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ANNUAL
REPORT
2013
GRANITE—BUILDING
A STRONGER COMPANY
“We are proud to be recognized by the Ethisphere® Institute
as one of the World’s Most Ethical Companies for the fifth
straight year.1 Our people are living the Granite Code of
Conduct, and it is our commitment to continue to foster a
strong culture of ethics and integrity for generations to come.
We also recognize the importance of earning ISO 9001:2008
and ISO 14001:2004 certification2 for Project Management
and Construction Activities. This exemplifies the strength of
Granite’s team and our relentless commitment to quality
and environmental management practices.”
James H. Roberts, President and Chief Executive Officer
COMPANY PROfILE
Through its offices and subsidiaries nationwide, Granite Construction Incorporated (NYSE: GVA) is one of
the nation’s largest infrastructure companies. 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.
Granite is listed on the New York Stock Exchange under the ticker symbol GVA and is part of the S&P
MidCap 400 Index, the MSCI KLD 400 Social Index and the Russell 2000 Index. For more information,
please visit our website at graniteconstruction.com.
1 The Ethisphere® Institute is an independent center of research, best practices and thought leadership. Ethisphere evaluates and benchmarks compliance and
governance programs, honors superior achievement through its World’s Most Ethical Companies® recognition program and publishes Ethisphere Magazine.
2 For designated construction projects. NSF International Strategic Registrations, an accredited third-party organization, issued the certificates after auditing
Granite’s management system at the corporate and project level and verifying that it conforms to the requirements specified in the standards.
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GRANITE CONSTRUCTION INCORPORATED
2013 ANNUAL REPORT / Page 1
TO OUR
SHAREHOLDERS:
BUILDING A STRONGER
COMPANY
2013 was a year filled with both significant challenges and
significant opportunities.
We begin this year’s letter with an impressive accomplish-
ment. Granite’s recognition as one of the World’s Most
Ethical Companies® by Ethisphere Institute—for the fifth
year in a row—is a tremendous honor and one that we do
not take for granted. We applaud and congratulate our
employees on their commitment to do business the right
way and to practice our core values every day.
2013 RESULTS—CHALLENGES
AND OPPORTUNITIES
We highlight some of the challenges that Granite had in
2013 with an eye on the bottom line. We reported a net
loss of $36.4 million for the year, compared with net
income of $45.3 million in 2012. Earnings per share was a
loss of $0.94 in 2013, compared to $1.15 last year. Fourth
quarter 2013 actions resulted in $52.1 million of restruc-
turing and impairment charges related to assets in the
Real Estate and Construction Materials segments. Exclud-
ing the impact of these charges, earnings per share was a
loss of $0.17 in 2013.
This performance was disappointing—the result of slower-
than-expected economic recovery, operational challenges,
and the completion of the 2010 Enterprise Improvement
Plan (EIP). In 2013, we took significant steps to complete
the orderly divestiture of our real estate business and to
optimize our Construction Materials business.
performance drove organic growth and margin improve-
ment in our Construction business in 2013. Despite this
improvement, weaker-than-expected performance in our
Large Projects and Construction Materials segments
resulted in a gross margin decrease of about 300 basis
points to 8.2 percent.
In the Large Projects segment, weaker profit performance
was driven by negative revisions in estimates on a project
in Washington State, and by timing of overall project
portfolio progression. There are significant outstanding
claims in this segment, which we hope to recover in 2014.
As expected, we booked three Large Projects that helped
us reach a record backlog of $2.5 billion, up 48 percent
from $1.7 billion in 2012. These projects—the Tappan
Zee Bridge in New York, the IH-35E in Texas, and the
I-40/440 in North Carolina—began ramping up in 2013,
and we expect each of them to reach profit recognition
thresholds late in 2014.
We maintain a strong balance sheet, which continues to
give Granite the liquidity and flexibility we need to pur-
sue our strategic growth initiatives.
STRATEGIC PLAN:
EXECUTION AND OUTLOOK
In 2013 we executed on our strategic plan and took impor-
tant steps to:
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(cid:135)(cid:3) (cid:3)(cid:42)(cid:85)(cid:82)(cid:90)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
(cid:135)(cid:3) (cid:3)(cid:42)(cid:85)(cid:82)(cid:90)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
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Revenues increased nearly 9 percent to $2.3 billion in
2013, driven primarily by the addition of Kenny Con-
struction. We are very pleased with the acquisition and the
opportunities it is providing us. Integration and synergy
As we work to transform and grow our vertically inte-
grated business, comprised of our Construction and Con-
struction Materials segments, we are scaling capacity and
managing costs to better reflect demand, especially as we
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GRANITE CONSTRUCTION INCORPORATED
2013 ANNUAL REPORT / Page 2
look to grow the footprint of this business. We are also
focused on entering and expanding into adjacent end mar-
kets in mining, oil and gas, and industrial.
We have and we will continue to grow the large projects
business. The future in this market is bright. In addition
to several projects expected to reach profit recognition
thresholds late in 2014, the majority of our portfolio is
performing well. As a result, we continue to expect large
projects average gross margin in the mid-teens over the
long term.
While improved economic activity in the U.S. is providing
some positive momentum for our vertically integrated
businesses, long-term, dedicated funding remains a con-
cern. The current two-year federal highway bill, MAP-21,
expires in September of 2014, and it needs strong atten-
tion from Congress. Long-term funding stability remains
critical to driving progress on important infrastructure
investment, especially at the state and local levels. The
need for increased investment in highway and public
transportation is evident, and it highlights the importance
of the Transportation Infrastructure Finance and Inno-
vation Act (“TIFIA”). We are pleased that three of our
projects include TIFIA financing—the Tappan Zee Bridge
in New York, IH-35E in Texas, and Phase 2 of US-36 in
Colorado—the process is working, but it must move faster.
We believe TIFIA expansion in the next highway bill
could help set the stage for incremental opportunities in
all of our markets.
Backlog growth is a key focus in 2014, as current backlog
converts to revenue, in line with our expectation of per-
formance improvement in 2014. Though competitive, the
current large project bidding pipeline is as robust as we
have ever seen. This includes a healthy transportation
market for Public-Private-Partnerships, design-build
jobs, alternative procurement work such as CMARs and
CMGCs, as well as significant power and tunnel work.
And, beyond 2014, we are tracking more than $20 billion
of additional work.
When we purchased Kenny Construction at the end of
2012, we had targeted growth through diversification.
Importantly, we are seeing the benefits of market and geo-
graphic diversification through the Kenny portfolio, espe-
cially in the power delivery, and water and wastewater
infrastructure markets.
The underground (water/wastewater) business had key
wins in the Chicago market in 2013 that position us well
for profitable growth, and the tunnel division is pursuing a
large number of projects in 2014 and beyond. The power
business has opportunities for work in the U.S. from coast
to coast, as well as in Canada. Importantly, though, we
already are teaming with our traditional businesses in the
West. Granite’s Western footprint is providing invaluable
synergies as we evaluate opportunities for power and
underground expansion.
A final and critical element of our strategic plan to opti-
mize our business portfolio is well underway with the cre-
ation of the Center of Excellence—a Lean-based effort
focused on reducing waste, standardizing processes and
reducing variability, all in an effort to reduce costs and
improve quality. We are focused on optimizing the way
we run our business every single day. While in the early
innings, our ultimate goal is for continuous improvement
to become standard practice for our people and process
improvement to touch all parts of our business, further
empowering the people of Granite to improve every day.
LOOKING AHEAD
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tainable growth. Though we cannot predict when and
what level of business the cyclical economic recovery will
bring, we believe demand in both the public and private
markets will recover materially to drive significant
improvement in all parts of our business.
Momentum in the private sector is improving, and the
mix and timing of our Large Projects portfolio points to
improved revenues and profits as well. We also expect that
our emphasis and focus on execution and cost control—
coupled with continuous improvement—will be critical
drivers of improved margins in 2014 and beyond.
We finish where we began, acknowledging the efforts of
the entire Granite team in 2013 and thanking you, our
shareholders, for your continued support. We cannot
understate the pride we feel to be once again named as one
of World’s Most Ethical Companies, and we cannot under-
state our commitment to match financial performance to
our stellar reputation.
James H. Roberts
President and Chief Executive Officer
William H. Powell
Chairman of the Board
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FORM
10-K
2013
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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, 2013
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 $1.1 billion as of June 30, 2013, 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 18, 2014, 38,919,160 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 5, 2014, which will be filed with the Securities and Exchange Commission not later than 120 days after
December 31, 2013.
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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 10.31
EXHIBIT 10.32
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,
trenchless and underground utilities, electrical utilities, tunnels, dams and other infrastructure-related projects. Within the private
sector, we perform site preparation and infrastructure services for residential development, energy development, commercial and
industrial sites, and other facilities, as well as provide construction management professional services.
We own and lease substantial aggregate reserves and own a number of plant facilities to produce construction materials for use in
our construction business and for sale to third parties. 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 $141.1 million. 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. The acquisition expanded our presence
in the power, tunnel and underground markets, and has enabled us to leverage our capabilities and geographic footprint. Amounts
associated with Kenny are included in our consolidated statement of operations for the year ended December 31, 2013 and in our
consolidated balance sheets as of December 31, 2013 and 2012.
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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.
In addition to business segments, we review our business by operating groups and by public and private market sectors. Our
operating groups are defined as follows: 1) California; 2) Northwest, which primarily includes offices in Alaska, Arizona, Nevada,
Utah and Washington; 3) Heavy Civil (formerly East), which primarily includes offices in California, Florida, New York and
Texas; and 4) Kenny, which primarily includes offices in Colorado and Illinois. Each of these operating groups may include
financial results from our Construction and Large Project Construction segments. A project’s results are reported in the operating
group that is responsible for the project, not necessarily the geographic area where the work is located. In some cases, the
operations of an operating group include the results of work performed outside of that geographic region. Our California and
Northwest operating groups include financial results from our Construction Materials segment.
Effective in the third quarter of 2013, we made certain changes to the organizational structure of the four operating groups. The
most significant changes were to move our Arizona business from the Heavy Civil operating group to the Northwest operating
group, and to reclassify the majority of the complex heavy-civil construction contracts to the Heavy Civil operating group. These
changes were designed to improve operating efficiencies and better position the Company for long-term growth. Prior period
amounts associated with these changes have been reclassified to conform to the current year presentation. These changes had no
impact on our reportable business segments.
Construction: Revenue from our Construction segment was $1.3 billion and $1.0 billion (55.2% and 47.2% of our total revenue) in
2013 and 2012, respectively. Revenue from our Construction segment is derived from both public and private sector clients. The
Construction segment performs construction management, as well as various civil construction projects with a large portion of the
work focused on new construction and improvement of streets, roads, highways, bridges, site work, underground, utilities and
other infrastructure projects. These projects are typically bid-build and construction management 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 $777.8 million and $863.2 million (34.3%
and 41.4% of our total revenue) in 2013 and 2012, 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, utilities 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” section below).
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 63.6% and
74.5% of Large Project Construction revenue in 2013 and 2012, respectively.
3
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Construction Materials: Revenue from our Construction Materials segment was $237.8 million and $230.6 million (10.5% and
11.1% of our total revenue) in 2013 and 2012, 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 own or lease through long-term leases. Sales to our construction projects represented 36.1% of our gross
sales during 2013, and ranged from 36.1% to 47.1% over the last five years. The remainder is sold to third parties.
During 2013 and in connection with our 2010 Enterprise Improvement Plan (“EIP”), we recorded $14.7 million in restructuring
charges and, separate from the EIP, recorded $3.2 million in non-cash impairment charges, related to the Construction Materials
segment. The restructuring and impairment charges consisted of non-cash impairment charges to non-performing quarry sites
which had an aggregate carrying value of $21.3 million prior to the impairment. Separate from these quarry sites, we incurred lease
termination charges of $3.2 million. See Note 11 of “Notes to the Consolidated Financial Statements” and “Restructuring and
Impairment Charges (Gains), Net” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for additional information.
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.
GLC’s current investments are located in California, Texas and Washington. Revenue from GLC was $0.1 million and $5.1 million
(less than 0.1% and 0.2% of our total revenue) in 2013 and 2012, respectively. Pursuant to the EIP, which included plans to orderly
divest of our real estate investment business, the Company recorded restructuring charges of $31.1 million in the fourth quarter of
2013, including amounts attributable to non-controlling interests of $3.9 million. The restructuring charges consisted of non-cash
impairment charges to residential and retail development projects which had a carrying value of $44.6 million prior to the
impairment. See Note 11 of “Notes to the Consolidated Financial Statements” and “Restructuring and Impairment Charges (Gains),
Net” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional
information.
4
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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. 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, our financial strength and project experience provide
us with a competitive advantage, as we focus our efforts on larger projects.
Decentralized Profit Centers - Each of our operating groups is established as an individual profit center which encourages
entrepreneurial activity while allowing the operating 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 and bid-
build; (vi) at fixed price, time and materials, cost reimbursable and fixed unit price; and (vii) 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 and 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.
Core Competency Focus - We concentrate on our core competencies, which include the building of roads, highways, bridges,
dams, tunnels, mass transit facilities, airport and railroad infrastructure, underground utilities, power, materials management,
construction management, staff augmentation and site preparation. This focus allows us to most effectively utilize our specialized
strengths.
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 - 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)
expected 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, including 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 a
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, utilities 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, utilities and federal agencies. Customers of our Construction Materials segment include
internal usage by our own construction projects, as well as third-party customers. Our third party customers include, but, are not
limited to, contractors, landscapers, manufacturers of products requiring aggregate materials, retailers, homeowners, farmers and
brokers.
During the years ended December 31, 2013, 2012, and 2011, our largest volume customer was the California Department of
Transportation (“Caltrans”). Revenue recognized from contracts with Caltrans represented $265.8 million (11.7% of our total
revenue) in 2013, of which $239.9 million (19.2% of segment revenue) was in our Construction segment and $25.9 million (less
than 0.1% of segment revenue) was in our Large Project Construction segment. Revenue from Caltrans represented $272.9 million
(13.1% of total revenue) in 2012, of which $268.9 million (27.3% of segment revenue) was in our Construction segment and $4.1
million (0.5% of segment revenue) was in the Large Project Construction segment. Revenue from Caltrans represented $264.9
million (13.2% of total revenue) in 2011, of which $241.1 million (23.1% of segment revenue) was in the Construction segment
and $23.8 million (3.3% of segment revenue) was in the Large Project Construction segment.
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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 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. Existing contracts that include
unexercised contract options and unissued task orders are included in contract backlog as follows:
Contract Options: Contract options represent the monetary value of option periods under existing contracts in contract backlog,
which are exercisable at the option of our customers without requiring us to go through an additional competitive bidding
process and would be canceled only if a customer decided to end the project (a termination for convenience) or through a
termination for default. When the options are exercised and funding is in place, the amount associated with the exercised option
is recorded into contract backlog.
Task Orders: Task orders represent the expected monetary value of signed contracts under which we perform work only when
the customer awards specific task orders or projects to us. When agreements for such task orders or projects are signed and
funding is in place, the amount associated with the task order is recorded into contract backlog.
Substantially all of the contracts in our contract backlog, as well as unexercised contract options and unissued task orders, 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 to backlog 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 $2.5 billion and $1.7 billion at December 31, 2013
and 2012, respectively. Approximately $1.4 billion of the December 31, 2013 contract backlog is expected to be completed
during 2014.
Equipment
At December 31, 2013 and 2012, we owned the following number of construction equipment and vehicles:
December 31,
Heavy construction equipment
Trucks, truck-tractors, trailers and vehicles
2013
2,534
3,664
2012
2,566
3,579
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 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 2013 and 2012, we
spent $30.2 million and $19.8 million, respectively, on purchases of construction equipment and vehicles.
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Employees
On December 31, 2013, we employed approximately 1,600 salaried employees who work in management, estimating and clerical
capacities, plus approximately 2,000 hourly employees. The total number of hourly personnel is subject to the volume of
construction in progress and is seasonal. During 2013, the number of hourly employees ranged from approximately 1,900 to
4,000 and averaged approximately 3,300. 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 our workforce possesses a strong dedication to and pride in our
company. Among salaried and non-union hourly employees, this dedication is reinforced by a 6.5% equity ownership at
December 31, 2013 through our Employee Stock Purchase Plan, Profit Sharing and 401(k) Plan, and service and performance-based
incentive compensation arrangements. Our managerial and supervisory personnel have an average of approximately 11 years of
service with Granite.
Competition
Competitors in our Construction segment typically range from small, local construction companies to large, regional, national and
international construction companies. We compete with numerous companies in individual markets; however, there are few, if any,
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 is comprised of large, regional, national and
international construction companies.
We own and/or have long-term leases on aggregate resources that we believe provide a competitive advantage in certain markets
for both the Construction and Large Project Construction segments.
Competitors in our Construction Materials segment typically range from small local materials companies to large regional, national
and international materials companies. We compete with numerous companies in individual markets; however, there are few, if
any, companies which compete in all of our market areas.
Factors influencing our competitiveness include price, estimating abilities, knowledge of local markets and conditions, project
management, financial strength, reputation for quality, aggregate materials availability, 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 in our contract backlog increased to 63.5% at December 31, 2013 compared with 56.8% at December 31,
2012. The percentage of fixed unit price contracts in our contract backlog was 26.0% and 39.6% at December 31, 2013 and 2012,
respectively. All other contract types represented 10.5% and 3.6% of our backlog at December 31, 2013 and 2012, respectively.
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 of the contract performance as compared to the original bid, such factors
can positively or negatively impact costs and profitability, may cause higher than anticipated construction costs and can create
additional liability to the contract owner. The most significant of these include:
•
•
•
•
•
•
•
•
•
•
•
the completeness and accuracy of the original bid;
costs associated with 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;
a change in the availability and proximity of equipment and materials; and
our ability to fully and promptly recover on claims for additional contract costs.
The ability to realize improvements on project profitability at times is more limited than the risk of lower profitability. For
example, design/build projects typically incur additional costs such as right-of-way and permit acquisition costs. In addition,
design/build contracts carry additional risks such as those associated with design errors and estimating quantities and prices before
the project design is completed. 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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Joint Ventures
We participate in various construction joint venture partnerships and a limited liability company of which we are a limited partner
or member (“joint ventures”) 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.
