workers compensation,
under which we are liable to reimburse the insurance company for a portion of each claim paid. Payment for general liability and
workers compensation claim amounts generally range from the first $0.5 million to $1.0 million per occurrence. We accrue for
probable losses, both reported and unreported, that are reasonably estimable using actuarial methods based on historic trends,
modified, if necessary, by recent events. Changes in our loss assumptions caused by changes in actual experience would affect our
assessment of the ultimate liability and could have an effect on our operating results and financial position up to $1.0 million per
occurrence.
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Current Economic Environment and Outlook for 2013
Overall, we are pleased with the quality of our backlog and the significant amount of projects, particularly large projects, out to bid
across the country. Despite these opportunities, we continue to operate in a highly competitive bidding environment. Competition
coupled with funding issues for public sector infrastructure projects and weak demand for commercial and residential development
in many of our markets may impact our ability to grow backlog and increase profitability. While we expect these challenging
conditions to persist through 2013, we are encouraged by recent progress on the federal funding level. In addition, we are
proactively seeking opportunities through our acquisition of Kenny and in our traditional markets while leveraging our capabilities
and further diversifying into the rail, power, tunnel, water, industrial and federal government markets.
After numerous short-term extensions, the President signed into law a 27-month reauthorization of the federal surface
transportation program, Moving Ahead for Progress in the 21st Century (“MAP-21”) in 2012. MAP-21 authorizes spending for
the transportation program at fiscal 2012 levels with a slight adjustment for inflation in fiscal 2013 and 2014. MAP-21 also
reauthorized the Transportation Infrastructure Financing and Innovation Act (“TIFIA”) that provides for $1.7 billion in calculated
capital over the next two years and includes financing options in connection with public-private partnership (“P3”) arrangements
for infrastructure financing. We are optimistic that the TIFIA program will help facilitate and accelerate many projects that would
not have moved forward otherwise.
As part of our diversification efforts, we acquired 100% of the outstanding shares of Kenny Construction Company (“Kenny”) on
December 31, 2012. The addition of Kenny’s expertise in the power, tunnel and underground markets will significantly expand our
presence in these key areas as well as enable us to leverage our capabilities and geographic footprint. Including integration costs
and the impact of intangible amortization, the transaction is expected to be break-even relative to Granite’s 2013 earnings per
share.
In addition, in December of 2012, Granite’s joint venture teams were selected to build the $3.1 billion Tappan Zee Bridge project
in New York and the $849.0 million design-build IH-35E project in Texas. The Tappan Zee project was awarded in January 2013
and Granite’s 23.3% share will be booked into Large Project Construction contract backlog in the first quarter of 2013. The
IH-35E project is expected to be awarded in the second quarter of 2013, and Granite’s 35% share of the IH-35E project is expected
to be booked into Large Project Construction contract backlog in the second quarter of 2013.
During 2013, we may record up to $8.0 million of restructuring charges, primarily related to previously planned consolidation
efforts and assets to be held-for-sale as part of our Enterprise Improvement Plan. The majority of restructuring charges associated
with the Enterprise Improvement Plan were recorded in 2010. The ultimate amount and timing of future restructuring charges is
subject to our ability to negotiate sales of certain assets at prices acceptable to us.
Results of Operations
Comparative Financial Summary
Years Ended December 31,
(in thousands)
Total revenue
Gross profit
Restructuring (gains) charges, net
Operating income (loss)
Total other income (expense)
Amount attributable to noncontrolling interests
Net income (loss) attributable to Granite Construction Incorporated
2012
2011
2010
$
$
2,083,037
234,759
(3,728)
80,835
194
(14,637)
45,283
$
2,009,531
247,963
2,181
99,269
(9,836)
(14,924)
51,161
1,762,965
177,784
109,279
(109,340)
2,964
3,465
(58,983)
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Revenue
Total Revenue by Segment
Years Ended December 31,
(dollars in thousands)
Construction
Large Project Construction
Construction Materials
Real Estate
Total
Construction Revenue
Years Ended December 31,
(dollars in thousands)
California:
Public sector
Private sector
Northwest:
Public sector
Private sector
East:
Public sector
Private sector
Total
2012
2011
2010
Amount Percent
$ 984,106
863,217
230,642
5,072
$ 2,083,037
Amount Percent
51.9
36.1
11.0
1.0
100.0
47.2 $ 1,043,614
725,043
41.5
220,583
11.1
20,291
0.2
100.0 $ 2,009,531
Amount Percent
53.5
33.1
12.6
0.8
100.0
$ 943,245
584,406
222,058
13,256
$ 1,762,965
2012
2011
2010
Amount
Percent Amount
Percent Amount
Percent
$ 438,113
53,723
44.5 $ 464,789
46,694
5.5
44.4
4.5
$ 358,723
32,139
326,281
101,563
33.2
10.3
386,783
36,072
37.1
3.5
421,397
24,334
51,457
12,969
$ 984,106
5.2
1.3
107,693
1,583
100.0 $ 1,043,614
10.3
0.2
100.0
103,398
3,254
$ 943,245
38.0
3.4
44.7
2.6
11.0
0.3
100.0
Construction revenue for the year ended December 31, 2012 decreased by $59.5 million, or 5.7%, compared to the year ended
December 31, 2011. The decrease was primarily due to less public sector revenue related to entering the year with lower backlog in
the Northwest and East, as well as a decline in bid success in our California group. The decreases in public sector revenue were
partially offset by increases in private sector revenue in the Northwest associated with work in the power and industrial markets.
Large Project Construction Revenue1
Years Ended December 31,
(dollars in thousands)
California
Northwest
East
Total
2012
Amount Percent
12.9
32.3
54.8
100.0
$ 111,692
278,449
473,076
$ 863,217
$
2011
Amount Percent
10.8
27.8
61.4
100.0
78,464
201,240
445,339
$ 725,043
2010
$
Amount Percent
8.5
9.0
82.5
100.0
49,408
52,510
482,488
$ 584,406
1For the periods presented, all Large Project Construction revenue was earned from the public sector.
Large Project Construction revenue for the year ended December 31, 2012 increased by $138.2 million, or 19.1%, compared to the
year ended December 31, 2011. The increase was primarily due to progress on jobs in California and the Northwest that were
awarded in late 2010 and early 2011 as well as progress on several other projects in the Northwest.
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Table of Contents
Construction Materials Revenue
Years Ended December 31,
(dollars in thousands)
California
Northwest
East
Total
2012
Amount Percent
60.8
30.3
8.9
100.0
$ 140,315
69,834
20,493
$ 230,642
2011
Amount Percent
63.7
28.3
8.0
100.0
$ 140,468
62,406
17,709
$ 220,583
2010
Amount Percent
61.4
29.2
9.4
100.0
$ 136,314
64,966
20,778
$ 222,058
Construction Materials revenue for the year ended December 31, 2012 increased $10.1 million, or 4.6%, when compared to the
year ended December 31, 2011. The construction materials business continues to be impacted by the weakness in the commercial
and residential development markets.
Real Estate Revenue
Real Estate revenue for the year ended December 31, 2012 decreased by $15.2 million, or 75.0% compared to the year ended
December 31, 2011. The decrease was primarily attributable to the sale of commercial properties in California during 2011. Factors
that contribute to fluctuations in revenue include national and local market conditions, entitlement status of properties and buyers
access to capital. Additionally, as we execute on our Enterprise Improvement Plan, we have less real estate for sale.
Contract Backlog
Our contract backlog consists of the remaining unearned revenue on awarded contracts, including 100% of our consolidated joint
venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in our
contract backlog at the time it is awarded and funding is in place. Certain federal government contracts where funding is
appropriated on a periodic basis are included in contract backlog at the time of the award. Substantially all of the contracts in our
contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely
affected by contract cancellations or modifications in the past.
The following tables illustrate our contract backlog as of the respective dates:
Total Contract Backlog by Segment
December 31,
(dollars in thousands)
Construction
Large Project Construction
Total
2012
2011
Amount
$
$
629,898
1,077,417
1,707,315
Percent
36.9
63.1
100.0
$
$
Amount
513,624
1,508,830
2,022,454
Percent
25.4
74.6
100.0
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Construction Contract Backlog
December 31,
(dollars in thousands)
California:
Public sector
Private sector
Northwest:
Public sector
Private sector
East:
Public sector
Private sector
Kenny:
Public sector
Private sector
Total
2012
2011
Amount
Percent
Amount
Percent
$
$
252,070
42,622
153,146
24,085
14,723
3,880
37,153
102,219
629,898
$
40.1
6.8
24.3
3.8
2.3
0.6
5.9
16.2
100.0
$
311,975
10,899
148,030
26,543
13,163
3,014
—
—
513,624
60.7
2.1
28.8
5.2
2.6
0.6
—
—
100.0
Construction contract backlog of $629.9 million at December 31, 2012 was $116.3 million, or 22.6%, higher than at December 31,
2011. The increase was primarily due to the acquisition of Kenny contract backlog, as well as an increase in California private
sector backlog due to improved success rate on private sector bidding activity and diversification into the power market. The
increases were offset by decreases in the California public sector due to progress on existing projects and lower success rate with
continued intense competition.
Large Project Construction Contract Backlog1
December 31,
(dollars in thousands)
California1
Northwest1
East1
Kenny:
Public sector
Private sector
Total
2012
Amount
140,685
192,285
526,854
144,344
73,249
1,077,417
$
$
Percent
13.1
17.8
48.9
13.4
6.8
100.0
$
$
2011
Amount
214,698
397,957
896,175
—
—
1,508,830
Percent
14.2
26.4
59.4
—
—
100.0
1California, Northwest and East Large Project Construction contract backlog is from contracts with public agencies.
Large Project Construction contract backlog of $1.1 billion at December 31, 2012 was $431.4 million, or 28.6%, lower than
at December 31, 2011. The decrease primarily reflects work completed during the period, partially offset by new awards and the
acquisition of Kenny contract backlog. Noncontrolling interests included in Large Project Construction contract backlog
as of December 31, 2012 and 2011 were $112.8 million and $154.6 million, respectively.
In January 2013, Granite’s joint venture team was awarded a $3.1 billion contract to build the Tappan Zee Bridge in New York.
Granite’s 23.3%, or $733.0 million, share will be booked into contract backlog in the first quarter of 2013. In addition, in
December 2012 Granite’s joint venture team was selected for the IH-35E design-build project in Texas. The proposed price for the
IH-35E design-build project is $849.0 million for the base contract, plus options which, if exercised by TxDOT, may increase the
total contract price to approximately $1.2 billion. Granite’s 35% share will be booked into contract backlog when a final contract is
approved and a notice to proceed is issued, which is expected to be in the second quarter of 2013.
Large Project Construction contracts with forecasted losses represented $172.6 million, or 16.0%, and $91.4 million, or 6.1%,
respectively, of Large Project Construction contract backlog at December 31, 2012 and 2011. 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.
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Gross Profit
The following table presents gross profit by business segment for the respective periods:
Years Ended December 31,
(dollars in thousands)
Construction
Percent of segment revenue
Large Project Construction
Percent of segment revenue
Construction Materials
Percent of segment revenue
Real Estate
Percent of segment revenue
Total gross profit
Percent of total revenue
2012
2011
2010
$
77,963
$
124,506
$
95,709
7.9%
148,418
17.2%
7,572
3.3%
806
15.9%
11.9%
104,108
14.4%
16,641
7.5%
2,708
13.3%
10.1%
67,307
11.5%
12,018
5.4%
2,750
20.7%
$
234,759
$
247,963
$
177,784
11.3%
12.3%
10.1%
We defer profit recognition until a project reaches at least 25% completion. In the case of large, complex design/build projects, we
may defer profit recognition beyond the point of 25% completion until such time as we believe we have enough information to
make a reasonably dependable estimate of contract revenue and cost. Because we have a large number of smaller projects at
various stages of completion in our Construction segment, this policy generally does not impact gross profit significantly on a
quarterly or annual basis. However, our Large Project Construction segment has fewer projects at any given time; therefore, gross
profit can vary significantly in periods where one or more projects reach our percentage of completion threshold and the deferred
profit is recognized or, conversely, in periods where contract backlog is growing rapidly and a higher percentage of projects are in
their early stages with no associated gross profit recognition.
The following table presents revenue from projects that have not yet reached our profit recognition threshold:
Years Ended December 31,
(in thousands)
Construction
Large Project Construction
Total revenue from contracts with deferred profit
2012
2011
2010
$
$
22,110
16,982
39,092
$
$
10,363
38,542
48,905
$
$
13,697
142,965
156,662
We do not recognize revenue from contract claims until we have a signed agreement and payment is assured, nor do we recognize
revenue from contract change orders until the owner has agreed to the change order in writing. However, we do recognize the costs
related to any contract claims or pending change orders in our forecasts when costs are incurred, and revisions to estimated total
costs are reflected as soon as the obligation to perform is determined. As a result, our gross profit as a percent of revenue can vary
depending on the magnitude and timing of settlement claims and change orders.
When we experience significant contract forecast changes, we review 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 a change in estimate for the current period. In our review of
these changes for the years ended December 31, 2012, 2011 and 2010 we did not identify any material amounts that should have
been recorded in a prior period.
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Construction gross profit in 2012 decreased $46.5 million compared to 2011. Construction gross profit as a percent of segment
revenue for 2012 decreased to 7.9% from 11.9% in 2011. The decreases were due to increased competition and challenging market
conditions primarily in California. In addition, the decreases during 2012 included a net decrease of $18.1 million from revisions in
estimates compared to a net increase of $6.2 million for 2011, due to lower productivity than originally anticipated (see Note 2 of
“Notes to the Consolidated Financial Statements”).
Large Project Construction gross profit in 2012 increased $44.3 million compared to 2011. Large Project Construction gross profit
as a percent of segment revenue for 2012 increased to 17.2% from 14.4% in 2011. The increase was primarily due to a net increase
of $64.6 million from revisions in estimates in 2012 due to lower than anticipated construction costs and owner directed scope
changes compared to a net increase of $8.9 million in 2011 (see Note 2 of “Notes to the Consolidated Financial Statements”).
Construction Materials gross profit in 2012 decreased $9.1 million compared to 2011. Construction Materials gross profit as a
percent of segment revenue for 2012 decreased to 3.3% from 7.5% in 2011. The decreases are primarily due to poor economic
conditions at certain California locations.
Real Estate gross profit decreased $1.9 million during 2012 when compared to 2011. The decrease was primarily due to the
execution of our Enterprise Improvement Plan which reduced our real estate available for sale.
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,
(dollars in thousands)
Selling
Salaries and related expenses
Other selling expenses
Total selling
General and administrative
Salaries and related expenses
Restricted stock amortization and incentive compensation
Other general and administrative expenses
Total general and administrative
Total selling, general and administrative
Percent of revenue
2012
2011
2010
$
$
35,051
13,321
48,372
57,583
22,452
56,692
136,727
185,099
$
$
33,342
9,066
42,408
51,041
23,925
44,928
119,894
162,302
$
$
40,332
12,944
53,276
65,127
21,664
51,526
138,317
191,593
8.9%
8.1%
10.9%
Selling, general and administrative expenses for 2012 increased $22.8 million, or 14.0%, compared to 2011.
Selling Expenses
Selling expenses include the costs for aggregate permits, business development, estimating and bidding. 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 2012 increased $6.0 million
or 14.1% compared to 2011. The increase was primarily related to increased costs associated with large projects pursuits.
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. These costs include variable cash and restricted stock performance-based
incentives for select management personnel on which our compensation strategy heavily relies. The cash portion of these
incentives is expensed when earned while the restricted stock portion is expensed over the vesting period of the restricted stock
award (generally three years). Other general and administrative expenses include changes in the fair market value of our Non-
Qualified Deferred Compensation (“NQDC”) plan liability, information technology, occupancy, office supplies, depreciation,
travel and entertainment, outside services, training and other miscellaneous expenses none of which individually exceeded 10% of
total general and administrative expenses.
Total general and administrative expenses for 2012 increased $16.8 million or 14.0% compared to 2011 primarily due to an
increase of $11.8 million or 26.2% in other general and administrative expenses. The increase in other general and administrative
expenses during the year ended December 31, 2012 was primarily due to acquisition-related costs of $4.4 million and an increase
of $2.0 million in the fair market value of our NQDC plan liability.
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Restructuring (Gains) Charges, Net
The following table presents the components of restructuring (gains) charges, net during the respective periods:
Years ended December 31,
(in thousands)
(Gains) impairment associated with our real estate investments, net
Severance costs
Impairment charges on assets held-for-sale or abandoned
Lease termination (gains) costs, net of estimated sublease income
Total
2012
2011
2010
$
$
(3,093) $
—
—
(635)
(3,728) $
1,452 $
471
226
32
2,181 $
86,341
12,635
7,521
2,782
109,279
In October 2010, we announced our Enterprise Improvement Plan that included continued actions to reduce our cost structure,
enhance operating efficiencies and strengthen our business to achieve long-term profitable growth. The majority of restructuring
charges associated with the Enterprise Improvement Plan were recorded in 2010. The restructuring gains and charges recorded in
2012 and 2011 were the result of executing our Enterprise Improvement Plan.
During 2013, we may record up to $8.0 million of restructuring charges, primarily related to previously planned additional
consolidation efforts and assets to be held-for-sale as part of our Enterprise Improvement Plan. The ultimate amount and timing of
future restructuring charges is subject to market conditions and our ability to negotiate sales of certain assets at prices acceptable to
us.
Gain on Sales of Property and Equipment
The following table presents the gain on sales of property and equipment for the respective periods:
Years Ended December 31,
(in thousands)
2012
2011
2010
Gain on sales of property and equipment
27,447
15,789
13,748
Gain on sales of property and equipment for 2012 increased $11.7 million, or 73.8%, compared to 2011, primarily due to an $18.0
million gain from the sale of an underutilized quarry asset in the fourth quarter of 2012. This sale was related to our process of
continually optimizing our assets separate from the Enterprise Improvement Plan.
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Other Income (Expense)
The following table presents the components of other income (expense) for the respective periods:
Years Ended December 31,
(in thousands)
Interest income
Interest expense
Equity in income of affiliates
Other income (expense), net
Total other income (expense)
2012
2011
2010
$
$
2,626
(10,603)
1,988
6,183
194
$
$
$
2,878
(10,362)
2,193
(4,545)
(9,836) $
4,980
(9,740)
756
6,968
2,964
Other income (expense), net in 2012 included a $7.4 million gain from the sale of gold, a by-product of aggregate production,
partially offset by a $2.8 million non-cash impairment charge from the write-off of our cost method investment in the preferred
stock of a corporation that designs and manufactures power generation equipment.
Income Taxes
The following table presents the provision for (benefit from) income taxes for the respective periods:
Years Ended December 31,
(dollars in thousands)
Provision for (benefit from) income taxes
Effective tax rate
2012
2011
2010
$
21,109
$
23,348
$
26.1%
26.1%
(43,928)
41.3%
Our effective tax rate was essentially flat in 2012 from 2011 at 26.1%. The tax rate for the year ended December 31, 2012 included
a $5.8 million release of a state valuation allowance. The tax rate for the year ended December 31, 2011 included the recognition
and measurement of previously unrecognized tax benefits. The recognition and measurement of these tax benefits were the result
of a favorable settlement of an income tax examination conducted by the Internal Revenue Service. Our tax rate is affected by
discrete items that may occur in any given year, but are not consistent from year to year.
Amount Attributable to Noncontrolling Interests
The following table presents the amount attributable to noncontrolling interests in consolidated subsidiaries for the respective
periods:
Years Ended December 31,
(in thousands)
Amount attributable to noncontrolling interests
2012
2011
2010
$
(14,637) $
(14,924) $
3,465
The amount attributable to noncontrolling interests represents the noncontrolling owners’ share of the income or loss of our
consolidated construction joint ventures and real estate development entities.
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Prior Years
Revenue: Construction revenue for the year ended December 31, 2011 increased by $100.4 million, or 10.6%, compared to the
year ended December 31, 2010. The increase was primarily due to our California group entering the year with greater contract
backlog and improved success rate on bidding activity, as well as more favorable weather conditions late in 2011 when compared
to 2010. The increase in California was partially offset by a decrease in the Northwest primarily due to an unusually wet spring and
runoff from a heavy snowpack during the first half of 2011.
Large Project Construction revenue for the year ended December 31, 2011 increased by $140.6 million, or 24.1%, compared to the
year ended December 31, 2010. The increase was primarily due to increases in revenue of our Northwest sector partially offset by
decreases in our East sector. Revenue in the Northwest was significantly higher in 2011 as a result of work completed on two
projects that were awarded in 2010. Revenue decreased in the East in 2011 when compared to 2010 primarily due to projects
nearing completion.
Construction Materials revenue for the year ended December 31, 2011 was flat compared to the year ended December 31,
2010. The construction materials business continued to be impacted by the weakness in the commercial and residential
development markets.
