UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011 | |
OR
o | 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
State of Incorporation: | I.R.S. Employer Identification Number: |
Delaware | 77-0239383 |
Address of principal executive offices:
585 W. Beach Street
Watsonville, California 95076
(831) 724-1011
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 x No o
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 x No o
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 x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 25, 2011.
Class | Outstanding | |
Common Stock, $0.01 par value | 38,668,940 shares | |
Index
EXHIBIT 101.INS | ||
EXHIBIT 101.SCH | ||
EXHIBIT 101.CAL | ||
EXHIBIT 101.LAB | ||
EXHIBIT 101.PRE | ||
2
PART I. FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS |
GRANITE CONSTRUCTION INCORPORATED | ||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||
(Unaudited - in thousands, except share and per share data) | ||||||||||||
September 30, 2011 | December 31, 2010 | September 30, 2010 | ||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 193,099 | $ | 252,022 | $ | 257,854 | ||||||
Short-term marketable securities | 77,389 | 109,447 | 80,962 | |||||||||
Receivables, net | 357,807 | 243,986 | 375,914 | |||||||||
Costs and estimated earnings in excess of billings | 45,884 | 10,519 | 34,448 | |||||||||
Inventories | 57,987 | 51,018 | 45,224 | |||||||||
Real estate held for development and sale | 79,173 | 75,716 | 151,638 | |||||||||
Deferred income taxes | 52,714 | 53,877 | 31,035 | |||||||||
Equity in construction joint ventures | 97,415 | 74,716 | 80,496 | |||||||||
Other current assets | 29,526 | 42,555 | 42,409 | |||||||||
Total current assets | 990,994 | 913,856 | 1,099,980 | |||||||||
Property and equipment, net | 453,822 | 473,607 | 491,363 | |||||||||
Long-term marketable securities | 59,509 | 34,259 | 49,502 | |||||||||
Investments in affiliates | 33,435 | 31,410 | 32,515 | |||||||||
Other noncurrent assets | 80,709 | 82,401 | 78,611 | |||||||||
Total assets | $ | 1,618,469 | $ | 1,535,533 | $ | 1,751,971 | ||||||
LIABILITIES AND EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Current maturities of long-term debt | $ | 8,351 | $ | 8,359 | $ | 8,444 | ||||||
Current maturities of non-recourse debt | 16,690 | 29,760 | 39,157 | |||||||||
Accounts payable | 216,600 | 129,700 | 206,993 | |||||||||
Billings in excess of costs and estimated earnings | 89,505 | 120,185 | 157,233 | |||||||||
Accrued expenses and other current liabilities | 185,624 | 150,773 | 173,547 | |||||||||
Total current liabilities | 516,770 | 438,777 | 585,374 | |||||||||
Long-term debt | 208,519 | 217,014 | 216,870 | |||||||||
Long-term non-recourse debt | 27,755 | 25,337 | 16,420 | |||||||||
Other long-term liabilities | 46,985 | 47,996 | 48,764 | |||||||||
Deferred income taxes | 10,330 | 10,774 | 27,883 | |||||||||
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 38,664,403 shares as of September 30, 2011, 38,745,542 shares as of December 31, 2010 and 38,769,787 shares as of September 30, 2010 | 387 | 387 | 388 | |||||||||
Additional paid-in capital | 108,096 | 104,232 | 101,567 | |||||||||
Retained earnings | 673,626 | 656,412 | 711,497 | |||||||||
Total Granite Construction Incorporated shareholders’ equity | 782,109 | 761,031 | 813,452 | |||||||||
Noncontrolling interests | 26,001 | 34,604 | 43,208 | |||||||||
Total equity | 808,110 | 795,635 | 856,660 | |||||||||
Total liabilities and equity | $ | 1,618,469 | $ | 1,535,533 | $ | 1,751,971 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GRANITE CONSTRUCTION INCORPORATED | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited - in thousands, except per share data) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue | ||||||||||||||||
Construction | $ | 431,101 | $ | 409,989 | $ | 784,393 | $ | 729,118 | ||||||||
Large project construction | 213,320 | 169,972 | 513,478 | 429,625 | ||||||||||||
Construction materials | 83,171 | 88,128 | 165,083 | 175,381 | ||||||||||||
Real estate | 986 | 2,761 | 7,029 | 11,613 | ||||||||||||
Total revenue | 728,578 | 670,850 | 1,469,983 | 1,345,737 | ||||||||||||
Cost of revenue | ||||||||||||||||
Construction | 372,561 | 365,323 | 696,911 | 659,705 | ||||||||||||
Large project construction | 187,763 | 151,656 | 443,965 | 379,991 | ||||||||||||
Construction materials | 73,617 | 75,991 | 154,329 | 165,889 | ||||||||||||
Real estate | 744 | 1,725 | 5,941 | 8,585 | ||||||||||||
Total cost of revenue | 634,685 | 594,695 | 1,301,146 | 1,214,170 | ||||||||||||
Gross profit | 93,893 | 76,155 | 168,837 | 131,567 | ||||||||||||
Selling, general and administrative expenses | 39,112 | 47,160 | 121,277 | 153,809 | ||||||||||||
Gain on sales of property and equipment | 5,598 | 3,165 | 11,572 | 11,417 | ||||||||||||