The agreements with our joint venture partners and limited liability company members (“partner(s)”) for both construction joint
ventures and line item joint ventures define each partner’s management role and financial responsibility in the project. The amount
of exposure is generally limited to our stated ownership interest. Due to the joint and several nature of the performance obligations
under these agreements, if one of the partners fails to perform, we and the remaining partners would be responsible for
performance of the outstanding work (i.e., we provide a performance guarantee). We estimate our liability for performance
guarantees and include them in accrued expenses and other current liabilities with a corresponding asset in equity in construction
joint ventures on the consolidated balance sheets. We reassess our liability when and if changes in circumstances occur. The
liability and corresponding asset are removed from the consolidated balance sheets upon customer acceptance of the project.
Circumstances that could lead to a loss under these agreements 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 agreement. 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.
At December 31, 2013, there was $4.4 billion of construction revenue to be recognized on unconsolidated and line item
construction joint venture contracts, of which $1.2 billion represented our share and the remaining $3.2 billion represented our
partners’ share.
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”).
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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
as well as adding additional compliance requirements. To-date, costs to prepare the Company for compliance have been $9.6
million. 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 (see “Item 1A. Risk Factors”).
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
Patrick B. Kenny
Martin P. Matheson
James D. Richards
Age
57
59
51
59
63
52
50
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
All dates of service for our executive officers include the periods in which they served 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 Bachelor’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 March 2007 to December 2009, Utah Operations Branch Manager from August 2001 through March 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 1986 and 1996. Mr. Case received a B.S. degree 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. 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 in December 2012. He was
responsible for the Tunnel and Power divisions from 2005 to 2012, and he managed the Tunnel and Underground divisions 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 MBA from Lehigh in 1973.
Mr. Matheson joined Granite in 1989 and has served as Senior Vice President and Group Manager since August 2013. He also
served as Washington Region Manager from February 2007 through July 2013, Branch Division Construction Manager from 2006
through 2007, Utah Operations Area/Operations Manager from 1999 to 2006 and in other positions at Granite’s Nevada Branch
between 1989 and 1997. Prior to joining Granite, he worked at Kenny Construction Company. Mr. Matheson received a B.S. in
Animal Science from University of Illinois in 1983.
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.
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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.
• 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. Government funding for public works
projects is limited, thus contributing to competition for the limited number of public projects available. This increased
competition may result in a decrease in new awards at acceptable profit margins. In addition, should downturns in
residential and commercial construction activity occur, the competition for available public sector work would intensify,
which could impact our revenue, contract backlog and profit margins.
• Government contracts generally have strict regulatory requirements. Approximately 74.4% of our total revenue in 2013
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.
• 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.
• 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 and attractive work environments or to establish and maintain successful
partnerships, our ability to profitably execute our work could be adversely impacted.
• 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.
• 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.
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• We may be unable to identify and contract with 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, 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.
•
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 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.
• Our joint venture contracts subject us to joint and several liability. As further described in Note 1 of “Notes to the
Consolidated Financial Statements” and under “Item 1. Business; Joint Ventures,” we participate in various construction
joint venture partnerships in connection with complex construction projects. If our joint venture partners fail 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.
• Our failure to adequately recover on claims brought by us against project owners for additional contract costs could have
a negative impact on our liquidity and future operations. In certain circumstances, we assert claims against project owners
for additional costs exceeding the contract price or for amounts not included in the original contract price. These types of
claims occur due to matters such as owner-caused delays or changes from the initial project scope, both of which may result
in additional costs. Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is difficult to
accurately predict when and the terms upon which these claims will be fully resolved. When these types of events occur, we
use working capital in projects to promptly and fully cover cost overruns pending the resolution of the relevant claims. A
failure to recover on these types of claims promptly and fully could have a negative impact on our liquidity and results of
operations. In addition, while clients and subcontractors may be obligated to indemnify us against certain liabilities, such
third parties may refuse or be unable to pay us.
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• 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. Our debt and credit agreements and related restrictive and
financial 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. On March 3, 2014, Granite executed amendments to the Credit Agreement and 2019 NPA (the
“Amendments”), which terms include, among other things, (i) revised minimum Consolidated Tangible Net Worth; and (ii)
revised maximum Consolidated Leverage Ratio. For the Credit Agreement, the Amendments are effective for our quarter
ending March 31, 2013 and for the 2019 NPA, the Amendments are retroactive to December 31, 2013. 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.
• 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.
• 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.
• 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.
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• Weather can significantly affect our 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.
•
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.
• 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 negotiate contract language where we are allowed certain relief
from force majeure events in private client contracts and review and attempt to mitigate force majeure events in both public
and private client contracts. We remain obligated to perform our services after most extraordinary events subject to relief
that may be available pursuant to a force majeure clause. 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.
• Changes to our outsourced software or infrastructure 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 and infrastructure to run critical accounting, project management
and financial information systems. If software or infrastructure vendors decide to discontinue further development,
integration or long-term 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.
• 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.
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• 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.
• 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 strategic diversification plan 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 may enter into more construction
contracts in Canada or U.S. Territories, which may subject us to a number of special risks unique to foreign countries and/or
operations. 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.
• 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.
• 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, 2011 and 2012. During the fourth quarter of
2013, management approved revised plans to sell or otherwise dispose of the majority of assets remaining in our Real Estate
segment which resulted in charges of $31.1 million, of which $3.9 million was attributable to non-controlling interests. The
business plans and results of operations of our real estate affiliates are affected by the ability to obtain certain development
rights, the ability to obtain financing, the future condition of the real estate and financial markets, and the timing of cash
flows. A 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 impairments in the
future.
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• Our real estate investments are subject to mortgage financing and may require additional funding. Granite Land
Company’s (“GLC’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 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 affect our financial position, cash flows
and liquidity. Also, if we determine we are the primary beneficiary of real estate joint ventures, as defined by the applicable
accounting guidance, we may be required to consolidate additional real estate investments in our financial statements.
• Unfavorable economic conditions may have an adverse impact on our business. Volatility in the global financial system
may 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 may 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 could be 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.
• Rising inflation and/or interest rates could have an adverse effect on our business, financial condition and results of
operations. Economic factors, including inflation and fluctuations in interest rates, could have a negative impact on our
business. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure to do so could have a material adverse effect on our financial
position, results of operations, cash flows and liquidity.
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.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Quarry Properties
As of December 31, 2013, we had 44 active and 29 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. Our plant
equipment is powered mostly by electricity provided by local utility companies. The following map shows the approximate
locations of our permitted quarry properties as of December 31, 2013.
We estimate our permitted proven1 and probable2 aggregate reserves to be approximately 780.0 million tons with an average
permitted life of approximately 70 years at present operating levels. Present operating levels are determined based on a three-year
annual average aggregate production rate of 10.4 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.
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.
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The following tables present information about our quarry properties as of December 31, 2013 (tons in millions):
Quarry Properties
Owned quarry properties
Leased quarry properties1
Type
Sand &
Gravel
27
26
Hard
Rock
5
15
Permitted
Aggregate
Reserves (tons)
445.8
333.6
Unpermitted
Aggregate
Reserves (tons)
347.0
86.6
Three-Year
Annual Average
Production
Rate (tons)
5.4
5.0
Average
Reserve Life
86
47
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
Number
of Properties Sand & Gravel Hard Rock
277.9
151.9
261.0
88.6
38
35
Owned
Leased
58%
55%
42%
45%
During December 2013, we recorded impairment charges on five permitted quarry sites which carried aggregate reserves of
approximately $9.6 million tons as of December 31, 2013. See Note 11 of “Notes to the Consolidated Financial Statements.”
Plant Properties
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. During 2013, we sold four aggregate crushing plants in California and four
asphalt concrete plants (two in Nevada, one in Texas and one in Washington) in an effort to continuously increase efficiencies
based on external and internal demands. At December 31, 2013 and 2012, 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
2013
2012
37
54
16
5
9
41
58
18
5
9
The following table provides our estimate of certain information about other properties as of December 31, 2013:
Office and shop space (owned and leased)
Real estate held for sale and use
Land Area (acres)
1,600
4,000
Building Square Feet
1,200,000
—
As of December 31, 2013, approximately 49% of our office and shop space was attributable to our Construction segment, 10% to
our Large Project Construction segment and 7% 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 and our affiliates are involved in various legal proceedings that are pending against us and
our affiliates alleging, among other things, public liability issues or breach of contract or tortious conduct in connection with the
performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our
affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our
compliance with government construction contracting requirements and related laws and regulations.
We record liabilities in our consolidated balance sheets representing our estimated liabilities relating to legal proceedings and
government inquiries to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are
reasonably estimable. The aggregate liabilities recorded as of December 31, 2013 and 2012 related to these matters were
approximately $16.3 million and $8.6 million, respectively, and were primarily included in accrued expenses and other current
liabilities on our consolidated balance sheets. Some of the matters in which we or our affiliates are involved may involve
compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in
amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our
government contracts could be terminated, we could be suspended or debarred, or payment of our costs could be disallowed. While
any of our pending legal proceedings may be 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. Accordingly, it is possible that
future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals
that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our
financial condition, results of operations and cash flows in any particular reporting period. In addition to matters that are
considered probable for which the loss can be reasonably estimated, we also disclose certain matters where the loss is considered
reasonably possible and is reasonably estimable. Except as noted below, we believe the aggregate range of possible loss related to
matters considered reasonably possible was not material as of December 31, 2013. Our view as to such matters could change in
future periods.
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 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, that began in 2004 and was substantially complete in
2008. The subpoena also 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 subcontractor/consultant. Granite Northeast produced the requested
documents, together with other requested information. Subsequently, Granite Northeast was informed by the Department of Justice
(“DOJ”) that it is a subject of the investigation, along with others, and that the DOJ believes that Granite Northeast’s claim of DBE
credit for the Subcontractor was improper. In addition to the documents produced in response to the Grand Jury subpoena, Granite
Northeast has provided requested information to the DOJ, along with other federal and state agencies (the “Agencies”) concerning
other DBE entities for which Granite Northeast has historically claimed DBE credit. The Agencies have informed Granite
Northeast that they believe that the claimed DBE credit taken for some of those other DBE entities was improper. Granite
Northeast has met several times since January 2013 with Assistant United States Attorneys and the Agencies’ representatives, to
discuss the status of the government’s criminal investigation of the Grand Avenue Project participants, including Granite Northeast,
and for Granite Northeast and the Agencies to discuss their respective positions on, and potential resolution of, the issues raised in
the investigation. Granite Northeast could be subject to civil, criminal, and/or administrative penalties or sanctions as a result of
this investigation. Granite believes that the incurrence of some form of penalty or sanction is probable, and has therefore recorded
the most likely amount of liability it may incur in its consolidated balance sheet as of December 31, 2013. Granite believes the
likelihood of liability for amounts in excess of this accrual, up to the amount of the subcontract for the DBE Subcontractor, may be
possible. 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.
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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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 18, 2014, there were 38,919,160 shares of our common stock outstanding held by 946 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. As of December 31,
2013, we had unencumbered cash, cash equivalents and marketable securities that exceeded the aforementioned limitations.
Market Price and Dividends of Common Stock
2013 Quarters Ended
High
Low
Dividends per share
2012 Quarters Ended
High
Low
Dividends per share
December 31, September 30,
$
35.32 $
28.35
0.13
32.46 $
27.88
0.13
December 31, September 30,
$
34.62 $
27.50
0.13
30.88 $
21.58
0.13
June 30,
March 31,
32.16 $
26.07
0.13
37.74
29.55
0.13
June 30,
March 31,
29.31 $
21.38
0.13
30.49
23.79
0.13
During the three months ended December 31, 2013, 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, 2013:
Period
October 1 through October 31, 2013
November 1 through November 30, 2013
December 1 through December 31, 2013
Total
Total
Number of
Shares
Purchased1
Average
Price Paid
per Share
3,474 $
215 $
12,707 $
16,396 $
33.24
29.53
30.59
31.14
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.
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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., Chicago Bridge &
Iron Co NV, EMCOR Group Inc., Fluor Corp., Foster Wheeler AG, Granite Construction Incorporated, Jacobs Engineering Group
Inc., KBR Inc., and Quanta Services 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, 2008 and its relative performance is
tracked through December 31, 2013.
December 31,
Granite Construction Incorporated
S&P 500
Dow Jones U.S. Heavy Construction
2008
2009
2010
2011
2012
2013
$
100.00 $
100.00
100.00
77.78 $
64.65 $
126.46
114.31
145.51
146.77
57.18 $
148.59
121.00
82.53 $
172.37
146.93
87.29
228.19
192.89
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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 information. These historical results are not
necessarily indicative of the results of operations to be expected for any future period.
Selected Consolidated Financial Data
Years Ended December 31,
Operating Summary
Revenue
Gross profit
As a percent of revenue
2013
$ 2,266,901
185,263
2012
2011
(Dollars In Thousands, Except Per Share Data)
$ 2,009,531
$ 2,083,037
247,963
234,759
$ 1,762,965
177,784
2010
8.2 %
11.3%
12.3%
10.1 %
Selling, general and administrative expenses
199,946
185,099
162,302
191,593
As a percent of revenue
8.8 %
8.9%
8.1%
10.9 %
Restructuring and impairment charges (gains),
net1
Net (loss) income
Amount attributable to non-controlling
interests
Net (loss) income attributable to Granite
As a percent of revenue
Net (loss) income per share attributable to
common shareholders:
Basic
Diluted
Weighted average shares of common stock:
Basic
Diluted
Dividends per common share
Consolidated Balance Sheet2
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
52,139
(44,766)
8,343
(36,423)
(1.6)%
(3,728)
59,920
(14,637)
45,283
2.2%
2,181
66,085
(14,924)
51,161
109,279
(62,448)
3,465
(58,983)
2.5%
(3.3)%
$
$
$
(0.94)
(0.94)
38,803
38,803
0.52
$
$
$
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
$ 1,617,155
$ 1,729,487
$ 1,547,799
$ 1,535,533
$ 1,709,575
346,323
452,633
1,247
276,868
48,580
781,940
20.09
38,918
$ 2,526,751
433,420
490,785
19,060
271,070
47,124
829,953
21.43
38,731
$ 1,708,761
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
2009
$ 1,963,479
349,509
17.8%
228,046
11.6%
9,453
100,201
(26,701)
73,500
3.7%
1 During 2013, we recorded restructuring charges of $49.0 million related to our 2010 Enterprise Improvement Plan and $3.2 million in other impairment charges
related to nonperforming quarry sites. During 2012, we recorded net restructuring gains of $3.7 million and, during 2011, we recorded net restructuring charges
of $2.2 million (see Note 11 of the “Notes to the Consolidated Financial Statements” for additional information regarding the 2013, 2012 and 2011 amounts).
During 2010, we recorded restructuring charges of $109.3 million related to our 2010 Enterprise Improvement Plan, and during 2009 we recorded $9.5 million
of restructuring charges related to an organizational change.
2 Assets acquired and liabilities assumed resulting from the acquisition of Kenny Construction Company are included in our consolidated balance sheet
commencing as of December 31, 2012 (see Note 21 of the “Notes to the Consolidated Financial Statements”).
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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 business that we have been divesting of over the past three years as part of our 2010 Enterprise Improvement Plan (“EIP”).
Our permanent offices are located in Alaska, Arizona, California, Colorado, Florida, Illinois, Nevada, New York, Texas, Utah and
Washington. We have four reportable business segments: Construction, Large Project Construction, Construction Materials and Real
Estate (see Note 20 of the “Notes to the Consolidated Financial Statements”).
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 generally defer recognition of profit on projects until they reach at least 25% completion (see “Gross Profit” discussion below) and
our profit recognition is based on estimates that may 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, outstanding contract change orders and claims 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.
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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 federal, 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.
In addition to business segments, we review our business by operating groups and by public and private market sectors. Our operating
groups are defined as follows: 1) California; 2) Northwest, which primarily includes offices in Alaska, Arizona, Nevada, Utah and
Washington; 3) Heavy Civil (formerly East), which primarily includes offices in California, Florida, New York and Texas; and 4)
Kenny, which primarily includes offices in Colorado and Illinois. Each of these operating groups may include financial results from our
Construction and Large Project Construction segments. A project’s results are reported in the operating group that is responsible for the
project, not necessarily the geographic area where the work is located. In some cases, the operations of an operating group include the
results of work performed outside of that geographic region. Our California and Northwest operating groups include financial results
from our Construction Materials segment.
Effective in the third quarter of 2013, we made certain changes to the organizational structure of the four operating groups. The most
significant changes were to move our Arizona business from the Heavy Civil operating group to the Northwest operating group, and to
reclassify the majority of the complex heavy-civil construction contracts to the Heavy Civil operating group. These changes were
designed to improve operating efficiencies and better position the Company for long-term growth. Prior period amounts associated with
these changes have been reclassified to conform to the current year presentation. These changes had no impact on our reportable
business segments.
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.
The following are accounting policies and estimates that involve significant management judgment and can have significant effects on
the Company’s reported results of operations. The Audit/Compliance Committee of our Board of Directors has reviewed our
disclosure of critical accounting policies and 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. For the majority of our contracts, revenue in an amount
equal to cost incurred is recognized prior to contracts reaching at least 25% completion, thus deferring the related profit. Based on
historical experience, it is our judgment that until a project reaches at least 25% completion, there may be insufficient information to
determine the estimated profit other than to be reasonably certain that a contract will not incur a loss. In the case of large, complex
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. In the case of construction management, time and materials and cost-plus arrangements, we are generally able to estimate profit
as services are performed based on contractual rates and estimable volumes. Therefore, we recognize profit for these types of contracts
on an input basis, as services are performed.
Revenue from affirmative 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 affirmative 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 generally upon incurring 25% of expected costs. 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;
a change in the availability and proximity of equipment and materials; and
our ability to fully and promptly recover on claims for additional contract costs.
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. Significant 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 increased from 56.8% at December 31, 2012 to 63.5% at
December 31, 2013. The percentage of fixed unit price contracts in our contract backlog was 26.0% and 39.6% at December 31, 2013
and 2012, respectively. All other types of contracts represented 10.5% and 3.6% of our contract backlog at December 31, 2013 and
2012, respectively.