Real Estate revenue for the year ended December 31, 2011 increased by $7.0 million, or 53.1%, compared to the year ended
December 31, 2010. The increase was primarily attributable to the sale of commercial properties in California during 2011. Factors
that contribute to fluctuations in revenue include national and local market conditions, entitlement status of properties and buyers
access to capital.
Contract Backlog: Construction contract backlog of $513.6 million at December 31, 2011 was $48.4 million, or 10.4%, higher
than at December 31, 2010. The increase was due to improved success rate on bidding activity in California offset by progress on
existing projects in the Northwest and the East. New awards during the year ended December 31, 2011 included two highway
rehabilitation projects of $50.8 million and $58.6 million and a rail relocation project of $41.5 million, all in California.
Large Project Construction contract backlog of $1.5 billion at December 31, 2011 was $74.9 million, or 5.2%, higher than
at December 31, 2010. The increase was primarily due to an improved success rate on bidding activity in California as well as new
awards and additions to existing contracts in the East. The increase was partially offset by progress on existing projects in the
Northwest. New awards included a $167.8 million design-build highway project in Texas. Additionally, backlog increased on our
34% portion of a light rail project in Texas by $242.2 million due to receiving full notice to proceed.
Gross Profit (Loss): Construction gross profit in 2011 increased to $124.5 million, or 11.9% of segment revenue, from $95.7
million, or 10.1% of segment revenue, in 2010. The increases were due to increased revenues, primarily in our California sector,
successful execution of overlay and highway rebuild projects in Arizona and improved cost management of our equipment fleet.
Large Project Construction gross profit in 2011 increased to $104.1 million, or 14.4% of segment revenue, from $67.3 million, or
11.5% of segment revenue, in 2010. The increase was primarily due to recognition of profit on two transit projects in New York, a
transit project in Houston and a new freeway, transit and trail system in Utah, all of which reached the profit recognition threshold
in 2011.
Construction Materials gross profit increased to $16.6 million, or 7.5% of segment revenue, from $12.0 million, or 5.4% of
segment revenue, in 2010. The increase was primarily due to increased production efficiencies of certain plants to meet growing
Construction revenue.
Real Estate gross profit remained relatively unchanged during 2011 when compared to 2010 as the residential, commercial and
private markets remained depressed.
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Selling, General and Administrative Expenses: Selling, general and administrative expenses decreased by $29.3 million, or
15.3%, to $162.3 million in 2011 from $191.6 million in 2010. Total selling expenses for 2011 decreased $10.9 million, or
20.4%, compared to 2010, primarily due to workforce reductions associated with our Enterprise Improvement Plan. Total general
and administrative expenses for 2011 decreased $18.4 million, or 13.3%, compared to 2010. Salaries and related expenses for 2011
decreased $14.1 million compared to 2010 primarily due to the reduction in workforce associated with our Enterprise Improvement
Plan as well as temporary benefit reductions and other ongoing efforts to reduce our cost structure. Other general and
administrative expenses for 2011 decreased $6.6 million, or 12.8%, compared to 2010 due to our efforts to reduce our cost
structure and discretionary spending, including a decrease of approximately $5.5 million in travel expenses, consulting fees and
occupancy.
Restructuring Charges: During 2011 and 2010, we recorded restructuring charges of approximately $2.2 million and $109.3
million, respectively. The charges were primarily related to impairment charges on certain real estate investments of our Real
Estate segment associated with our plans to orderly divest our real estate investment business subject to market conditions and our
ability to negotiate sales of certain assets at prices acceptable to us. Restructuring charges during 2010 were also related to planned
reductions in salaried positions that affected approximately 17% of our salaried workforce.
Other (Expense) Income: Interest income decreased $2.1 million for 2011, compared to 2010, primarily related to changes in
federal and state look back interest income. Look back interest is the interest due or receivable on income tax related to revisions in
estimated profitability on long-term contracts. Other (expense) income, net during 2011 consisted primarily of $3.7 million in
impairment charges associated with our cost method investment in the preferred stock of a corporation that designs and
manufactures power generation equipment. Other (expense) income, net during 2010 consisted primarily of $2.9 million of
previously deferred income related to the sale of an investment in an affiliate in 2008.
Provision for Income Taxes: Our effective tax rate decreased to 26.1% in 2011 from 41.3% in 2010. The change was primarily
due to the effect of noncontrolling interests as a percentage of net income (loss), as noncontrolling interests are not subject to
income taxes on a stand-alone basis. Additionally, included in the tax rate for the year ended December 31, 2011 is the recognition
and measurement of previously unrecognized tax benefits. The recognition and measurement of these tax benefits were the result
of a favorable settlement of an income tax examination conducted by the Internal Revenue Service.
Amount Attributable to Noncontrolling Interests: The balance for 2011 changed compared to 2010 primarily due to
$20.0 million associated with the impairment charges on our real estate held for development and sale from our plans to orderly
divest of our real estate investment business. In addition, the balance changed as activity on consolidated joint venture projects
neared completion.
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Liquidity and Capital Resources
We believe our cash and cash equivalents, short-term investments and cash generated from operations 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 through the next twelve months. We maintain a secured revolving credit
facility of $215.0 million primarily to provide capital needs to fund growth opportunities, either internally or generated through
acquisition (see “Credit Agreement” section for further discussion). We do not anticipate that this credit facility will be required to
fund future working capital needs. If we experience a prolonged change in our business operating results or make a significant
acquisition, we may need to acquire additional sources of financing, which, if available, may be limited by the terms of our
existing debt covenants, or may require the amendment of our existing debt agreements.
The following table presents our cash, cash equivalents and marketable securities, including amounts from our consolidated joint
ventures, as of the respective dates:
December 31,
(in thousands)
Cash and cash equivalents excluding consolidated joint ventures
Consolidated construction joint venture cash and cash equivalents1
Total consolidated cash and cash equivalents
Short-term and long-term marketable securities2
181,868
75,122
256,990
149,658
406,648
1The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in joint venture cash
and cash equivalents between periods. These funds generally are not available for the working capital or other liquidity needs of Granite.
2See Note 3 of “Notes to the Consolidated Financial Statements” for the composition of our marketable securities.
Total cash, cash equivalents and marketable securities
216,125
105,865
321,990
111,430
433,420
$
$
$
$
2012
2011
Our primary sources of liquidity are cash and cash equivalents and marketable securities. We may also from time to time issue and
sell equity, debt or hybrid securities or engage in other capital market transactions.
Our cash and cash equivalents consisted of commercial paper, deposits and money market funds held with established national
financial institutions. Marketable securities consist of U.S. government and agency obligations, commercial paper, municipal
bonds and corporate bonds. Cash and cash equivalents held by our consolidated joint ventures represent the working capital needs
of each joint venture’s project. The decision to distribute joint venture cash must generally be made jointly by all of the partners
and, accordingly, these funds generally are not available for the working capital or other liquidity needs of Granite.
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, such as with the
acquisition of Kenny during 2012.
Cash Flows
Years Ended December 31,
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
2012
2011
2010
$
$
91,790
(42,554)
15,764
$
92,345
(27,728)
(59,649)
29,318
(60,435)
(55,817)
Cash provided by operating activities decreased $0.6 million in 2012 when compared to 2011. This decrease was primarily driven
by a decrease in net income partially offset by a favorable change in working capital items in 2012 compared to 2011.
Cash used in investing activities was $14.8 million higher in 2012 than in 2011 primarily due to $79.6 million associated with the
acquisition of Kenny during 2012 partially offset by a $51.5 million decrease in net purchases of marketable securities.
Cash provided by financing activities increased $75.4 million in 2012 compared to 2011. The primary reason for this change was a
$70.0 million increase in proceeds from long-term debt due to borrowings from our revolving credit facility associated with the
acquisition of Kenny.
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Capital Expenditures
During the year ended December 31, 2012, we had capital expenditures of $37.6 million compared to $45.0 million in 2011. 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 investing between $40.0 million and $60.0 million in capital
expenditures during 2013.
Debt and Contractual Obligations
The following table summarizes our significant obligations outstanding as of December 31, 2012:
(in thousands)
Long-term debt - principal
Long-term debt - interest1
Operating leases2
Other purchase obligations3
Deferred compensation obligations4
Total
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$ 290,130 $
68,475
36,288
4,854
24,148
$ 423,895 $
19,059 $
13,731
6,983
3,417
3,814
47,004 $
40,966 $ 150,049 $
28,047
10,466
1,437
6,830
87,746 $ 180,554 $
19,360
6,960
—
4,185
80,056
7,337
11,879
—
9,319
108,591
1 Included in the total is $0.2 million related to mortgages, the terms of which include variable interest rates that range from 4.5% to 5.75%. Also
included in this balance is $6.9 million in interest related to borrowings under our Credit Agreement, the terms of which include a variable
interest rate that was 2.56% as of December 31, 2012. The future payments were calculated using rates in effect as of December 31, 2012 and
may differ from actual results.
2 These obligations represent the minimum rental commitments and minimum royalty requirements under all noncancellable operating leases.
See Note 18 of “Notes to the Consolidated Financial Statements.”
3 These obligations represent firm purchase commitments for equipment and other goods and services not connected with our construction
contract backlog which are individually greater than $10,000 and have an expected fulfillment date after February 28, 2013.
4 The timing of expected payment of deferred compensation is based on estimated dates of retirement. Actual dates of retirement could be
different and would cause the timing of payments to change.
In addition to the significant obligations described above, as of December 31, 2012, we had the following obligations, which were
excluded from the foregoing table:
•
•
approximately $3.2 million associated with uncertain tax positions filed on our tax returns were excluded because we cannot
make a reasonably reliable estimate of the timing of potential payments relative to such reserves; and
asset retirement obligations of $26.6 million associated with our owned and leased quarry properties were excluded because
the majority of them have an estimated settlement date beyond five years (see Note 8 of “Notes to the Consolidated
Financial Statements”).
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Credit Agreement
We have a $215.0 million committed revolving credit facility, with a sublimit for letters of credit of $100.0 million (the “Credit
Agreement”), which expires on October 11, 2016. Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at
our option), plus an applicable margin based on certain financial ratios calculated quarterly. LIBOR varies based on the applicable
loan term, market conditions and other external factors. The applicable margin was 2.25% for loans bearing interest based on
LIBOR and 1.25%for loans bearing interest at the base rate at December 31, 2012. Accordingly, the effective interest rate was
between 2.56% and 4.50% at December 31, 2012. Borrowings at the base rate have no designated term and may be repaid without
penalty any time prior to the Credit Agreement’s maturity date. Borrowings at a Eurodollar rate have a term no less than one month
and no greater than one year. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a
borrowing at the base rate or a borrowing at a Eurodollar rate with similar terms, not to exceed the maturity date of the Credit
Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and are collateralized on an
equivalent basis with the obligations under the 2013 Notes and the 2019 Notes (each defined below) by first priority liens (subject
only to other liens permitted under the Credit Agreement) on substantially all of the assets of the Company and our subsidiaries
that are guarantors or borrowers under the Credit Agreement. At December 31, 2012, there was a revolving loan of $70.0 million
outstanding under the Credit Agreement related to financing the Kenny acquisition, the balance of which is included in long-term
debt on our consolidated balance sheet. In addition, there were standby letters of credit totaling approximately $10.9 million as of
December 31, 2012. The letters of credit will expire between March and October 2013.
The Credit Agreement provides for the release of the liens securing the obligations, at our option and expense, after June 30, 2013,
so long as certain conditions as defined by the terms in the Credit Agreement are satisfied (“Collateral Release Period”). If,
subsequently, our Consolidated Fixed Charge Coverage Ratio is less than 1.25 or our Consolidated Leverage Ratio is greater than
2.50, then we will be required to promptly re-pledge substantially all of the assets of the Company and our subsidiaries that are
guarantors or borrowers under the Credit Agreement.
Senior Notes Payable
As of December 31, 2012, senior notes payable in the amount of $8.3 million were due to a group of institutional holders in 2013
and bear interest at 6.96% per annum (“2013 Notes”). In addition, senior notes payable in the amount of $200.0 million were due
to a second group of institutional holders in five equal annual installments beginning in 2015 and bear interest at 6.11% per annum
(“2019 Notes”).
Our obligations under the note purchase agreements governing the 2013 Notes and 2019 Notes (the “2013 NPA” and the “2019
NPA,” respectively) are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the Credit
Agreement by liens on substantially all of the assets of the Company and subsidiaries that are guarantors or borrowers under the
Credit Agreement. The 2013 NPA and 2019 NPA provide for the release of liens and re-pledge of collateral on substantially the
same terms and conditions as those set forth in the Credit Agreement.
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 December 31, 2012, approximately $1.6 billion of our contract backlog 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.
A significant portion of our real estate held for development and sale is subject to mortgage indebtedness. All of this indebtedness
is non-recourse to Granite but is recourse to the real estate entities that incurred the indebtedness. 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 entities to pay
down portions of the debt. As of December 31, 2012, the principal amount of debt of our consolidated real estate entities secured
by mortgages was $11.6 million, of which $10.7 million was included in current liabilities and $0.9 million was included in long-
term liabilities on our consolidated balance sheet.
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Covenants and Events of Default
The most significant restrictive covenants under the terms of our 2013 NPA, 2019 NPA and Credit Agreement require the
maintenance of a minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum
Consolidated Leverage Ratio. The calculations and terms of such financial covenants are defined in the Credit Agreement filed as
Exhibit 10.1 to our Form 10-Q filed November 7, 2012 and in the applicable 2013 NPA and 2019 NPA agreements filed as Exhibit
10.6 and Exhibit 10.7 to our Form 10-Q filed November 7, 2012. As of December 31, 2012 and pursuant to the definitions in the
agreements, our Consolidated Tangible Net Worth was $753.1 million, which exceeded the minimum of $665.7 million, the
Consolidated Interest Coverage Ratio was 9.52, which exceeded the minimum of 4.00 and the Consolidated Leverage Ratio was
2.39, which did not exceed the maximum of 3.25 for the Credit Agreement and the maximum of 3.50 for the 2013 NPA and 2019
NPA. The maximum Consolidated Leverage Ratio for the Credit Agreement and 2013 NPA and 2019 NPA decreases to 3.00 and
3.25, respectively, for the quarter ending December 31, 2013, and each quarter ending thereafter. During any Collateral Release
Period, the maximum Consolidated Leverage Ratio decreases to 2.50.
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the
financial covenants described above. Our failure to comply with any of these covenants, or to pay principal, interest or other
amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances,
the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the
indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit
agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the
agreements, (2) termination of the agreements, (3) the requirement that any letters of credit under the agreements be cash
collateralized, (4) acceleration of the maturity of outstanding indebtedness under the agreements and/or (5) foreclosure on any
collateral securing the obligations under the agreements.
As of December 31, 2012, we were in compliance with the covenants contained in our senior note agreements, Credit Agreement,
and debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our
unconsolidated entities with the covenants contained in their debt agreements. Subsequent to December 31, 2012, one of our
consolidated real estate entities was in default under a debt agreement as a result of its failure to make a timely payment. The
affected loan is non-recourse to Granite and the default does not result in cross-defaults under other debt agreements under which
Granite is the obligor; however, there is recourse to the real estate entity that incurred the debt. The real estate entity in default is
currently in discussions with the lender to revise the terms of the defaulted debt agreement.
Share Purchase Program
In 2007, our Board of Directors authorized us to purchase up to $200.0 million of our common stock at management’s
discretion. As of December 31, 2012, $64.1 million was available for purchase. We did not purchase shares under the share
purchase program in any of the periods presented.
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Joint Ventures; Off-Balance-Sheet Arrangements
We participate in various construction joint venture partnerships in order to share expertise, risk and resources for certain highly
complex projects. Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by
the joint venture partners. We select our joint venture partners based on our analysis of their construction and financial capabilities,
expertise in the type of work to be performed and past working relationships, among other criteria. The joint venture agreements
typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities, that may result
from the performance of the contract are limited to our stated percentage interest in the project.
Under each joint venture agreement, one partner is designated as the sponsor. The sponsoring partner typically provides all
administrative, accounting and most of the project management support for the project and generally receives a fee from the joint
venture for these services. We have been designated as the sponsoring partner in certain of our current joint venture projects and
are a non-sponsoring partner in others.
We also participate in various “line item” joint venture agreements under which each partner is responsible for performing certain
discrete items of the total scope of contracted work. The revenue for these discrete items is defined in the contract with the project
owner and each venture partner bears the profitability risk associated with its own work. There is not a single set of books and
records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed
contract. We account for our portion of these contracts as project revenues and costs in our accounting system and include
receivables and payables associated with our work in our consolidated financial statements.
A venture’s contract with the project owner typically requires joint and several liability among the joint venture partners. Although
our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each
party will assume and fund its share of any losses resulting from a project, if one of our partners is unable to pay its share we
would be fully liable under our contract with the project owner. Circumstances that could lead to a loss under these guarantee
arrangements include a partner’s inability to contribute additional funds to the venture in the event that the project incurred a loss
or additional costs that we could incur should the partner fail to provide the services and resources toward project completion that
had been committed to in the joint venture agreement.
At December 31, 2012, we had approximately $1.6 billion of construction revenue to be recognized on unconsolidated and line
item construction joint venture contracts, of which $553.8 million represented our share and the remaining $1.1 billion represented
our partners’ share. We are not able to estimate other 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.
Recently Issued Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) No.
2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU requires companies to disclose
both gross and net information about financial instruments that have been offset on the consolidated balance sheet. This ASU will
be effective commencing with our quarter ending March 31, 2013. We do not expect the adoption of this ASU to have an impact on
our consolidated financial statements.
In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment. This ASU gives companies the option to first assess qualitative factors to determine whether it is
more likely than not that the indefinite-lived intangible asset is impaired. If it is determined that it is more likely than not the
indefinite-lived intangible asset is impaired, a quantitative impairment test is required. However, if it is concluded otherwise, the
quantitative test is not necessary. This ASU will be effective commencing with our quarter ending March 31, 2013. We do not
expect the adoption of this ASU to have an impact on our consolidated financial statements.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We maintain an investment portfolio of various holdings, types and maturities. We place our cash investments in instruments that
meet high credit quality standards, as specified in our investment policy. This policy prohibits investments in auction rate and
asset-backed securities. It also limits the amount of credit exposure to any one issue, issuer or type of instrument. The portfolio is
limited to an average maturity of no more than one year from date of purchase. On an ongoing basis we monitor credit ratings,
financial condition and other factors that could affect the carrying amount of our investment portfolio.
Marketable securities, consisting of U.S. government and agency obligations, commercial paper, corporate bonds and municipal
bonds, are generally classified as held-to-maturity and are stated at cost, adjusted for amortization of premiums and discounts to
maturity.
We are exposed to financial market risks due largely to changes in interest rates, which we have managed primarily by managing
the maturities in our investment portfolio. We do not have any material business transactions in foreign currencies.
We are exposed to various commodity price risks, including, but not limited to, diesel fuel, natural gas, propane, steel, cement and
liquid asphalt arising from transactions that are entered into in the normal course of business. In order to manage or reduce
commodity price risk, we monitor the costs of these commodities at the time of bid and price them into our contracts accordingly.
Additionally, some of our contracts include commodity price escalation clauses which partially protect us from increasing prices.
At times we enter into supply agreements or pre-purchase commodities to secure pricing and use financial contracts to further
manage price risk. As of December 31, 2012 and 2011, we had no material financial contracts in place.
The fair value of our short-term held-to-maturity investment portfolio and related income would not be significantly affected by
changes in interest rates since the investment maturities are short and the interest rates are primarily fixed. The fair value of our
long-term held-to-maturity investment portfolio may be affected by changes in interest rates.
Given the short-term nature of certain investments, our investment income is subject to the general level of interest rates in the
United States at the time of maturity and reinvestment.
We had outstanding senior notes payable, which carry a fixed interest rate per annum, as follows (in millions):
December 31,
Principal payments due in nine equal installments that began in 2005, 6.96%
Principal payments due in five equal installments beginning in 2015, 6.11%
Total
$
$
2012
8.3
200.0
208.3
At December 31, 2012, there was $70.0 million in revolving loans outstanding under the Credit Agreement related to financing the
Kenny acquisition, which is included in long-term debt on our consolidated balance sheet. These borrowings bear interest at
LIBOR or a base rate (at our option), plus an applicable margin based on certain financial ratios calculated quarterly. The
applicable margin was 2.25% for loans bearing interest based on LIBOR and 1.25% for loans bearing interest at the base rate at
December 31, 2012. Accordingly, the effective interest rate was between 2.56% and 4.50% at December 31, 2012.
42
Table of Contents
The table below presents principal amounts due by year and related weighted average interest rates for our cash and cash
equivalents, held-to-maturity investments and other significant debt obligations as of December 31, 2012 (dollars in thousands):
Assets
Cash, cash equivalents, held-to-
maturity investments
Weighted average interest rate
Liabilities
Fixed rate debt
2013
2014
2015
2016
2017
Thereafter
Total
$ 378,078
$ 10,000
$ 14,439
$
15,903
$
15,000
$
0.48%
0.27%
0.44%
0.70%
1.07%
— $ 433,420
—%
0.50%
Senior notes payable
Weighted average interest rate
Variable rate debt
Credit Agreement loan
Weighted average interest rate1
$
$
$
8,333
6.96%
— $ 40,000
—%
6.11%
$
40,000
$
40,000
$
80,000
$ 208,333
6.11%
6.11%
6.11%
6.00%
— $
—%
— $
—%
— $
—%
70,000
$
2.56%
— $
—%
— $
—%
70,000
2.56%
1The weighted average interest rate was calculated using rates in effect as of December 31, 2012 and may differ from actual results.