Operating income (loss) | 60,379 | 32,160 | 59,132 | (10,825 | ) | |||||||||||
Other (expense) income | ||||||||||||||||
Interest income | 476 | 2,110 | 2,295 | 4,147 | ||||||||||||
Interest expense | (3,418 | ) | (547 | ) | (7,653 | ) | (7,294 | ) | ||||||||
Equity in income (loss) of affiliates | 1,881 | 529 | 1,443 | (177 | ) | |||||||||||
Other (expense) income, net | (1,833 | ) | 1,023 | (1,951 | ) | 5,854 | ||||||||||
Total other (expense) income | (2,894 | ) | 3,115 | (5,866 | ) | 2,530 | ||||||||||
Income (loss) before provision for (benefit from) income taxes | 57,485 | 35,275 | 53,266 | (8,295 | ) | |||||||||||
Provision for (benefit from) income taxes | 15,109 | (8,026 | ) | 11,973 | (11,233 | ) | ||||||||||
Net income | 42,376 | 43,301 | 41,293 | 2,938 | ||||||||||||
Amount attributable to noncontrolling interests | (5,908 | ) | (4,620 | ) | (8,886 | ) | (11,902 | ) | ||||||||
Net income (loss) attributable to Granite Construction Incorporated | $ | 36,468 | $ | 38,681 | $ | 32,407 | $ | (8,964 | ) | |||||||
Net income (loss) per share attributable to common shareholders (see Note 14) | ||||||||||||||||
Basic | $ | 0.94 | $ | 1.00 | $ | 0.84 | $ | (0.24 | ) | |||||||
Diluted | $ | 0.93 | $ | 0.99 | $ | 0.83 | $ | (0.24 | ) | |||||||
Weighted average shares of common stock | ||||||||||||||||
Basic | 38,172 | 37,865 | 38,092 | 37,802 | ||||||||||||
Diluted | 38,598 | 38,071 | 38,428 | 37,802 | ||||||||||||
Dividends per common share | $ | 0.13 | $ | 0.13 | $ | 0.39 | $ | 0.39 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GRANITE CONSTRUCTION INCORPORATED | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited - in thousands) | ||||||||
Nine Months Ended September 30, | 2011 | 2010 | ||||||
Operating activities | ||||||||
Net income | $ | 41,293 | $ | 2,938 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, depletion and amortization | 45,691 | 54,169 | ||||||
Gain on sales of property and equipment | (11,572 | ) | (11,417 | ) | ||||
Stock-based compensation | 8,994 | 10,241 | ||||||
Loss (gain) on company owned life insurance | 639 | (2,655 | ) | |||||
Changes in assets and liabilities, net of the effects of consolidations: | ||||||||
Receivables | (112,790 | ) | (90,764 | ) | ||||
Costs and estimated earnings in excess of billings, net | (66,045 | ) | (22,637 | ) | ||||
Inventories | (6,969 | ) | 576 | |||||
Real estate held for development and sale | (1,725 | ) | (9,982 | ) | ||||
Equity in construction joint ventures | (22,699 | ) | (14,010 | ) | ||||
Other assets, net | 9,359 | 7,136 | ||||||
Accounts payable | 86,900 | 75,422 | ||||||
Accrued expenses and other current liabilities, net | 30,942 | 11,549 | ||||||
Net cash provided by operating activities | 2,018 | 10,566 | ||||||
Investing activities | ||||||||
Purchases of marketable securities | (115,146 | ) | (78,355 | ) | ||||
Maturities of marketable securities | 85,875 | 50,900 | ||||||
Proceeds from sale of marketable securities | 33,268 | 10,000 | ||||||
Additions to property and equipment | (34,748 | ) | (30,182 | ) | ||||
Proceeds from sales of property and equipment | 20,071 | 17,225 | ||||||
Purchase of private preferred stock | (50 | ) | (6,400 | ) | ||||
Other investing activities, net | 2,363 | 2,407 | ||||||
Net cash used in investing activities | (8,367 | ) | (34,405 | ) | ||||
Financing activities | ||||||||
Long-term debt principal payments | (17,293 | ) | (18,472 | ) | ||||
Cash dividends paid | (15,090 | ) | (15,110 | ) | ||||
Purchase of common stock | (3,840 | ) | (3,374 | ) | ||||
Distributions to noncontrolling partners, net | (17,489 | ) | (20,940 | ) | ||||
Other financing activities | 1,138 | 633 | ||||||
Net cash used in financing activities | (52,574 | ) | (57,263 | ) | ||||
Decrease in cash and cash equivalents | (58,923 | ) | (81,102 | ) | ||||
Cash and cash equivalents at beginning of period | 252,022 | 338,956 | ||||||
Cash and cash equivalents at end of period | $ | 193,099 | $ | 257,854 | ||||
Supplementary Information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 9,718 | $ | 8,196 | ||||
Income taxes | 905 | 469 | ||||||
Non-cash investing and financing activities: | ||||||||
Restricted stock/units issued, net of forfeitures | $ | 6,896 | $ | 6,763 | ||||
Accrued cash dividends | 5,026 | 5,040 | ||||||
Debt payments out of escrow from sale of assets | 3,446 | 5,487 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Basis of Presentation |
The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” “Company” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at September 30, 2011 and 2010 and the results of our operations and cash flows for the periods presented. The December 31, 2010 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements. Interim results are subject to significant seasonal variations and the results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.