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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 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 fourth quarter of 2013, management approved the plan to sell or otherwise dispose of all of the remaining consolidated real
estate investments that were included in our EIP. As a result, during the year ended December 31, 2013, we recorded restructuring
charges of $31.1 million, of which $3.9 million was attributable to non-controlling interests, which consisted of non-cash impairment
charges on consolidated real estate assets. During the years ended December 31, 2012 and 2011, we recorded no significant
restructuring charges related to our real estate development projects or investments. See “Restructuring and Impairment Charges
(Gains), Net” below and Note 11 of “Notes to the Consolidated Financial Statements” for further information.
An evaluation of the 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 unconsolidated real estate projects resulted in
no significant impairment charges during the year ended December 31, 2013.
Given the current economic environment surrounding real estate, we regularly evaluate the recoverability of our real estate held for
development and sale.
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Goodwill
As of December 31, 2013, we had five reporting units in which goodwill was recorded as follows:
• California Group Construction
• Kenny Group Construction
• Kenny Group Large Project Construction
• Northwest Group Construction
• Northwest Group Construction Materials
The most significant goodwill balances reside in the reporting units associated with the Kenny Group.
We perform impairment tests annually as of December 31 and more frequently when events and circumstances occur that indicate a
possible impairment of goodwill. In addition, we evaluate goodwill for impairment if events or circumstances change between annual
tests indicating a possible impairment. Examples of such events or circumstances include the following:
•
•
•
•
a significant adverse change in legal factors or in the business climate;
an adverse action or assessment by a regulator;
a more likely than not expectation that a segment or a significant portion thereof will be sold; or
the testing for recoverability of a significant asset group within the segment.
In performing step one of the goodwill impairment tests, we calculate the estimated fair value of the reporting unit in which the
goodwill is recorded using the discounted cash flows and market multiple methods. Judgments inherent in these methods include the
determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates, and appropriate
benchmark companies. The cash flows used in our 2013 discounted cash flow model were based on five-year financial forecasts, which
in turn were based on the 2014-2016 operating plan developed internally by management adjusted for market participant based
assumptions. Our discount rate assumptions are based on an assessment of equity cost of capital and appropriate capital structure for
our reporting units. In assessing the reasonableness of our determined fair values of our reporting units, we evaluate our results against
our current market capitalization.
After calculating the estimated fair value, we 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.
The results of our annual goodwill impairment tests indicated that the estimated fair values of our reporting units exceeded their net
book values (i.e., cushion) by at least 50% for three of the five reporting units. The Northwest Construction Materials and Kenny Large
Project Construction reporting units had goodwill balances of $1.9 million and $22.4 million, respectively, as of December 31, 2013
and fair value of equity exceeded the net book value by 48% and 42%, respectively.
The Northwest Construction Materials business is susceptible to state and local spending as well as private spending on residential and
commercial construction. While the current cushion is sufficient, any significant margin degradation caused by low volumes or
increased production costs could result in a future impairment. The Kenny Large Project Construction business is susceptible to
fluctuations in results depending on awarded work given the size and frequency of awards. While we believe the current cushion is
adequate to absorb these fluctuations, a significant decline in job win rates could have a significant impact to this reporting unit’s
estimated fair value.
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Long-lived Assets
We review property and equipment and amortizable intangible assets for impairment whenever events or changes in circumstances
indicate the net book value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their net
book values 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 net book value of the asset exceeds its fair value. We group
plant equipment 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. When an individual asset or group of assets are determined to no longer contribute to the
vertically integrated asset group, it is assessed for impairment independently.
During 2013 and in connection with our EIP, we recorded $14.7 million in restructuring charges and, separate from the EIP, recorded
$3.2 million in non-cash impairment charges, related to the Construction Materials segment. The restructuring and impairment charges
consisted of non-cash impairment charges to non-performing quarry sites which had an aggregate carrying value of $21.3 million prior
to the impairment. Separate from these quarry sites, but in connection with the impairment of these assets, we recorded lease
termination charges of $3.2 million. See Note 11 of “Notes to the Consolidated Financial Statements” and “Restructuring and
Impairment Charges (Gains), Net” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for additional information.
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.
Asset Retirement and Reclamation Obligations
We account for the costs related to legal obligations to reclaim aggregate mining sites and other facilities by recording our estimated
reclamation liability at fair value, capitalizing the estimated liability as part of the related asset’s carrying amount and allocating it to
expense over the asset’s useful life. To determine the fair value of the obligation, we estimate the cost for a third-party to perform the
legally required reclamation including a reasonable profit margin. This cost is then increased for future estimated inflation based on the
estimated years to complete and discounted to fair value using present value techniques with a credit-adjusted, risk-free rate. In
estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date.
We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally,
reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a
change in the estimated settlement date.
Contingencies
We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if the potential loss from
any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated. If a potential
loss is considered probable but only a range of loss can be determined, the low-end of the range is recorded. These accruals represent
management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or
when it is reasonably possible that the amount of a loss will exceed the amount recorded. Significant judgment is required in both the
determination of probability of loss and the determination as to whether an exposure is reasonably estimable. Because of uncertainties
related to these matters, accruals are based only on the best information available at the time. As additional information becomes
available, we reassess the potential liability related to claims and litigation and may revise our estimates.
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Current Economic Environment and Outlook for 2014
Company backlog, more than $2.5 billion at the end of 2013, continues to trend positively against a backdrop of stable, but short-
term, public funding, and improved execution of the Transportation Infrastructure Financing and Innovation Act (“TIFIA”). These
factors have contributed to continued significant bidding opportunities for our Large Project Construction segment. We also are
benefiting from revenue synergies in our diversification markets, especially in power, tunnel and underground. We continue to
operate in a highly competitive bidding environment in many of our traditional Western markets, as the unusually long and deep
cyclical downturn has made it difficult to estimate the timing or strength of the recovery. While we are encouraged by continued
signs of recovery in the private sector, the improvement to date primarily has impacted specific regions of residential construction.
Our Construction segment is expected to perform better in 2014, in line with the modest improvement in the economic and public
funding environment in the Western state and local communities we serve.
Our Large Project Construction segment is operating well, as we execute on a healthy portfolio of diverse projects ranging from
start-up to near completion. We look to grow our portfolio of new work in 2014. In 2014, we expect to bid on more than $13
billion of large projects with about half of that value representing potential Granite future revenue. Looking past 2014, we are
tracking an additional $20 billion in large projects.
Despite the current healthy large projects bidding environment, long-term, dedicated federal funding remains a concern. The two-
year federal highway bill, Moving Ahead for Progress in the 21st Century, signed in 2012, importantly increased TIFIA financing.
This bill expires in September of 2014, and it requires strong attention from Congress to provide the long-term stability of a new
highway bill. Funding and financing stability ultimately remains critical to driving progress on important infrastructure investment,
at federal, state and local levels.
During the fourth quarter of 2013, We concluded the majority of our 2010 EIP. As the impaired assets are sold, we may recognize
additional restructuring charges or gains; however, we do not expect these charges or gains to be material. Additionally, as we
complete our EIP and further divest of the real estate investment business, we will sell or otherwise dispose of the remaining $33.9
million of assets representing 10 consolidated and unconsolidated properties.
Results of Operations
Comparative Financial Summary
Years Ended December 31,
(in thousands)
Total revenue
Gross profit
Restructuring and impairment charges (gains), net
Operating (loss) income
Total other (expense) income
Amount attributable to non-controlling interests
Net (loss) income attributable to Granite Construction Incorporated
2013
2012
2011
$
$
2,266,901
185,263
52,139
(54,692)
(9,337)
8,343
(36,423)
$
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
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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
Heavy Civil:
Public sector
Private sector
Kenny:
Public sector
Private sector
Total
2013
2012
2011
$ 1,251,197
777,811
237,752
141
$ 2,266,901
55.2% $ 984,106
863,217
34.3
230,642
10.5
5,072
—
100.0% $ 2,083,037
47.2% $ 1,043,614
725,043
41.5
220,583
11.1
20,291
0.2
100.0% $ 2,009,531
51.9%
36.1
11.0
1.0
100.0%
2013
2012
2011
$ 386,050
85,219
31.0% $ 434,570
53,886
6.8
44.1% $ 464,288
46,694
5.5
44.5%
4.5
442,089
132,907
4,093
528
35.3
10.6
0.3
—
371,917
114,851
8,798
84
37.8
11.7
0.9
—
480,015
37,698
14,919
—
46.0
3.6
1.4
—
77,953
122,358
$ 1,251,197
6.2
9.8
—
—
100.0% $ 984,106
—
—
—
—
100.0% $ 1,043,614
—
—
100.0%
Construction revenue for the year ended December 31, 2013 increased by $267.1 million, or 27.1%, compared to the year ended
December 31, 2012 primarily due to the acquisition of Kenny in December 2012. The remaining increase resulted from increases
in Northwest public and private sectors as well as in California private sector revenues, offset by decreases in California public
sector revenue due to fluctuations in bidding success and resulting awards.
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Large Project Construction Revenue
Years Ended December 31,
(dollars in thousands)
California1
Northwest1
Heavy Civil1
Kenny:
Public sector
Private sector
Total
2013
2012
2011
$
73,486
24,085
623,166
9.5% $
3.1
80.1
73,359
175,595
614,263
8.5% $
20.3
71.2
67,948
134,217
522,878
9.4%
18.5
72.1
55,174
1,900
$ 777,811
7.1
0.2
—
—
100.0% $ 863,217
—
—
—
—
100.0% $ 725,043
—
—
100.0%
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, 2013 decreased by $85.4 million, or 9.9%, compared to the
year ended December 31, 2012. The decrease was primarily due to ongoing projects nearing completion, a lack of Large Project
Construction awards during 2012 and new projects in the early stage of completion. These decreases were partially offset by
increases from the acquisition of Kenny in December 2012. Despite the decrease in revenue since 2012, Large Project
Construction contract backlog as of December 31, 2013 increased by $769.0 million, or 71.4%, when compared to December 31,
2012. See “Contract Backlog” section below.
Construction Materials Revenue1
Years Ended December 31,
(dollars in thousands)
California
Northwest
Total
2013
2012
2011
$ 134,556
103,196
$ 237,752
56.6% $ 140,315
43.4
90,327
100.0% $ 230,642
60.8% $ 140,468
39.2
80,115
100.0% $ 220,583
63.7%
36.3
100.0%
1For the periods presented, all Construction Materials revenue was earned from the California and Northwest groups.
Construction Materials revenue for the year ended December 31, 2013 increased $7.1 million, or 3.1%, when compared to the year
ended December 31, 2012 primarily due to increased sales volumes to meet demand for new projects within the Northwest group.
The Northwest group increases were partially offset by a decrease in the California group due to continued weakness in the
commercial and residential development markets.
Real Estate Revenue
Real Estate revenue for the year ended December 31, 2013 decreased by $4.9 million, or 97.2%, compared to the year ended
December 31, 2012. The decrease was primarily attributable to the sale of commercial properties in California during 2012 with no
corresponding sales in 2013. Factors that contribute to fluctuations in revenue include national and local market conditions,
entitlement status of properties and buyers access to capital.
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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. Existing contracts that include
unexercised contract options and unissued task orders under existing contracts are included in contract backlog as task orders are
issued or options are exercised as further described in “Contract Backlog” under “Item 1. Business”. 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
Construction Contract Backlog
December 31,
(dollars in thousands)
California:
Public sector
Private sector
Northwest:
Public sector
Private sector
Heavy Civil:
Public sector
Private sector
Kenny:
Public sector
Private sector
Total
2013
2012
681,415
1,845,336
2,526,751
27.0% $
73.0
100.0% $
632,420
1,076,341
1,708,761
37.0%
63.0
100.0%
2013
2012
387,251
33,365
118,123
21,418
46,972
—
46,956
27,330
681,415
56.9% $
4.9
17.3
3.1
6.9
—
6.9
4.0
100.0% $
249,966
42,622
167,728
27,437
2,245
528
39,675
102,219
632,420
39.5%
6.7
26.5
4.3
0.4
0.1
6.3
16.2
100.0%
$
$
$
$
Construction contract backlog of $681.4 million at December 31, 2013 was $49.0 million, or 7.7%, higher than at December 31,
2012. The increase was primarily due to an improved success rate on bidding activity in the California and Heavy Civil operating
groups, partially offset by progress on existing projects in the Northwest and Kenny operating groups. Not included in
Construction contract backlog as of December 31, 2013 is $131.3 million associated with Kenny underground contracts, the
majority of which is expected to be booked into contract backlog as additional task orders are issued by the owners, the majority of
which is expected to occur in 2014.
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Large Project Construction Contract Backlog
December 31,
(dollars in thousands)
California1
Northwest1
Heavy Civil1
Kenny:
Public sector2
Private sector
Total
2013
2012
$
$
55,593
6,860
1,445,849
161,361
175,673
1,845,336
3.0% $
0.4
78.4
94,901
28,703
737,665
8.7
9.5
100.0% $
215,072
—
1,076,341
8.8%
2.7
68.5
20.0
—
100.0%
1For the periods presented, all Large Project Construction contract backlog is related to contracts with public agencies.
2As of December 31, 2013 and 2012, $58.4 million and $69.5 million, respectively, of Kenny public sector contract backlog was translated from
Canadian dollars to U.S. dollars at the spot rate in effect at the date of reporting.
Large Project Construction contract backlog of $1.8 billion at December 31, 2013 was $769.0 million, or 71.4%, higher than
at December 31, 2012. The increase from December 31, 2012 included the award of a $177.2 million material management
contract in the Kenny operating group and new awards in the Heavy Civil operating group, offset by jobs completing or nearing
completion in the California and Northwest operating groups. New awards in the Heavy Civil operating group included $733.0
million for our share of the Tappan Zee Bridge project in New York, a $296.0 million highway rebuild project in Texas and a
$131.3 million highway reconstruction project in North Carolina. Not included in Large Project Construction contract backlog as
of December 31, 2013 is $29.4 million associated with one highway rebuild project in Texas that will be booked into contract
backlog as contract options are exercised by the owner, the majority of which is expected to occur in 2016.
Non-controlling partners’ share of Large Project Construction contract backlog as of December 31, 2013 and 2012 was $59.2
million and $112.8 million, respectively.
Large Project Construction contracts with forecasted losses represented $127.8 million, or 6.9%, and $172.6 million, or 16.0%,
respectively, of Large Project Construction contract backlog at December 31, 2013 and 2012. 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. Future revisions to these estimated losses
will be recorded in the period in which the revisions are made. Similarly, recoveries related to unresolved contract modifications
and claims, if any, will be recorded in future periods.
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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
2013
2012
2011
$
106,374
$
77,963
$
124,506
8.5%
7.9%
11.9%
71,808
9.2
6,953
2.9
128
90.8
185,263
$
148,418
17.2
7,572
3.3
806
15.9
234,759
104,108
14.4
16,641
7.5
2,708
13.3
247,963
$
8.2%
11.3%
12.3%
$
For the majority of our contracts, revenue in an amount equal to cost incurred is recognized prior to contracts reaching at least 25%
completion, thus deferring the related profit. In the case of large, complex 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 cost. In the case of construction management, time and materials and cost-plus arrangements, we are generally able to
estimate profit as services are performed based on contractual rates and estimable volumes. Therefore, we recognize profit for
these types of contracts on an input basis, as services are performed. 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
2013
2012
2011
$
$
16,761
145,038
161,799
$
$
22,110
16,982
39,092
$
$
10,363
38,542
48,905
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We do not recognize revenue from affirmative 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 when such costs are incurred, and we revise estimated
total costs as soon as the obligation to perform is determined. As a result, our gross profit as a percentage of revenue can vary
depending on the magnitude and timing of the settlement of claims and change orders.
When we experience significant changes in our estimates of costs to complete, we undergo a process that includes reviewing the
nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as
revisions in estimates for the current period. In our review of these changes for the years ended December 31, 2013, 2012 and
2011, we did not identify any material amounts that should have been recorded in a prior period.
Unresolved contract modifications and claims to recover additional compensation for unanticipated additional costs that the
Company believes it is entitled to under the terms of the projects’ contracts are pending or have been submitted on certain projects.
The projects’ owners or their authorized representatives may be in partial or full agreement with the request or proposed
modification, or may have rejected or disagree entirely as to such entitlement. The potential amount of total recoveries for contract
modifications and claims for which (1) the Company believes the likelihood of recovery is probable or reasonably possible; (2) the
amount of potential recovery on such contract modifications and claims can be reasonably estimated; and (3) the amount of the
contract modification or claim individually exceeds $0.5 million, is between $85.0 million and $120.0 million as of December 31,
2013. These amounts are estimated recoveries and do not include costs that may be incurred to pursue and obtain such potential
recoveries. Also, the Company may have to pay portions of any such recoveries to subcontractors or suppliers whose additional
costs are included in the contract modifications or claims. These estimates are forward-looking statements that reflect the best
judgment of management and reflect current expectations regarding future events. However, the actual amounts that will be
recovered and the timing of any such recoveries cannot be guaranteed, and this total amount of estimated recoveries may not be
realized.
Construction gross profit in 2013 increased $28.4 million compared to 2012. Construction gross margin as a percentage of segment
revenue for 2013 increased to 8.5% from 7.9% in 2012. The increase was due to improved project execution, increase in project
volumes and the addition of gross profit from Kenny operations. Gross profit and gross margin from Kenny operations in 2013 was
$25.4 million and 12.7%, respectively.
Large Project Construction gross profit in 2013 decreased $76.6 million compared to 2012. Large Project Construction gross
margin as a percentage of segment revenue for 2013 decreased to 9.2% from 17.2% in 2012. The decreases were due to several
projects that have completed or are nearing completion as well as projects which have not yet reached the profit recognition
threshold, primarily in the Heavy Civil operating group. The decreases during 2013 were also attributable to a net increase of $25.5
million from revisions in estimates in 2013, down from a net increase of $64.6 million in 2012 (see Note 2 of “Notes to the
Consolidated Financial Statements”).
Construction Materials gross profit in 2013 decreased $0.6 million compared to 2012. Construction Materials gross margin as a
percentage of segment revenue for 2013 decreased to 2.9% from 3.3% in 2012. The decreases were primarily due to the continued
competitive environment in the commercial and public markets in general.
Real Estate gross profit decreased $0.7 million during 2013 compared to 2012 as we continue to reduce the number of real estate
assets in keeping with our EIP.