The estimated fair value of our cash, cash equivalents and short-term held-to-maturity investments approximates the principal
amounts reflected above based on the generally short maturities of these financial instruments. The estimated fair value of our
long-term held-to-maturity investments approximates the principal amounts above due to the relatively minor difference between
the effective yields of these investments and rates currently available on similar instruments. Rates currently available to us for
debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Based on the fixed borrowing
rates currently available to us for bank loans with similar terms and average maturities, the fair value of the senior notes payable
was approximately $243.1 million as of December 31, 2012 and $250.5 million as of December 31, 2011 and the fair value of the
Credit Agreement loan was approximately $70.4 million as of December 31, 2012.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Granite, the supplementary data and the independent registered public
accounting firm’s report are incorporated by reference from Part IV, Item 15(1) and (2):
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - At December 31, 2012 and 2011
Consolidated Statements of Operations - Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Shareholders’ Equity - Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows - Years Ended December 31, 2012, 2011 and 2010
Notes to the Consolidated Financial Statements
Quarterly Financial Data (unaudited)
Schedule II - Schedule of Valuation and Qualifying Accounts
43
Table of Contents
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures: Our management carried out, as of December 31, 2012, with the participation
of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31,
2012, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to
be disclosed by us in reports we file under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting: There were changes in our internal controls over financial reporting that
occurred during the fourth quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. In particular, as was disclosed in our Quarterly Report on Form 10-Q for the three months ended
September 30, 2012, we implemented new enterprise resource planning software during the first quarter of 2012. In the third and
fourth quarters of 2012 we modified existing internal controls as part of the ongoing integration of such enterprise resource
planning software.
Management’s Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d
-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation our management concluded that our internal control over financial reporting was effective
as of December 31, 2012.
We acquired Kenny Construction Company (“Kenny”) effective December 31, 2012. Kenny had total assets that were 15.5% of
consolidated assets as of December 31, 2012, and we did not record any revenues for Kenny. As the acquisition occurred during
the last twelve months, the scope of our assessment of the effectiveness of internal control over financial reporting does not include
Kenny. This exclusion is in accordance with the Securities Exchange Commission’s general guidance that an assessment of a
recently acquired business may be omitted from our scope in the year of acquisition.
Independent Registered Public Accounting Firm Report: PricewaterhouseCoopers LLP, the independent registered public
accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued a
report on the Company’s internal control over financial reporting as of December 31, 2012. The report, which expresses an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012, is
included in “Item 15. Exhibits and Financial Statement Schedules” under the heading “Report of Independent Registered Public
Accounting Firm.”
Item 9B. OTHER INFORMATION
Not Applicable.
44
Table of Contents
PART III
Certain information required by Part III is omitted from this report. We will file our definitive proxy statement for our Annual
Meeting of Shareholders to be held on June 6, 2013 (the “Proxy Statement”) pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
For information regarding our Directors and compliance with Section 16(a) of the Securities Exchange Act of 1934, we direct you
to the sections entitled “Proposal 1 - Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,”
respectively, in the Proxy Statement. For information regarding our Audit/Compliance Committee and our Audit/Compliance
Committee’s financial expert, we direct you to the section entitled “Information about the Board of Directors and Corporate
Governance - Committees of the Board - Audit/Compliance Committee” in the Proxy Statement. For information regarding our
Code of Conduct, we direct you to the section entitled “Information about the Board of Directors and Corporate Governance -
Code of Conduct” in the Proxy Statement. Information regarding our executive officers is contained in the section entitled
“Executive Officers of the Registrant,” in Part I, Item I of this report. This information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
For information regarding our Executive Compensation, we direct you to the section captioned “Executive and Director
Compensation and Other Matters” in the Proxy Statement. This information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
This information is located in the sections captioned “Stock Ownership of Beneficial Owners and Certain Management” and
“Equity Compensation Plan Information” in the Proxy Statement. This information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
You will find this information in the sections captioned “Transactions with Related Persons” and “Information about the Board of
Directors and Corporate Governance - Director Independence” in the Proxy Statement. This information is incorporated herein by
reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
You will find this information in the section captioned “Independent Registered Public Accountants - Principal Accountant Fees
and Services” in the Proxy Statement. This information is incorporated herein by reference.
45
Table of Contents
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
PART IV
1. Financial Statements. The following consolidated financial statements and related documents are filed as part of this report:
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2012 and 2011
Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
Notes to the Consolidated Financial Statements
Quarterly Financial Data
Page
F-1
F-2
F-3
F-4
F-5 to F-6
F-7 to F-44
F-45
2. Financial Statement Schedule. The following financial statement schedule of Granite for the years ended December 31, 2012,
2011 and 2010 is filed as part of this report and should be read in conjunction with the consolidated financial statements of Granite.
Schedule II - Schedule of Valuation and Qualifying Accounts
Schedule
Page
S-1
Schedules not listed above have been omitted because the required information is either not material, not applicable or is shown in
the consolidated financial statements or notes thereto.
3. Exhibits. The Exhibits listed in the accompanying Exhibit Index, which is incorporated herein by reference, are filed or
incorporated by reference as part of, or furnished with, this report.
46
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Granite Construction Incorporated:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(1) present fairly, in all material
respects, the financial position of Granite Construction Incorporated and its subsidiaries at December 31, 2012 and December 31,
2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 15(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A, management has
excluded Kenny Construction Company from its assessment of internal control over financial reporting as of December 31, 2012
because it was acquired by the Company in a purchase business combination effective December 31, 2012. We have also excluded
Kenny Construction Company from our audit of internal control over financial reporting. Kenny Construction Company is a
wholly-owned subsidiary whose total assets represent 15.5% of consolidated assets as of December 31, 2012. There were no
revenues recorded for Kenny Construction Company for the year ended December 31, 2012.
/s/PricewaterhouseCoopers LLP
San Francisco, California
March 1, 2013
F- 1
Table of Contents
December 31,
ASSETS
Current assets
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)
Cash and cash equivalents ($105,865 and $75,122 related to consolidated construction
joint ventures (“CCJV”))
Short-term marketable securities
Receivables, net ($43,902 and $30,332 related to CCJVs)
Costs and estimated earnings in excess of billings
Inventories
Real estate held for development and sale
Deferred income taxes
Equity in construction joint ventures
Other current assets
Total current assets
Property and equipment, net ($41,114 and $8,671 related to CCJVs)
Long-term marketable securities
Investments in affiliates
Goodwill
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt
Current maturities of non-recourse debt
Accounts payable ($34,536 and $38,193 related to CCJVs)
Billings in excess of costs and estimated earnings ($72,490 and $22,251 related to CCJVs)
Accrued expenses and other current liabilities ($8,312 and $5,129 related to CCJVs)
Total current liabilities
Long-term debt
Long-term non-recourse debt
Other long-term liabilities
Deferred income taxes
Commitments and contingencies
Equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and
outstanding 38,730,665 shares as of December 31, 2012 and 38,682,771 shares as of
December 31, 2011
Additional paid-in capital
Retained earnings
Total Granite Construction Incorporated shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
2012
2011
$
$
$
321,990
56,088
325,529
34,116
59,785
50,223
36,687
105,805
31,834
1,022,057
481,478
55,342
30,799
55,419
84,392
1,729,487
8,353
10,707
202,541
139,692
169,979
531,272
270,148
922
47,124
8,163
256,990
70,408
251,838
37,703
50,975
67,037
38,571
101,029
35,171
909,722
447,140
79,250
31,071
9,900
70,716
1,547,799
9,102
23,071
158,660
90,845
166,790
448,468
208,501
9,912
49,221
4,034
—
—
387
117,422
712,144
829,953
41,905
871,858
1,729,487
$
387
111,514
687,296
799,197
28,466
827,663
1,547,799
$
$
$
$
F- 2
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Table of Contents
Years Ended December 31,
Revenue
Construction
Large project construction
Construction materials
Real estate
Total revenue
Cost of revenue
Construction
Large project construction
Construction materials
Real estate
Total cost of revenue
Gross profit
Selling, general and administrative expenses
Restructuring (gains) charges, net
Gain on sales of property and equipment
Operating income (loss)
Other income (expense)
Interest income
Interest expense
Equity in income of affiliates
Other income (expense), net
Total other income (expense)
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Amount attributable to noncontrolling interests
Net income (loss) attributable to Granite Construction Incorporated
Net income (loss) per share attributable to common shareholders (see Note 16)
Basic
Diluted
Weighted average shares of common stock
Basic
Diluted
Dividends per common share
The accompanying notes are an integral part of these consolidated financial statements.
F- 3
2012
2011
2010
$
984,106
863,217
230,642
5,072
2,083,037
$ 1,043,614
725,043
220,583
20,291
2,009,531
$
943,245
584,406
222,058
13,256
1,762,965
906,143
714,799
223,070
4,266
1,848,278
234,759
185,099
(3,728)
27,447
80,835
919,108
620,935
203,942
17,583
1,761,568
247,963
162,302
2,181
15,789
99,269
2,626
(10,603)
1,988
6,183
194
81,029
21,109
59,920
(14,637)
45,283
1.17
1.15
38,447
39,076
0.52
$
$
$
$
2,878
(10,362)
2,193
(4,545)
(9,836)
89,433
23,348
66,085
(14,924)
51,161
1.32
1.31
38,117
38,473
0.52
$
$
$
$
$
$
$
$
847,536
517,099
210,040
10,506
1,585,181
177,784
191,593
109,279
13,748
(109,340)
4,980
(9,740)
756
6,968
2,964
(106,376)
(43,928)
(62,448)
3,465
(58,983)
(1.56)
(1.56)
37,820
37,820
0.52
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
Balances at December 31, 2009
Net loss
Restricted stock and stock issued for services,
net of forfeitures
Amortized restricted stock
Purchase of common stock
Cash dividends on common stock
Net tax on stock-based compensation
Transactions with noncontrolling interests, net
Stock options exercised and other
Balances at December 31, 2010
Net income
Stock units vested
Amortized restricted stock
Purchase of common stock
Cash dividends on common stock
Net tax on stock-based compensation
Transactions with noncontrolling interests, net
Other
Balances at December 31, 2011
Net income
Stock units vested
Amortized restricted stock
Purchase of common stock
Cash dividends on common stock
Net tax on stock-based compensation
Noncontrolling interests from acquisition
Transactions with noncontrolling interests, net
Stock options exercised and other
Balances at December 31, 2012
Outstanding
Shares
38,635,021 $
—
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total Granite
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
386 $
—
94,633 $
—
735,632 $
(58,983)
830,651 $
(58,983)
51,905 $ 882,556
(62,448)
(3,465)
214,128
—
(132,093)
—
—
—
28,486
38,745,542
—
80,245
—
(143,527)
—
—
—
511
38,682,771
—
191,285
—
(161,080)
—
—
—
—
17,689
38,730,665 $
1,003
13,040
(3,640)
—
(815)
—
11
104,232
—
(1)
12,155
(4,028)
—
(1,360)
—
516
111,514
—
(1)
11,475
(4,852)
—
(1,573)
—
—
859
2
—
(1)
—
—
—
—
387
—
1
—
(1)
—
—
—
—
387
—
2
—
(2)
—
—
—
—
—
387 $ 117,422 $
—
—
—
(20,165)
—
—
(72)
656,412
51,161
—
—
—
(20,107)
—
—
(170)
687,296
45,283
—
—
—
(20,117)
—
—
—
(318)
712,144 $
1,005
13,040
(3,641)
(20,165)
(815)
—
(61)
761,031
51,161
—
12,155
(4,029)
(20,107)
(1,360)
—
346
799,197
45,283
1
11,475
(4,854)
(20,117)
(1,573)
—
—
541
829,953 $
—
—
—
—
—
(13,836)
—
34,604
14,924
—
—
—
—
—
(21,062)
—
28,466
14,637
—
—
—
—
—
14,788
(15,986)
—
1,005
13,040
(3,641)
(20,165)
(815)
(13,836)
(61)
795,635
66,085
—
12,155
(4,029)
(20,107)
(1,360)
(21,062)
346
827,663
59,920
1
11,475
(4,854)
(20,117)
(1,573)
14,788
(15,986)
541
41,905 $ 871,858
The accompanying notes are an integral part of these consolidated financial statements.
F- 4
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
Operating activities
2012
2011
2010
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
$
59,920
$
66,085 $
(62,448)
activities:
Non-cash restructuring, net
Other non-cash impairment charges
Depreciation, depletion and amortization
Gain on sales of property and equipment
Change in deferred income tax
Stock-based compensation
Changes in assets and liabilities, net of the effects of acquisition:
Receivables
Costs and estimated earnings in excess of billings, net
Inventories
Real estate held for development and sale
Equity in construction joint ventures
Other assets, net
Accounts payable
Accrued expenses and other current liabilities, net
Net cash provided by operating activities
Investing activities
Purchases of marketable securities
Maturities of marketable securities
Proceeds from sale of marketable securities
Purchase of company owned life insurance
Additions to property and equipment
Proceeds from sales of property and equipment
Purchase of private preferred stock
Acquisition of business, net of cash acquired
Other investing activities, net
Net cash used in investing activities
Financing activities
Proceeds from long-term debt
Long-term debt principal payments
Cash dividends paid
Purchase of common stock
Contributions from noncontrolling partners
Distributions to noncontrolling partners
Other financing activities, net
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
The accompanying notes are an integral part of these consolidated financial statements.
(3,093)
3,238
56,101
(27,447)
6,013
11,475
9,415
2,780
(8,079)
(479)
2,446
9,377
(9,472)
(20,405)
91,790
(124,596)
90,100
75,000
(66)
(37,622)
34,392
—
(79,640)
(122)
(42,554)
70,495
(11,751)
(20,117)
(4,854)
107
(16,093)
(2,023)
15,764
65,000
256,990
321,990
1,678
5,067
60,546
(15,789)
8,566
12,155
(2,258)
(56,524)
43
(3,704)
(26,313)
(11)
28,960
13,844
92,345
(155,122)
110,875
33,268
(359)
(45,035)
27,959
(50)
—
736
(27,728)
2,122
(16,907)
(20,117)
(4,029)
519
(21,581)
344
(59,649)
4,968
252,022
256,990 $
$
93,862
821
74,435
(13,748)
(39,289)
13,040
39,070
(35,756)
(5,368)
(14,743)
(8,230)
6,352
(1,871)
(16,809)
29,318
(121,626)
74,000
15,000
(6,117)
(37,004)
21,148
(6,400)
—
564
(60,435)
1,918
(19,829)
(20,150)
(3,641)
7,321
(21,498)
62
(55,817)
(86,934)
338,956
252,022
F- 5
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
Years Ended December 31,
Supplementary Information
Cash paid during the period for:
Interest
Income taxes
Non-cash investing and financing activities:
Restricted stock/units issued, net of forfeitures
Accrued cash dividends
Debt payments out of escrow from sale of assets
Debt extinguishment from joint venture interest assignment
Debt payment from refinance
Purchase price adjustment payable under acquisition
2012
2011
2010
$
$
$
$
11,484
24,616
14,175
5,035
1,109
18,612
1,150
8,721
16,239 $
24,783
6,874 $
5,028
14,447
—
—
—
15,715
3,861
9,192
5,038
6,064
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
F- 6
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business: Granite Construction Incorporated is a heavy civil contractor and a construction materials producer. We
are engaged in the construction of roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and
underground utilities, electrical utilities, tunnels, dams and canals. We are also diversified into real estate investment and
development. We have offices in Alaska, Arizona, California, Colorado, Florida, Illinois, Nevada, New York, Pennsylvania, Texas,
Utah and Washington. Unless otherwise indicated, the terms “we,” “us,” “our,” “Company” and “Granite” refer to Granite
Construction Incorporated and its consolidated subsidiaries.
Principles of Consolidation: The consolidated financial statements include the accounts of Granite Construction Incorporated and
its wholly owned and majority owned subsidiaries. All material inter-company transactions and accounts have been eliminated. We
use the equity method of accounting for affiliated companies where we have the ability to exercise significant influence, but not
control. Additionally, we participate in joint ventures with other construction companies and various real estate ventures. We have
consolidated these ventures where we have determined that through our participation we have a variable interest and are the
primary beneficiary as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 810, Consolidation, and related standards. Effective January 1, 2010, we adopted the new consolidation requirements
applicable to our construction and real estate joint ventures that are considered variable interest entities (“VIEs”) as defined by
ASC Topic 810. The method we use to determine the primary beneficiary of a VIE is as follows:
•
determine the VIE’s primary beneficiary using a qualitative approach based on:
i) the power to direct the activities that most significantly impact the economic performance of the VIE; and
ii) the obligation to absorb losses or right to receive benefits of the VIE that could be significant.
•
•
ongoing evaluation of the VIE’s primary beneficiary; and
disclosures about a company’s involvement with the VIE including separate presentation on the consolidated balance sheets
of a consolidated VIE’s non-recourse debt.
Where we have determined we are not the primary beneficiary of a venture but do exercise significant influence, we account for
our share of the operations of jointly controlled construction joint ventures on a pro rata basis in the consolidated statements
of operations and as a single line item in the consolidated balance sheets and we account for real estate entities under the equity
method of accounting, as a single line item in both the consolidated statements of operations and in the consolidated balance
sheets.
Use of Estimates in the Preparation of Financial Statements: The financial statements 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 and assumptions that affect the reported amounts of assets and liabilities,
revenue and expenses, and related disclosure of contingent assets and liabilities. Our estimates, judgments and assumptions are
continually evaluated based on available information and experiences; however, actual amounts could differ from those estimates.
F- 7
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue Recognition - Construction Contracts: Revenue and earnings on construction contracts, including construction joint
ventures, are recognized under the percentage of completion method using the ratio of costs incurred to estimated total costs.
Revenue in an amount equal to cost incurred is recognized prior to contracts reaching at least 25% completion, thus deferring the
related profit. It is our judgment that until a project reaches at least 25% completion, there is insufficient information to determine
the estimated profit on the project with a reasonable level of certainty. In the case of large, complex design/build projects we may
defer profit recognition beyond the point of 25% completion based on an evaluation of specific project risks. The factors
considered in this evaluation include the stage of design completion, the stage of construction completion, status of outstanding
purchase orders and subcontracts, certainty of quantities of labor and materials, certainty of schedule and the relationship with the
owner.
Revenue from contract claims is recognized when we have a signed agreement and payment is assured. Revenue from contract
change orders, which occur in most large projects, is recognized when the owner has agreed to the change order in
writing. 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.
All contract costs, including those associated with claims and change orders, are recorded as incurred and revisions to estimated
total costs are reflected as soon as the obligation to perform is determined. Contract cost consists of direct costs on contracts,
including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily
depreciation, fuel, maintenance and repairs).
The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to
complete each project. Cost estimates for all of our significant projects use a detailed “bottom up” approach and we believe our
experience allows us to provide materially reliable estimates. There are a number of factors that can contribute to changes in
estimates of contract cost and profitability. The most significant of these include:
•
•
•
•
•
•
•
•
•
•
the completeness and accuracy of the original bid;
costs associated with added scope changes;
costs of labor and/or materials;
extended overhead due to owner, weather and other delays;
subcontractor performance issues;
changes in productivity expectations;
site conditions that differ from those assumed in the original bid (to the extent contract remedies are unavailable);
continuing changes from original design on design/build projects;
the availability and skill level of workers in the geographic location of the project; and
a change in the availability and proximity of equipment and materials.
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 between periods. Substantial changes in cost estimates, particularly in our larger, more complex
projects have had, and can in future periods have, a significant effect on our profitability.
Revenue Recognition - Materials: Revenue from the sale of materials is recognized when delivery occurs and risk of ownership
passes to the customer.
Revenue Recognition - Real Estate: Revenue from the sale of real estate is recognized when title passes to the new owner, receipt
of funds is reasonably assured and we do not have substantial continuing obligations on the property. If the criteria for recognition
of a sale are not met, we account for the continuing operations of the property by applying the deposit, finance, installment or cost
recovery methods, as appropriate. We use estimates and forecasts to determine total costs at completion of the development project
to calculate cost of revenue related to sales transactions.
F- 8
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Balance Sheet Classifications: Amounts receivable and payable under construction contracts (principally retentions) that may
extend beyond one year are included in current assets and liabilities. Additionally, the cost of property purchased for development
and sale is included in current assets. A one-year time period is used as the basis for classifying all other current assets and
liabilities.