2. | Recently Issued Accounting Pronouncements |
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. This ASU clarifies the application of certain existing fair value measurement guidance as well as expands the disclosure requirements for fair value measurements that are estimated using significant unobservable (Level 3) inputs and for assets and liabilities disclosed but not recorded at fair value. This ASU will be effective for our quarter ending March 31, 2012. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements rather than as a footnote to the condensed consolidated financial statements, where it is currently disclosed. This ASU will be effective for our quarter ending March 31, 2012. Except for the presentation requirement, the adoption of this ASU will not have an impact on our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives companies the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value when assessing goodwill for impairment. If it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, further impairment analysis is not necessary. However, if it is concluded otherwise, we are required to perform step one of the goodwill impairment test. This ASU will be effective for our quarter ending March 31, 2012. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-09, Compensation - Retirement Benefits - Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. This ASU requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures. The additional disclosures include, but are not limited to, information on significant multiemployer plans in which we participate, such as plan names and identifying numbers, the amount of contributions to the plan, whether our contributions represent more than five percent of the total contributions made to the plan, funded status, whether funding improvement plans are pending or implemented, whether the plan has imposed surcharges and the expiration dates of the plans. This ASU is effective for our year ending December 31, 2011. Except for the additional disclosures, the adoption of this ASU will not have an impact on our consolidated financial statements.
6
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. | Revisions in Estimates |
Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this option, revisions in estimates are accounted for in their entirety in the period of change. As of September 30, 2011, we had no revisions in estimates that are reasonably certain to impact future periods.
Construction
The net change 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 was a net decrease of $1.3 million and a net increase of $1.6 million for the three and nine months ended September 30, 2011, respectively. The net change 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 was a net increase of $0.7 million and a net decrease of $0.4 million for the three and nine months ended September 30, 2010, respectively. The projects are summarized as follows:
Increases
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(dollars in millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Number of projects with upward estimate changes | 2 | 2 | 4 | 3 | ||||||||||||
Range of increase in gross profit from each project, net | $ | 1.3 - 1.4 | $ | 2.2 - 2.9 | $ | 1.1 - 2.9 | $ | 1.0 - 2.9 | ||||||||
Increase on project profitability | $ | 2.7 | $ | 5.1 | $ | 7.0 | $ | 6.5 | ||||||||
The increases during the three and nine months ended September 30, 2011 were primarily due to improved salvage prices for excess material, the settlement of outstanding cost issues and owner directed scope changes. The increases during the three and nine months ended September 30, 2010 were due to the resolution of certain project uncertainties and owner directed scope changes.
Decreases
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(dollars in millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Number of projects with downward estimate changes | 2 | 2 | 3 | 3 | ||||||||||||
Range of reduction in gross profit from each project, net | $ | 1.4 - 2.6 | $ | 2.2 - 2.2 | $ | 1.4 - 2.6 | $ | 1.9 - 2.7 | ||||||||
Decrease on project profitability | $ | 4.0 | $ | 4.4 | $ | 5.4 | $ | 6.9 | ||||||||
The decreases during the three and nine months ended September 30, 2011 were due to lower productivity than anticipated and unanticipated rework costs. The downward estimate changes during the three and nine months ended September 30, 2010 were due to lower productivity than anticipated, disputed materials performance issues and unanticipated rework costs.
7
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $2.7 million and $7.9 million for the three and nine months ended September 30, 2011, respectively. The net change for the three and nine months ended September 30, 2010 was a net decrease of $0.1 million and a net increase of $6.5 million, respectively. Amounts attributable to noncontrolling interests were $1.0 million and $0.6 million of the net increases for the three and nine months ended September 30, 2011, respectively, $0.1 million of the net decrease for the three months ended September 30, 2010 and $1.5 million of the net increase for the nine months ended September 30, 2010. The projects are summarized as follows:
Increases
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(dollars in millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Number of projects with upward estimate changes | 5 | 2 | 6 | 6 | ||||||||||||
Range of increase in gross profit from each project, net | $ | 1.0 - 2.6 | $ | 1.4 - 2.8 | $ | 1.4 - 4.2 | $ | 1.0 - 4.2 | ||||||||
Increase on project profitability | $ | 8.8 | $ | 4.2 | $ | 17.7 | $ | 11.6 | ||||||||
The increases during the three and nine months ended September 30, 2011 were due to the settlement of outstanding issues with a contract owner, owner directed scope changes, lower than anticipated construction costs and the resolution of a project claim. The increases during the three and nine months ended September 30, 2010 were due to the settlement of design issues with a subcontractor, resolution of project uncertainties, owner directed scope changes and higher productivity than anticipated.