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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
Incentive compensation
Other general and administrative expenses
Total general and administrative
Total selling, general and administrative
Percent of revenue
2013
2012
2011
$
$
38,410
6,901
45,311
65,482
14,770
9,376
65,007
154,635
199,946
$
$
35,051
13,321
48,372
57,583
10,909
11,543
56,692
136,727
185,099
$
$
33,342
9,066
42,408
51,041
11,447
12,478
44,928
119,894
162,302
8.8%
8.9%
8.1%
Selling, general and administrative expenses for 2013 increased $14.8 million, or 8.0%, compared to 2012.
Selling Expenses
Selling expenses include the costs for materials facility 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 2013 decreased
$3.1 million, or 6.3%, compared to 2012. The decrease was primarily due to lower pre-bid costs within the Heavy Civil operating
group partially offset by additional salary and related expenses associated with Kenny of $4.2 million.
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 as earned over the vesting period of the restricted
stock award (generally three years). Other general and administrative expenses include travel and entertainment, outside services,
information technology, depreciation, occupancy, training, office supplies, changes in the fair market value of our Non-Qualified
Deferred Compensation plan liability and other miscellaneous expenses none of which individually exceeded 10% of total general
and administrative expenses.
Total general and administrative expenses for 2013 increased $17.9 million, or 13.1%, compared to 2012. The increase during
2013 was primarily due to the addition of expenses associated with Kenny of $23.1 million. This includes $9.7 million of salaries
and related expenses, $3.7 million of restricted stock amortization and incentive compensation, $6.6 million of other general and
administrative expenses and $3.1 million in integration costs. These increases were partially offset by a decrease in salaries and
related expenses as part of our ongoing efforts to reduce our cost structure, as well as a decrease in incentive compensation
expense due to our net loss during 2013.
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Restructuring and Impairment Charges (Gains), Net
The following table presents the components of restructuring and impairment charges, net during the respective periods (in
thousands):
Years ended December 31,
Impairment losses (gains) associated with our real estate investments, net
Severance costs
Impairment charges on assets
Lease termination costs (gains), net of estimated sublease income
Total restructuring charges (gains)
Other impairment charges
Total restructuring and impairment charges (gains), net
2013
2012
2011
$
$
31,090 $
—
14,651
3,234
48,975
3,164
52,139 $
(3,093) $
—
—
(635)
(3,728)
—
(3,728) $
1,452
471
226
32
2,181
—
2,181
In October 2010, we announced our EIP, which included 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 EIP was
recorded in 2010 and amounted to $109.3 million, including amounts attributable to non-controlling interests of $20.0 million. Of
the $109.3 million, $86.3 million and $10.3 million was related to our Real Estate and Construction Materials segments,
respectively. In 2011, development activities were curtailed for the majority of our real estate development projects as divestiture
efforts increased and we recorded $1.5 million associated with the sale or other disposition of three separate projects located in
California related to our Real Estate segment. During 2012, we recorded a restructuring gain of $3.1 million associated with the
sale or other disposition of one project in California, one project in Oregon, and one project in Washington.
During the fourth quarter of 2013, management approved a plan to sell or otherwise dispose of all of the remaining consolidated
real estate investments in our Real Estate segment, as well as certain assets in our Construction Materials segment. These actions
were taken pursuant to the EIP, and resulted in restructuring charges of $49.0 million in the fourth quarter of 2013, including
amounts attributable to non-controlling interests of $3.9 million. These restructuring charges consisted of the non-cash impairment
of certain assets and the accrual of lease termination costs. The carrying values of the impaired assets were adjusted to their
expected fair values, which were estimated by a variety of factors including, but not limited to, comparative market data, historical
sales prices, broker quotes and third-party valuations.
The restructuring charges associated with the Company’s Real Estate segment resulted in $31.1 million of non-cash impairment
charges related to all of the remaining consolidated real estate assets, including amounts attributable to non-controlling interests of
$3.9 million. The impaired assets consist primarily of our consolidated residential and retail development projects which had a
carrying value of $44.6 million prior to the impairment.
The restructuring charges associated with the Company’s Construction Materials segment resulted in $14.7 million of non-cash
impairment charges related to non-performing quarry sites which had an aggregate carrying value of $17.1 million prior to the
impairment. Separate from these quarry sites, but in connection with the impairment of these assets, we recorded lease termination
charges of $3.2 million.
We concluded the majority of our 2010 EIP during 2013. As the impaired assets are sold, we may recognize additional
restructuring charges or gains; however, we do not expect these charges or gains to be material.
Separate from the EIP but related to our process of continually optimizing our assets, we identified a quarry asset within our
Construction Materials segment that no longer had strategic value to our vertically integrated business. Therefore, during the fourth
quarter of 2013, management approved a plan to sell or otherwise dispose of this asset. We determined that the asset’s carrying
value was not recoverable and recorded a $3.2 million non-cash impairment charge.
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)
2013
2012
2011
Gain on sales of property and equipment
12,130
27,447
15,789
Gain on sales of property and equipment for 2013 decreased $15.3 million, or 55.8%, compared to 2012, primarily due to an $18.0
million gain from the sale of an underutilized quarry asset during 2012 with no corresponding sale in 2013.
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Other (Expense) Income
The following table presents the components of other (expense) income 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 (expense) income
2013
2012
2011
$
$
$
1,785
(14,386)
1,304
1,960
(9,337) $
2,626
(10,603)
1,988
6,183
194
$
$
2,878
(10,362)
2,193
(4,545)
(9,836)
Interest expense during 2013 increased $3.8 million compared to 2012 primarily due to increased borrowings under Granite’s
existing revolving credit facility related to the acquisition of Kenny in 2012. Other income, 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 solar power
generation equipment.
Income Taxes
The following table presents the (benefit from) provision for income taxes for the respective periods:
Years Ended December 31,
(dollars in thousands)
(Benefit from) provision for income taxes
Effective tax rate
2013
2012
2011
$
(19,263)
30.1%
$
21,109
$
23,348
26.1%
26.1%
Our effective tax rate increased to 30.1% in 2013 from 26.1% in 2012. The most significant change was due to the effect of non-
controlling interests as a percentage of net (loss) income, as non-controlling interests are not subject to income taxes on a
standalone basis. Additionally, included in the tax rate for the year ended December 31, 2012, is the release of a state valuation
allowance. 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 Non-controlling Interests
The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective
periods:
Years Ended December 31,
(in thousands)
Amount attributable to non-controlling interests
2013
2012
2011
$
8,343
$
(14,637) $
(14,924)
The amount attributable to non-controlling interests represents the non-controlling owners’ share of the income or loss of our
consolidated construction joint ventures and real estate entities. The change in non-controlling interests during 2013 was primarily
due to a consolidated construction joint venture project nearing completion thereby realizing less income when compared to 2012.
Additionally, the change was from losses incurred due to a project write down from revisions in profitability estimates on a
highway project in Washington State and from the 2013 Real Estate segment restructuring charges.
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Prior Years
Revenue: 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 operating 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 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.
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 continued to be impacted by the weakness in the commercial
and residential development markets.
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 EIP, we have less real estate for sale.
Contract Backlog: Construction contract backlog of $632.4 million at December 31, 2012 was $118.8 million, or 23.1%, 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 backlog of $1.1 billion at December 31, 2012 was $432.5 million, or 28.7%, 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.
Gross Profit: Construction gross profit in 2012 decreased to $78.0 million, or 7.9% of segment revenue, from $124.5 million, or
11.9% of segment revenue, 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 that originally anticipated.
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.
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 were primarily due to poor economic
conditions at certain California locations.
Real Estate gross profit decreased $1.9 million during 2012 compared to 2011. The decrease was primarily due to the execution of
our EIP which reduced our real estate available for sale.
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Selling, General and Administrative Expenses: Selling, general and administrative expenses increased by $22.8 million, or
14.0%, to $185.1 million in 2012 from $162.3 million in 2011. Total selling expenses for 2012 increased $6.0 million, or
14.1%, compared to 2011, primarily related to increased costs associated with large projects pursuits. 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 Kenny acquisition-related costs of $4.4 million and an increase of $2.0
million in the fair market value of our NQDC plan liability.
Restructuring and Impairment Charges (Gains), Net: During 2012, we recorded a net restructuring gain of $3.7 million and in
2011, we recorded net restructuring charges of $2.2 million. The restructuring gains and charges recorded in 2012 and 2011 were
the result of executing our EIP.
Gain on Sales of Property and Equipment: 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 EIP.
Other Income (Expense): 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. Other (expense)
income, net in 2011 consisted primarily of $3.7 million in non-cash impairment charges associated with the same cost method
investment.
Provision for Income Taxes: 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.
Amount Attributable to Non-controlling Interests: The balance for 2012 was essentially flat compared to 2011 due to similar
levels of activity on consolidated joint venture projects.
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Liquidity and Capital Resources
We believe our cash and cash equivalents, short-term investments and cash expected to be 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 collateralized
revolving credit facility of $215.0 million, of which $134.9 million was available at December 31, 2013, primarily to provide
capital needs to fund growth opportunities, either internal or generated through acquisitions (see “Credit Agreement” discussion
below for further information). We do not anticipate that this credit facility will be required to fund future working capital needs
associated with our existing operations. 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. There can be no assurance that sufficient
capital will continue to be available in the future or that it will be available on terms acceptable to us.
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
216,125
105,865
321,990
111,430
433,420
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 until
distributed.
2See Note 3 of “Notes to the Consolidated Financial Statements” for the composition of our marketable securities.
Total cash, cash equivalents and marketable securities
190,321
38,800
229,121
117,202
346,323
$
$
$
$
2013
2012
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 markets 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 and commercial paper. Cash and
cash equivalents held by our consolidated joint ventures are primarily used to fulfill 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 until distributed.
Consolidated joint ventures contributed 72.2% or $67.1 million of the $92.9 million decrease in cash and cash equivalents during
2013.
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 in December 2012.
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Cash Flows
Years Ended December 31,
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
2013
2012
2011
$
$
5,380
(31,648)
(66,601)
$
91,790
(42,554)
15,764
92,345
(27,728)
(59,649)
Cash flows from operating activities result primarily from our earnings or losses, and are also impacted by changes in operating
assets and liabilities which consist primarily of working capital balances. As a large heavy civil contractor and construction
materials producer, our operating cash flows are subject to the cycles associated with winning, performing and closing projects,
including the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex
nature of the work that we perform.
Cash provided by operating activities of $5.4 million in 2013 represents an $86.4 million decrease from the amount of cash
provided by operating activities when compared to 2012. The decrease was mainly attributable to a $17.9 million decrease in net
distributions from unconsolidated joint ventures, a $45.9 million decrease in cash from working capital and a $22.6 million
decrease in net income after adjusting for non-cash items. Decreases in working capital were primarily attributable to a $45.9
million increase in the net use of cash related to accounts payable and accrued expenses and other current liabilities, primarily due
to payments made in the normal course of business associated with contracts in our Large Project Construction segment.
Cash used in investing activities of $31.6 million for 2013 represents a $10.9 million decrease compared to the same period in
2012. The decrease was primarily due to the payments made to acquire Kenny in 2012. This was partially offset by a decrease in
net proceeds and maturities of marketable securities during 2013 when compared to 2012. These changes were a result of our cash
management activities that are generally based on the Company’s cash flow requirements and/or investments maturities. The
decrease was also offset by a decrease in net additions to and proceeds from property and equipment. There were no unusual
investing activities related to our cash management practices during the year ended December 31, 2013.
Cash used in financing activities of $66.6 million for 2013 represents an $82.4 million change from the amount of cash provided
by financing activities in 2012. The change was due to a decrease in proceeds from long-term debt of $70.5 million related to the
Kenny acquisition in 2012. Additionally, there was a $13.5 million increase in net distributions to non-controlling partners
primarily related to two projects nearing completion in our Large Project Construction segment.
Capital Expenditures
During the year ended December 31, 2013, we had capital expenditures of $43.7 million compared to $37.6 million in 2012. 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 2014.
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Debt and Contractual Obligations
The following table summarizes our significant obligations outstanding as of December 31, 2013:
(in thousands)
Long-term debt - principal
Long-term debt - interest1
Operating leases2
Other purchase obligations3
Deferred compensation obligations4
Asset retirement obligations5
Total
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$ 278,115 $
57,252
38,269
10,002
23,630
29,138
$ 436,406 $
1,247 $ 156,787 $
14,167
8,231
9,973
4,521
9,817
28,410
12,759
29
5,187
2,473
47,956 $ 205,645 $ 104,130 $
80,052 $
12,229
7,130
—
3,682
1,037
40,029
2,446
10,149
—
10,240
15,811
78,675
1 Included in the total is $0.9 million related to mortgages, the terms of which include a 4.50% variable interest rate at December 31, 2013. Also
included in this balance is $7.5 million interest related to borrowing under our Credit Agreement, the terms of which include a variable interest
rate that was 2.75% at December 31, 2013 using LIBOR. In addition, included in the total is $48.9 million in interest related to borrowings
under our senior notes, respectively, the terms of which include a 6.11% per annum interest rate. The future payments were calculated using
rates in effect as of December 31, 2013 and may differ from actual results. See Note 12 of “Notes to the Consolidated Financial Statements.”
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 December 31, 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 could cause the timing of payments to change.
5Asset retirement obligations represent reclamation and other related costs associated with our owned and leased quarry properties, the majority
of which have an estimated settlement date beyond five years (see Note 8 of “Notes to the Consolidated Financial Statements”).
In addition to the significant obligations described above, as of December 31, 2013, we had approximately $3.2 million associated
with uncertain tax positions filed on our tax returns which were excluded because we cannot make a reasonably reliable estimate of
the timing of potential payments relative to such reserves.
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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, of which $134.9 million was available at December 31, 2013. At December 31,
2013 and 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 sheets. In addition, as of December 31,
2013, there were standby letters of credit totaling $10.1 million. The letters of credit will expire between August 2014 and October
2014.
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 2.50% for loans bearing interest based on LIBOR and 1.50% for loans bearing interest at the
base rate at December 31, 2013. Accordingly, the effective interest rate was between 2.75% and 4.75% at December 31, 2013.
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 LIBOR 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 paid off or rolled over at our discretion into either a borrowing at the base rate or a
borrowing at a LIBOR rate with similar terms, not to exceed the maturity date of the Credit Agreement. On a periodic basis, we
assess the timing of payment depending on facts and circumstances that exist at the time of our assessment. 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 2019 Notes (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.
The Credit Agreement provides for the release of the liens securing the obligations, at our option and expense, 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. As of December 31, 2013, the conditions for the exercise of this option were not satisfied.
Senior Notes Payable
As of December 31, 2013, senior notes payable in the amount of $200.0 million were due to a 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 2019 Notes (the “2019 NPA”) 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 2019 NPA provides 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, 2013, $1.8 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 repay
portions of the debt. As of December 31, 2013, the principal amount of debt of our consolidated real estate entities secured by
mortgages was $7.9 million, of which $1.2 million was included in current liabilities and $6.7 million was included in long-term
liabilities on our consolidated balance sheet.
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Covenants and Events of Default
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the
financial covenants described below. 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.
The most significant financial covenants under the terms of our Credit Agreement and 2019 NPA require the maintenance of a
minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated
Leverage Ratio.
On March 3, 2014, Granite executed amendments to the Credit Agreement and 2019 NPA, which terms include, among other
things, (i) a revised minimum Consolidated Tangible Net Worth of $600.0 million; and (ii) a revised maximum Consolidated
Leverage Ratio of 3.75. The maximum Consolidated Leverage Ratio decreases to 3.50 beginning with our quarter ending June 30,
2014, to 3.25 beginning with quarter ending September 30, 2014 and to 3.00 thereafter. As of December 31, 2013, our
Consolidated Tangible Net Worth was $729.1 million and the Consolidated Leverage Ratio was 2.74. The Credit Agreement
amendment permanently waived the Company’s requirement to comply with such financial covenants for the quarter ended
December 31, 2013.
As of December 31, 2013, we were in compliance with all covenants contained in the Credit Agreement and 2019 NPA, as
amended, and the debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any
of our unconsolidated real estate entities with the covenants contained in their debt agreements.
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, 2013, $64.1 million remained available under this authorization. We did not purchase shares under
the share purchase program in any of the periods presented. The specific timing and amount of any future 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.
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Recently Issued and Adopted 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 and in January 2013, issued ASU No.
2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. These ASUs
require companies to disclose both gross and net information about financial instruments that have been offset on the balance
sheet. These ASUs were effective for our quarter ended March 31, 2013 and did not impact 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 was effective for our quarter ended March 31, 2013 and did not impact our
consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income. This ASU requires an entity to provide information about the amounts reclassified
out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of
the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income in certain circumstances. This ASU was effective for our quarter
ended March 31, 2013. For all periods presented other comprehensive income (loss) was not significant; therefore, the adoption of
this ASU did not have an impact on our consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires companies with
unrecognized tax benefits, or a portion of unrecognized tax benefits, to present these benefits in the financial statements as a
reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward. This ASU will be effective
commencing with our quarter ending March 31, 2015. We do not expect the adoption of this ASU to have a material 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 purchase 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 the 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 and commercial paper, are 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, 2013 and 2012, 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.
At December 31, 2013, senior notes payable in the amount of $200.0 million were due to a group of institutional holders in five
equal installments beginning in 2015 and bear interest at 6.11% per annum.
At December 31, 2013 and 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 sheets. 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 2.50% for loans bearing interest based on LIBOR and 1.50% for loans bearing interest at the base rate
at December 31, 2013. Accordingly, the effective interest rate was between 2.75% and 4.75% at December 31, 2013. If LIBOR
increases over 2.50%, each 25 basis point increase would result in $0.2 million annually in additional interest expense.
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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 significant debt obligations as of December 31, 2013 (dollars in thousands):
Assets
Cash, cash equivalents, held-to-
maturity investments
Weighted average interest rate
Liabilities
Fixed rate debt
2014
2015
2016
2017
2018
Thereafter
Total
$ 279,089
$ 15,604
$ 25,180
$
16,450
$
10,000
$
0.20%
0.43%
0.69%
1.04%
1.62%
— $ 346,323
—%
0.33%
Senior notes payable
Weighted average interest rate
Variable rate debt
Credit Agreement loan
Weighted average interest rate1
$
$
— $ 40,000
$ 40,000
$
40,000
$
40,000
$
40,000
$ 200,000
6.11%
6.11%
6.11%
6.11%
6.11%
6.11%
6.11%
— $
— $ 70,000
$
2.75%
2.75%
2.75%
— $
—%
— $
—%
— $
—%
70,000
2.75%
1The weighted average interest rate was calculated using LIBOR rates and the applicable margin in effect as of December 31, 2013 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. 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 $225.9 million as of December 31, 2013 and $243.1 million as of December 31, 2012. The fair value of the Credit
Agreement loan was approximately $69.6 million as of December 31, 2013 and $70.4 million as of December 31, 2012.