Cash and Cash Equivalents: Cash equivalents are securities having remaining maturities of three months or less from the date of
purchase. Included in cash and cash equivalents on our consolidated balance sheets as of December 31, 2012 and 2011, was $105.9
million and $75.1 million, respectively, related to our consolidated joint ventures. Our access to joint venture cash may be
limited by the provisions of the venture agreements.
Costs and Estimated Earnings in Excess of Billings: Costs and estimated earnings in excess of billings represent unbilled amounts
earned and reimbursable under contracts. These amounts become billable according to the contract terms, which usually consider
the passage of time, achievement of milestones or completion of the project. Generally, such unbilled amounts will be billed and
collected over the next twelve months. Based on our historical experience, we generally consider the collection risk related to these
amounts to be low. When events or conditions indicate that the amounts outstanding may become uncollectible, an allowance is
estimated and recorded.
Marketable Securities: We determine the classification of our marketable securities at the time of purchase and re-evaluate these
determinations at each balance sheet date. Debt securities are classified as held-to-maturity when we have the positive intent and
ability to hold the securities to maturity. Held-to-maturity investments are stated at amortized cost. Amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts to maturity, and is included in interest income.
Realized gains and losses are included in other income (expense), net. The cost of securities sold or called is based on the specific
identification method.
Financial Instruments: The carrying value of marketable securities approximates their fair value as determined by market quotes.
Rates currently available to us for debt with similar terms and remaining maturities are used to estimate the fair value of existing
debt. The carrying value of receivables and other amounts arising out of normal contract activities, including retentions, which
may be settled beyond one year, is estimated to approximate fair value.
Derivative Instruments: We are exposed to various commodity price risks, including, but not limited to, diesel fuel, natural gas,
propane, steel, cement and liquid asphalt arising from transactions that are entered into in the normal course of business. At times
we manage this risk through supply agreements or we pre-purchase commodities to secure pricing and use financial contracts to
further manage price risk. All derivative instruments are recorded on the balance sheet at fair value. We do not enter into
derivative instruments for speculative or trading purposes. As of December 31, 2012 and 2011, we had no significant financial
contracts in place.
Fair Value of Financial Assets and Liabilities: We measure and disclose certain financial assets and liabilities at fair value. ASC
Topic 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
We utilize the active market approach to measure fair value for our financial assets and liabilities. We report separately each class of
assets and liabilities measured at fair value on a recurring basis and include assets and liabilities that are disclosed but not recorded
at fair value in the fair value hierarchy.
F- 9
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Concentrations of Credit Risk and Other Risks: Financial instruments, which potentially subject us to concentrations of credit risk,
consist primarily of cash and cash equivalents, short-term and long-term marketable securities, and accounts receivable. We
maintain our cash and cash equivalents and our marketable securities with several financial institutions. We invest with high credit
quality financial institutions and, by policy, limit the amount of credit exposure to any one financial institution.
Our receivables are from customers concentrated in the United States and we have no receivables from foreign operations as of
December 31, 2012. We perform ongoing credit evaluations of our customers and generally do not require collateral, although the
law provides us the ability to file mechanics’ liens on real property improved for private customers in the event of non-payment by
such customers. We maintain an allowance for doubtful accounts which has been within management’s expectations.
A significant portion of our labor force is subject to collective bargaining agreements.
Inventories: Inventories consist primarily of quarry products valued at the lower of average cost or market. We write down
the inventories based on estimated quantities of materials on hand in excess of estimated foreseeable use.
Property and Equipment: Property and equipment are stated at cost. Depreciation for construction and other equipment is primarily
provided using accelerated methods over lives ranging from three to seven years, and the straight-line method over lives from three
to twenty years for the remaining depreciable assets. We believe that accelerated methods best approximate the service provided by
the construction and other equipment. Depletion of quarry property is based on the usage of depletable reserves. We frequently sell
property and equipment that has reached the end of its useful life or no longer meets our needs, including depleted quarry property.
At the time that an asset meets the held-for-sale criteria as defined by ASC Topic 360, Property, Plant, and Equipment, we write it
down to fair value, if the fair value is below the carrying value. Fair value is estimated by a variety of factors including, but not
limited to, market comparative data, historical sales prices, broker quotes and third party valuations. If material, such property is
separately disclosed, otherwise it is held in property and equipment until sold. The cost and accumulated depreciation or depletion
of property sold or retired is removed from the accounts and gains or losses, if any, are reflected in earnings for the period. In the
case that we abandon an asset, an amount equal to the carrying amount of the asset, less salvage value, if any, will be recognized as
expense in the period that the asset was abandoned. Repairs and maintenance are charged to operations as incurred.
Costs related to the development of internal-use software during the preliminary project and post-implementation stages are
expensed as incurred. Costs incurred during the application development stage are capitalized. These costs consist primarily of
software, hardware and consulting fees, as well as salaries and related costs. Amounts capitalized are reported as a component of
office furniture and equipment within property and equipment. Capitalized software costs are depreciated using the straight-line
method over the estimated useful life of the related software, which range from 3 to 7 years. During the years ended December 31,
2012, 2011 and 2010, we capitalized approximately $10.9 million, $14.0 million and $7.7 million, respectively, of internal-use
software development and related hardware costs.
Long-lived Assets: We review property and equipment and amortizable intangible assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is
measured by comparison of their carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the
assets are considered to be impaired, an impairment charge will be recognized equal to the amount by which the carrying value of
the asset exceeds its fair value. For purposes of the property and equipment impairment review, we group assets at a regional level,
which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of
assets.
Amortizable intangible assets include covenants not to compete, acquired backlog, permits, trade names and customer lists which
are being amortized on a straight-line basis over terms from one to thirty years.
F- 10
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Real Estate Held for Development and Sale: Real estate held for development and sale is stated at cost, unless the carrying value is
determined not to be recoverable, in which case it is written down to fair value. The carrying amount of each consolidated real
estate development project is reviewed on a quarterly basis in accordance with ASC Topic 360, Property, Plant, and Equipment,
and each real estate development project accounted for under the equity method of accounting is reviewed in accordance with ASC
Topic 323, Investments - Equity Method and Joint Ventures. The review of each consolidated project includes an evaluation to
determine if events or changes in circumstances indicate that a consolidated project’s carrying amount may not be recoverable. If
events or changes in circumstances indicate that a consolidated project’s carrying amount may not be recoverable, the future
undiscounted cash flows are estimated and compared to the project’s carrying amount. In the event that the project’s estimated
future undiscounted cash flows or investment’s fair value are not sufficient to recover the carrying amounts, it is written down
to its estimated fair value. The projects accounted for under the equity method are evaluated for impairment using the other-than-
temporary impairment model, which requires an impairment charge to be recognized if our investment’s carrying amount exceeds
its fair value, and the decline in fair value is deemed to be other than temporary.
Events or changes in circumstances, which would cause us to review undiscounted future cash flows include, but are not limited to:
•
•
•
•
•
significant decreases in the market price of the asset;
significant adverse changes in legal factors or the business climate;
significant changes to the development or business plans of a project;
accumulation of costs significantly in excess of the amount originally expected for the acquisition, development or
construction of the asset; and
current period cash flow or operating losses combined with a history of losses, or a forecast of continuing losses associated
with the use of the asset.
Future undiscounted cash flows and fair value assessments are estimated based on entitlement status, market conditions, cost of
construction, debt load, development schedules, status of joint venture partners and other factors applicable to the specific project.
Fair value is estimated based on the expected future cash flows attributable to the asset or group of assets and on other assumptions
that market participants would use in determining fair value, such as market discount rates, transaction prices for other comparable
assets, and other market data. Our estimates of cash flows may differ from actual cash flows due to, among other things,
fluctuations in interest rates, decisions made by jurisdictional agencies, economic conditions, or changes to our business
operations.
Capitalized Interest: Interest, to the extent it is incurred in connection with the construction of certain self-constructed assets and
real estate development projects, is capitalized and recorded as part of the asset to which it relates. Capitalized interest on self-
constructed assets is amortized over their estimated useful lives and is expensed on real estate projects as they are sold.
Goodwill and Indefinite-Lived Intangible Assets: We perform impairment tests annually during the fourth quarter and more
frequently when events and circumstances occur that indicate a possible impairment of goodwill and indefinite-lived intangible
assets.
In performing step one of the goodwill impairment test, we calculate the estimated fair value of the reporting unit in which the
goodwill is recorded using a discounted future cash flow method. We then compare the resulting fair value to the net book value
of the reporting unit, including goodwill. If the net book value of a reporting unit exceeds its fair value, we measure and record the
amount of the impairment loss by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of
that goodwill. Our assessment of goodwill impairment during the fourth quarter of 2012 indicated that the fair value of each
applicable reporting unit substantially exceeded its net book value and therefore goodwill was not impaired.
In determining whether there is an impairment of indefinite-lived intangible assets, we compare the fair value of the asset to the
carrying value. We use internal discounted cash flow estimates, quoted market prices when available and independent appraisals,
as appropriate, to determine fair value. If the carrying value exceeds the fair value, an impairment charge is recognized equal to the
amount by which the carrying value of the asset exceeds its fair value. During 2012, 2011 and 2010, we did not recognize any
significant impairment charges related to goodwill or indefinite-lived intangible assets.
F- 11
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Billings in Excess of Costs and Estimated Earnings: Billings in excess of costs and estimated earnings is comprised of cash
collected from customers and billings to customers on contracts in advance of work performed and advance payments negotiated
as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.
Reclamation Costs: We account for the costs related to legal obligations to reclaim aggregate mining sites and other facilities by
recording our estimated reclamation liability when incurred, capitalizing the estimated liability as part of the related asset’s
carrying amount and allocating it to expense over the asset’s useful life.
Warranties: Many of our construction contracts contain warranty provisions covering defects in equipment, materials, design or
workmanship that generally run from six months to one year after our customer accepts the contract. Because of the nature of our
projects, including contract owner inspections of the work both during construction and prior to acceptance, we have not
experienced material warranty costs for these short-term warranties and therefore do not believe an accrual for these costs is
necessary. Certain construction contracts carry longer warranty periods, ranging from two to ten years, for which we have accrued
an estimate of warranty cost. The warranty cost is estimated based on our experience with the type of work and any known risks
relative to the project and was not material during the years ended December 31, 2012, 2011 and 2010.
Accrued Insurance Costs: We carry insurance policies to cover various risks, primarily general liability, automobile liability and
workers compensation, under which we are liable to reimburse the insurance company for a portion of each claim paid. The
amounts for which we are liable for general liability and workers compensation generally range from the first $0.5 million to $1.0
million per occurrence. We accrue for the estimated ultimate liability for incurred losses, both reported and unreported, using
actuarial methods based on historic trends modified, if necessary, by recent events. Changes in our loss assumptions caused by
changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results
and financial position up to $1.0 million per occurrence.
Stock-Based Compensation: We measure and recognize compensation expense for all stock-based payment awards made. Stock-
based compensation is included in selling, general and administrative expenses on our consolidated statements of operations.
Restructuring Charges: Pursuant to an approved plan, we record severance costs when an employee has been notified, unless the
employee provides future service, in which case severance costs are expensed ratably over the future service period. Other
restructuring costs are recognized when the liability is incurred. Costs associated with terminating a lease contract are recorded at
the contract termination date, in accordance with contract terms, or on the cease-use date, net of estimated sublease income, if
applicable. In determining the amount related to termination of a lease, various assumptions are used including the time period
over which facilities will be vacant, expected sublease term and sublease rates. These assumptions may be adjusted upon the
occurrence of future events. Asset impairment analyses resulting from restructuring events are performed in accordance with ASC
subtopic 360-10, Property, Plant and Equipment. See above for our accounting policies on Property and Equipment, Long-lived
Assets and Real Estate Held for Development and Sale. During the year ended December 31, 2012, we recorded a net gain on
restructuring of $3.7 million and during the years ended December 31, 2011 and 2010, we recorded restructuring charges of $2.2
million and $109.3 million, respectively (see Note 11).
Income Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and liabilities on the consolidated
financial statements and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax
return. We recognize interest and penalties, if any, related to unrecognized tax benefits in other income (expense) in the
consolidated statements of operations.
Computation of Earnings Per Share: Basic and diluted earnings per share are computed using the two-class method. Under the
two-class method, awards that accrue cash dividends (whether paid or unpaid) and those dividends do not need to be returned to
the entity if the employee forfeits the award are considered participating securities. Our unvested restricted stock issued under the
Amended and Restated 1999 Equity Incentive Plan carries nonforfeitable dividend rights and are considered participating
securities.
In applying the two-class method, earnings are allocated to both common shares and the participating securities, except when in a
net loss position. Diluted earnings per share is computed by giving effect to all potential dilutive shares that were outstanding
during the period.
F- 12
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recently Issued Accounting Pronouncements:
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU requires companies to disclose
both gross and net information about financial instruments that have been offset on the consolidated balance sheet. This ASU will
be effective commencing with our quarter ending March 31, 2013. We do not expect the adoption of this ASU to have an impact on
our consolidated financial statements.
In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment. This ASU gives companies the option to first assess qualitative factors to determine whether it is
more likely than not that the indefinite-lived intangible asset is impaired. If it is determined that it is more likely than not the
indefinite-lived intangible asset is impaired, a quantitative impairment test is required. However, if it is concluded otherwise, the
quantitative test is not necessary. This ASU will be effective commencing with our quarter ending March 31, 2013. We do not
expect the adoption of this ASU to have an impact on our consolidated financial statements.
2. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can
vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract
change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated
total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related
estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to
construction contract accounting to account for revisions in estimates. Under this option, revisions in estimates are accounted for in
their entirety in the period of change. As of December 31, 2012, we had no revisions in estimates that are reasonably certain
to impact future periods.
Construction
The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact
of $1.0 million or more on gross profit were a net decrease of $18.1 million and net increases of $6.2 million and $3.9 million for
the years ended December 31, 2012, 2011 and 2010, respectively. The projects are summarized as follows (dollars in millions):
Increases
Years Ended December 31,
Number of projects with upward estimate changes
Range of increase in gross profit from each project, net
Increase on project profitability
2012
2011
2010
6
1.0 - 1.7
8.1
$
$
7
1.0 - 3.5
13.6
$
$
6
1.0 - 4.2
12.6
$
$
The increases during the year ended December 31, 2012 were due to lower than anticipated costs and settlement of outstanding
issues with contract owners. The increases during the years ended December 31, 2011 and 2010 were due to the settlement of
outstanding cost issues, owner directed scope changes and resolution of project uncertainties.
Decreases
Years Ended December 31,
Number of projects with downward estimate changes
Range of reduction in gross profit from each project, net
Decrease on project profitability
2012
2011
2010
9
1.0 - 6.6
26.2
$
$
4
1.4 - 2.6
7.4
$
$
5
1.1 - 2.5
8.7
$
$
The decreases during the year ended December 31, 2012 were due to lower productivity than originally anticipated. Five of the
projects that had downward estimate changes were complete or substantially complete at December 31, 2012. The other four
projects were between 60.9% and 81.2% complete and when aggregated constituted 5.8% of Construction contract backlog as of
December 31, 2012. The 2011 decreases were due to lower productivity than anticipated and unanticipated rework costs and the
2010 decreases were due to lower productivity than originally anticipated, disputed materials performance issues and rework costs
to meet contract specifications.
F- 13
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Large Project Construction
The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an
impact of $1.0 million or more on gross profit were net increases of $64.6 million, $8.9 million and $6.0 million, including
amounts attributable to noncontrolling interests of $3.1 million, $2.8 million and $2.6 million, for the years ended December 31,
2012, 2011 and 2010, respectively. The projects are summarized as follows (dollars in millions):
Increases
Years Ended December 31,
Number of projects with upward estimate changes
Range of increase in gross profit from each project, net
Increase on project profitability
2012
2011
2010
10
1.1 - 24.5
92.0
$
$
$
$
9
1.1 - 6.9
28.3
$
$
6
1.1 - 4.8
18.0
The following table presents additional information about four of the projects with significant upward changes in 2012 (dollars in
millions):
Years Ended December 31,
Projects less than 90% complete
Projects greater than 90% complete
Total for projects with significant upward changes
Number
of Projects
2
2
4
Total
Contract
Value
$
721.3
432.0
$ 1,153.3
2012 Gross
Profit
Increase
Impact
Backlog at
December 31,
2012
38.5
39.7
78.2
199.6
24.6
224.2
Percent of
Total Large
Project
Construction
Backlog at
December 31,
2012
18.5%
2.3%
20.8%
The increases during the year ended December 31, 2012 were due to owner directed scope changes and lower than anticipated
construction costs. The increases during the year ended December 31, 2011 were due to the settlement of outstanding issues with a
contract owner, owner directed scope changes, lower than anticipated construction costs and the resolution of a project claim. The
increases during the year ended December 31, 2010 were due to settlement of design issues with a subcontractor, resolution of
project uncertainties and improved productivity.
F- 14
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Decreases
Years Ended December 31,
Number of projects with downward estimate changes
Range of reduction in gross profit from each project, net
Decrease on project profitability
2012
2011
1
27.4
27.4
$
$
5
1.2 - 5.1
19.4
$
$
2010
2
1.8 - 10.2
12.0
$
$
The downward estimate changes during the year ended December 31, 2012 were primarily related to significant increased costs on
a highway development project in Washington State that has been impacted by lost productivity due to design issues, schedule
delays, necessary job re-sequencing and costs related to scope growth. Additional compensation is being sought from the
responsible parties for these additional costs, but the amount, source and timing of any future compensation is undetermined. The
decreases during the year ended December 31, 2011 were due to increased costs to resolve project uncertainties, additional costs
for design work and lower productivity than anticipated. The decreases during the year ended December 31, 2010 were due to
resolutions of project uncertainties and site conditions different than anticipated.
3. Marketable Securities
All marketable securities were classified as held-to-maturity for the dates presented and the carrying amounts of held-to-maturity
securities were as follows (in thousands):
2012
2011
December 31,
U.S. Government and agency obligations
Commercial paper
Municipal bonds
Corporate bonds
Total short-term marketable securities
U.S. Government and agency obligations
Municipal bonds
Corporate bonds
Total long-term marketable securities
Total marketable securities
$
$
7,375
34,966
8,738
5,009
56,088
55,342
—
—
55,342
111,430
$
$
40,240
24,980
2,057
3,131
70,408
65,109
8,909
5,232
79,250
149,658
$
$
56,088
55,342
111,430
Scheduled maturities of held-to-maturity investments were as follows (in thousands):
December 31, 2012
Due within one year
Due in one to five years
Total
F- 15
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Fair Value Measurement
Effective in 2012, we adopted a new accounting standard that expands the disclosure of our assets and liabilities disclosed, but not
recorded at fair value. As of December 31, 2012 and 2011, these assets and liabilities were our held-to-maturity marketable
securities and senior notes payable. The following tables summarize each class of assets and liabilities measured at fair value on a
recurring basis as well as assets and liabilities that are disclosed but not recorded at fair value (in thousands):
December 31, 2012
Cash equivalents
Money market funds
Held-to-maturity commercial paper
Marketable securities
Held-to-maturity marketable securities
Total assets
Long-Term Debt (including current maturities)
Senior notes payable
Credit Agreement loan
Total liabilities
December 31, 2011
Cash equivalents
Money market funds
Held-to-maturity commercial paper
Marketable securities
Held-to-maturity marketable securities
Total assets
Long-Term Debt (including current maturities)
Senior notes payable
Total liabilities
$
$
$
$
$
$
$
$
$
Fair Value Measurement at Reporting Date Using
Level 11
Level 22
Level 33
Total
201,542
5,000
111,525
318,067
$
$
$
— $
—
— $
178,174
4,999
149,979
333,152
$
$
— $
—
— $
— $
— $
—
— $
— $
—
—
— $
— $
—
— $
— $
201,542
5,000
111,525
318,067
243,118
70,444
313,562
$
$
243,118
70,444
313,562
— $
—
—
— $
178,174
4,999
149,979
333,152
— $
— $
— $
— $
250,541
250,541
$
$
250,541
250,541
1Quoted prices in active markets for identical assets or liabilities.
2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
F- 16
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of cash equivalents to consolidated cash and cash equivalents is as follows (in thousands):
December 31,
Cash equivalents
Cash
Total cash and cash equivalents
2012
2011
$
$
206,542
115,448
321,990
$
$
183,173
73,817
256,990
The carrying values of receivables, other current assets, and accrued expenses and other current liabilities approximate their fair
values because of the short-term nature of these instruments. In addition, the fair value measured using Level 3 inputs of non-
recourse debt approximates its carrying value due to its relative short-term nature and competitive interest rates. The fair values of
the senior notes payable and Credit Agreement loan were based on borrowing rates available to us for long-term loans with similar
terms, average maturities, and credit risk. The carrying amount of senior notes payable, including current maturities, was $208.3
million and $216.7 million as of December 31, 2012 and 2011, respectively. The carrying amount of our Credit Agreement loan
was $70.0 million as of December 31, 2012. See Note 3 for the carrying amount and reporting class of held-to-maturity marketable
securities as of December 31, 2012 and 2011.