8
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Decreases
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(dollars in millions) | 2011 | September 30, 2010 | 2011 | September 30, 2010 | ||||||||||||
Number of projects with downward estimate changes | 3 | 2 | 2 | 2 | ||||||||||||
Range of reduction in gross profit from each project, net | $ | 1.7 - 2.4 | $ | 1.9 - 2.4 | $ | 4.2 - 5.6 | $ | 2.2 - 2.9 | ||||||||
Decrease on project profitability | $ | 6.1 | $ | 4.3 | $ | 9.8 | $ | 5.1 | ||||||||
The downward estimate changes during the three and nine months ended September 30, 2011 were due to increased costs to resolve project uncertainties and lower productivity than anticipated. The decreases during the three and nine months ended September 30, 2010 were due to issues with contract owners as well as lower productivity than anticipated.
Our wholly owned subsidiaries, Granite Construction Company and Granite Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which is contracted by the Oregon Department of Transportation (“ODOT”) to construct a new road alignment of U.S. Highway 20 near Eddyville, Oregon. In addition to previous geologic landslide movements, the project site experienced unanticipated ground movement at several hillsides beginning in 2010. In some locations, the ground movements have caused damage to completed portions of bridge structures. Although design work towards a new mitigation plan on the project is continuing, the corrective work required to complete the project has not yet been determined. YRC and ODOT are engaged in the contractual dispute resolution process to determine the parties’ responsibilities for design issues and which party bears the financial responsibility for the corrective work. At this time, the Company cannot predict the timing of the resolution of the contractual disputes, including the design determination issue, nor reasonably estimate the impact the final resolution will have on the projected financial results for this project. If the required corrective work is determined to be substantial, and YRC is determined to bear the financial responsibility for the corrective work, the Company’s results of operations and cash flows for one or more future periods could be materially and adversely affected. Until the dispute is resolved, we will incur additional costs to maintain the job site. While we believe we are entitled to receive compensation for these additional costs, the contractual dispute resolution process will determine which party bears the financial responsibility for maintaining the job site. During the year ended December 31, 2010, a $10.2 million revision in estimate was recorded in our consolidated statements of operations primarily related to additional costs to maintain the project site until the beginning of the 2012 construction season. In addition, provisions for the estimated total cost of this contract in excess of its estimated total revenue have been made in the condensed consolidated statements of operations. Due to the uncertainties described above, no revisions in this project’s estimates were made during the three and nine months ended September 30, 2011 related to the disputed work.
9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. | Marketable Securities |
The carrying amounts of marketable securities were as follows (in thousands):
September 30, 2011 | Held-to-Maturity | Trading | Total | |||||||||
U.S. Government and agency obligations | $ | 40,218 | $ | — | $ | 40,218 | ||||||
Commercial paper | 29,978 | — | 29,978 | |||||||||
Municipal bonds | 4,036 | — | 4,036 | |||||||||
Corporate bonds | 3,157 | — | 3,157 | |||||||||
Total short-term marketable securities | 77,389 | — | 77,389 | |||||||||
U.S. Government and agency obligations | 45,268 | — | 45,268 | |||||||||
Municipal bonds | 8,952 | — | 8,952 | |||||||||
Corporate bonds | 5,289 | — | 5,289 | |||||||||
Total long-term marketable securities | 59,509 | — | 59,509 | |||||||||
Total marketable securities | $ | 136,898 | $ | — | $ | 136,898 | ||||||
December 31, 2010 | ||||||||||||
U.S. Government and agency obligations | $ | 40,047 | $ | — | $ | 40,047 | ||||||
Commercial paper | 33,971 | — | 33,971 | |||||||||
Municipal bonds | 10,896 | — | 10,896 | |||||||||
Corporate bonds | 10,122 | — | 10,122 | |||||||||
Equity securities - mutual funds | — | 14,411 | 14,411 | |||||||||
Total short-term marketable securities | 95,036 | 14,411 | 109,447 | |||||||||
U.S. Government and agency obligations | 30,618 | — | 30,618 | |||||||||
Municipal bonds | 3,641 | — | 3,641 | |||||||||
Total long-term marketable securities | 34,259 | — | 34,259 | |||||||||
Total marketable securities | $ | 129,295 | $ | 14,411 | $ | 143,706 | ||||||
September 30, 2010 | ||||||||||||
U.S. Government and agency obligations | $ | 44,407 | $ | — | $ | 44,407 | ||||||