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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, 2013 and 2012
Consolidated Statements of Operations - Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity - Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows - Years Ended December 31, 2013, 2012 and 2011
Notes to the Consolidated Financial Statements
Quarterly Financial Data (unaudited)
Schedule II - Schedule of Valuation and Qualifying Accounts
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, 2013, 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,
2013, 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: During the quarter ended December 31, 2013, there were no changes to
our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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, our management conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework in “Internal Control—Integrated Framework (1992)” 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, 2013.
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, 2013. The report, which expresses an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, 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.
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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 5, 2014 (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.
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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, 2013 and 2012
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011
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-48
F-49
2. Financial Statement Schedule. The following financial statement schedule of Granite for the years ended December 31, 2013,
2012 and 2011 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.
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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, 2013 and 2012, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 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, 2013, based on criteria established in
Internal Control - Integrated Framework (1992) 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.
/s/PricewaterhouseCoopers LLP
San Francisco, California
March 3, 2014
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GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)
Table of Contents
December 31,
ASSETS
Current assets
Cash and cash equivalents ($38,800 and $105,865 related to consolidated construction
joint ventures (“CCJV”))
Short-term marketable securities
Receivables, net ($38,372 and $43,902 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 ($22,216 and $41,114 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 ($16,937 and $34,536 related to CCJVs)
Billings in excess of costs and estimated earnings ($60,185 and $72,490 related to CCJVs)
Accrued expenses and other current liabilities ($11,299 and $8,312 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 38,917,728 shares as of December 31, 2013 and 38,730,665 shares as of
December 31, 2012
Additional paid-in capital
Retained earnings
Total Granite Construction Incorporated shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
2013
2012
$
$
$
229,121
49,968
313,598
33,306
62,474
12,478
55,874
162,673
30,711
950,203
436,859
67,234
32,480
53,799
76,580
1,617,155
21
1,226
160,706
138,375
197,242
497,570
270,127
6,741
48,580
7,793
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
—
—
389
126,449
655,102
781,940
4,404
786,344
1,617,155
$
387
117,422
712,144
829,953
41,905
871,858
1,729,487
$
$
$
$
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GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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 and impairment charges (gains), net
Gain on sales of property and equipment
Operating (loss) income
Other (expense) income
Interest income
Interest expense
Equity in income of affiliates
Other income (expense), net
Total other (expense) income
(Loss) income before (benefit from) provision for income taxes
(Benefit from) provision for income taxes
Net (loss) income
Amount attributable to non-controlling interests
Net (loss) income attributable to Granite Construction Incorporated
Net (loss) income 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.
2013
2012
2011
$ 1,251,197
777,811
237,752
141
2,266,901
$
984,106
863,217
230,642
5,072
2,083,037
$ 1,043,614
725,043
220,583
20,291
2,009,531
1,144,823
706,003
230,799
13
2,081,638
185,263
199,946
52,139
12,130
(54,692)
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
1,785
(14,386)
1,304
1,960
(9,337)
(64,029)
(19,263)
(44,766)
8,343
(36,423) $
2,626
(10,603)
1,988
6,183
194
81,029
21,109
59,920
(14,637)
45,283
(0.94) $
(0.94) $
1.17
1.15
38,803
38,803
0.52
$
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
$
$
$
$
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GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
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 non-controlling
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
Non-controlling interest from acquisition
Transactions with non-controlling
interests, net
Stock options exercised and other
Balances at December 31, 2012
Net loss
Stock units vested
Amortized restricted stock
Purchase of common stock
Cash dividends on common stock
Net tax on stock-based compensation
Transactions with non-controlling
interests, net
Employee Stock Purchase Plan and other
Balances at December 31, 2013
Outstanding
Shares
38,745,542 $
—
80,245
—
(143,527)
—
—
—
511
38,682,771
—
191,285
—
(161,080)
—
—
—
—
17,689
38,730,665
—
359,941
—
(197,313)
—
—
—
24,435
38,917,728 $
Common
Stock
Additional
Paid-in
Capital
387 $ 104,232 $
—
1
—
(1)
—
—
—
(1)
12,155
(4,028)
—
(1,360)
Retained
Earnings
Total Granite
Shareholders’
Equity
Non-
controlling
Interests
Total
Equity
656,412 $
51,161
—
—
—
(20,107)
—
761,031 $
51,161
—
12,155
(4,029)
(20,107)
(1,360)
34,604 $ 795,635
66,085
14,924
—
—
12,155
—
(4,029)
—
(20,107)
—
(1,360)
—
—
—
387
—
2
—
(2)
—
—
—
—
—
387
—
4
—
(2)
—
—
—
—
—
516
111,514
—
(1)
11,475
(4,852)
—
(1,573)
—
—
859
117,422
—
(4)
13,443
(5,900)
—
419
—
1,069
389 $ 126,449 $
—
(170)
687,296
45,283
—
—
—
(20,117)
—
—
—
(318)
712,144
(36,423)
—
—
—
(20,210)
—
—
346
799,197
45,283
1
11,475
(4,854)
(20,117)
(1,573)
—
—
541
829,953
(36,423)
—
13,443
(5,902)
(20,210)
419
(21,062)
—
28,466
14,637
—
—
—
—
—
14,788
(15,986)
—
41,905
(8,343)
—
—
—
—
—
(21,062)
346
827,663
59,920
1
11,475
(4,854)
(20,117)
(1,573)
14,788
(15,986)
541
871,858
(44,766)
—
13,443
(5,902)
(20,210)
419
—
(409)
655,102 $
—
660
781,940 $
(29,158)
—
(29,158)
660
4,404 $ 786,344
The accompanying notes are an integral part of these consolidated financial statements.
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GRANITE CONSTRUCTION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2013
2012
2011
$
(44,766) $
59,920 $
66,085
44,734
72,899
(12,130)
(19,557)
13,443
(72,764)
12,236
(507)
(2,689)
(40,758)
110,347
3,961
(34,048)
(25,021)
5,380
(74,924)
63,650
5,000
(43,682)
25,759
(8,382)
931
(31,648)
—
(12,148)
(20,210)
(5,896)
5,117
(34,600)
1,136
(66,601)
(92,869)
321,990
229,121
145
56,101
(27,447)
6,013
11,475
(101,747)
9,415
2,780
(8,079)
(4,986)
92,474
8,898
(9,472)
(3,700)
91,790
(124,596)
90,100
75,000
(37,622)
34,392
(79,640)
(188)
(42,554)
70,495
(11,751)
(20,117)
(4,854)
107
(16,093)
(2,023)
15,764
65,000
256,990
321,990 $
$
6,745
60,546
(15,789)
8,566
12,155
(67,845)
(2,258)
(56,524)
43
(800)
35,598
(3,715)
28,960
20,578
92,345
(155,122)
110,875
33,268
(45,035)
27,959
—
327
(27,728)
2,122
(16,907)
(20,117)
(4,029)
519
(21,581)
344
(59,649)
4,968
252,022
256,990
Years Ended December 31,
Operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Non-cash restructuring and impairment charges, net
Depreciation, depletion and amortization
Gain on sales of property and equipment
Change in deferred income tax
Stock-based compensation
Equity in net income from unconsolidated joint ventures
Changes in assets and liabilities, net of the effects of acquisition in 2012:
Receivables
Costs and estimated earnings in excess of billings, net
Inventories
Contributions to unconsolidated construction joint ventures
Distributions from unconsolidated 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
Purchases of property and equipment
Proceeds from sales of property and equipment
Acquisition of Kenny, 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 non-controlling partners
Distributions to non-controlling partners
Other financing activities, net
Net cash (used in) provided by financing activities
(Decrease) increase 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.
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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
Other non-cash activities:
Performance guarantees
Non-cash investing and financing activities:
Restricted stock/units issued, net of forfeitures (See Note 14)
Accrued cash dividends
Debt payments out of escrow from sale of assets
Debt extinguishment from joint venture interest assignment
Debt payment from refinance
2013
2012
2011
$
$
$
$
14,622
4,119
(23,765)
13,775
5,059
—
—
—
11,484 $
24,616
16,239
24,783
6,528
(4,941)
14,175 $
5,035
1,109
18,612
1,150
6,874
5,028
14,447
—
—
The accompanying notes are an integral part of these consolidated financial statements.
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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 have offices in Alaska, Arizona, California, Colorado,
Florida, Illinois, Nevada, New York, 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 and a limited liability company (“joint ventures” or “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. The factors we use
to determine the primary beneficiary of a variable interest entity (“VIE”) 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.
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 ventures under the equity
method of accounting, as a single line item in both the consolidated statements of operations and in the consolidated balance
sheets.
If we determine that the power to direct the significant activities is shared equally by two or more joint venture parties, then there is
no primary beneficiary and no party consolidates the VIE.
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 that affect the reported amounts of assets and liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. Our estimates and related judgments and assumptions are continually
evaluated based on available information and experiences; however, actual amounts could differ from those estimates.
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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. For
the majority of our contracts, revenue in an amount equal to cost incurred is recognized prior to contracts reaching at least 25%
completion, thus deferring the related profit. Based on historical experience, it is our judgment that until a project reaches at least
25% completion, there may be insufficient information to determine the estimated profit other than to be reasonably certain that a
contract will not incur a loss. In the case of large, complex 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. In the case of construction management, time and
materials and cost plus arrangements, we are able to estimate profit as services are performed based on contractual rates and
estimable volumes. Therefore, we recognize profit for these types of contracts on an input basis, as services are performed.
Revenue from affirmative 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). Pre-contract costs are expensed as incurred.
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 create materially reliable estimates generally upon incurring approximately 25% of expected costs. 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;
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;
a change in the availability and proximity of equipment and materials; and
our ability to recover on unresolved contract modifications and claims.
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. Significant 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.
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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 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, 2013 and 2012, was $38.8 million
and $105.9 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 and are periodically assessed for
other-than-temporary impairment. 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, 2013 and 2012, we had no significant outstanding
derivative instruments.
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.
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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 material receivables from foreign operations
as of December 31, 2013. 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 historically been within management’s estimates.
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 or an asset group 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 balance sheet and the resulting gains or losses, if any, are
reflected in operating income (loss) 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,
2013, 2012 and 2011, we capitalized $2.5 million, $10.9 million and $14.0 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 net book value of an asset may not be recoverable. Recoverability of these assets is measured
by comparison of their net book values 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 net book value of the asset
exceeds its fair value. We group plant equipment 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. When an individual asset or group of assets are
determined to no longer contribute to the vertically integrated asset group, it is assessed for impairment independently.
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.
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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.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Goodwill: As of December 31, 2013, we had five reporting units in which goodwill was recorded as follows:
• California Group Construction
• Kenny Group Construction
• Kenny Group Large Project Construction
• Northwest Group Construction
• Northwest Group Construction Materials
The most significant goodwill balances reside in the reporting units associated with the Kenny Group.
We perform impairment tests annually as of December 31 and more frequently when events and circumstances occur that indicate a
possible impairment of goodwill. In addition, we evaluate goodwill for impairment if events or circumstances change between
annual tests indicating a possible impairment. Examples of such events or circumstances include the following:
•
•
•
•
a significant adverse change in legal factors or in the business climate;
an adverse action or assessment by a regulator;
a more likely than not expectation that a segment or a significant portion thereof will be sold; or
the testing for recoverability of a significant asset group within the segment.
In performing step one of the goodwill impairment tests, we calculate the estimated fair value of the reporting unit in which the
goodwill is recorded using the discounted cash flows and market multiple methods. Judgments inherent in these methods include
the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates, and
appropriate benchmark companies. The cash flows used in our 2013 discounted cash flow model were based on five-year financial
forecasts, which in turn were based on the 2014-2016 operating plan developed internally by management adjusted for market
participant based assumptions. Our discount rate assumptions are based on an assessment of equity cost of capital and appropriate
capital structure for our reporting units. In assessing the reasonableness of our determined fair values of our reporting units, we
evaluate our results against our current market capitalization.
After calculating the estimated fair value, we 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.
The results of our annual goodwill impairment tests indicated that the estimated fair values of our reporting units exceeded their
net book values (i.e., cushion) by at least 50% for three of the five reporting units. The Northwest Construction Materials and
Kenny Large Project Construction reporting units had goodwill balances of $1.9 million and $22.4 million, respectively, as of
December 31, 2013 and fair value of equity exceeded the net book value by 48% and 42%, respectively.
The Northwest Construction Materials business is susceptible to state and local spending as well as private spending on residential
and commercial construction. While the current cushion is sufficient, any significant margin degradation caused by low volumes
or increased production costs could have a significant impact to this reporting unit’s estimated fair value. The Kenny Large Project
Construction business is susceptible to fluctuations in results depending on awarded work given the size and frequency of awards.
While we believe the current cushion is adequate to absorb these fluctuations, a significant decline in job win rates could have a
significant impact to this reporting unit’s estimated fair value.
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, including advance payments
negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.
Asset Retirement and Reclamation Obligations: 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, 2013, 2012 and 2011.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Performance Guarantees: Agreements with our joint venture partners and limited liability company members (“partner(s)”) for
both construction joint ventures and line item joint ventures define each partner’s management role and financial responsibility in
the project. The amount of operational exposure is generally limited to our stated ownership interest. However, due to the joint and
several nature of the performance obligations under the related owner contracts, if one of the partners fails to perform, we and the
remaining partners would be responsible for performance of the outstanding work (i.e., performance guarantee). We estimate our
liability for performance guarantees and include them in accrued expenses and other current liabilities (see Note 10) with a
corresponding asset in equity in construction joint ventures on the consolidated balance sheets. We reassess our liability when and
if changes in circumstances occur. The liability and corresponding asset are removed from the consolidated balance sheets upon
customer acceptance of the project.
Circumstances that could lead to a loss under these agreements 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 agreement.
At December 31, 2013, there was $4.4 billion of construction revenue to be recognized on unconsolidated and line item
construction joint venture contracts, of which $1.2 billion represented our share and the remaining $3.2 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.
Contingencies: We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if the
potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably
estimated. If a potential loss is considered probable but only a range of loss can be determined, the low-end of the range is
recorded. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably
possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.
Significant judgment is required in both the determination of probability of loss and the determination as to whether an exposure is
reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at
the time. As additional information becomes available, we reassess the potential liability related to claims and litigation and may
revise our estimates.
Stock-Based Compensation: We measure and recognize compensation expense, net of estimated forfeitures, over the requisite
vesting periods 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 and Impairment Charges (Gains): 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 the Property and Equipment, Long-lived Assets and Real Estate
Held for Development and Sale accounting policies above for further information on asset impairment charges. During the years
ended December 31, 2013 and 2011, we recorded net restructuring and impairment charges of $52.1 million and $2.2 million,
respectively, and during the year ended December 31, 2012, we recorded a net restructuring gain of $3.7 million (see Note 11).
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 that 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.
Reclassifications: Certain reclassifications have been made to historical financial data on our consolidated statements of cash flows
to conform to our current year presentation. Historically, cash flows used in or provided by unconsolidated construction joint
ventures were presented as one line item within operating cash flows. To improve transparency about the activity in the related
balance sheet accounts, we have now presented separately the significant activity for the periods presented. In addition to the
above, we reclassified $6.5 million and $4.9 million related to performance guarantees for the years ended December 31, 2012 and
2011, respectively, out of the Equity in construction joint ventures and accrued expenses and other current liabilities, net to the
non-cash supplemental table of the consolidated statement of cash flows. There was no impact to total cash used in or provided by
operating, investing or financing activities. The following table summarizes these changes (in thousands):
Year Ended December 31,
Equity in net income from unconsolidated joint ventures
Equity in construction joint ventures
Contributions to unconsolidated construction joint ventures
Distributions from unconsolidated construction joint ventures
Accrued expenses and other current liabilities, net
Total
Years Ended December 31,
Equity in net income from unconsolidated joint ventures
Equity in construction joint ventures
Contributions to unconsolidated construction joint ventures
Distributions from unconsolidated construction joint ventures
Accrued expenses and other current liabilities, net
Total
As Reported
Reclassifications
2012
Adjusted
— $
2,446
—
—
(20,405)
(17,959) $
(101,747) $
(2,446)
(4,986)
92,474
16,705
— $
(101,747)
—
(4,986)
92,474
(3,700)
(17,959)
As Reported
Reclassifications
2011
Adjusted
— $
(26,313)
—
—
13,844
(12,469) $
(67,845) $
26,313
(800)
35,598
6,734
— $
(67,845)
—
(800)
35,598
20,578
(12,469)
$
$
$
$
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recently Issued and Adopted 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 and in January 2013, issued ASU No.
2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. These ASUs
require companies to disclose both gross and net information about financial instruments that have been offset on the balance sheet.
These ASUs were effective for our quarter ended March 31, 2013 and did not impact 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 was effective for our quarter ended March 31, 2013 and did not impact our
consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income. This ASU requires an entity to provide information about the amounts reclassified
out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of
the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income in certain circumstances. This ASU was effective for our quarter
ended March 31, 2013. For all periods presented other comprehensive income (loss) was not significant; therefore, the adoption of
this ASU did not have an impact on our consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires companies with
unrecognized tax benefits, or a portion of unrecognized tax benefits, to present these benefits in the financial statements as a
reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward. This ASU will be effective
commencing with our quarter ending March 31, 2015. We do not expect the adoption of this ASU to have a material impact on our
consolidated financial statements.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are
resolved. We do not recognize revenue on contract change orders or affirmative 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 affirmative 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 method, revisions in estimates are accounted for in their entirety in the period of change. There
can be no assurance that we will not experience further changes in circumstances or otherwise be required to further revise our
profitability estimates.
For the majority of our contracts, 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 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. The initial gross profit impact from
projects exceeding the 25% threshold is not included in the tables below. During the years ended December 31, 2013, 2012, and
2011, the initial gross profit impact from projects exceeding the threshold was $9.1 million, $16.4 million, and $55.4 million,
respectively.