We measure certain nonfinancial assets and liabilities at fair value on a nonrecurring basis. As of December 31, 2012, the
nonfinancial assets and liabilities included our asset retirement obligations and our cost method investment in the preferred stock
of a corporation that designs and manufactures power generation equipment. Fair value for these assets and liabilities was
measured using Level 3 inputs, which are unobservable inputs supported by little or no market activity and are significant to the
fair value of the assets. Asset retirement obligations were initially measured based on Level 3 fair value inputs using internal
discount flow calculations based upon our estimates of future retirement costs - see Note 8 for details of the asset retirement
balances. Fair value of the cost method investment was estimated based on Level 3 inputs using the expected future cash flows
attributable to the asset and on other assumptions that market participants would use in determining fair value, such as liquidation
preferences, market discount rates, transaction prices for other comparable assets, and other market data. During the year ended
December 31, 2012, the fair value adjustments were $2.8 million related to our asset retirement obligations and a $2.8 million non-
cash impairment charge to write-off our cost method investment.
5. Receivables (in thousands)
December 31,
Construction contracts:
Completed and in progress
Retentions
Total construction contracts
Construction material sales
Other
Total gross receivables
Less: allowance for doubtful accounts
Total net receivables
2012
2011
$
$
195,244
93,800
289,044
26,918
12,316
328,278
2,749
325,529
$
$
122,987
77,038
200,025
30,356
24,337
254,718
2,880
251,838
Receivables include amounts billed and billable for public and private contracts and do not bear interest. The balances billed but
not paid by customers pursuant to retainage provisions in construction contracts generally become due upon completion and
acceptance of the contract by the owners. Retainage amounts of $93.8 million at December 31, 2012 are expected to be collected
as follows: $71.0 million in 2013, $15.5 million in 2014 and $7.3 million in 2015. Included in other receivables at December 31,
2012 and December 31, 2011 were items such as notes receivable, interest receivable, fuel tax refunds and income tax refunds.
F- 17
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue earned by Construction and Large Project Construction from federal, state and local government agencies was
approximately $1.7 billion (80.6% of our total revenue) in 2012, $1.7 billion (83.8% of our total revenue) in 2011 and $1.5 billion
(83.3% of our total revenue) in 2010. During the years ended December 31, 2012 and 2011, our largest volume customer was the
California Department of Transportation (“Caltrans”). Revenue from Caltrans represented $272.9 million (13.1% of our total
revenue) in 2012, $264.9 million (13.2% of our total revenue) in 2011 and $175.0 million (9.9% of our total revenue) in 2010.
Revenue from the Maryland State Highway Administration represented $181.0 million (10.3% of our total revenue) in 2010. At
December 31, 2012 and 2011, no customer had a receivable balance in excess of 10% of our total net receivables.
Financing receivables consisted of long-term notes receivable and retentions receivable. As of December 31, 2012 and 2011,
long-term notes receivable outstanding were $2.0 million . The balance primarily related to loans made to employees and was
included in other noncurrent assets on our consolidated balance sheets.
We segregate our retention receivables into two categories: escrow and non-escrow and the balances in each category were as
follows (in thousands):
December 31,
Escrow
Non-escrow
Total retention receivables
2012
2011
$
$
41,494
52,306
93,800
$
$
43,378
33,660
77,038
The escrow receivables include amounts due to Granite which have been deposited into an escrow account and bear interest.
Typically, escrow retention receivables are held until work on a project is complete and has been accepted by the owner who then
releases those funds, along with accrued interest, to us. There is minimal risk of not collecting on these amounts.
Non-escrow retention receivables are amounts that the project owner has contractually withheld that will be paid upon owner
acceptance of contract completion. We evaluate our non-escrow retention receivables using certain customer information that
includes the following:
•
•
Federal - includes federal agencies such as the Bureau of Reclamation, the Army Corp of Engineers, and the Bureau of
Indian Affairs. The obligations of these agencies are backed by the federal government. Consequently there is minimal risk
of not collecting the amounts we are entitled to receive.
State - primarily state departments of transportation. The risk of not collecting on these accounts is small; however, we
have experienced occasional delays in payment as states have struggled with budget issues.
• Local - these customers include local agencies such as cities, counties and other local municipal agencies. The risk of not
collecting on these accounts is small; however, we have experienced occasional delays in payment as some local agencies
have struggled to deal with budget issues.
Private - includes individuals, developers and corporations. The majority of our collection risk is associated with these
customers. We perform ongoing credit evaluations of our customers and generally do not require collateral, although the
law provides us certain remedies, including, but not limited to, the ability to file mechanics’ liens on real property
improved for private customers in the event of non-payment by such customers.
•
F- 18
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the amount of our non-escrow retention receivables within each category (in thousands):
December 31,
Federal
State
Local
Private
Total
2012
2011
3,234 $
2,971
31,559
14,542
52,306 $
2,811
5,453
14,708
10,688
33,660
$
$
We regularly review our accounts receivable, including past due amounts, to determine their probability of collection. If it is probable
that an amount is uncollectible, it is charged to bad debt expense and a corresponding reserve is established in allowance for doubtful
accounts. If it is deemed certain that an amount is uncollectible, the amount is written off. Based on contract terms, non-escrow
retention receivables are typically due within 60 days of owner acceptance of contract completion. We consider retention amounts
beyond 60 days of owner acceptance of contract completion to be past due. The following tables present the aging of our non-escrow
retention receivables (in thousands):
December 31, 2012
Federal
State
Local
Private
Total
December 31, 2011
Federal
State
Local
Private
Total
Current
0 - 90 Days
Past Due
Over 90 Days
Past Due
Total
$
$
$
$
$
3,116
2,148
25,743
13,310
44,317 $
$
2,462
2,751
12,313
9,599
27,125 $
$
72
502
1,082
716
2,372 $
$
326
860
1,326
765
3,277 $
46 $
321
4,734
516
5,617 $
23 $
1,842
1,069
324
3,258 $
3,234
2,971
31,559
14,542
52,306
2,811
5,453
14,708
10,688
33,660
Federal, state and local agencies generally require several approvals to release payments, and these approvals often take over 90
days past contractual due dates to obtain. Amounts past due from government agencies primarily result from delays caused by
paperwork processing and obtaining proper agency approvals rather than lack of funds. As of December 31, 2012 and 2011 our
allowance for doubtful accounts contained no material provision related to non-escrow retention receivables as we determined
there were no significant collectibility issues.
F- 19
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Construction and Line Item Joint Ventures
We participate in various construction joint venture partnerships. We also participate in various “line item” joint venture
agreements under which each partner is responsible for performing certain discrete items of the total scope of contracted work.
Our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each
party will pay for any losses it is responsible for under the joint venture agreement. Circumstances that could lead to a loss under
our joint venture arrangements beyond our stated ownership interest include the failure of a partner to contribute additional funds
to the venture in the event the project incurs a loss or additional costs that we could incur should a partner fail to provide the
services and resources that it had committed to provide in the joint venture agreement. Due to the joint and several nature of the
obligations under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint
venture partners would be responsible for performance of the outstanding work.
At December 31, 2012, there was approximately $1.6 billion of construction revenue to be recognized on unconsolidated and line
item construction joint venture contracts, of which $553.8 million represented our share and the remaining $1.1 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.
Construction Joint Ventures
Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the joint venture
partners. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any
losses and liabilities resulting from the performance of the contract, are limited to our stated percentage interest in the project. We
have no significant commitments beyond completion of the contracts. Under our contractual arrangements, we provide capital to
these joint ventures in return for an ownership interest. In addition, partners dedicate resources to the ventures necessary to
complete the contracts and are reimbursed for their cost. The operational risks of each construction joint venture are passed along
to the joint venture partners. As we absorb our share of these risks, our investment in each venture is exposed to potential losses.
We have determined that certain of these joint ventures are VIEs as defined by ASC Topic 810, Consolidation, and related
standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary
beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of
each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to
that of our partners.
Based on our initial primary beneficiary analysis, we determined that decision making responsibility is shared between the venture
partners for one construction joint venture. Therefore, this joint venture did not have an identifiable primary beneficiary partner
and we continue to report the pro rata results. All other joint ventures were assigned one primary beneficiary partner. Based on our
primary beneficiary assessment during the year ended December 31, 2012, we determined no change was required to the
accounting for existing construction joint ventures.
F- 20
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Construction Joint Ventures
The carrying amounts and classification of assets and liabilities of construction joint ventures we are required to consolidate are
included in our consolidated financial statements as follows (in thousands):
December 31,
Cash and cash equivalents1
Other current assets
Total current assets
Noncurrent assets
Total assets2
Accounts payable
Billings in excess of costs and estimated earnings1
Accrued expenses and other current liabilities
Total current liabilities
Noncurrent liabilities
Total liabilities2
2012
2011
$
$
$
$
105,865
47,910
153,775
42,814
196,589
34,536
72,490
8,312
115,338
—
115,338
$
$
$
$
75,122
33,750
108,872
8,671
117,543
38,193
22,251
5,129
65,573
4
65,577
1The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in cash and cash
equivalents as well as billings in excess of costs and estimated earnings between periods.
2The assets and liabilities of each joint venture relate solely to that joint venture. The decision to distribute joint venture cash and cash
equivalents and assets must generally be made jointly by all of the partners and, accordingly, these cash and cash equivalents and assets
generally are not available for the working capital needs of Granite.
At December 31, 2012, we were engaged in four active consolidated construction joint venture projects with total contract
values of between $5.8 million and $334.7 million. Our proportionate share of the equity in these joint ventures was between
45.0% and 65.0%. During the years ended December 31, 2012, 2011 and 2010, total revenue of the consolidated construction joint
ventures that was included in our consolidated statement of operations was $222.3 million, $233.0 million and $225.7 million,
respectively. Total cash provided by consolidated construction joint venture operations that was included in our consolidated
statement of cash flows was $25.2 million and $21.6 million during the years ended December 31, 2012 and 2011, respectively,
and total cash used by construction joint venture operations was $0.3 million for the year ended December 31, 2010.
Unconsolidated Construction Joint Ventures
We account for our share of construction joint ventures that we are not required to consolidate on a pro rata basis in the
consolidated statements of operations and as a single line item on the consolidated balance sheets. As of December 31, 2012, these
unconsolidated joint ventures were engaged in ten active construction projects with total contract values ranging from $59.4
million to $1.2 billion. Our proportionate share of the equity in these unconsolidated joint ventures ranged from 20.0% to 50.0%.
As of December 31, 2012, we had $0.3 million to $156.0 million of revenue remaining to be recognized on these unconsolidated
joint ventures.
F- 21
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Following is summary financial information related to unconsolidated construction joint ventures (in thousands):
December 31,
Assets:
Cash and cash equivalents1
Other assets
Less partners’ interest
Granite’s interest
Liabilities:
Accounts payable
Billings in excess of costs and estimated earnings1
Other liabilities
Less partners’ interest
Granite’s interest
Equity in construction joint ventures2
2012
2011
$
$
244,686
301,412
342,545
203,553
114,039
161,268
6,106
183,432
97,981
105,572
$
$
338,681
264,901
364,979
238,603
85,075
280,650
8,595
236,746
137,574
101,029
1The volume and stage of completion of contracts from our unconsolidated construction joint ventures may cause fluctuations in cash and cash
equivalents as well as billings in excess of costs and estimated earnings between periods. The decision to distribute joint venture cash and cash
equivalents and assets must generally be made jointly by all of the partners and, accordingly, these cash and cash equivalents and assets
generally are not available for the working capital needs of Granite.
2As of December 31, 2012, this balance included $0.2 million of deficit in construction joint ventures that is included in accrued expenses and
other current liabilities on the consolidated balance sheet.
Years Ended December 31,
Revenue:
Total
Less partners’ interest1
Granite’s interest
Cost of revenue:
Total
Less partners’ interest1
Granite’s interest
Granite’s interest in gross profit
2012
2011
2010
$
$
1,042,209
665,782
376,427
785,079
511,840
273,239
103,188
$
$
938,867
623,090
315,777
765,446
519,340
246,106
69,671
$
$
604,209
414,905
189,304
550,170
372,774
177,396
11,908
1Partners’ interest represents 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.
Line Item Joint Ventures
The revenue for each line item joint venture partner’s discrete items of work is defined in the contract with the project owner and
each venture partner bears the profitability risk associated with its own work. There is not a single set of books and records for a
line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We
account for our portion of these contracts as project revenues and costs in our accounting system and include receivables and
payables associated with our work in our consolidated financial statements. As of December 31, 2012, we had five active line item
joint venture construction projects with total contract values ranging from $42.0 million to $133.4 million of which our
portions ranged from $21.9 million to $58.0 million. As of December 31, 2012, our share of revenue remaining to be recognized on
these line item joint ventures ranged from $1.4 million to $27.6 million.
F- 22
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Real Estate Entities and Investments in Affiliates
The operations of our Real Estate segment are conducted through our wholly owned subsidiary, Granite Land Company (“GLC”).
Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development
projects. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial
responsibility in the project. If one of GLC’s partners is unable to fulfill its management role or make its required financial
contribution, GLC may assume full management or financial responsibility for the project. This may result in the consolidation of
entities that are accounted for under the equity method in our consolidated financial statements. The amount of GLC’s exposure is
limited to GLC’s equity investment in the real estate joint venture.
Substantially all the assets of these real estate entities in which we are participants through our GLC subsidiary are classified as
real estate held for development and sale. All outstanding debt of these entities is non-recourse to Granite. However, there is
recourse to our real estate affiliates that incurred the debt. Our real estate affiliates include limited partnerships or limited liability
companies of which we are a limited partner or member. In the fourth quarter of 2010, we publicly announced our work in progress
on our Enterprise Improvement Plan which includes business plans to orderly divest of our real estate investment business by the
end of 2013, subject to market conditions and our ability to negotiate sales of certain assets at prices acceptable to us. In 2011,
development activities were curtailed for the majority of our real estate development projects as divestiture efforts increased.
During 2012, we recorded amounts associated with the sale or other disposition of one project in California, one project in Oregon,
and one project in Washington. These dispositions did not have a significant impact on our consolidated statements of operations.
GLC receives authorization to provide additional financial support for certain of its real estate entities in increments to address
changes in business plans. During the year ended December 31, 2012, no authorization was provided and GLC did not increase its
financial support to consolidated real estate entities. During the year ended December 31, 2011, GLC was authorized to increase its
financial support to consolidated real estate entities by $12.0 million on three separate projects. During 2012, we sold or otherwise
disposed of the projects associated with the previously authorized financial support; therefore, there will be no additional
contributions related to the total authorized investment.
We have determined that certain of the real estate joint ventures are VIEs as defined by ASC Topic 810, Consolidation, and related
standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary
beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of
each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to
that of our partners. Based on our ongoing primary beneficiary assessments, there were no changes to our determinations of
whether we are the VIE’s primary beneficiary for existing real estate entities during the years ended December 31, 2012 and 2011.
To determine if impairment charges should be recognized, the carrying amount of each consolidated real estate development
project is reviewed on a quarterly basis in accordance with ASC Topic 360, Property, Plant, and Equipment, and each real estate
development project accounted for under the equity method of accounting is reviewed in accordance with ASC Topic 323,
Investments - Equity Method and Joint Ventures. The review of each project includes an evaluation of entitlement status, market
conditions, existing offers to purchase, cost of construction, debt load, development schedule, status of joint venture partners and
other factors specific to each project to determine if events or changes in circumstances indicate that a project’s carrying amount
may not be recoverable. If events or changes in circumstances indicate that a consolidated project’s carrying amount may not be
recoverable, the future undiscounted cash flows are estimated and compared to the project’s carrying amount. In the event that the
project’s estimated future undiscounted cash flows or investment’s fair value are not sufficient to recover the carrying amounts, it
is written down to its estimated fair value. The projects accounted for under the equity method are evaluated for impairment using
the other-than-temporary impairment model, which requires an impairment charge to be recognized if the project’s carrying
amount exceeds its fair value, and the decline in fair value is deemed to be other than temporary. In the event that the estimated
undiscounted future cash flows or fair value is not sufficient to recover the carrying amount of a project, it is written down to its
estimated fair value.
Based on our quarterly evaluations of each project’s business plan and our review of each project, we recorded no significant
impairment charges to our real estate development projects or investments during the years ended December 31, 2012 and 2011.
During the year ended December 31, 2010, we recorded impairment charges of $86.3 million, of which approximately $20.0
million was attributable to noncontrolling interests, on approximately one-third of our real estate investments related to the
Enterprise Improvement Plan. Additionally, an evaluation of entitlement status, market conditions, existing offers to purchase, cost
of construction, debt load, development schedule, status of joint venture partners and other factors specific to the remainder of our
real estate projects, resulted in no significant impairment charges during the year ended December 31, 2010.
F- 23
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Real Estate Entities
The carrying amounts and classification of assets and liabilities of real estate entities we are required to consolidate are included in
our consolidated balance sheets as follows (in thousands):
December 31,
Real estate held for development and sale
Other current assets
Total assets
Current maturities of non-recourse debt
Other current liabilities
Total current liabilities
Long-term non-recourse debt
Other noncurrent liabilities
Total liabilities
2012
2011
$
$
$
$
50,223
1,591
51,814
10,707
386
11,093
922
—
12,015
$
$
$
$
67,037
4,715
71,752
22,571
1,794
24,365
9,912
74
34,351
Substantially all of the consolidated real estate entities’ real estate held for development and sale are pledged as collateral for the
debt of the real estate entities. All outstanding debt of the real estate entities is recourse only to the real estate affiliate that incurred
the debt (i.e., the limited partnership or limited liability company of which we are a limited partner or member). Our proportionate
share of the profits and losses of these entities depends on the ultimate operating results of the entities.
Included in current assets on our consolidated balance sheets is real estate held for development and sale. The breakdown by type
and location of our real estate held for development and sale is summarized below (dollars in thousands):
December 31,
Residential
Commercial
Total
Washington
California
Texas
Oregon
Total
Investments in Affiliates
2012
2011
Amount
Number of
Projects
Amount
Number of
Projects
$
$
$
$
40,732
9,491
50,223
40,327
2,663
7,233
—
50,223
2
4
6
1
4
1
—
6
$
$
$
$
54,610
12,427
67,037
47,600
4,006
8,859
6,572
67,037
4
5
9
2
5
1
1
9
We account for our share of unconsolidated real estate entities in which we have determined we are not the primary beneficiary in
other (expense) income in the consolidated statements of operations and as a single line item on our consolidated balance sheets as
investments in affiliates. At December 31, 2012, these entities were engaged in real estate development projects with total assets
ranging from approximately $2.6 million to $49.0 million. Our proportionate share of the profits and losses of these entities
depends on the ultimate operating results of the entities.
F- 24
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Additionally, we have investments in non-real estate affiliates that are accounted for using the equity method. The most significant
of these investments is a 50% interest in a limited liability company which owns and operates an asphalt terminal in Nevada.
During the year ended December 31, 2012, it was determined that the carrying amount of our cost method investment in a power
generation equipment manufacturer exceeded its fair value, which required us to recognize a non-cash impairment charge of $2.8
million.
Our investments in affiliates balance consists of the following (in thousands):
December 31,
Equity method investments in real estate affiliates
Equity method investments in other affiliates
Total equity method investments
Cost method investments
Total investments in affiliates
2012
2011
$
$
19,775
11,024
30,799
—
30,799
$
$
16,478
11,841
28,319
2,752
31,071
The breakdown by type and location of our interests in unconsolidated real estate ventures is summarized below (dollars in thousands):
December 31,
Residential
Commercial
Total
Texas
Total
2012
2011
Amount
Number of
Projects
Amount
Number of
Projects
$
$
$
$
13,813
5,962
19,775
19,775
19,775
2
3
5
5
5
$
$
$
$
11,903
4,575
16,478
16,478
16,478
2
3
5
5
5
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a
100% combined basis (in thousands):
December 31,
Current assets
Long-term assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities
Net assets
Granite’s share of net assets
2012
2011
85,354
80,758
166,112
8,262
65,744
74,006
92,106
30,799
$
$
$
82,791
74,980
157,771
9,321
65,939
75,260
82,511
28,319
$
$
$
The following table provides summarized statement of operations information for our affiliates accounted for under the equity
method on a 100% combined basis (in thousands):
Years Ended December 31,
Revenue
Gross profit
Income (loss) before taxes
Net income (loss)
Granite’s interest in affiliates’ net income
2012
2011
2010
52,342 $
13,254
1,318
1,318
1,988 $
48,983 $
10,654
(399)
(399)
2,193 $
36,249
9,239
(5,026)
(5,026)
756
$
$
F- 25
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Property and Equipment, Net (in thousands)
December 31,
Land and land improvements
Quarry property
Buildings and leasehold improvements
Equipment and vehicles
Office furniture and equipment
Property and equipment
Less: accumulated depreciation and depletion
Property and equipment, net
2012
2011
125,961
180,567
83,245
758,782
67,743
1,216,298
734,820
481,478
$
$
124,216
175,612
81,272
733,158
55,570
1,169,828
722,688
447,140
$
$
Depreciation and depletion expense included in our consolidated statements of operations for the years ended December 31, 2012,
2011 and 2010 was $51.8 million, $56.0 million and $64.9 million, respectively. We capitalized interest costs of $2.3 million, $7.4
million and $8.1 million in 2012, 2011 and 2010, respectively, related to certain self-constructed assets, of which $2.1 million, $6.3
million and $7.8 million, respectively, were included in real estate held for development and sale and $0.2 million, $1.1 million
and $0.3 million, respectively, were included in property and equipment on our consolidated balance sheets.