Commercial paper | 19,971 | — | 19,971 | |||||||||
Municipal bonds | 11,204 | — | 11,204 | |||||||||
Equity securities - mutual funds | — | 5,380 | 5,380 | |||||||||
Total short-term marketable securities | 75,582 | 5,380 | 80,962 | |||||||||
U.S. Government and agency obligations | 45,844 | — | 45,844 | |||||||||
Municipal bonds | 3,658 | — | 3,658 | |||||||||
Total long-term marketable securities | 49,502 | — | 49,502 | |||||||||
Total marketable securities | $ | 125,084 | $ | 5,380 | $ | 130,464 | ||||||
Scheduled maturities of held-to-maturity investments were as follows (in thousands):
September 30, 2011 | |||
Due within one year | $ | 77,389 | |
Due in one to five years | 59,509 | ||
Total | $ | 136,898 | |
10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. | Fair Value Measurement |
The following tables summarize each class of assets and liabilities measured at fair value on a recurring basis:
September 30, 2011 | Fair Value Measurement at Reporting Date Using | |||||||||||||||
(in thousands) | Level 11 | Level 22 | Level 33 | Total | ||||||||||||
Cash equivalents | ||||||||||||||||
Money market funds | $ | 149,966 | $ | — | $ | — | $ | 149,966 | ||||||||
Total | $ | 149,966 | $ | — | $ | — | $ | 149,966 | ||||||||
December 31, 2010 | Fair Value Measurement at Reporting Date Using | |||||||||||||||
(in thousands) | Level 11 | Level 22 | Level 33 | Total | ||||||||||||
Cash equivalents | ||||||||||||||||
Money market funds | $ | 226,009 | $ | — | $ | — | $ | 226,009 | ||||||||
Trading securities | ||||||||||||||||
Equity securities - mutual funds | 14,411 | — | — | 14,411 | ||||||||||||
Total | $ | 240,420 | $ | — | $ | — | $ | 240,420 | ||||||||
September 30, 2010 | Fair Value Measurement at Reporting Date Using | |||||||||||||||
(in thousands) | Level 11 | Level 22 | Level 33 | Total | ||||||||||||
Cash equivalents | ||||||||||||||||
Money market funds | $ | 210,189 | $ | — | $ | — | $ | 210,189 | ||||||||
Trading securities | ||||||||||||||||
Equity securities - mutual funds | 5,380 | — | — | 5,380 | ||||||||||||
Total | $ | 215,569 | $ | — | $ | — | $ | 215,569 | ||||||||
1Quoted prices in active markets for identical assets or liabilities.
2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A reconciliation of money market funds to consolidated cash and cash equivalents is as follows:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Money market funds | $ | 149,966 | $ | 226,009 | $ | 210,189 | ||||||
Held-to-maturity commercial paper | 4,997 | 4,999 | 14,997 | |||||||||
Cash | 38,136 | 21,014 | 32,668 | |||||||||
Total cash and cash equivalents | $ | 193,099 | $ | 252,022 | $ | 257,854 | ||||||
11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We believe the carrying values of receivables, other current assets, and other current liabilities approximate their fair values. The fair value of the senior notes payable was based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. The carrying amount and estimated fair value of senior notes payable, including current maturities, were as follows:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Carrying amount | ||||||||||||
Senior notes payable | $ | 216,667 | $ | 225,000 | $ | 225,000 | ||||||
Fair value | ||||||||||||
Senior notes payable | $ | 246,844 | $ | 245,911 | $ | 256,556 | ||||||
We measure certain nonfinancial assets and liabilities at fair value on a nonrecurring basis. During the three and nine months ended September 30, 2011 and 2010, we did not record any significant fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
6. | Receivables, Net |
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Construction contracts: | ||||||||||||
Completed and in progress | $ | 223,292 | $ | 121,664 | $ | 226,192 | ||||||
Retentions | 74,795 | 96,333 | 92,614 | |||||||||
Total construction contracts | 298,087 | 217,997 | 318,806 | |||||||||
Construction material sales | 52,157 | 17,674 | 51,114 | |||||||||
Other | 10,177 | 11,612 | 9,325 | |||||||||
Total gross receivables | 360,421 | 247,283 | 379,245 | |||||||||
Less: allowance for doubtful accounts | 2,614 | 3,297 | 3,331 | |||||||||
Total net receivables | $ | 357,807 | $ | 243,986 | $ | 375,914 | ||||||
Included in other receivables at September 30, 2011, December 31, 2010 and September 30, 2010 were items such as notes receivable, interest receivable, fuel tax refunds and income tax refunds. No such receivables individually exceeded 10% of total net receivables at any of these dates.
Financing receivables consisted of long-term notes receivable and retentions receivable. As of September 30, 2011, December 31, 2010 and September 30, 2010, long-term notes receivable outstanding were $2.1 million, $1.8 million and $2.1 million, respectively, and primarily related to loans made to employees and were included in other noncurrent assets in our condensed consolidated balance sheets.