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 $1.7 million, a net decrease of $18.1 million and a net increase of
$6.2 million for the years ended December 31, 2013, 2012 and 2011, 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
2013
2012
2011
6
1.1 - 3.7
16.1
$
$
6
1.0 - 1.7
8.1
$
$
7
1.0 - 3.5
13.6
$
$
The increases during the year ended December 31, 2013 were due to owner-directed scope changes and production at a higher rate
than anticipated. The 2012 increases were due to lower than anticipated costs and settlement of outstanding issues with contract
owners, and the 2011 increases were due to 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
2013
2012
2011
5
1.2 - 7.4
17.8
$
$
9
1.0 - 6.6
26.2
$
$
4
1.4 - 2.6
7.4
$
$
The decreases during the year ended December 31, 2013 were due to lower productivity than originally anticipated. Three of the
projects that had downward estimate changes were complete or substantially complete at December 31, 2013. The other two
projects were 85.2% and 86.2% complete and, when aggregated, constituted 2.0% of Construction contract backlog as of
December 31, 2013. The decreases during the years ended December 31, 2012 and 2011 were due to lower productivity than
anticipated and unanticipated rework costs.
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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 $25.5 million, $64.6 million and $8.9 million. Amounts
attributable to non-controlling interests were $5.6 million, $3.1 million and $2.8 million for the years ended December 31, 2013,
2012 and 2011, 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
2013
2012
2011
7
2.6 - 41.3
77.5
$
$
10
1.1 - 24.5
92.0
$
$
$
$
9
1.1 - 6.9
28.3
The increases during the year ended December 31, 2013 were due to settlement of outstanding issues with a contract owner and
owner-directed scope changes. 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.
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
2013
2012
2011
5
1.9 - 26.8
52.0
$
$
$
$
1
27.4
27.4
$
$
5
1.2 - 5.1
19.4
The decreases during the years ended December 31, 2013 and 2012 were primarily related to significant increased costs on a
highway project in Washington State. This project has been impacted by lower productivity resulting from previously unforeseen
design issues, schedule delays, associated job re-sequencing, and costs related to changes in the project scope. Compensation is
being sought from both the client and subcontractors for a portion of the additional costs; however, the amount, sources and timing
of any future compensation have yet to be finalized. Additionally, the decrease during 2013 was due to unanticipated production
costs. 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.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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):
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
Total long-term marketable securities
Total marketable securities
2013
2012
$
$
10,000
39,968
—
—
49,968
67,234
67,234
117,202
$
$
7,375
34,966
8,738
5,009
56,088
55,342
55,342
111,430
$
$
49,968
67,234
117,202
Scheduled maturities of held-to-maturity investments were as follows (in thousands):
December 31, 2013
Due within one year
Due in one to five years
Total
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Fair Value Measurement
The following tables summarize assets and liabilities measured at fair value in the consolidated balance sheets on a recurring basis
for each of the fair value levels (in thousands):
December 31, 2013
Cash equivalents
Money market funds
Total assets
December 31, 2012
Cash equivalents
Money market funds
Held-to-maturity commercial paper
Total assets
Fair Value Measurement at Reporting Date Using
Level 1
Level 2
Level 3
Total
89,336
89,336
$
$
— $
— $
— $
— $
89,336
89,336
Fair Value Measurement at Reporting Date Using
Level 1
Level 2
Level 3
Total
201,542
5,000
206,542
$
$
— $
—
— $
— $
—
— $
201,542
5,000
206,542
$
$
$
$
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
2013
2012
$
$
89,336
139,785
229,121
$
$
206,542
115,448
321,990
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in the
consolidated balance sheets are as follows (in thousands):
December 31,
Assets:
2013
2012
Fair Value
Hierarchy Carrying Value
Fair Value
Carrying Value
Fair Value
Held-to-maturity marketable
securities
Level 1
Liabilities (including current maturities):
Senior notes payable1
Credit Agreement loan1
Level 3
Level 3
$
$
117,202
200,000
70,000
$
$
116,915
225,865
69,601
$
$
111,430
208,333
70,000
$
$
111,525
243,118
70,444
1The fair values of the senior notes payable and Credit Agreement (as defined under “Credit Agreement” in Note 12) loan are based on borrowing
rates available to us for long-term loans with similar terms, average maturities, and credit risk.
The carrying values of receivables, other current assets, and accrued expenses and other current liabilities approximate their fair
values due to the short-term nature of these instruments. In addition, the fair value of non-recourse debt measured using Level 3
inputs approximates its carrying value due to its relative short-term nature and competitive interest rates.
We measure certain nonfinancial assets and liabilities at fair value on a nonrecurring basis. As of December 31, 2013, the
nonfinancial assets and liabilities included our asset retirement and reclamation obligations, assets and liabilities that were adjusted
to fair value in connection with our 2010 Enterprise Improvement Plan (“EIP”) and a non-performing quarry asset separate from
our EIP. As of December 31, 2012, the nonfinancial assets and liabilities included our asset retirement and reclamation obligations
and our cost method investment in preferred stock of a corporation that designs and manufactures power generation equipment.
Fair value for these nonfinancial assets and liabilities was measured using Level 3 inputs. Asset retirement and reclamation
obligations were initially measured using internal discounted cash flow calculations based upon our estimates of future retirement
costs - see Note 8 for details of the asset retirement balances and Note 1 for further discussion on fair value measurements. Fair
values of the assets related to our EIP as well as the non-performing quarry site were determined based on a variety of factors that
are further described in Note 1 under the Property and Equipment, Long-lived Assets and Real Estate Held for Development and
Sale sections. Fair value of the cost method investment was estimated 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 years ended December 31, 2013, 2012 and 2011, fair value adjustments to our nonfinancial assets and liabilities were
related to our asset retirement and reclamation obligations, restructuring charges associated with our EIP and non-cash impairment
charges separate from our EIP, and are detailed as follows:
• Asset retirement obligations adjustments were $2.3 million, $2.8 million and $0.9 million, respectively. See Note 8 for
further information.
• Restructuring charges associated with our EIP were $49.0 million during the year ended December 31, 2013, of which
$31.1 million, including $3.9 million attributable to non-controlling interests, related to real estate assets, $14.7 million
related to non-performing quarry sites and $3.2 million related to lease termination charges. During the years ended
December 31, 2012 and 2011, we recorded a $3.7 million restructuring gain and a $2.2 million restructuring charge,
respectively, both primarily related to real estate assets. See Note 11 for further information.
• Non-cash impairment charges were $3.2 million during both 2013 and 2012 and were $0.0 million during 2011. During
2013, the non-cash impairment charges were primarily associated with a nonperforming quarry site (see Note 11), and
during 2012 and 2011 were primarily related to the write-off of our cost method investment in the preferred stock of a
corporation that designs and manufactures power generation equipment (see Note 7).
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Receivables, net (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
2013
2012
$
$
193,538
73,103
266,641
36,813
12,657
316,111
2,513
313,598
$
$
195,244
93,800
289,044
26,918
12,316
328,278
2,749
325,529
Receivables include amounts billed and billable to clients for services provided and/or according to contract terms as of the end of
the applicable period and do not bear interest. Certain contracts include provisions that permit us to submit invoices in advance of
providing services and, to the extent not collected, they are included in receivables. Other contracts include provisions that permit
us to submit invoices based on the passage of time, achievement of milestones or completion of the project. Included in other
receivables at December 31, 2013 and 2012 were items such as notes receivable, fuel tax refunds and income tax refunds. No
such receivables individually exceeded 10% of total net receivables at any of these dates. To the extent the related costs have not
been billed, the contract balance is included in costs and estimated earnings in excess of billings on the consolidated balance
sheets.
Revenue earned by Construction and Large Project Construction from federal, state and local government agencies was $1.7
billion (74.4% of our total revenue) in 2013, $1.7 billion (80.6% of our total revenue) in 2012 and $1.7 billion (83.8% of our total
revenue) in 2011. During the years ended December 31, 2013, 2012, and 2011, our largest volume customer was the California
Department of Transportation (“Caltrans”). Revenue recognized from contracts with Caltrans represented $265.8 million (11.7%
of our total revenue) in 2013, of which $239.9 million (19.2% of segment revenue) was in our Construction segment and $25.9
million (less than 0.1% of segment revenue) was in our Large Project Construction segment. Revenue from Caltrans represented
$272.9 million (13.1% of total revenue) in 2012, of which $268.9 million (27.3% of segment revenue) was in our Construction
segment and $4.1 million (0.5% of segment revenue) was in the Large Project Construction segment. Revenue from Caltrans
represented $264.9 million (13.2% of total revenue) in 2011, of which $241.1 million (23.1% of segment revenue) was in the
Construction segment and $23.8 million (3.3% of segment revenue) was in the Large Project Construction segment.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Financing receivables consist of long-term notes receivable and retentions receivable. As of December 31, 2013 and 2012, long-
term notes receivable outstanding were $1.3 million and $2.0 million, respectively. The balance primarily related to loans made to
employees and was included in other noncurrent assets in our consolidated balance sheets.
Certain construction contracts include retainage provisions. The balances billed but not paid by customers pursuant to these
provisions generally become due upon completion and acceptance of the contract by the owners. As of December 31, 2013, the
majority of the retentions receivable are expected to be collected within one year.
We segregate our retention receivables into two categories: escrow and non-escrow. The balances in each category were as
follows (in thousands):
December 31,
Escrow
Non-escrow
Total retention receivables
2013
2012
$
$
25,124
47,979
73,103
$
$
41,494
52,306
93,800
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 are to be paid upon owner
acceptance of contract completion. We evaluate our non-escrow retention receivables for collectibility 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 low; 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.
•
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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
2013
2012
$
$
2,878 $
5,579
31,122
8,400
47,979 $
3,234
2,971
31,559
14,542
52,306
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, 2013
Federal
State
Local
Private
Total
December 31, 2012
Federal
State
Local
Private
Total
Current
0 - 90 Days
Past Due
Over 90 Days
Past Due
Total
$
$
$
$
$
2,843
4,919
24,705
6,817
39,284 $
$
3,116
2,148
25,743
13,310
44,317 $
$
13
326
1,024
287
1,650 $
$
72
502
1,082
716
2,372 $
22 $
334
5,393
1,296
7,045 $
46 $
321
4,734
516
5,617 $
2,878
5,579
31,122
8,400
47,979
3,234
2,971
31,559
14,542
52,306
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, which was the case with the majority of
local agencies with past due balances as of December 31, 2013. We generally receive payment within one year of owner
acceptance. As of December 31, 2013, our allowance for doubtful accounts contained no material provision related to non-escrow
retention receivables as we determined there were no significant collectibility issues.
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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 and a limited liability company of which we are a limited partner
or member (“joint ventures”). 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.
Construction Joint Ventures
Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the venture
partners. The associated 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 contracts, 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 consolidated because they are VIEs and we are the primary beneficiary
or because they are not VIEs and we hold the majority voting interest.
Based on our initial primary beneficiary analysis for one construction joint venture, we determined that decision making
responsibility is shared equally between the venture partners. Therefore, this joint venture did not have an identifiable primary
beneficiary and we continue to report the pro rata results. All other joint ventures were assigned one primary beneficiary partner.
We continually evaluate whether there are changes in the status of the VIE’s or changes to the primary beneficiary designation of
the VIE. Based on our assessments during the years ended December 31, 2013, 2012 and 2011, we determined no change was
required for existing construction joint ventures.
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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 balance sheets as follows (in thousands):
December 31,
Cash and cash equivalents1
Receivables, net
Other current assets
Total current assets
Property and equipment, net
Noncurrent assets
Total assets2
Accounts payable
Billings in excess of costs and estimated earnings1
Accrued expenses and other current liabilities
Total liabilities2
2013
2012
$
$
$
$
38,800
38,372
4,778
81,950
22,216
—
104,166
16,937
60,185
11,299
88,421
$
$
$
$
105,865
43,902
4,008
153,775
41,114
1,700
196,589
34,536
72,490
8,312
115,338
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 until distributed.
At December 31, 2013, we were engaged in four active consolidated construction joint venture projects with total contract
values ranging from $0.4 million to $337.0 million. The total revenue remaining to be recognized on these consolidated joint
ventures ranged from $0.1 million to $66.9 million. Our proportionate share of the equity in these joint ventures was between
51.0% and 65.0%. During the years ended December 31, 2013, 2012 and 2011, total revenue from consolidated construction joint
ventures was $170.0 million, $222.3 million and $233.0 million, respectively. Total cash provided by consolidated construction
joint venture operations was $10.9 million, $25.2 million and $21.6 million during the years ended December 31, 2013, 2012 and
2011 respectively.
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, 2013, these
unconsolidated joint ventures were engaged in eleven active construction joint ventures with total contract values ranging
from $40.0 million to $3.1 billion. Our proportionate share of the equity in these unconsolidated joint ventures ranged from 20.0%
to 50.0%. As of December 31, 2013, revenue remaining to be recognized on these unconsolidated joint ventures ranged from $0.7
million to $624.8 million.
As of December 31, 2013, one of our unconsolidated construction joint ventures was located in Canada and, therefore, the
associated disclosures throughout this footnote include amounts that were translated from Canadian dollars to U.S. dollars using
the spot rate in effect as of the reporting date for balance sheet items, and the average rate in effect during the reporting period for
the results of operations. The associated foreign currency translation adjustments did not have a material impact on the
consolidated financial statements for any of the dates or periods presented.
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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 ventures
2013
2012
385,094
523,827
612,530
296,391
155,985
245,341
104,152
371,760
133,718
162,673
$
$
244,686
301,412
342,545
203,553
114,039
161,268
5,873
183,432
97,748
105,805
$
$
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 until distributed.
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
2013
2012
2011
$
$
1,391,190
982,734
408,456
1,107,533
772,670
334,863
73,593
$
$
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
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
include only our portion of these contracts in our consolidated financial statements. As of December 31, 2013, we had four active
line item joint venture construction projects with total contract values ranging from $42.6 million to $84.2 million of which our
portions ranged from $23.6 million to $61.9 million. As of December 31, 2013, our share of revenue remaining to be recognized on
these line item joint ventures ranged from $0.6 million to $17.7 million.
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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.
We have determined that certain of these joint ventures are consolidated because they are VIEs, of which we are the primary
beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary
designation of the VIEs. Based on our assessments during the years ended December 31, 2013, 2012 and 2011, we determined no
change was required for existing real estate ventures.
Our real estate affiliates include limited partnerships or limited liability companies of which we are a limited partner or member.
The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility
in the project. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. However, if
one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume, at its
option, full management and/or financial responsibility for the project.
Substantially all the assets of these real estate entities in which we are a participant through our GLC subsidiary are classified as
real estate held for development and sale and are pledged as collateral for the associated debt. All outstanding debt of these entities
is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt (i.e., the limited partnership
or limited liability company of which we are a limited partner or member).
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, 2013, GLC was authorized to increase its financial support to one
consolidated real estate entity by $5.9 million to meet existing debt obligations. As of December 31, 2013, $2.5 million of the total
authorized investment had yet to be contributed to the consolidated entity. During the year ended December 31, 2012, no
authorization was provided and GLC did not increase its financial support to any real estate entity.
During the fourth quarter of 2013, management approved the plan to sell or otherwise dispose of all of the remaining consolidated
real estate investments that were included in the EIP. As a result, during the year ended December 31, 2013, we recorded
restructuring charges of $31.1 million, of which $3.9 million was attributable to non-controlling interests, which consisted of non-
cash impairment charges on consolidated real estate assets. During the years ended December 31, 2012 and 2011, we recorded no
significant restructuring charges related to our real estate development projects or investments. See Note 11. During the year ended
December 31, 2013, we recorded amounts associated with the sale or other disposition of one project in Texas and during the year
ended December 31, 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.
Other than described in Note 11, an evaluation of the 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, 2013. Our quarterly
evaluations of each project’s business plan yielded no significant impairment charges during the years ended December 31, 2012
and 2011.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Real Estate Entities
As of December 31, 2013 and 2012, real estate held for development and sale associated with consolidated real estate entities
included in our consolidated balance sheets was $12.5 million and $50.2 million, respectively. Non-recourse debt, including
current maturities, associated with these entities was $8.0 million and $11.6 million as of December 31, 2013 and 2012,
respectively. All other amounts associated with these entities were insignificant for the periods presented. As of December 31,
2013 and 2012, $12.5 million and $40.3 million, respectively, of the real estate held for development and sale balances were in
Washington State residential real estate. The remaining balances were primarily in various commercial projects in California.
Investments in Affiliates
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 investments in affiliates
2013
2012
$
$
21,392
11,088
32,480
$
$
19,775
11,024
30,799
We have determined that certain real estate joint ventures are not consolidated because they are VIEs and we are not the primary
beneficiary. We have determined that certain non-real estate joint ventures are not consolidated because they are not VIEs and we
do not hold the majority voting interest. As such, these entities are accounted for using the equity method. We account for our share
of the operating results of these equity method investments in other income in the consolidated statements of operations and as a
single line item on our consolidated balance sheets as investments in affiliates.
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a
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
2013
2012
$
$
$
25,807
148,181
173,988
6,000
68,544
74,544
99,444
32,480
$
$
$
85,354
80,758
166,112
8,262
65,744
74,006
92,106
30,799
The equity method investments in real estate included $14.9 million and $13.8 million in residential real estate in Texas as of
December 31, 2013 and 2012, respectively. The remaining balances were in commercial real estate in Texas. Of the $174.0 million
in total assets as of December 31, 2013, real estate entities had total assets ranging from $4.4 million to $53.3 million. As of each
of the periods presented, the most significant non-real estate equity method investment was a 50% interest in a limited liability
company which owns and operates an asphalt terminal and operates an emulsion plant 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 that was included in other income (expense), net on the consolidated statement of operations.