In the fourth quarter of 2012, we recorded an $18.0 million gain on sale of property and equipment from the sale of an
underutilized quarry in the fourth quarter of 2012. This sale was related to our process of continually optimizing our assets separate
from the Enterprise Improvement Plan.
We have recorded liabilities associated with our legally required obligations to reclaim owned and leased quarry property and
related facilities. As of December 31, 2012 and 2011, approximately $6.6 million and $3.9 million, respectively, of our asset
retirement obligations are included in accrued expenses and other current liabilities and approximately $20.0 million and $19.3
million, respectively, are included in other long-term liabilities on our consolidated balance sheets.
The following is a reconciliation of these asset retirement obligations (in thousands):
December 31,
Beginning balance
Revisions to estimates
Liabilities incurred
Liabilities settled
Accretion
Ending balance
2012
2011
23,208 $
2,810
154
(885)
1,289
26,576 $
22,900
(943)
471
(496)
1,276
23,208
$
$
F- 26
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Intangible Assets
Except for goodwill, which is separately presented, the balances of the following intangible assets are included in other noncurrent
assets on our consolidated balance sheets (in thousands):
Indefinite-lived Intangible Assets:
December 31,
Goodwill
Use rights and other
Total unamortized intangible assets
The following table presents the goodwill balance by reporting segment (in thousands):
December 31,
Construction
Large Project Construction
Construction Materials
Total goodwill
Amortized Intangible Assets:
December 31, 2012
Permits
Customer lists
Covenants not to compete
Acquired backlog
Trade name
Other
Total amortized intangible assets
December 31, 2011
Permits
Customer lists
Covenants not to compete
Other
Total amortized intangible assets
Gross Value
29,713
4,698
1,588
8,400
4,100
871
49,370
29,713
2,198
1,588
871
34,370
$
$
$
$
2012
2011
55,419
393
55,812
2012
29,190
24,115
2,114
55,419
$
$
$
$
9,900
393
10,293
2011
6,937
850
2,113
9,900
Accumulated
Amortization
Net Value
(10,869) $
(2,170)
(1,546)
—
—
(734)
(15,319) $
(7,573) $
(1,942)
(1,476)
(583)
(11,574) $
18,844
2,528
42
8,400
4,100
137
34,051
22,140
256
112
288
22,796
$
$
$
$
$
$
$
$
The increases to goodwill, customer lists, acquired backlog and trade name are due to the acquisition of Kenny Construction
Company (“Kenny”) - see Note 21.
Amortization expense related to amortized intangible assets for the years ended December 31, 2012, 2011 and 2010 was
approximately $3.7 million, $2.0 million and $2.4 million, respectively. Based on the amortized intangible assets balance
at December 31, 2012, amortization expense expected to be recorded in the future is as follows: $9.4 million in 2013; $2.6
million in 2014; $2.2 million in 2015; $1.8 million in 2016; $1.8 million in 2017; and $16.3 million thereafter.
F- 27
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Accrued Expenses and Other Current Liabilities (in thousands):
December 31,
Payroll and related employee benefits
Accrued insurance
Performance guarantees
Loss job reserves
Other
Total
2012
2011
$
$
42,364 $
39,868
30,727
11,605
45,415
169,979 $
36,447
43,014
37,255
12,429
37,645
166,790
Performance guarantees relate to our construction joint venture partnerships in which we have contract provisions for joint and
several liability related to the performance of the joint ventures. Under these arrangements, we would be required to perform in the
event our partners are not able to complete their portion of the construction contract. See Note 18 for further information.
11. Restructuring
The following table presents the components of restructuring (gains) charges, net during the respective periods (in thousands):
Years ended December 31,
(Gains) impairment associated with our real estate investments, net
Severance costs
Impairment charges on assets held-for-sale or abandoned
Lease termination (gains) costs, net of estimated sublease income
Total
2012
2011
2010
$
$
(3,093) $
—
—
(635)
(3,728) $
1,452 $
471
226
32
2,181 $
86,341
12,635
7,521
2,782
109,279
In October 2010, we announced our Enterprise Improvement Plan that included continued actions to reduce our cost structure,
enhance operating efficiencies and strengthen our business to achieve long-term profitable growth. As a result of the Enterprise
Improvement Plan, we incurred restructuring charges and gains during the fourth quarter of 2010 and throughout 2011 and 2012.
The 2010 charges were primarily related to impairment charges on certain real estate investments of our Real Estate segment
associated with new business plans to orderly divest our real estate investment business, subject to market conditions and our
ability to negotiate sales of certain assets at prices acceptable to us. The portion of the impairment charges associated with our real
estate business attributable to noncontrolling interests was approximately $20.0 million for the year end December 31, 2010 and
was insignificant during 2011 and 2012. Restructuring charges during 2010 were also related to planned reductions in salaried
positions that affected approximately 17% of our salaried workforce.
In 2011, development activities were curtailed for the majority of our real estate development projects as divestiture efforts
increased. During 2011, we recorded amounts associated with the sale or other disposition of three separate projects located in
California. During 2012, we recorded amounts associated with the sale or other disposition of one project in California, one project
in Oregon, and one project in Washington. These dispositions did not have a significant impact on our consolidated results of
operations.
Restructuring liabilities were $1.5 million and $2.4 million as of December 31, 2012 and 2011, respectively. The change in the
restructuring liabilities balance since December 31, 2011 was primarily due to a revision in the estimated sublease income.
During 2013, we may record up to $8.0 million of restructuring charges, primarily related to previously planned additional
consolidation efforts and assets to be held-for-sale as part of our Enterprise Improvement Plan. The ultimate amount and timing of
future restructuring charges is subject to market conditions and our ability to negotiate sales of certain assets at prices acceptable to
us.
F- 28
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Long-Term Debt and Credit Arrangements (in thousands)
December 31,
Senior notes payable
Credit Agreement loan
Mortgages payable
Other notes payable
Total debt
Less current maturities
Total long-term debt
2012
2011
208,333 $
70,000
11,629
168
290,130
19,060
271,070 $
216,666
—
32,670
1,250
250,586
32,173
218,413
$
$
The aggregate minimum principal maturities of long-term debt for each of the five years following December 31, 2012 are as
follows: 2013 - $$19.1 million; 2014 - $0.9 million; 2015 - $40.0 million; 2016 - $110.0 million; 2017 - $40.0 million; and $80.1
million thereafter.
Senior Notes Payable
As of December 31, 2012, senior notes payable in the amount of $8.3 million were due to a group of institutional holders in 2013
and bear interest at 6.96% per annum (“2013 Notes”). In addition, senior notes payable in the amount of $200.0 million were due
to a second group of institutional holders in five equal annual installments beginning in 2015 and bear interest at 6.11% per annum
(“2019 Notes”).
Our obligations under the note purchase agreements governing the 2013 Notes and 2019 Notes (the “2013 NPA” and the “2019
NPA,” respectively) are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the Credit
Agreement by liens on substantially all of the assets of the Company and subsidiaries that are guarantors or borrowers under the
Credit Agreement. The 2013 NPA and 2019 NPA provide for the release of liens and re-pledge of collateral on substantially the
same terms and conditions as those set forth in the Credit Agreement.
Real Estate Mortgages
A significant portion of our real estate held for development and sale is subject to mortgage indebtedness. These notes are
collateralized by the properties purchased and bear interest at 4.50% to 5.75% per annum with principal and interest payable in
installments through 2014. The carrying amount of properties pledged as collateral was approximately $47.6 million at
December 31, 2012. All of this indebtedness is non-recourse to Granite, but is recourse to the real estate entities that incurred the
indebtedness. 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 entities to pay down portions of the debt. As of December 31, 2012, the principal amount of debt of
our real estate entities secured by mortgages was $11.6 million, of which $10.7 million was included in current liabilities and $0.9
million was included in long-term liabilities on our consolidated balance sheet.
F- 29
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Credit Agreement
We have a $215.0 million committed revolving credit facility, with a sublimit for letters of credit of $100.0 million (the “Credit
Agreement”), which expires on October 11, 2016. Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at
our option), plus an applicable margin based on certain financial ratios calculated quarterly. LIBOR varies based on the applicable
loan term, market conditions and other external factors. The applicable margin was 2.25% for loans bearing interest based on
LIBOR and 1.25% for loans bearing interest at the base rate at December 31, 2012. Accordingly, the effective interest rate was
between 2.56% and 4.50% at December 31, 2012. Borrowings at the base rate have no designated term and may be repaid without
penalty any time prior to the Credit Agreement’s maturity date. Borrowings at a Eurodollar rate have a term no less than one month
and no greater than one year. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a
borrowing at the base rate or a borrowing at a Eurodollar rate with similar terms, not to exceed the maturity date of the Credit
Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and are collateralized on an
equivalent basis with the obligations under the 2013 Notes and the 2019 Notes by first priority liens (subject only to other liens
permitted under the Credit Agreement) on substantially all of the assets of the Company and our subsidiaries that are guarantors or
borrowers under the Credit Agreement. At December 31, 2012, there was a revolving loan of $70.0 million outstanding under the
Credit Agreement related to financing the Kenny acquisition, the balance of which is included in long-term debt on our
consolidated balance sheet. In addition, there were standby letters of credit totaling approximately $10.9 million as of December
31, 2012. The letters of credit will expire between March and October 2013.
The Credit Agreement provides for the release of the liens securing the obligations, at our option and expense, after June 30, 2013,
so long as certain conditions as defined by the terms in the Credit Agreement are satisfied (“Collateral Release Period”). If,
subsequently, our Consolidated Fixed Charge Coverage Ratio is less than 1.25 or our Consolidated Leverage Ratio is greater than
2.50, then we will be required to promptly re-pledge substantially all of the assets of the Company and our subsidiaries that are
guarantors or borrowers under the Credit Agreement.
Covenants and Events of Default
The most significant restrictive covenants under the terms of our 2013 NPA, 2019 NPA and Credit Agreement require the
maintenance of a minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum
Consolidated Leverage Ratio. The calculations and terms of such financial covenants are defined in the Credit Agreement filed as
Exhibit 10.1 to our Form 10-Q filed November 7, 2012 and in the applicable 2013 NPA and 2019 NPA agreements filed as Exhibit
10.6 and Exhibit 10.7 to our Form 10-Q filed November 7, 2012. As of December 31, 2012 and pursuant to the definitions in the
agreements, our Consolidated Tangible Net Worth was $753.1 million, which exceeded the minimum of $665.7 million, the
Consolidated Interest Coverage Ratio was 9.52, which exceeded the minimum of 4.00 and the Consolidated Leverage Ratio was
2.39, which did not exceed the maximum of 3.25 for the Credit Agreement and the maximum of 3.50 for the 2013 NPA and 2019
NPA. The maximum Consolidated Leverage Ratio for the Credit Agreement and 2013 NPA and 2019 NPA decreases to 3.00 and
3.25, respectively, for the quarter ending December 31, 2013, and each quarter ending thereafter. During any Collateral Release
Period, the maximum Consolidated Leverage Ratio decreases to 2.50.
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the
financial covenants described above. Our failure to comply with any of these covenants, or to pay principal, interest or other
amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances,
the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the
indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit
agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the
agreements, (2) termination of the agreements, (3) the requirement that any letters of credit under the agreements be cash
collateralized, (4) acceleration of the maturity of outstanding indebtedness under the agreements and/or (5) foreclosure on any
collateral securing the obligations under the agreements.
As of December 31, 2012, we were in compliance with the covenants contained in our senior note agreements, Credit Agreement,
and debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our
unconsolidated entities with the covenants contained in their debt agreements. Subsequent to December 31, 2012, one of our
consolidated real estate entities was in default under a debt agreement as a result of its failure to make a timely payment. The
affected loan is non-recourse to Granite and the default does not result in cross-defaults under other debt agreements under which
Granite is the obligor; however, there is recourse to the real estate entity that incurred the debt. The real estate entity in default is
currently in discussions with the lender to revise the terms of the defaulted debt agreement.
F- 30
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Employee Benefit Plans
Profit Sharing and 401(k) Plan: The Profit Sharing and 401(k) Plan (the “401(k) Plan”) is a defined contribution plan covering all
employees except employees covered by collective bargaining agreements and employees of our consolidated construction joint
ventures. Each employee can elect to have up to 50% of gross pay, not to exceed $17,000, contributed to the 401(k) Plan on a
before-tax basis. Our 401(k) matching contributions can be up to 6% of an employee’s gross pay and are available at the discretion
of the Board of Directors. Profit sharing contributions from the Company may be made to the 401(k) Plan in an amount determined
by the Board of Directors. Our 401(k) matching contributions to the 401(k) Plan for the years ended December 31, 2012, 2011 and
2010 were $2.8 million, $0.3 million and $9.0 million, respectively. We made no profit sharing contributions during the years
ended December 31, 2012, 2011 and 2010. Effective June 1, 2012 the Granite Construction Employee Stock Ownership Plan (the
“ESOP”) was merged into the 401(k) Plan. Under the combined Plans, employees may elect to diversify their prior ESOP holdings
at any such time and such amounts are available for distribution following the employee's termination of service (or earlier, if so
provided under the terms of the combined plan).
Non-Qualified Deferred Compensation Plan: We offer a Non-Qualified Deferred Compensation Plan (“NQDC Plan”) to a select
group of our highly compensated employees. The NQDC Plan provides participants the opportunity to defer payment of certain
compensation as defined in the NQDC Plan. In October 2008, a Rabbi Trust was established to fund our NQDC Plan obligation
and was fully funded as of December 31, 2012. The assets held by the Rabbi Trust at December 31, 2012 are substantially in the
form of company owned life insurance. As of December 31, 2012, there were approximately 55 active participants in the NQDC
Plan. NQDC Plan obligations were $24.1 million as of December 31, 2012 and $25.0 million as of December 31, 2011.
Multi-employer Pension Plans: Three of our wholly owned subsidiaries, Granite Construction Company, Granite Construction
Northeast, Inc. and Kenny Construction Company also contribute to various multi-employer pension plans on behalf of union
employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following
aspects:
• Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
•
•
participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
If we chose to stop participating in some of the multi-employer plans, we may be required to pay those plans an amount
based on the underfunded status of the plan, referred to as a withdrawal liability.
F- 31
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents our participation in these plans (dollars in thousands):
Pension Trust
Fund
Locals 302 and 612
Operating
Engineers-
Employers
Retirement Fund
Operating
Engineers Pension
Trust Fund
Pension Trust Fund
for Operating
Engineers Pension
Plan
Laborers Pension
Trust Fund for
Northern California
All other funds (31)
Pension Plan
Employer
Identification
Number
91-6028571
Pension Protection
Act (“PPA”) Certified
Zone Status1
2012
Green
2011
Green
FIP / RP
Status
Pending /
Implemented2
No
Contributions
2012
2011
$ 2,368 $ 2,386 $ 2,040
2010
Expiration
Date of
Collection
Bargaining
Agreement3
12/31/2013
Surcharge
Imposed
No
95-6032478
Red
Red
Yes
2,285
2,099
2,127
No
6/30/2013
94-6090764
Orange
Orange
Yes
8,030
7,296
6,394
No
6/30/2013
94-6277608
Yellow
Yellow
Yes
2,320
1,950
1,968
No
4/30/2015
7,788
Total Contributions: $ 22,723 $ 21,969 $ 20,317
8,238
7,720
1The most recent PPA zone status available in 2012 and 2011 is for the plan’s year-end during 2011 and 2010, respectively. The zone status is
based on information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are
generally less than 65 percent funded, plans in the orange zone are less than 80 percent funded and have an Accumulated Funding Deficiency
in the current year or projected into the next six years, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are
at least 80 percent funded.
2The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan
(“RP”) is either pending or has been implemented.
3Lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. Pension trust funds with a range of
expiration dates have various collective bargaining agreements.
We currently have no intention of withdrawing from any of the multi-employer pension plans in which we participate.
F- 32
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Shareholders’ Equity
Stock-based Compensation: On May 23, 2012, the Company’s stockholders approved the 2012 Equity Incentive Plan (the “Plan”),
which replaced the Amended and Restated 1999 Equity Incentive Plan. The Plan provides for the issuance of restricted stock,
restricted stock units and stock options to eligible employees and to members of our Board of Directors. Beginning in 2011, the
Company issued restricted stock units to eligible employees in lieu of restricted stock. As of December 31, 2012, a total of
2,635,640 shares of our common stock have been reserved for issuance of which approximately 1,886,882 remained available as of
December 31, 2012.
Restricted Stock Units and Restricted Stock: As noted above, restricted stock units and restricted stock can be issued to eligible
employees and members of our Board of Directors. Restricted stock units and restricted stock are issued for services to be rendered
and may not be sold, transferred or pledged for such a period as determined by our Compensation Committee. Restricted stock unit
and restricted stock compensation cost is measured at our common stock’s fair value based on the market price at the date of grant.
We recognize compensation cost only for restricted stock units and restricted stock that will ultimately vest. We estimate the
number of shares that will ultimately vest at each grant date based on our historical experience and adjust compensation cost based
on changes in those estimates over time.
Restricted stock unit and restricted stock compensation cost is recognized ratably over the shorter of the vesting period (generally
three years) or the period from grant date to the first maturity date after the holder reaches age 62 and has completed certain
specified years of service, when all restricted stock becomes fully vested. Vesting of restricted stock is not subject to any market or
performance conditions and vesting provisions are at the discretion of the Compensation Committee. An employee may not sell or
otherwise transfer unvested stock and, in the event employment is terminated prior to the end of the vesting period, any unvested
units or stock are surrendered to us. We have no obligation to purchase restricted stock units or restricted stock.
A summary of the changes in our restricted stock units during the years ended December 31, 2012, 2011 and 2010 is as follows
(shares in thousands):
December 31,
2012
2011
2010
Outstanding, beginning balance
Granted
Vested
Forfeited
Outstanding, ending balance
Weighted-
Average
Grant-Date
Fair Value
per Share
Weighted-
Average
Grant-Date
Fair Value
per Share
Shares
Shares
346 $
533
(175)
(39)
665 $
25.64
28.99
26.87
27.95
27.74
144 $
271
(64)
(5)
346 $
23.54
26.94
26.44
25.94
25.64
Weighted-
Average
Grant-Date
Fair Value
per Share
15.56
25.07
24.34
23.03
23.54
Shares
25 $
136
(15)
(2)
144 $
Compensation cost related to restricted stock units was approximately $7.6 million ($5.6 million net of tax), $3.0 million ($2.2
million net of tax), and $1.1 million ($0.6 million net of tax) for the years ended December 31, 2012, 2011 and 2010, respectively.
The grant date fair value of restricted stock vested during the years ended December 31, 2012, 2011 and 2010 was
approximately $4.7 million, $1.7 million and $0.4 million, respectively. As of December 31, 2012, there was $12.9 million of
unrecognized compensation cost related to restricted stock units which will be recognized over a remaining weighted-average
period of 1.2 years.
F- 33
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the changes in our restricted stock during the years ended December 31, 2012, 2011 and 2010 is as follows (shares
in thousands):
December 31,
2012
2011
2010
Outstanding, beginning balance
Granted
Vested
Forfeited
Outstanding, ending balance
Weighted-
Average
Grant-Date
Fair Value
per Share
Weighted-
Average
Grant-Date
Fair Value
per Share
Shares
Shares
472 $
—
(290)
(8)
174 $
37.39
—
42.11
30.30
29.83
855 $
—
(368)
(15)
472 $
38.23
—
39.25
39.62
37.39
Weighted-
Average
Grant-Date
Fair Value
per Share
40.31
28.30
36.16
37.62
38.23
Shares
991 $
285
(350)
(71)
855 $
Compensation cost related to restricted stock was approximately $3.8 million ($2.8 million net of tax), $9.1 million ($6.7 million
net of tax) and $13.0 million ($7.7 million net of tax) for the years ended December 31, 2012, 2011 and 2010, respectively. The
grant date fair value of restricted stock vested during the years ended December 31, 2012, 2011 and 2010 was approximately $12.2
million, $14.4 million and $12.7 million, respectively. As of December 31, 2012 there was $0.5 million of unrecognized
compensation cost related to restricted stock which will be recognized over a remaining weighted-average period of 0.2 years.
Stock Options: In 2012, no stock options were granted. As of December 31, 2012, there were 27,079 stock options outstanding.