12
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We segregate our retention receivables into two categories: escrow and non-escrow and the balances in each category were as follows:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Escrow | $ | 38,517 | $ | 43,841 | $ | 38,312 | ||||||
Non-escrow | 36,278 | 52,492 | 54,302 | |||||||||
Total retention receivables | $ | 74,795 | $ | 96,333 | $ | 92,614 | ||||||
The escrow receivables include amounts due to Granite which have been deposited into an escrow account and bear interest. Typically, escrow retention receivables are held until work on a project is complete and has been accepted by the owner who then releases those funds, along with accrued interest, to us. There is minimal risk of not collecting on these amounts.
Non-escrow retention receivables are amounts that the project owner has contractually withheld that will be paid upon owner acceptance of contract completion. We evaluate our non-escrow retention receivables for collectability using certain customer information that includes the following:
• | Federal - includes federal agencies such as the Bureau of Reclamation, the Army Corp of Engineers, and the Bureau of Indian Affairs. The obligations of these agencies are backed by the federal government. Consequently there is minimal risk of not collecting the amounts we are entitled to receive. |
• | State - primarily state departments of transportation. The risk of not collecting on these accounts is small; however, we have experienced occasional delays in payment as states have struggled with budget issues. |
• | Local - these customers include local agencies such as cities, counties and other local municipal agencies. The risk of not collecting on these accounts is small; however, we have experienced occasional delays in payment as some local agencies have struggled to deal with budget issues. |
• | Private - includes individuals, developers and corporations. The majority of our collection risk is associated with these customers. We perform ongoing credit evaluations of our customers and generally do not require collateral, although the law provides us certain remedies, including, but not limited to, the ability to file mechanics’ liens on real property improved for private customers in the event of non-payment by such customers. |
The following table summarizes the amount of our non-escrow retention receivables within each category:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Federal | $ | 2,148 | $ | 3,080 | $ | 2,175 | ||||||
State | 6,046 | 9,507 | 10,792 | |||||||||
Local | 17,666 | 29,451 | 30,409 | |||||||||
Private | 10,418 | 10,454 | 10,926 | |||||||||
Total | $ | 36,278 | $ | 52,492 | $ | 54,302 | ||||||
13
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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):
September 30, 2011 | Current | 0 - 90 Days Past Due | Over 90 Days Past Due | Total | ||||||||||||
Federal | $ | 1,976 | $ | 77 | $ | 95 | $ | 2,148 | ||||||||
State | 3,880 | 1,397 | 769 | 6,046 | ||||||||||||
Local | 13,801 | 1,465 | 2,400 | 17,666 | ||||||||||||
Private | 9,911 | 108 | 399 | 10,418 | ||||||||||||
Total | $ | 29,568 | $ | 3,047 | $ | 3,663 | $ | 36,278 | ||||||||
December 31, 2010 | Current | 0 - 90 Days Past Due | Over 90 Days Past Due | Total | ||||||||||||
Federal | $ | 2,587 | $ | 174 | $ | 319 | $ | 3,080 | ||||||||
State | 4,443 | 628 | 4,436 | 9,507 | ||||||||||||
Local | 22,641 | 2,800 | 4,010 | 29,451 | ||||||||||||
Private | 9,243 | 175 | 1,036 | 10,454 | ||||||||||||
Total | $ | 38,914 | $ | 3,777 | $ | 9,801 | $ | 52,492 | ||||||||
September 30, 2010 | Current | 0 - 90 Days Past Due | Over 90 Days Past Due | Total | ||||||||||||
Federal | $ | 1,921 | $ | 22 | $ | 232 | $ | 2,175 | ||||||||
State | 9,227 | 131 | 1,434 | 10,792 | ||||||||||||
Local | 23,850 | 2,489 | 4,070 | 30,409 | ||||||||||||
Private | 9,689 | 243 | 994 | 10,926 | ||||||||||||
Total | $ | 44,687 | $ | 2,885 | $ | 6,730 | $ | 54,302 | ||||||||
Federal, state and local agencies generally require several approvals to release payments, and these approvals often take over 90 days past contractual due dates to obtain. Amounts past due from government agencies primarily result from delays caused by paperwork processing and obtaining proper agency approvals rather than lack of funds. As of September 30, 2011, December 31, 2010 and September 30, 2010, our allowance for doubtful accounts contained no material provision related to non-escrow retention receivables as we determined there were no significant collectibility issues.
14
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. | Construction and Line Item Joint Ventures |
We participate in various construction joint venture partnerships. We also participate in various “line item” joint venture agreements under which each partner is responsible for performing certain discrete items of the total scope of contracted work.
Our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each party will pay for any losses it is responsible for under the joint venture agreement. Circumstances that could lead to a loss under our joint venture arrangements beyond our stated ownership interest include the failure of a partner to contribute additional funds to the venture in the event the project incurs a loss or additional costs that we could incur should a partner fail to provide the services and resources that it had committed to provide in the joint venture agreement. Due to the joint and several nature of the obligations under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for performance of the outstanding work.