The following table provides summarized statement of operations information for our affiliates accounted for under the equity
method on a combined basis (in thousands):
Years Ended December 31,
Revenue
Gross profit
Income (loss) before taxes
Net (loss) income
Granite’s interest in affiliates’ net income
$
2013
2012
2011
42,563 $
3,487
(686)
(686)
1,304
52,342 $
13,254
1,318
1,318
1,988
48,983
10,654
(399)
(399)
2,193
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Property and Equipment, net
Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net on
our consolidated balance sheets as follows (in thousands):
December 31,
Equipment and vehicles
Quarry property
Land and land improvements
Buildings and leasehold improvements
Office furniture and equipment
Property and equipment
Less: accumulated depreciation and depletion
Property and equipment, net
2013
2012
765,971
170,442
119,917
83,494
70,156
1,209,980
773,121
436,859
$
$
758,782
180,567
125,961
83,245
67,743
1,216,298
734,820
481,478
$
$
Depreciation and depletion expense included in our consolidated statements of operations for the years ended December 31, 2013,
2012 and 2011 was $62.7 million, $51.8 million and $56.0 million, respectively. We capitalized interest costs of $0.9 million, $2.3
million and $7.4 million in 2013, 2012 and 2011, respectively, related to certain self-constructed assets, of which $0.6 million, $2.1
million and $6.3 million, respectively, were included in real estate held for development and sale and $0.3 million, $0.2 million
and $1.1 million, respectively, were included in property and equipment on our consolidated balance sheets.
During the year ended December 31, 2013, we recorded non-cash impairment charges of $17.8 million, all of which related to non-
performing quarry sites. Of this amount, $14.7 million were restructuring charges in connection with our EIP. Refer to Note 11 for
details. During the year ended December 31, 2012, we recorded an $18.0 million gain on the sale of property and equipment from
the sale of an underutilized quarry. The non-EIP charge during 2013 and the sale during 2012 were related to our process of
continually optimizing our assets separate from the EIP.
We have recorded liabilities associated with our legally required obligations to reclaim owned and leased quarry property and
related facilities. As of December 31, 2013 and 2012, $9.8 million and $6.6 million, respectively, of our asset retirement
obligations are included in accrued expenses and other current liabilities and $19.3 million and $20.0 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):
Years Ended December 31,
Beginning balance
Revisions to estimates
Liabilities incurred
Liabilities settled
Accretion
Ending balance
2013
2012
26,576 $
2,265
83
(976)
1,190
29,138 $
23,208
2,810
154
(885)
1,289
26,576
$
$
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Intangible Assets
Indefinite-lived intangible assets primarily consist of goodwill and use rights. Use rights of $0.4 million are included in other
noncurrent assets on our consolidated balance sheets as of December 31, 2013 and December 31, 2012.
The following table presents the goodwill balance by reportable segment (in thousands):
December 31,
Construction
Large Project Construction
Construction Materials
Total goodwill
2013
2012
29,260
22,593
1,946
53,799
$
$
29,190
24,115
2,114
55,419
$
$
The change in goodwill and in the gross value of amortized intangible assets between periods is due to the acquisition of Kenny
Construction Company (“Kenny”). See Note 21 for further details.
Amortized Intangible Assets:
Following is the breakdown of our amortized intangible assets that are included in other noncurrent assets on our consolidated
balance sheets (in thousands):
December 31, 2013
Permits
Customer lists
Covenants not to compete
Acquired backlog
Trade name
Other
Total amortized intangible assets
December 31, 2012
Permits
Customer lists
Covenants not to compete
Acquired backlog
Trade name
Other
Total amortized intangible assets
Gross Value
Accumulated
Amortization
Net Value
$
$
$
$
29,713
4,398
1,588
7,900
4,100
871
48,570
29,713
4,698
1,588
8,400
4,100
871
49,370
$
$
$
$
(11,992) $
(2,491)
(1,552)
(6,835)
(432)
(856)
(24,158) $
(10,869) $
(2,170)
(1,546)
—
—
(734)
(15,319) $
17,721
1,907
36
1,065
3,668
15
24,412
18,844
2,528
42
8,400
4,100
137
34,051
Amortization expense related to amortized intangible assets for the years ended December 31, 2013, 2012 and 2011 was $8.8
million, $3.7 million and $2.0 million, respectively. Based on the amortized intangible assets balance at December 31, 2013,
amortization expense expected to be recorded in the future is as follows: $2.7 million in 2014; $2.1 million in 2015; $1.8 million in
2016; $1.7 million in 2017; $1.7 million in 2018; and $14.4 million thereafter.
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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
2013
2012
34,676 $
49,073
54,488
12,130
46,875
197,242 $
42,364
39,868
30,727
11,605
45,415
169,979
$
$
11. Restructuring and Impairment Charges (Gains), Net
The following table presents the components of restructuring and impairment charges (gains), net during the respective periods (in
thousands):
Years ended December 31,
Impairment losses (gains) associated with our real estate investments, net
Severance costs
Impairment charges on assets
Lease termination costs (gains), net of estimated sublease income
Total restructuring charges (gains)
Other impairment charges
Total restructuring and impairment charges (gains), net
2013
2012
2011
$
$
31,090 $
—
14,651
3,234
48,975
3,164
52,139 $
(3,093) $
—
—
(635)
(3,728)
—
(3,728) $
1,452
471
226
32
2,181
—
2,181
In October 2010, we announced our EIP 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 EIP was recorded in 2010 and
amounted to $109.3 million, including amounts attributable to non-controlling interests of $20.0 million. Of the $109.3 million,
$86.3 million and $10.3 million was related to our Real Estate and Construction Materials segments, respectively. In 2011,
development activities were curtailed for the majority of our real estate development projects as divestiture efforts increased and
we recorded $1.5 million associated with the sale or other disposition of three separate projects located in California related to our
Real Estate segment. During 2012, we recorded a restructuring gain of $3.1 million associated with the sale or other disposition of
one project in California, one project in Oregon, and one project in Washington.
During the fourth quarter of 2013, management approved a plan to sell or otherwise dispose of all of the remaining consolidated
real estate investments, as well as certain assets in our Construction Materials segment. These actions were taken pursuant to the
EIP, and resulted in restructuring charges of $49.0 million in the fourth quarter of 2013, including amounts attributable to non-
controlling interests of $3.9 million. These restructuring charges consisted of the non-cash impairment of certain assets and the
accrual of lease termination costs. The carrying values of the impaired assets were adjusted to their expected fair values which was
estimated by a variety of factors including, but not limited to, comparative market data, historical sales prices, broker quotes and
third-party valuations.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The restructuring charges associated with the Real Estate segment resulted in $31.1 million of non-cash impairment charges related
to all of the remaining consolidated real estate assets, including amounts attributable to non-controlling interests of $3.9 million.
The impaired assets consisted primarily of residential and retail development projects which had a carrying value of $44.6 million
prior to the impairment.
The restructuring charges associated with the Construction Materials segment resulted in $14.7 million of non-cash impairment
charges related to non-performing quarry sites which had an aggregate carrying value of $17.1 million prior to the impairment.
Separate from these quarry sites, but in connection with the impairment of these assets, we recorded lease termination charges of
$3.2 million.
We concluded the majority of our 2010 EIP during 2013. As the impaired assets are sold, we may recognize additional
restructuring charges or gains; however, we do not expect these charges or gains to be material.
Restructuring liabilities were $4.6 million and $1.5 million as of December 31, 2013 and 2012, respectively. The change in the
restructuring liabilities balance since December 31, 2012 was primarily due to additional accrual of lease termination costs.
Separate from the EIP but related to our process of continually optimizing our assets, we identified a quarry asset that no longer
had strategic value to our vertically integrated business. Therefore, during the fourth quarter of 2013, management approved a plan
to sell or otherwise dispose of this asset. We determined that the asset's carrying value of $4.2 million was not recoverable, and
therefore recorded a $3.2 million non-cash impairment charge within the Construction Materials segment.
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
2013
2012
200,000 $
70,000
7,967
148
278,115
1,247
276,868 $
208,333
70,000
11,629
168
290,130
19,060
271,070
$
$
The aggregate minimum principal maturities of long-term debt for each of the five years following December 31, 2013 are as
follows: 2014 - $1.2 million; 2015 - $41.2 million; 2016 - $115.5 million; 2017 - $40.0 million; 2018 - $40.0 million; and $40.0
million thereafter.
Senior Notes Payable
As of December 31, 2013, senior notes payable in the amount of $200.0 million were due to a 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 agreement governing the 2019 Notes (the “2019 NPA”) 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 2019 NPA provides 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 described
below.
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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, of which $134.9 million was available at December 31, 2013. At December 31,
2013 and 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 sheets. In addition, as of December 31,
2013 there were standby letters of credit totaling $10.1 million. The letters of credit will expire between August 2014 and October
2014.
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 2.50% for loans bearing interest based on LIBOR and 1.50% for loans bearing interest at the
base rate at December 31, 2013. Accordingly, the effective interest rate was between 2.75% and 4.75% at December 31, 2013.
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 LIBOR 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 paid off or rolled over at our discretion into either a borrowing at the base rate or a
borrowing at a LIBOR rate with similar terms, not to exceed the maturity date of the Credit Agreement. On a periodic basis, we
assess the timing of payment depending on facts and circumstances that exist at the time of our assessment. 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 2019 Notes (defined above) 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.
The Credit Agreement provides for the release of the liens securing the obligations, at our option and expense, after September 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. We have not exercised this option as of December 31, 2013.
Real Estate Mortgages
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, 2013, the principal amount of debt of our real estate entities secured by mortgages
was $7.9 million, of which $1.2 million was included in current liabilities and $6.7 million was included in long-term liabilities on
our consolidated balance sheet.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Covenants and Events of Default
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the
financial covenants described below. 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.
The most significant financial covenants under the terms of our Credit Agreement and 2019 NPA require the maintenance of a
minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated
Leverage Ratio.
On March 3, 2014, Granite executed amendments to the Credit Agreement and 2019 NPA, which terms include, among other
things, (i) a revised minimum Consolidated Tangible Net Worth of $600.0 million; and (ii) a revised maximum Consolidated
Leverage Ratio of 3.75. The maximum Consolidated Leverage Ratio decreases to 3.50 beginning with our quarter ending June 30,
2014, to 3.25 beginning with quarter ending September 30, 2014 and to 3.00 thereafter. As of December 31, 2013, our
Consolidated Tangible Net Worth was $729.1 million and the Consolidated Leverage Ratio was 2.74. The Credit Agreement
amendment permanently waived the Company’s requirement to comply with such financial covenants for the quarter ended
December 31, 2013.
As of December 31, 2013, we were in compliance with all covenants contained in the Credit Agreement and 2019 NPA and the
debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our
unconsolidated real estate entities with the covenants contained in their debt agreements.
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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 employees’ combined before-tax and Roth 401(k) after- tax contributions cannot exceed 50% of their eligible pay or
the IRS annual contribution limit of $17,500. 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. During the year ended December 31, 2013, eligible Kenny employees that had at least 1,000 hours of service as of
March 1, 2013 and were actively employed on March 28, 2013 received a one-time profit sharing contribution of approximately
$0.1 million each, which was equivalent to the Company match during the period they were unable to contribute to the Plan. We
made no profit sharing contributions during the years ended December 31, 2012 and 2011. Our 401(k) matching contributions to
the 401(k) Plan for the years ended December 31, 2013, 2012 and 2011 were $4.1 million, $2.8 million and $0.3 million,
respectively.
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, 2013. The assets held by the Rabbi Trust at December 31, 2013 are substantially in the
form of company owned life insurance and are included in other noncurrent assets on the consolidated balance sheet. As of
December 31, 2013, there were 49 active participants in the NQDC Plan. NQDC Plan obligations were $23.6 million and $24.1
million as of December 31, 2013 and 2012, respectively.
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.
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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 (60)
Pension Plan
Employer
Identification
Number
91-6028571
Pension Protection
Act (“PPA”) Certified
Zone Status1
2013
Green
2012
Green
FIP / RP
Status
Pending /
Implemented2
No
Contributions
2013
2012
$ 3,260 $ 2,368 $ 2,386
2011
Expiration
Date of
Collection
Bargaining
Agreement3
5/31/2015
Surcharge
Imposed
No
95-6032478
Red
Red
Yes
2,768
2,285
2,099
No
6/30/2016
94-6090764
Orange
Orange
Yes
8,193
8,030
7,296
No
6/30/2016
94-6277608
Yellow
Yellow
Yes
2,500
2,320
1,950
No
6/30/2015
8,238
Total Contributions: $ 27,165 $ 22,723 $ 21,969
10,444
7,720
1The most recent PPA zone status available in 2013 and 2012 is for the plan’s year-end during 2012 and 2011, 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.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Shareholders’ Equity
Stock-based Compensation: The 2012 Equity Incentive Plan provides for the issuance of restricted stock, restricted stock units
(“RSUs”) and stock options to eligible employees and to members of our Board of Directors. Beginning in 2011, the Company
issued RSUs to eligible employees in lieu of restricted stock. As of December 31, 2013, a total of 2,472,133 shares of our common
stock have been reserved for issuance of which 1,632,933 remained available as of December 31, 2013.
Restricted Stock Units and Restricted Stock: As noted above, RSUs and restricted stock can be issued to eligible employees and
members of our Board of Directors. RSUs 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. RSU 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 RSUs 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.
RSU 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 RSUs during the years ended December 31, 2013, 2012 and 2011 is as follows (shares in
thousands):
Years Ended December 31,
2013
2012
2011
Outstanding, beginning balance
Granted
Vested
Forfeited
Outstanding, ending balance
Weighted-
Average
Grant-Date
Fair Value
per RSU
RSUs
Weighted-
Average
Grant-Date
Fair Value
per RSU
RSUs
665 $
506
(337)
(65)
769 $
27.74
31.12
28.52
29.97
29.49
346 $
533
(175)
(39)
665 $
25.64
28.99
26.87
27.95
27.74
Weighted-
Average
Grant-Date
Fair Value
per RSU
23.54
26.94
26.44
25.94
25.64
RSUs
144 $
271
(64)
(5)
346 $
Compensation cost related to RSUs was $13.0 million ($9.1 million net of effective tax rate), $7.6 million ($5.6 million net of
effective tax rate), and $3.0 million ($2.2 million net of effective tax rate) for the years ended December 31, 2013, 2012 and
2011, respectively. The grant date fair value of restricted stock units vested during the years ended December 31, 2013, 2012 and
2011 was $9.6 million, $4.7 million and $1.7 million, respectively. As of December 31, 2013, there was $13.7 million of
unrecognized compensation cost related to RSUs which will be recognized over a remaining weighted-average period of 1.0 year.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2013, there was no restricted stock outstanding as all outstanding shares had either been forfeited or vested. As
of December 31, 2012 and 2011 there was 174,000 and 472,000, respectively, shares of restricted stock outstanding. Compensation
cost related to restricted stock was $0.5 million ($0.3 million net of effective tax rate), $3.8 million ($2.8 million net of effective
tax rate) and $9.1 million ($6.7 million net of effective tax rate) for the years ended December 31, 2013, 2012 and
2011, respectively. The grant date fair value of restricted stock vested during the years ended December 31, 2013, 2012 and
2011 was $5.1 million, $12.2 million and $14.4 million, respectively.
Stock Options: In 2013, no stock options were granted. As of December 31, 2013, there were 24,178 stock options outstanding.
Employee Stock Ownership Plan: Effective June 1, 2012 the ESOP was merged into the 401(k) Plan. As of December 31, 2013, the
401(k) Plan owned 2,021,019 shares of our common stock. Dividends on shares held by the 401(k) Plan are charged to retained
earnings and all shares held by the 401(k) Plan are treated as outstanding in computing our earnings per share.
Employee Stock Purchase Plan: Our Employee Stock Purchase Plan (“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, 2013, 2012 and 2011, proceeds from the ESPP were $0.7 million, $0.5 million and $0.3 million for 23,557, 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. At December 31, 2013, $64.1 million remained available under this authorization. We did not purchase
shares under the share purchase program in any of the periods presented. The specific timing and amount of any future 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.
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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
2013
2012
2011
38,803
—
38,803
38,689
242
38,447
38,677
560
38,117
38,803
38,447
38,117
—
38,803
629
39,076
356
38,473
1Due to the net loss for the year ended December 31, 2013, restricted stock units and common stock options representing approximately 862,000
have been excluded from the number of shares used in calculating diluted net loss per share, 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 (loss) income attributable to Granite
Less: net income allocated to participating securities
Net (loss) income allocated to common shareholders for basic calculation
Denominator:
Weighted average common shares outstanding, basic
Net (loss) income per share, basic
Diluted
Numerator:
Net (loss) income attributable to Granite
Less: net income allocated to participating securities
Net (loss) income allocated to common shareholders for diluted
calculation
Denominator:
Weighted average common shares outstanding, diluted
Net (loss) income per share, diluted
2013
2012
2011
$
$
$
$
$
$
(36,423) $
—
(36,423) $
38,803
(0.94) $
45,283
283
45,000
38,447
1.17
(36,423) $
—
45,283
279
$
$
$
$
51,161
738
50,423
38,117
1.32
51,161
732
(36,423) $
45,004
$
50,429
38,803
(0.94) $
39,076
1.15
$
38,473
1.31
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. Income Taxes
Following is a summary of the (benefit from) provision for income taxes (in thousands):
Years Ended December 31,
Federal:
Current
Deferred
Total federal
State:
Current
Deferred
Total state
Total (benefit from) provision for income taxes
2013
2012
2011
$
$
(1,298) $
(18,606)
(19,904)
1,592
(951)
641
(19,263) $
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
Following is a reconciliation of our (benefit from) provision for income taxes based on the Federal statutory tax rate to our
effective tax rate (dollars in thousands):
Years Ended December 31,
Federal statutory tax
State taxes, net of federal tax benefit
Valuation allowance release
Percentage depletion deduction
Domestic production deduction
Non-controlling interests
Settlements and effective settlements
of audit issues
Nondeductible expenses
Other
Total
2013
2012
2011
$
$
(22,411)
101
—
(787)
(27)
2,920
—
2,384
(1,443)
(19,263)
35.0% $
(0.2)
—
1.2
0.1
(4.6)
—
(3.7)
2.3
30.1% $
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%
Our effective tax rate increased to 30.1% in 2013 from 26.1% in 2012. The most significant change was due to the effect of non-
controlling interest as a percentage of net (loss) income, as non-controlling interests are not subject to income taxes on a
standalone basis. Additionally, included in the tax rate for the year ended December 31, 2012, is the release of a state valuation
allowance. Our tax rate is affected by discrete items that may occur in any given year, but are not consistent from year to year.
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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
2013
2012
$
$
2,870 $
4,637
10,813
13,372
6,739
11,503
14,313
7,206
420
4,439
(3,731)
72,581
24,500
24,500
48,081 $
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
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
2013
2012
$
$
55,874 $
7,793
48,081 $
36,687
8,163
28,524
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 2026 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.