Employee Stock Ownership Plan: Effective January 1, 2007, our Employee Stock Ownership Plan (“ESOP”) was amended to
effectively freeze the plan. Under the amended plan, no new participants were added and no further contributions were made for
the years ended December 31, 2012, 2011 and 2010. Effective June 1, 2012 the Granite Construction Employee Stock Ownership
Plan was merged into the Granite Construction Profit Sharing and 401(k) Plan. As of December 31, 2012, the 401(k) Plan owned
2,540,141 shares of our common stock. Dividends on shares held by the ESOP are charged to retained earnings and all shares held
by the ESOP are treated as outstanding in computing our earnings per share.
Employee Stock Purchase Plan: In 2010, our Board of Directors approved the Employee Stock Purchase Plan (“ESPP”). Effective
January 1, 2011, our ESPP allows qualifying employees to purchase shares of our common stock through payroll deductions of up
to 15% of their compensation, subject to Internal Revenue Code limitations, at a price of 95% of the fair market value as of the end
of each of the six-month offering periods. During the years ended December 31, 2012 and 2011, proceeds from the ESPP were
$0.5 million and $0.3 million for 21,446 and 13,027 shares, respectively. The offering periods commence on May 15
and November 15 of each year, except for the first offering period, which commenced on January 15, 2011.
Share Purchase Program: In 2007, our Board of Directors authorized us to purchase up to $200.0 million of our common stock at
management’s discretion. Under this purchase program, the Company may purchase shares from time to time on the open market
or in private transactions. The specific timing and amount of purchases will vary based on market conditions, securities law
limitations and other factors. Purchases under the share purchase program may be commenced, suspended or discontinued at any
time and from time to time without prior notice. The purchase price of our common stock purchased and retired in excess of par
value is allocated between additional paid-in capital and retained earnings. During 2012, 2011 and 2010, we did not purchase
shares under the share purchase program. At December 31, 2012, $64.1 million of the $200.0 million authorization was available
for additional share purchases.
F- 34
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Weighted Average Shares Outstanding
A reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share in the
accompanying consolidated statements of operations is as follows (in thousands):
Years Ended December 31,
Weighted average shares outstanding:
Weighted average common stock outstanding
Less: weighted average unvested restricted stock outstanding
Total basic weighted average shares outstanding
Diluted weighted average shares outstanding:
Weighted average common stock outstanding, basic
Effect of dilutive securities:
Common stock options and restricted stock units1
Total weighted average shares outstanding assuming dilution
2012
2011
2010
38,689
242
38,447
38,677
560
38,117
38,750
930
37,820
38,447
38,117
37,820
629
39,076
356
38,473
—
37,820
1Due to the net loss for the year ended December 31, 2010, common stock options and restricted stock units representing 161,000 shares were
excluded from the number of shares used in calculating diluted loss per share for that period, as their inclusion would be antidilutive.
16. Earnings Per Share
We calculate earnings per share (“EPS”) under the two-class method by allocating earnings to both common shares and unvested
restricted stock which are considered participating securities. However, net losses are not allocated to participating securities for
purposes of computing EPS under the two-class method. The following is a reconciliation of net income (loss) attributable to
Granite and related weighted average shares of common stock outstanding for purposes of calculating basic and diluted net income
(loss) per share using the two-class method (in thousands, except per share amounts):
Years Ended December 31,
Basic
Numerator:
Net income (loss) attributable to Granite
Less: net income allocated to participating securities
Net income (loss) allocated to common shareholders for basic calculation
Denominator:
Weighted average common shares outstanding, basic
Net income (loss) per share, basic
Diluted
Numerator:
Net income (loss) attributable to Granite
Less: net income allocated to participating securities
Net income (loss) allocated to common shareholders for diluted
calculation
Denominator:
Weighted average common shares outstanding, diluted
Net income (loss) per share, diluted
2012
2011
2010
$
$
$
$
$
$
$
$
$
$
45,283
283
45,000
38,447
1.17
45,283
279
$
$
$
$
51,161
738
50,423
38,117
1.32
51,161
732
(58,983)
—
(58,983)
37,820
(1.56)
(58,983)
—
45,004
$
50,429
$
(58,983)
39,076
1.15
$
38,473
1.31
$
37,820
(1.56)
F- 35
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. Income Taxes
Following is a summary of the provision for (benefit from) income taxes (in thousands):
Years Ended December 31,
Federal:
Current
Deferred
Total federal
State:
Current
Deferred
Total state
Total provision for (benefit from) income taxes
2012
2011
2010
$
$
10,410 $
9,518
19,928
4,689
(3,508)
1,181
21,109 $
11,136 $
7,914
19,050
2,952
1,346
4,298
23,348 $
(2,330)
(36,519)
(38,849)
(1,071)
(4,008)
(5,079)
(43,928)
Following is detail of the provision for (benefit from) income taxes and a reconciliation of the statutory to effective tax rate
(dollars in thousands):
Years Ended December 31,
2012
2011
2010
Amount
Percent
Amount
Percent
Amount
Percent
Federal statutory tax
State taxes, net of federal tax benefit
Valuation allowance release
Percentage depletion deduction
Domestic production deduction
Noncontrolling interests
Settlements and effective settlements
of audit issues
Nondeductible expenses
Other
Total
$
$
28,360
5,299
(5,803)
(1,422)
(1,367)
(5,124)
—
1,918
(752)
21,109
35.0 $
6.5
(7.2)
(1.8)
(1.7)
(6.3)
—
2.4
(0.8)
26.1 $
31,301
3,497
—
(1,254)
(1,604)
(5,223)
(2,348)
1,000
(2,021)
23,348
35.0 $
3.9
—
(1.4)
(1.8)
(5.8)
(2.6)
1.1
(2.3)
26.1 $
(37,232)
(4,500)
—
(997)
100
1,213
330
285
(3,127)
(43,928)
35.0
4.2
—
0.9
(0.1)
(1.1)
(0.3)
(0.3)
3.0
41.3
Our effective tax rate was essentially flat in 2012 from 2011 at 26.1%. The tax rate for the year ended December 31, 2012 included
a release of a state valuation allowance. The tax rate for the year ended December 31, 2011 included the recognition and
measurement of previously unrecognized tax benefits. The recognition and measurement of these tax benefits were the result of a
favorable settlement of an income tax examination conducted by the Internal Revenue Service. Our tax rate is affected by discrete
items that may occur in any given year, but are not consistent from year to year.
F- 36
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Following is a summary of the deferred tax assets and liabilities (in thousands):
December 31,
Deferred tax assets:
Receivables
Inventory
Insurance
Deferred compensation
Other accrued liabilities
Contract income recognition
Impairments on real estate investments
Accrued compensation
Other
Net operating loss carryforward
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Total deferred tax liabilities
Net deferred tax assets
2012
2011
2,876 $
5,611
10,476
14,055
7,184
4,171
5,002
6,064
416
8,359
(5,242)
58,972
30,448
30,448
28,524 $
2,929
6,308
7,142
16,485
9,244
4,253
18,895
4,606
300
9,510
(10,668)
69,004
34,467
34,467
34,537
$
$
The above amounts are reflected in the accompanying consolidated balance sheets as follows (in thousands):
December 31,
Current deferred tax assets, net
Long-term deferred tax liabilities, net
Net deferred tax assets
2012
2011
$
$
36,687 $
8,163
28,524 $
38,571
4,034
34,537
The deferred tax asset for other accrued liabilities relates to various items including accrued compensation, accrued rent and
accrued reclamation costs, which are realizable in future periods. Our deferred tax asset for net operating loss carryforward relates
to state and local net operating loss carryforwards which expire between 2025 and 2029. We have provided a valuation allowance
on the net deferred tax assets for certain state and local jurisdictions because we do not believe their realizability is more likely
than not.
F- 37
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a summary of the change in valuation allowance (in thousands):
December 31,
Beginning balance
(Deductions) additions
Ending balance
2012
2011
2010
$
$
10,668 $
(5,426)
5,242 $
13,111 $
(2,443)
10,668 $
13,018
93
13,111
Uncertain tax positions: We file income tax returns in the U.S. and various state and local jurisdictions. We are currently under
examination by the Internal Revenue Service for the 2008 through 2010 tax years. We are also under examination by various state
taxing authorities for various tax years. We do not anticipate that any of these audits will result in a material change in our financial
position. Our 2005 through 2007 tax years remain open to examination by state taxing authorities. We are no longer subject to U.S.
federal examinations by tax authorities for years before 2008.
We had approximately $3.2 million and $3.1 million of total gross unrecognized tax benefits as of December 31, 2012 and 2011,
respectively. There were approximately $0.8 million and $1.1 million of unrecognized tax benefits that would affect the effective
tax rate in any future period at December 31, 2012 and 2011, respectively. We do not anticipate a significant increase or decrease in
our unrecognized tax benefits that will impact our effective tax rate in 2013.
The following is a tabular reconciliation of unrecognized tax benefits (in thousands) the balance of which is included in other long-
term liabilities on the consolidated balance sheets:
December 31,
Beginning balance
Gross increases – current period tax positions
Gross decreases – current period tax positions
Gross increases – prior period tax positions
Gross decreases – prior period tax positions
Settlements with taxing authorities/lapse of statute of limitations
Ending balance
2012
2011
2010
2,339 $
1,017
(800)
4
(245)
—
2,315 $
5,650 $
1,726
(1,420)
1,485
(1,467)
(3,635)
2,339 $
5,882
180
(453)
4,009
(1,641)
(2,327)
5,650
$
$
We record interest related to uncertain tax positions as interest expense in our consolidated statements of operations. During the
years ended December 31, 2012, 2011 and 2010, we recognized approximately $0.1 million of interest expense, $0.1 million of
interest income and $0.4 million of interest expense, respectively. Approximately $0.9 million and $0.8 million of accrued interest
were included in our uncertain tax position liability on our consolidated balance sheets at December 31, 2012 and 2011,
respectively.
F- 38
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
18. Commitments, Contingencies and Guarantees
Leases: Minimum rental commitments and minimum royalty requirements under all noncancellable operating leases, primarily
quarry property, in effect at December 31, 2012 were (in thousands):
Years Ending December 31,
2013
2014
2015
2016
2017
Later years (through 2099)
Total
$
$
6,983
5,884
4,582
4,025
2,935
11,879
36,288
Operating lease rental expense was $9.8 million in both 2012 and 2011 and was $9.9 million in 2010.
Performance Guarantees
As discussed in Note 6, we participate in various construction joint venture partnerships. All partners in these joint ventures are
jointly and severally liable for completion of the total project under the terms of the contract with the project owner. Although our
agreements with our joint venture partners provide that each party will assume and pay its share of any losses resulting from a
project, if one of our partners was unable to pay its share we would be fully liable under our contract with the project owner.
Circumstances that could lead to a loss under these guarantee arrangements include a partner’s inability to contribute additional
funds to the venture in the event that the project incurred a loss or additional costs that we could incur should the partner fail to
provide the services and resources toward project completion that had been committed to in the joint venture agreement. At
December 31, 2012, we had approximately $1.6 billion of construction revenue to be recognized on unconsolidated and line item
construction joint venture contracts of which $553.8 million represented our share and the remaining $1.1 billion represented our
partners’ share. Due to the joint and several liabilities of joint venture arrangements, if one of our joint venture partners fails to
perform, we and the remaining joint venture partners would be responsible for the outstanding work. We are not able to estimate
other 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 performance bonds. See Note 10 for disclosure of the amounts recorded in our consolidated balance sheets.
Surety Bonds
We may provide contract guarantees related to our services or work. These guarantees are backed by various types of surety bonds,
instruments that ensure we will perform our contractual obligations pursuant to the terms of our contract with the client. If our
services or work under a guaranteed contract are later determined to have a material defect or deficiency, we may be responsible
for repairs, monetary damages or other legal remedies. When sufficient information about a material defect or deficiency on a
guaranteed contract is determined to be probable, we recognize the cost of repairs and monetary damages. Currently, we have no
material defects or deficiencies for which losses have or need to be recognized.
F- 39
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings that are pending against us and our affiliates
alleging, among other things, breach of contract or tort in connection with the performance of professional services, the various
outcomes of which cannot be predicted with certainty. The most significant of these proceedings are as follows:
• US Highway 20 Project: Our wholly owned subsidiaries, Granite Construction Company (“GCCO”) and Granite
Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which was contracted by the
Oregon Department of Transportation (“ODOT”) to construct a new road alignment of US Highway 20 near Eddyville,
Oregon. During the fall and winter of 2006, extraordinary rain events produced runoff that overwhelmed installed erosion
control measures and resulted in discharges to surface water and alleged violations of YRC’s stormwater permit. During
2012, ODOT and YRC reached a settlement agreement that ended YRC’s responsibility to construct the project. Also during
2012, YRC, GCCO, the United States Environmental Protection Agency and the U.S. Department of Justice (“DOJ”)
entered into a consent decree, which provides for a civil penalty payment after entry of the decree by the court and
environmental monitoring by GCCO of certain Oregon projects. This matter has not and is not expected to have a material
adverse effect on our financial position, results of operations, cash flow and/or liquidity.
•
Investigation Related to Grand Avenue Project Disadvantaged Business Enterprise (“DBE”) Issues: On March 6, 2009,
the U.S. Department of Transportation, Office of Inspector General served upon our wholly-owned subsidiary, Granite
Construction Northeast, Inc. (“Granite Northeast”), a United States District Court Eastern District of New York Grand Jury
subpoena to produce documents. The subpoena sought all documents pertaining to the use of a DBE firm (the
“Subcontractor”), and the Subcontractor’s use of a non-DBE lower tier subcontractor/consultant, on the Grand Avenue Bus
Depot and Central Maintenance Facility for the Borough of Queens Project (the “Grand Avenue Project”), a Granite
Northeast project. The subpoena sought any documents regarding the use of the Subcontractor as a DBE on any other
projects and any other documents related to the Subcontractor or to the lower-tier subcontractor/consultant. Granite
Northeast produced the requested documents, together with other requested information. Subsequently, Granite Northeast
was informed by the DOJ that it is a subject of the investigation, along with others. In January 2013, Granite Northeast met
with Assistant United States Attorneys from the DOJ, along with other federal and state agents (the “Agencies”), to discuss
the status of the government’s criminal investigation of the Grand Avenue Project participants, including Granite Northeast.
In addition to the documents produced in response to the Grand Jury subpoena, Granite Northeast is in the process of
providing information to the DOJ concerning other projects for which Granite Northeast has claimed DBE credit. Granite
Northeast is fully cooperating with the Agencies’ investigation. We cannot, however, rule out the possibility of actions
being brought against Granite Northeast which could result in civil, criminal, and/or administrative penalties or sanctions.
Beyond the amount accrued for this matter, Granite is unable to estimate at this time any additional losses that may be
reasonably probable. However, under certain circumstances the resolution of the matters under investigation could have
direct or indirect consequences that could have a material adverse effect on our financial position, results of operations and/
or liquidity.
• Other Legal Proceedings/Government Inquiries: We are a party to a number of other legal proceedings arising in the
normal course of business. From time to time, we also receive inquiries from public agencies seeking information
concerning our compliance with government construction contracting requirements and related laws and regulations. We
believe that the nature and number of these proceedings and compliance inquiries are typical for a construction firm of our
size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While
management currently believes, after consultation with counsel, that the ultimate outcome of pending proceedings and
compliance inquiries, individually and in the aggregate, will not have a material adverse affect on our financial position,
results of operations or cash flows, litigation is subject to inherent uncertainties. Were one or more unfavorable rulings to
occur, there exists the possibility of a material adverse effect on our financial position, results of operations, cash flows and/
or liquidity for the period in which the ruling occurs. In addition, our government contracts could be terminated, we could
be suspended or debarred, or payment of our costs disallowed. While any one of our pending legal proceedings is subject to
early resolution as a result of our ongoing efforts to settle, whether or when any legal proceeding will be resolved through
settlement is neither predictable nor guaranteed.
We record amounts in our consolidated balance sheets representing our estimated liability relating to legal proceedings and
government inquiries. During the years ended December 31, 2012 and 2011, there were no significant additions or revisions to the
estimated liability that were recorded in our consolidated statements of operations, or significant changes to our accrual for such
litigation loss contingencies on our consolidated balance sheets.
F- 40
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
20. Business Segment Information
Our reportable segments are: Construction, Large Project Construction, Construction Materials and Real Estate. The Construction
segment performs various heavy civil construction projects with a large portion of the work focused on new construction and
improvement of streets, roads, highways, bridges, site work and other infrastructure projects. These projects are typically bid-build
projects completed within two years with a contract value of less than $75 million.
The Large Project Construction segment focuses on large, complex infrastructure projects which typically have a longer duration
than our Construction segment work. These projects include major highways, mass transit facilities, bridges, tunnels, waterway
locks and dams, pipelines, canals and airport infrastructure. This segment primarily includes bid-build, design-build and
construction management/general contractor contracts, generally with contract values in excess of $75 million.
The Construction Materials segment mines and processes aggregates and operates plants that produce construction materials
for internal use and for sale to third parties.
The Real Estate segment purchases, develops, operates, sells and invests in real estate related projects and provides real estate
services for the Company’s operations. The Real Estate segment’s current portfolio consists of residential, retail and office site
development projects for sale to home and commercial property developers in Washington, California and Texas. In October 2010,
we announced our Enterprise Improvement Plan that includes business plans to orderly divest of our real estate investment
business consistent with our business strategy to focus on our core business.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see
Note 1). We evaluate performance based on gross profit or loss, and do not include overhead and non-operating income or
expense. Segment assets include property and equipment, intangibles, goodwill, inventory, equity in construction joint ventures and
real estate held for development and sale.
Kenny’s assets as of December 31, 2012 have been, and its results will be, reported under the Construction and Large Project
Construction segments.
F- 41
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summarized segment information is as follows (in thousands):
Years Ended December 31,
2012
Total revenue from reportable segments
Elimination of intersegment revenue
Revenue from external customers
Gross profit
Depreciation, depletion and amortization
Segment assets
2011
Total revenue from reportable segments
Elimination of intersegment revenue
Revenue from external customers
Gross profit
Depreciation, depletion and amortization
Segment assets
2010
Total revenue from reportable segments
Elimination of intersegment revenue
Revenue from external customers
Gross profit
Depreciation, depletion and amortization
Segment assets
Construction
Large Project
Construction
Construction
Materials
Real Estate
Total
$
$
$
$
$
$
984,106
—
984,106
77,963
13,225
163,287
1,043,614
—
1,043,614
124,506
14,747
111,780
943,245
—
943,245
95,709
18,148
123,153
$
$
$
863,217
—
863,217
148,418
4,527
173,142
725,043
—
725,043
104,108
4,547
110,441
584,406
—
584,406
67,307
2,759
80,259
$
$
$
410,033
(179,391)
230,642
7,572
28,490
347,869
415,618
(195,035)
220,583
16,641
28,672
352,619
419,355
(197,297)
222,058
12,018
33,565
374,205
5,072
—
5,072
806
—
50,223
20,291
—
20,291
2,708
189
75,050
13,256
—
13,256
2,750
522
87,686
$2,262,428
(179,391)
2,083,037
234,759
46,242
734,521
$2,204,566
(195,035)
2,009,531
247,963
48,155
649,890
$1,960,262
(197,297)
1,762,965
177,784
54,994
665,303
A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as
follows (in thousands):
Years Ended December 31,
Total gross profit from reportable segments
Selling, general and administrative expenses
Restructuring (gains) charges, net
Gain on sales of property and equipment
Other income (expense), net
Income (loss) before provision for (benefit from) income taxes
2012
2011
2010
234,759
185,099
(3,728)
27,447
194
81,029
$
$
247,963
162,302
2,181
15,789
(9,836)
89,433
$
$
177,784
191,593
109,279
13,748
2,964
(106,376)
$
$
A reconciliation of segment assets to consolidated total assets is as follows (in thousands):
December 31,
Total assets for reportable segments
Assets not allocated to segments:
Cash and cash equivalents
Short-term and long-term marketable securities
Receivables, net
Deferred income taxes
Other current assets
Property and equipment, net
Other noncurrent assets
Consolidated total assets
2012
2011
2010
$
734,521
$
649,890
$
665,303
321,990
111,430
325,529
36,687
67,726
50,857
80,747
1,729,487
$
256,990
149,658
251,838
38,571
76,074
46,180
78,598
1,547,799
$
252,022
143,706
243,986
53,877
55,970
42,874
77,795
1,535,533
$
F- 42
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
21. Acquisition
On December 28, 2012, we signed a definitive agreement to acquire 100% of the outstanding shares of Kenny, a national
contractor and construction manager based in Northbrook, Illinois for approximately $141.5 million, subject to possible post-
closing adjustments. The acquisition was effective December 31, 2012 and was funded through cash on hand and $70.0 million of
proceeds from borrowings under Granite’s existing credit facility - see Note 12 for further discussion on the borrowings. In
accordance with the terms of the agreement, we expect to pay approximately $8.7 million in post-closing adjustments during the
second quarter of 2013. These post-closing adjustments are reflected in the purchase price and are included in accrued and other
current liabilities on our consolidated balance sheet as of December 31, 2012.