At September 30, 2011, there was approximately $1.7 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.6 billion represented our share and the remaining $1.1 billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.
Construction Joint Ventures
Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities resulting from the performance of the 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 variable interest entities (“VIEs”) as defined by Accounting Standards Codification (“ASC”) Topic 810, Consolidation, and related standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners.
Based on our primary beneficiary assessment during the nine months ended September 30, 2011, we determined no change was required to the accounting for existing construction joint ventures.
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 condensed consolidated financial statements as follows:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Cash and cash equivalents1 | $ | 65,350 | $ | 109,380 | $ | 103,367 | ||||||
Other current assets2 | 31,215 | 50,344 | 44,351 | |||||||||
Total current assets | 96,565 | 159,724 | 147,718 | |||||||||
Noncurrent assets | 9,821 | 2,561 | 894 | |||||||||
Total assets3 | $ | 106,386 | $ | 162,285 | $ | 148,612 | ||||||
Accounts payable | $ | 36,660 | $ | 33,078 | $ | 33,934 | ||||||
Billings in excess of costs and estimated earnings1 | 17,116 | 46,475 | 63,783 | |||||||||
Accrued expenses and other current liabilities | 5,997 | 11,633 | 11,195 | |||||||||
Total current liabilities | 59,773 | 91,186 | 108,912 | |||||||||
Noncurrent liabilities | 33 | 3 | 5 | |||||||||
Total liabilities3 | $ | 59,806 | $ | 91,189 | $ | 108,917 | ||||||
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.
2Prior period amounts have been revised to conform to current year presentation. The revisions had no impact on the consolidated balances or on the accounting for consolidated construction joint ventures.
3The assets and liabilities of each joint venture relate solely to that joint venture. The decision to distribute joint venture cash and cash equivalents and assets must generally be made jointly by all of the partners and, accordingly, these cash and cash equivalents and assets generally are not available for the working capital needs of Granite.
At September 30, 2011, we were engaged in two active consolidated construction joint venture projects with total contract values of $227.6 million and $312.1 million. Our proportionate share of the equity in these joint ventures was 45.0% and 60.0%, 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 condensed consolidated statements of operations and as a single line item on the condensed consolidated balance sheets. As of September 30, 2011, these unconsolidated joint ventures were engaged in nine active construction projects with total contract values ranging from $57.6 million to $975.4 million. Our proportionate share of the equity in these unconsolidated joint ventures was between 20.0% and 49.0%. As of September 30, 2011, we had between $2.4 million and $196.1 million of revenue per project remaining to be recognized on these unconsolidated joint ventures.
16
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following is summary financial information related to unconsolidated construction joint ventures:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Assets: | ||||||||||||
Cash and cash equivalents1 | $ | 356,399 | $ | 318,408 | $ | 273,173 | ||||||
Other assets | 265,549 | 212,911 | 192,606 | |||||||||
Less partners’ interest | 378,523 | 324,485 | 287,616 | |||||||||
Granite’s interest | 243,425 | 206,834 | 178,163 | |||||||||
Liabilities: | ||||||||||||
Accounts payable | 85,602 | 72,658 | 49,767 | |||||||||
Billings in excess of costs and estimated earnings1 | 302,039 | 282,702 | 211,822 | |||||||||
Other liabilities | 9,460 | 8,893 | 13,837 | |||||||||
Less partners’ interest | 251,091 | 232,135 | 177,759 | |||||||||
Granite’s interest | 146,010 | 132,118 | 97,667 | |||||||||
Equity in construction joint ventures | $ | 97,415 | $ | 74,716 | $ | 80,496 | ||||||
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.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenue: | ||||||||||||||||
Total | $ | 243,654 | $ | 168,981 | $ | 667,920 | $ | 427,379 | ||||||||
Less partners’ interest1 | 158,079 | 120,790 | 448,357 | 300,425 | ||||||||||||
Granite’s interest | 85,575 | 48,191 | 219,563 | 126,954 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Total | 212,485 | 157,932 | 546,495 | 386,316 | ||||||||||||
Less partners’ interest1 | 140,506 | 111,578 | 370,865 | 261,508 | ||||||||||||
Granite’s interest | 71,979 | 46,354 | 175,630 | 124,808 | ||||||||||||
Granite’s interest in gross profit | $ | 13,596 | $ | 1,837 | $ | 43,933 | $ | 2,146 | ||||||||
1Partners’ interest represents amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies.
Line Item Joint Ventures
The revenue for each line item joint venture partner’s discrete items of work is defined in the contract with the project owner and each venture partner bears the profitability risk associated with its own work. There is not a single set of books and records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We account for our portion of these contracts as project revenues and costs in our accounting system and include receivables and payables associated with our work in our condensed consolidated financial statements. As of September 30, 2011, we had four active line item joint venture construction projects with total contract values between $52.9 million and $154.9 million of which our portions were between $21.1 million and $71.3 million. As of September 30, 2011, we had between $0.9 million and $43.8 million of revenue per project remaining to be recognized on these line item joint ventures.