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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
Ending balance
2013
2012
2011
$
$
5,242 $
(1,511)
3,731 $
10,668 $
(5,426)
5,242 $
13,111
(2,443)
10,668
Uncertain tax positions: We file income tax returns in the U.S. and various state and local jurisdictions. We are currently 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. We are no longer subject to U.S. federal examinations by tax authorities for years before
2008. With few exceptions, as of December 31, 2013, we are no longer subject to state examinations by taxing authorities for years
before 2008.
We had approximately $2.2 million and $2.3 million of total gross unrecognized tax benefits as of December 31, 2013 and 2012,
respectively. There were approximately $1.3 million and $0.8 million of unrecognized tax benefits that would affect the effective
tax rate in any future period at December 31, 2013 and 2012, respectively. We believe that it is reasonably possible that
approximately $0.6 million of our currently remaining unrecognized tax benefits, each of which are individually insignificant, may
be recognized by the end of 2014 as a result of a lapse of statute limitations.
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
2013
2012
2011
2,315 $
363
(638)
508
(2)
(315)
2,231 $
2,339 $
1,017
(800)
4
(245)
—
2,315 $
5,650
1,726
(1,420)
1,485
(1,467)
(3,635)
2,339
$
$
We record interest related on uncertain tax positions as interest expense in our consolidated statements of operations. During the
years ended December 31, 2013, 2012 and 2011, we recognized approximately $0.1 million of interest expense, $0.1 million of
interest expense and $0.1 million of interest income, respectively. Approximately $1.0 million and $0.9 million of accrued interest
were included in our uncertain tax position liability on our consolidated balance sheets at December 31, 2013 and 2012,
respectively.
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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 of
quarry property, in effect at December 31, 2013 were (in thousands):
Years Ending December 31,
2014
2015
2016
2017
2018
Later years (through 2099)
Total
$
$
8,231
6,893
5,866
4,419
2,711
10,149
38,269
Operating lease rental expense was $11.4 million, $9.8 million and $9.0 million in 2013, 2012 and 2011, respectively.
Performance Guarantees
As discussed in Note 6, we participate in various joint ventures. We also participate in various line item joint ventures under which
each partner is responsible for performing certain discrete items of the total scope of contracted work.
The agreements with our partners for both construction joint ventures and line item joint ventures define each partners’
management role and financial responsibility in the project. The amount of exposure is generally limited to our stated ownership
interest. Due to the joint and several nature of the obligation under these agreements, if one of the partners fails to perform, we and
the remaining partners would be responsible for performance of the outstanding work. Circumstances that could lead to a loss
under these agreements 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 agreement.
At December 31, 2013, there was $4.4 billion of construction revenue to be recognized on unconsolidated and line item
construction joint venture contracts of which $1.2 billion represents our share and the remaining $3.2 billion represents 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 proceeds from our partners’ corporate and/or other guarantees. See Note
10 for disclosure of the amounts recorded in our consolidated balance sheets.
Surety Bonds
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, 2013, $1.8 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.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings that are pending against us and
our affiliates alleging, among other things, public liability issues or breach of contract or tortious conduct in connection with the
performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our
affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our
compliance with government construction contracting requirements and related laws and regulations.
We record liabilities in our consolidated balance sheets representing our estimated liabilities relating to legal proceedings and
government inquiries to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are
reasonably estimable. The aggregate liabilities recorded as of December 31, 2013 and 2012 related to these matters were
approximately $16.3 million and $8.6 million, respectively, and were primarily included in accrued expenses and other current
liabilities on our consolidated balance sheets. Some of the matters in which we or our affiliates are involved may involve
compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in
amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our
government contracts could be terminated, we could be suspended or debarred, or payment of our costs could be disallowed. While
any of our pending legal proceedings may be 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. Accordingly, it is possible that
future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals
that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our
financial condition, results of operations and cash flows in any particular reporting period. In addition to matters that are
considered probable for which the loss can be reasonably estimated, we also disclose certain matters where the loss is considered
reasonably possible and is reasonably estimable. Except as noted below, we believe the aggregate range of possible loss related to
matters considered reasonably possible was not material as of December 31, 2013. Our view as to such matters could change in
future periods.
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 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, that began in 2004 and was substantially complete in
2008. The subpoena also 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 subcontractor/consultant. Granite Northeast produced the requested
documents, together with other requested information. Subsequently, Granite Northeast was informed by the Department of Justice
(“DOJ”) that it is a subject of the investigation, along with others, and that the DOJ believes that Granite Northeast’s claim of DBE
credit for the Subcontractor was improper. In addition to the documents produced in response to the Grand Jury subpoena, Granite
Northeast has provided requested information to the DOJ, along with other federal and state agencies (the “Agencies”) concerning
other DBE entities for which Granite Northeast has historically claimed DBE credit. The Agencies have informed Granite
Northeast that they believe that the claimed DBE credit taken for some of those other DBE entities was improper. Granite
Northeast has met several times since January 2013 with Assistant United States Attorneys and the Agencies’ representatives, to
discuss the status of the government’s criminal investigation of the Grand Avenue Project participants, including Granite Northeast,
and for Granite Northeast and the Agencies to discuss their respective positions on, and potential resolution of, the issues raised in
the investigation. Granite Northeast could be subject to civil, criminal, and/or administrative penalties or sanctions as a result of
this investigation. Granite believes that the incurrence of some form of penalty or sanction is probable, and has therefore recorded
the most likely amount of liability it may incur in its consolidated balance sheets as of December 31, 2013. Granite believes the
likelihood of liability for amounts in excess of this accrual, up to the amount of the subcontract for the DBE Subcontractor, may be
possible. 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.
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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 construction projects with a large portion of the work focused on new construction and
improvement of streets, roads, highways, bridges, site work, underground, electric utilities 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, electric utilities 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. During 2013 and in connection with our EIP, we recorded $14.7 million in
restructuring charges and, separate from the EIP, recorded $3.2 million in non-cash impairment charges, all of which were to the
Construction Materials segment. The restructuring and impairment charges consisted of non-cash impairment charges to non-
performing quarry sites which had an aggregate carrying value of $21.3 million prior to the impairment. Separate from these
quarry sites, we recorded lease termination charges of $3.2 million. See Note 11 for details.
The Real Estate segment, develops, operates, and sells 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 connection with our EIP, we
recorded restructuring charges of $31.1 million, including amounts attributable to non-controlling interests of $3.9 million, during
2013. See Note 11 for details.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see
Note 1). We evaluate segment performance based on gross profit or loss, and do not include selling, general and administrative
expenses 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.
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summarized segment information is as follows (in thousands):
Years Ended December 31,
2013
Total revenue from reportable segments
Elimination of intersegment revenue
Revenue from external customers
Gross profit
Depreciation, depletion and amortization
Segment assets
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
Construction
Large Project
Construction
Construction
Materials
Real Estate
Total
$
$
$
$
$
$
1,251,197
—
1,251,197
106,374
26,228
148,459
984,106
—
984,106
77,963
13,225
163,287
1,043,614
—
1,043,614
124,506
14,747
111,780
$
$
$
777,811
—
777,811
71,808
11,679
222,584
863,217
—
863,217
148,418
4,527
173,142
725,043
—
725,043
104,108
4,547
110,441
$
$
$
372,141
(134,389)
237,752
6,953
22,945
313,578
410,033
(179,391)
230,642
7,572
28,490
347,869
415,618
(195,035)
220,583
16,641
28,672
352,619
141
—
141
128
—
12,478
5,072
—
5,072
806
—
50,223
20,291
—
20,291
2,708
189
75,050
$2,401,290
(134,389)
2,266,901
185,263
60,852
697,099
$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
A reconciliation of segment gross profit to consolidated (loss) income before (benefit from) provision for income taxes is as
follows (in thousands):
Years Ended December 31,
Total gross profit from reportable segments
Selling, general and administrative expenses
Restructuring and impairment charges (gains), net
Gain on sales of property and equipment
Other (expense) income, net
(Loss) income before (benefit from) provision for income taxes
2013
2012
2011
$
$
$
185,263
199,946
52,139
12,130
(9,337)
(64,029) $
234,759
185,099
(3,728)
27,447
194
81,029
$
$
247,963
162,302
2,181
15,789
(9,836)
89,433
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
2013
2012
2011
$
697,099
$
734,521
$
649,890
229,121
117,202
313,598
55,874
65,674
54,330
84,257
1,617,155
$
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
$
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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 $141.1 million. 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 revolving
credit facility - see Note 12 for further discussion of the borrowings. In accordance with the terms of the agreement, we paid post-
closing adjustments of $8.4 million during 2013. These post-closing adjustments are reflected in the purchase price above. The
purchase price included $13.0 million held in escrow for indemnification liabilities (as defined by the definitive agreement). All
claims are expected to be finalized and released in or before September 2014.
The acquired business operates under the name Kenny Construction Company as a wholly owned subsidiary of Granite
Construction Incorporated. Kenny operates in the tunneling, electrical power, underground and civil businesses. The underground
business utilizes cutting-edge trenchless construction technologies and processes. This acquisition expanded our presence in these
markets and has enabled us to leverage our capabilities and geographic footprint. We accounted for this transaction in accordance
with ASC Topic 805, Business Combinations (“ASC 805”).
Purchase Price Allocation
In accordance with ASC 805, a preliminary allocation of the purchase price was made to the net tangible and identifiable intangible
assets based on their estimated fair values as of December 31, 2012. During the year ended December 31, 2013, we adjusted the
preliminary values assigned to certain assets and liabilities to reflect additional information obtained by $0.4 million. The
following table presents the final adjusted purchase price allocation (in thousands):
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
Non-controlling interests
Total identifiable net assets acquired
Goodwill
Total purchase price
$
$
53,185
88,725
444
731
7,803
6,039
51,909
7,900
2,200
4,100
14,200
43,591
50,098
16,806
15,326
97,215
43,899
141,114
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GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Intangible assets
Acquired intangible assets included backlog, customer relationships and trade name. We amortize the fair value of backlog
intangible assets based on the associated project’s percent complete, and use the straight-line method over the assets’ estimated
useful lives for other intangible assets. The estimated useful lives for backlog and customer relationships range from 1 to 8 years
and represent existing contracts and the underlying customer relationships. The estimated useful life of the trade names is 10 years.
The identifiable intangible assets are expected to be deductible for income tax purposes. We recorded amortization expense
associated with the acquired intangible assets as follows (in thousands):
Year Ended December 31,
Cost of revenue - Construction
Cost of revenue - Large Project Construction
Selling, general and administrative expenses
Total
$
$
2013
6,400
435
725
7,560
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 $43.9 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.
In connection with the acquisition, Kenny became a guarantor of our obligations under the Credit Agreement (as defined in Note
12) and outstanding senior notes and pledged substantially all of its assets to collateralize such obligations, in each case on
substantially the same terms as our other subsidiaries that are guarantors of such obligations.
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 non-controlling 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 2013, Granite incurred $3.1 million of integration-related costs and in 2012 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.
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Quarterly Financial Data
The following table sets forth selected unaudited quarterly financial information for the years ended December 31, 2013 and 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. 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.
We have revised our quarterly statements of operations for the second and third quarters of 2013 for errors identified subsequent to
the filing of those Quarterly Reports on Form 10-Q. See detailed explanations of the adjustments in the footnotes below the
following table. The Company assessed the materiality of the errors individually and in the aggregate on the prior interim periods’
financial statements in accordance with the SEC’s Staff Accounting Bulletin No. 99 and, based on an analysis of quantitative and
qualitative factors, determined that the errors were not material to the Company’s interim consolidated financial statements for each
of the second and third quarters of 2013; therefore, these previously issued consolidated financial statements can continue to be
relied upon and an amendment of the previously filed Quarterly Reports on Form 10-Q is not required. However, for comparability,
these revised amounts will be reflected in the 2014 Quarterly Reports on Form 10-Q that will contain such financial information.
QUARTERLY FINANCIAL DATA
(unaudited - dollars in thousands, except per share data)
2013 Quarters Ended
Revenue
Gross profit
As a percent of revenue
Net (loss) income1
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 30,2
739,750
$
$
55,858
598,099
49,751
8.3 %
(33,255)
(5.6)%
(28,898)
(4.8)%
(0.74)
(0.74)
$
$
$
$
$
$
$
$
7.6%
6,533
0.9%
13,038
1.8%
0.34
0.34
$
$
$
$
$
June 30,3
550,348
49,596
9.0%
1,782
0.3%
1,419
0.3%
0.04
0.04
March 31,
378,704
30,058
7.9%
(19,826)
-5.2%
(21,982)
-5.8%
(0.57)
(0.57)
$
$
$
$
$
1Included in our net loss for the quarter ended December 31, 2013 were restructuring charges of $49.0 million related to the non-cash impairment
of certain real estate development projects within the Real Estate segment and certain non-performing quarry sites within the Construction
Materials segment. Also included in the 2013 fourth quarter was a $3.2 million non-cash impairment charge related to our process of continually
optimizing our assets separate from the EIP.
2Net income for the quarter ended September 30 is approximately $2.1 million ($3.0 million pre-tax) higher than the amount previously reported
in our Quarterly Report Form 10-Q for the quarterly period ended September 30, 2013 of $4.5 million. The pre-tax adjustments were primarily
related to (i) an over-accrual of pre-bid costs which affected selling, general and administrative expenses and accrued and other current liabilities
in the amount of $1.4 million and (ii) a revision in equipment-related costs, which affected cost of revenue and property and equipment in the
amount of $1.6 million.
3Net income for the quarter ended June 30 is approximately $1.4 million ($1.9 million pre-tax) lower than the amounts previously reported in our
Form 10-Q for the quarter period ended June 30, 2013 of $3.2 million. The pre-tax adjustments were primarily related to equipment-related costs
of $1.7 million.
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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
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
$
$
$
$
June 30,
539,615
51,916
9.6%
4,487
0.8%
1,949
0.4%
0.05
0.05
March 31,
310,160
24,936
8.0%
(8,687)
-2.8%
(11,773)
-3.8%
(0.31)
(0.31)
$
$
$
$
$
$
$
$
$
$
1Included in our net income for the quarter ended December 31, 2012 was an $18.0 million gain from the sale of an underutilized quarry related to
our process of continually optimizing our assets separate from the EIP. In addition, net income for the quarter ended December 31, 2012 included a
$5.8 million tax benefit from the release of a state valuation allowance and $4.4 million 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- 50
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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
(Principal Financial and Accounting Officer)
Date: March 3, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 3, 2014, 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
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SCHEDULE II
GRANITE CONSTRUCTION INCORPORATED
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description
YEAR ENDED DECEMBER 31, 2013
Allowance for doubtful accounts
YEAR ENDED DECEMBER 31, 2012
Allowance for doubtful accounts
YEAR ENDED DECEMBER 31, 2011
Allowance for doubtful accounts
Balance at
Beginning of
Year
Charged to
Expenses or
Other
Accounts, Net
Deductions and
Adjustments1
Balance at End
of Year
2,749
2,880
3,297
944
135
—
(1,180)
(266)
(417)
2,513
2,749
2,880
1 Deductions and adjustments for the allowances primarily relate to accounts written off.
S-1
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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
December 12, 2007 [Exhibit 10.1 to the Company’s Form 8-K filed January 31, 2008]
10.8
10.9
10.10
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]
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]
10.12
*
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]
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Exhibit No.
Exhibit Description
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
21
*
*
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
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) [Exhibit 10.30 to the Company's Form 10-K for the year ended December 31, 2012]
Granite Construction Incorporated NEO LTIP Awards Form of Restricted Stock Unit Agreement (3 Year
Vesting Schedule) [Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 2012]
* Waiver to Amended and Restated Credit Agreement, dated as of December 24, 2013, among Granite
Construction Incorporated, Granite Construction Company, GILC Incorporated, as borrowers, certain
subsidiaries of Granite Construction Incorporated that are guarantors, 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 8-K filed on December 31, 2013]
Temporary Waiver and Agreement, dated as of December 24, 2013, among Granite Construction
Incorporated, certain of its subsidiaries that are guarantors and the holders of it senior notes due 2019 party
thereto [Exhibit 10.2 to the Company’s Form 8-K filed on December 31, 2013]
Amendment No. 2 and Waiver to Amended and Restated Credit Agreement, dated as of March 3, 2014
Second Amendment to Note Purchase Agreement, dated as of March 3, 2014
*
†
†
†
List of Subsidiaries of Granite Construction Incorporated
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Exhibit No.
Exhibit Description
23.1
31.1
31.2
32
95
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
†
†
†
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
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CORPORATE INfORMATION:
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, Jr.
Retired Dean and Ralph Owen Professor for
the Practice of Management, Owen School of
Management, Vanderbilt University
Gary M. Cusumano
Retired Chairman,
The 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 of
Government Affairs,
Edison International and
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
Operations Services Manager
Philip M. DeCocco
Senior Vice President of Human Resources
Michael F. Donnino
Senior Vice President and Group Manager
Patrick B. Kenny
Senior Vice President and Group Manager
Martin P. Matheson
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
Bradley G. Graham
Vice President, Controller and
Assistant Financial Officer
REGISTRAR AND
TRANSfER AGENT
Computershare
250 Royall Street
Canton, MA 02021
(877) 520-8549 (U.S.)
(732) 491-0616 (non U.S.)
fORM 10-K
ANNUAL MEETING
Of SHAREHOLDERS
Granite’s Annual Meeting of Shareholders
will be held at 10:30 a.m. PDT on June 5,
2014, at the Hyatt Regency Monterey Hotel,
1 Old Golf Course Road, Monterey, CA
93943. 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’s Board of Directors has
declared a quarterly cash dividend of
$0.13 per share of common stock payable
on April 15, 2014, to share holders of
record as of March 31, 2014. Declaration
and payment of dividends are at sole
discretion of the Board, sub ject to limita-
tions 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.
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 infor-
mation in Granite’s Annual Report on
Form 10-K, as required by Section 302(a)
of the Sarbanes-Oxley Act of 2002.
After our 2014 Annual Meeting of Share-
holders, 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 20, 2013.
COMPANY CONTACT
Ronald E. Botoff
Director of Investor Relations
(831) 728-7532
Ronald.Botoff@gcinc.com
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