The acquired business will be operating under the name Kenny Construction Company as a wholly owned subsidiary of Granite
Construction Incorporated. Kenny operates in the tunneling, electrical power and underground businesses. Their underground
business utilizes cutting-edge trenchless construction technologies and processes. This acquisition expands our presence in these
markets and enables us to leverage our capabilities and geographic footprint. Kenny has approximately 475 employees and a
network of 12 offices in North America. We have accounted for this transaction in accordance with Accounting Standards
Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).
Preliminary Purchase Price Allocation
In accordance with ASC 805, the total purchase price was allocated to the net tangible and identifiable intangible assets based on
their estimated fair values as of December 31, 2012 as presented in the table below (in thousands). These estimates are subject to
revision, which may result in adjustments to the values presented below. We expect to finalize these amounts within 12 months
from the acquisition date and do not expect any adjustments to be material.
Cash and cash equivalents
Receivables
Costs and estimated earnings in excess of billings
Inventories
Equity in construction joint ventures
Other current assets
Property and equipment, net
Identifiable intangible assets:
Acquired backlog
Customer relationships
Trade name
Total amount allocated to identifiable intangible assets
Accounts payable
Billings in excess of costs and estimated earnings
Accrued expenses and other current liabilities
Noncontrolling interests
Total identifiable net assets acquired
Goodwill
Total purchase price
$
$
53,185
88,725
444
731
7,222
6,039
51,126
8,400
2,500
4,100
15,000
44,753
50,098
16,806
14,788
96,027
45,519
141,546
F- 43
Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Intangible assets
Intangible assets include backlog, customer relationships and trade name. We amortize the fair values using the straight-line
method over their estimated useful lives. As the acquisition was effective on December 31, 2012, no amortization associated with
these acquired intangibles was recorded during the year ended December 31, 2012. The estimated useful lives for backlog and
customer relationships range from 1 to 8 years and represent existing contracts and the underlying customer relationships. They are
amortized based on the period over which the economic benefits of the intangible assets are expected to be realized. Trade names
represent the fair values of the acquired trade names and trademarks. The estimated useful lives of the trade names are 10 years.
The identifiable intangible assets are expected to be deductible for income tax purposes.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The
factors that contributed to the recognition of goodwill from the acquisition of Kenny include acquiring a workforce with
capabilities in the power, tunnel and underground markets, cost savings opportunities and the significant synergies expected to
arise. The $45.5 million of goodwill that resulted from this acquisition is included in our Construction and Large Project
Construction segments - see Note 9. The goodwill is expected to be deductible for income tax purposes.
Receivables
The fair value of assets acquired includes trade receivables of $61.6 million and retention receivables of $27.1 million. The gross
amount due under contracts is $88.7 million.
Pro Forma Financial Information (unaudited)
The financial information in the table below summarizes the combined results of operations of Granite and Kenny, on a pro forma
basis, as though the companies had been combined as of the beginning of 2011 (in thousands, except per share amounts). The pro
forma financial information is presented for informational purposes only and is not indicative of the results of operations that
would have been achieved if the acquisition had taken place at the beginning of 2011.
Years Ended December 31,
Revenue
Net income including noncontrolling interests
Net income attributable to Granite
Basic net income per share
Diluted net income per share
$
2012
2,388,790 $
82,914 $
58,225 $
1.50 $
1.48 $
2011
2,289,043
78,344
55,993
1.46
1.45
These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of Kenny to reflect the
additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and
equipment and intangible assets had been applied starting on January 1, 2011. The income tax expense related to Kenny for the
years ended December 31, 2012 and 2011 was minimal due to its status as an S Corporation for income tax purposes. For purposes
of this proforma financial information, the statutory tax rate of 39% was adjusted for estimated permanent items to arrive at 36%.
In 2012, Granite incurred $4.4 million of acquisition-related costs. These expenses are included in selling, general and
administrative expenses in the consolidated statement of operations for the year ended December 31, 2012.
F- 44
Table of Contents
Quarterly Financial Data
The following table sets forth selected unaudited financial information for the eight quarters in the two-year period ended
December 31, 2012. This information has been prepared on the same basis as the audited consolidated financial statements and, in
the opinion of management, contains all adjustments necessary for a fair statement thereof.
QUARTERLY FINANCIAL DATA
(unaudited - dollars in thousands, except per share data)
2012 Quarters Ended
Revenue
Gross profit
As a percent of revenue
Net income (loss)1
As a percent of revenue
Net income (loss) attributable to Granite
As a percent of revenue
Net income (loss) per share attributable to
common shareholders:
Basic
Diluted
2011 Quarters Ended
Revenue
Gross profit
As a percent of revenue
Net (loss) income
As a percent of revenue
Net (loss) income attributable to Granite
As a percent of revenue
Net (loss) income per share attributable to
common shareholders:
Basic
Diluted
December 31, September 30,
728,482
$
$
101,099
504,781
56,808
11.3%
18,374
3.6%
17,987
3.6%
0.46
0.46
$
$
$
$
13.9%
45,746
6.3%
37,121
5.1%
0.96
0.94
$
$
$
$
December 31, September 30,
728,578
$
$
93,893
539,548
79,126
14.7%
24,792
4.6%
18,754
3.5%
0.48
0.48
$
$
$
$
12.9%
42,376
5.8%
36,468
5.0%
0.94
0.93
$
$
$
$
$
$
$
$
$
$
$
$
$
$
June 30,
539,615
51,916
9.6%
4,487
0.8%
1,949
0.4%
0.05
0.05
June 30,
484,674
44,956
9.3%
6,173
1.3%
4,946
1.0%
0.13
0.13
March 31,
310,160
24,936
8.0%
(8,687)
-2.8%
(11,773)
-3.8%
(0.31)
(0.31)
March 31,
256,731
29,988
11.7%
(7,256)
-2.8%
(9,007)
-3.5%
(0.24)
(0.24)
$
$
$
$
$
$
$
$
$
$
1Included in our net income for the quarter ended December 31, 2012 was a gain on sale of $18.0 million from the sale of an underutilized quarry
in the fourth quarter of 2012. This sale was related to our process of continually optimizing our assets separate from the Enterprise Improvement
Plan. In addition, net income for the quarter ended December 31, 2012 included a $5.8 million tax benefit from a release of a state valuation
allowance and $4.4 million, pre-tax, of Kenny related acquisition costs.
Net income (loss) per share calculations are based on the weighted average common shares outstanding for each period presented.
Accordingly, the sum of the quarterly net income (loss) per share amounts may not equal the per share amount reported for the year.
F- 45
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
GRANITE CONSTRUCTION INCORPORATED
By: /s/ Laurel J. Krzeminski
Laurel J. Krzeminski, Senior Vice
President and Chief Financial Officer
Date: March 1, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 1, 2013, by the
following persons on behalf of the Registrant in the capacities indicated.
/s/ James H. Roberts
James H. Roberts, President and Chief Executive Officer
/s/ William H. Powell
William H. Powell, Chairman of the Board and Director
/s/ Claes G. Bjork
Claes G. Bjork, Director
/s/ James W. Bradford
James W. Bradford, Director
/s/ Gary M. Cusumano
Gary M. Cusumano, Director
/s/ William G. Dorey
William G. Dorey, Director
/s/ David H. Kelsey
David H. Kelsey, Director
/s/ Rebecca A. McDonald
Rebecca A. McDonald, Director
/s/ Gaddi Vasquez
Gaddi Vasquez, Director
Table of Contents
SCHEDULE II
GRANITE CONSTRUCTION INCORPORATED
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description
YEAR ENDED DECEMBER 31, 2012
Allowance for doubtful accounts
YEAR ENDED DECEMBER 31, 2011
Allowance for doubtful accounts
YEAR ENDED DECEMBER 31, 2010
Allowance for doubtful accounts
Balance at
Beginning of
Year
Charged to
Expenses or
Other
Accounts, Net
Deductions and
Adjustments1
Balance at End
of Year
2,880
3,297
3,917
135
—
368
(266)
(417)
(988)
2,749
2,880
3,297
1 Deductions and adjustments for the allowances primarily relate to accounts written off.
S-1
Table of Contents
INDEX TO 10-K EXHIBITS
Exhibit No.
Exhibit Description
2.1
3.1
3.2
10.1
10.2
10.2.a
10.3
10.3.a
10.4
10.5
10.6
*
Stock Purchase Agreement, dated December 28, 2012, by and between Granite Construction Incorporated
and Kenny Industries, Inc. [Exhibit 2.1 to the Company’s Form 8-K filed on January 4, 2013]
* Certificate of Incorporation of Granite Construction Incorporated, as amended [Exhibit 3.1.b to the
Company’s Form 10-Q for quarter ended June 30, 2006]
*
*
**
*
**
*
**
*
*
*
*
*
Amended Bylaws of Granite Construction Incorporated [Exhibit 3.1 to the Company’s Form 8-K filed on
November 15, 2011]
Key Management Deferred Compensation Plan II, as amended and restated [Exhibit 10.1 to the Company’s
Form 10-Q for quarter ended March 31, 2010]
Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan as Amended and
Restated [Exhibit 10.1 to the Company’s Form 10-Q for quarter ended June 30, 2009]
Amendment No. 1 to the Granite Construction Incorporated Amended and Restated 1999 Equity Incentive
Plan [Exhibit 10.2.a to the Company’s Form 10-K for year ended December 31, 2009]
Amended and Restated Credit Agreement, dated October 11, 2012, by and among Granite Construction
Incorporated, Granite Construction Company, GILC Incorporated, the lenders party thereto and Bank of
America, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer. [Exhibit
10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2012]
Amended and Restated Security Agreement, dated October 11, 2012, by and among Granite Construction
Incorporated, Granite Construction Company, GILC Incorporated, the guarantors party thereto and Bank of
America, N.A., as Collateral Agent. [Exhibit 10.2 to the Company’s Form 8-K filed on October 16, 2012]
Amended and Restated Securities Pledge Agreement, dated October 11, 2012, by and among Granite
Construction Incorporated, Granite Construction Company, GILC Incorporated, the guarantors party
thereto and Bank of America, N.A., as Collateral Agent. [Exhibit 10.3 to the Company’s Form 8-K filed on
October 16, 2012]
Amended and Restated Guaranty Agreement, dated October 11, 2012, by and among Granite Construction
Incorporated, the guarantors party thereto and Bank of America, N.A., as Administrative Agent. [Exhibit
10.4 to the Company’s Form 8-K filed on October 16, 2012]
Intercreditor and Collateral Agency Agreement, dated October 11, 2012, by and among Granite
Construction Incorporated, for itself and on behalf of certain of its subsidiaries, Bank of America, N.A., as
Collateral Agent and the secured creditors party thereto. [Exhibit 10.5 to the Company’s Form 8-K filed on
October 16, 2012]
10.7
* Note Purchase Agreement between Granite Construction Incorporated and certain purchasers dated May 1,
2001 [Exhibit 10.3 to the Company’s Form 10-Q for quarter ended June 30, 2001]
10.7.a
10.8
10.9
*
*
*
First Amendment to Note Purchase Agreement between Granite Construction Incorporated and certain
purchasers dated June 15, 2003 [Exhibit 10.4 to the Company’s Form 10-Q for quarter ended June 30,
2003]
Second Amendment to the Note Purchase Agreement, dated October 11, 2012, between Granite
Construction Incorporated and the holders of the 2013 Notes party thereto. [Exhibit 10.6 to the Company’s
Form 10-Q for the quarter ended September 30, 2012]
Subsidiary Guaranty Agreement from the Subsidiaries of Granite Construction Incorporated as Guarantors
of the Guaranty of Notes and Note Agreement and the Guaranty of Payment and Performance dated May 1,
2001 [Exhibit 10.4 to the Company’s Form 10-Q for quarter ended June 30, 2001]
10.10
* Note Purchase Agreement between Granite Construction Incorporated and Certain Purchasers dated
December 12, 2007 [Exhibit 10.1 to the Company’s Form 8-K filed January 31, 2008]
10.11
*
First Amendment to the Note Purchase Agreement, dated October 11, 2012, between Granite Construction
Incorporated and the holders of the 2019 Notes party thereto. [Exhibit 10.7 to the Company’s Form 10-Q
for the quarter ended September 30, 2012]
Table of Contents
Exhibit No.
Exhibit Description
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.2
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
*
*
*
*
*
*
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
†
**
Subsidiary Guaranty Agreement from the Subsidiaries of Granite Construction Incorporated as Guarantors
of the Guaranty of Notes and Note Agreement and the Guaranty of Payment and Performance dated
December 12, 2007 [Exhibit 10.10 to the Company’s Form 10-K for year ended December 31, 2007]
International Swap Dealers Association, Inc. Master Agreement between BNP Paribas and Granite
Construction Incorporated dated as of February 10, 2003 [Exhibit 10.5 to the Company’s Form 10-Q for
quarter ended June 30, 2003]
International Swap Dealers Association, Inc. Master Agreement between BP Products North America Inc.
and Granite Construction Incorporated dated as of May 15, 2009 [Exhibit 10.3 to the Company’s Form 10-
Q for quarter ended September 30, 2009]
International Swap Dealers Association, Inc. Master Agreement between Wells Fargo Bank, N.A. and
Granite Construction Incorporated dated as of May 22, 2009 [Exhibit 10.4 to the Company’s Form 10-Q
for quarter ended September 30, 2009]
International Swap Dealers Association, Inc. Master Agreement between Merrill Lynch Commodities, Inc.
and Granite Construction Incorporated dated as of May June 2, 2009 [Exhibit 10.5 to the Company’s Form
10-Q for quarter ended September 30, 2009]
International Swap Dealers Association, Inc. Master Agreement and Credit Support Annex between Shell
Energy north America (US), L.P. and Granite Construction Incorporated dated as of March 16, 2010
[Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended June 30, 2010]
Form of Amended and Restated Director and Officer Indemnification Agreement [Exhibit 10.10 to the
Company’s Form 10-K for year ended December 31, 2002]
Executive Retention and Severance Plan II effective as of March 9, 2011 [Exhibit 10.1 to the Company’s
Form 10-Q for the quarter ended March 31, 2011]
Form of Restricted Stock Agreement effective March 2010 [Exhibit 10.18 to the Company’s Form 10-K for
the year ended December 31, 2010]
Form of Non-employee Director Stock Option Agreement as amended and effective April 7, 2006 [Exhibit
10.19 to the Company’s Form 10-K for the year ended December 31, 2010]
Form of Restricted Stock Units Agreement effective January 1, 2010 [Exhibit 10.20 to the Company’s
Form 10-K for the year ended December 31, 2010]
Form of Non-employee Director Restricted Stock Units Agreement effective January 1, 2010 [Exhibit
10.21 to the Company’s Form 10-K for the year ended December 31, 2010]
Granite Construction Incorporated Annual Incentive Plan effective January 1, 2010, as amended [Exhibit
10.25 to the Company’s Form 10-K for the year ended December 31, 2011]
Amendment No. 2 to the Granite Construction Incorporated Annual Incentive Plan effective January 1,
2012 [Exhibit 10.25 to the Company’s Form 10-K for the year ended December 31, 2011]
Granite Construction Incorporated Long Term Incentive Plan effective January 1, 2010, as amended
[Exhibit 10.25 to the Company’s Form 10-K for the year ended December 31, 2011]
Amendment No. 2 to the Granite Construction Incorporated Long Term Incentive Plan effective January 1,
2012 [Exhibit 10.25 to the Company’s Form 10-K for the year ended December 31, 2011]
Granite Construction Incorporated 2012 Equity Incentive Plan [Exhibit 10.1 to the Company’s Form 8-K
filed on May 25, 2012]
Form of Non-Employee Director Restricted Stock Unit Agreement effective May 22, 2012 [Exhibit 10.2 to
the Company’s Form 8-K filed on May 25, 2012]
Granite Construction Incorporated NEO LTIP Awards Form of Restricted Stock Unit Agreement (Vesting
on Date of Grant)
Table of Contents
Exhibit No.
Exhibit Description
10.31
†
**
Granite Construction Incorporated NEO LTIP Awards Form of Restricted Stock Unit Agreement (3 Year
Vesting Schedule)
21
23.1
31.1
31.2
32
95
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
†
†
†
†
List of Subsidiaries of Granite Construction Incorporated
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
††
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
†
†
†
†
†
†
†
Mine Safety Disclosure
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
* Incorporated by reference
** Compensatory plan or management contract
† Filed herewith
†† Furnished herewith
(This page is intentionally left blank)
CORPORATE PROFILE
Through its offices and subsidiaries nationwide, Granite Construction
Incorporated (NYSE: GVA) is one of the nation’s largest infrastructure
contractors and construction materials producers. Incorporated in
1922, Granite serves public- and private-sector clients on projects
both small and large. Granite’s project teams represent some of the
best in the industry serving owners in the transportation, power, federal,
tunneling, underground, and industrial/mining and water resources
markets. For more information, please visit graniteconstruction.com
BOARd OF dIRECTORs
William H. Powell
Chairman of the Board
Retired Chairman and Chief Executive Officer,
National Starch and Chemical Company
James H. Roberts
President and
Chief Executive Officer
Granite Construction Incorporated
Claes G. Bjork
Retired Chief Executive Officer,
Skanska AB, Sweden
James W. Bradford
Dean and Ralph Owen Professor
for the School of Management,
Owen School of Management,
Vanderbilt University
Gary M. Cusumano
Retired Chairman,
Newhall Land and Farming Company
William G. dorey
Retired President and
Chief Executive Officer,
Granite Construction Incorporated
david H. Kelsey
Chief Financial Officer,
Elevance Renewable Sciences, Inc.
Rebecca A. Mcdonald
Retired Chief Executive Officer,
Laurus Energy Inc.
Gaddi H. Vasquez
Senior Vice President,
Public Affairs, Southern California Edison
OFFICERs
James H. Roberts
President and
Chief Executive Officer
Laurel J. Krzeminski
Senior Vice President and
Chief Financial Officer
Thomas s. Case
Senior Vice President and Group Manager
Philip M. deCocco
Senior Vice President of Human Resources
Michael F. donnino
Senior Vice President and Group Manager
John A. Franich
Senior Vice President and Group Manager
Patrick B. Kenny
Senior Vice President and Group Manager
James d. Richards
Senior Vice President and Group Manager
Richard A. Watts
Senior Vice President, General Counsel,
Corporate Compliance Officer
and Secretary
Jigisha desai
Vice President, Treasurer, and
Assistant Financial Officer
Ronald L Gatto
Vice President, Controller and
Assistant Financial Officer
ANNUAL sHAREHOLdERs’ MEETING
Granite’s Annual Meeting of Shareholders
will be held at 10:30 a.m. PDT on
June 6, 2013, at the Monterey Plaza Hotel
400 Cannery Row, Monterey, CA 93940
Proxy materials are available on our website
at graniteconstruction.com or upon written
request to:
Investor Relations
Granite Construction Incorporated
Box 50085
Watsonville, CA 95077-5085
dIVIdENd POLICY
The company has declared a quarterly cash
dividend of $0.13 per share of common
stock payable on April 15, 2013, to
shareholders of record as of March 29,
2013. Declaration and payment of dividends
are at the sole discretion of the company’s
Board of Directors, subject to limitations
imposed by Delaware law, and will
depend on the company’s earnings, capital
requirements, financial condition, and other
such factors as the Board deems relevant
ELECTRONIC dEPOsIT OF dIVIdENds
Registered holders may have their quarterly
dividends deposited to their checking or
savings account free of charge. Call
Computershare at (877) 520-8549 for
U.S. residents, or (732) 491-0616
for non U.S. residents to enroll.
COMPANY CONTACT
Jacqueline B. Fourchy
Vice President of Investor Relations and
Corporate Communications
(831) 761-4741
Jacque.Fourchy@gcinc.com
REGIsTRAR ANd TRANsFER AGENT
Computershare
250 Royall Street
Canton, MA 02021
(877) 761-4741 (U.S.)
(732) 491-0616 (non U.S.)
FORM 10-K
A copy of the company’s Annual Report on
Form 10-K, which is filed with the Securities
and Exchange Commission, is available free
of charge on our website or upon written
request to:
Investor Relations
Granite Construction Incorporated
Box 50085
Watsonville, CA 95077-5085
INdEPENdENT REGIsTEREd PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Three Embarcadero Center
San Francisco, CA 94111
CERTIFICATIONs
Granite’s Chief Executive Officer (CEO)
and Chief Financial Officer have each
submitted certifications concerning the
accuracy of financial and other information
in Granite’s Annual Report on Form 10-K,
as required by Section 302(a) of the
Sarbanes-Oxley Act of 2002.
After our 2013 Annual Meeting of
Shareholders, we intend to file with the
New York Stock Exchange (NYSE) the CEO
certification regarding our compliance
with the NYSE’s corporate governance
listing standards as required by NYSE Rule
303A.12(a). Last year’s certification was
filed on June 15, 2012.
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Granite Construction Incorporated
585 West Beach Street
Watsonville, CA 95076
(831) 724 -1011
www.graniteconstruction.com
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