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. | Real Estate Entities and Investments in Affiliates |
The operations of our Real Estate segment are conducted through our wholly owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility in the project. If one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume full management or financial responsibility for the project. This may result in the consolidation of entities that are accounted for under the equity method in our consolidated financial statements. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture.
Substantially all the assets of these real estate entities in which we are participants through our GLC subsidiary are classified as real estate held for development and sale or real estate held for use. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt. Our real estate affiliates include limited partnerships or limited liability companies of which we are a limited partner or member. In the fourth quarter of 2010, we publicly announced our work in progress on our Enterprise Improvement Plan which includes business plans to orderly divest of our real estate investment business through the end of 2013, subject to market conditions.
GLC receives authorization to provide additional financial support for certain of its real estate entities in increments as they achieve entitlement or development milestones, or to address changes in business plans. During the nine months ended September 30, 2011, GLC was authorized to increase its financial support to consolidated land entities by a total of $12.0 million on three separate projects. This compares to an increase of $13.5 million on three projects for the same period in 2010. The authorization will allow GLC entities to refinance debt and complete entitlements necessary to sell these projects in keeping with the Company’s plans to orderly divest its real estate investment business. As of September 30, 2011, $7.9 million of the total authorized investment had yet to be contributed to the consolidated entities.
We have determined that certain of the real estate joint ventures are VIEs as defined by ASC Topic 810, Consolidation, and related standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners. Based on our ongoing primary beneficiary assessments, there were no changes to our determinations of whether we are the VIE’s primary beneficiary for existing real estate entities during the nine months ended September 30, 2011 and 2010.
To determine if impairment charges should be recognized, the carrying amount of each consolidated real estate development project is reviewed on a quarterly basis in accordance with ASC Topic 360, Property, Plant, and Equipment, and each real estate development project accounted for under the equity method of accounting is reviewed in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures. The review of each project includes an evaluation of entitlement status, market conditions, existing offers to purchase, cost of construction, debt load, development schedule, status of joint venture partners and other factors specific to each project to determine if events or changes in circumstances indicate that a project’s carrying amount may not be recoverable. If events or changes in circumstances indicate that a project’s carrying amount may not be recoverable, the undiscounted future cash flows are estimated and compared to the project’s carrying amount. In the event that the estimated undiscounted future cash flows are not sufficient to recover the carrying amount of a project, it is written down to its estimated fair value.
Based on our quarterly evaluations of each project’s business plan and our review of each project, we recorded no significant impairment charges during the three and nine months ended September 30, 2011 and 2010.
18
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Real Estate Entities
The carrying amounts and classification of assets and liabilities of real estate entities we are required to consolidate are included in our condensed consolidated balance sheets as follows:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Real estate held for development and sale | $ | 79,173 | $ | 75,716 | $ | 151,638 | ||||||
Other current assets | 2,801 | 2,453 | 2,858 | |||||||||
Total current assets | 81,974 | 78,169 | 154,496 | |||||||||
Property and equipment, net | — | 3,771 | 8,156 | |||||||||
Other noncurrent assets | — | 1,095 | 2,005 | |||||||||
Total assets | $ | 81,974 | $ | 83,035 | $ | 164,657 | ||||||
Current maturities of non-recourse debt | $ | 16,190 | $ | 29,760 | $ | 39,157 | ||||||
Other current liabilities | 1,901 | 2,619 | 3,083 | |||||||||
Total current liabilities | 18,091 | 32,379 | 42,240 | |||||||||
Long-term non-recourse debt | 27,755 | 25,337 | 16,420 | |||||||||
Other noncurrent liabilities | 278 | 404 | 443 | |||||||||
Total liabilities | $ | 46,124 | $ | 58,120 | $ | 59,103 | ||||||
Substantially all of the consolidated real estate entities’ real estate held for development and sale as well as property and equipment are pledged as collateral for the debt of the real estate entities. All outstanding debt of the real estate entities is recourse only to the real estate affiliate that incurred the debt (i.e. the limited partnership or limited liability company of which we are a limited partner or member). Our proportionate share of the profits and losses of these entities depends on the ultimate operating results of the entities.
19
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Included in current assets on our condensed consolidated balance sheets is real estate held for development and sale. The breakdown by type and location of our real estate held for development and sale is summarized below:
September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||||||||||||
(dollars in thousands) | Amount | Number of Projects | Amount | Number of Projects | Amount | Number of Projects | |||||||||||||||
Residential | $ | 55,672 | 5 | $ | 55,289 | 5 | $ | 129,618 | 6 | ||||||||||||
Commercial1 | 23,501 | 7 | 20,427 | 5 | 22,020 | 5 | |||||||||||||||
Total | $ | 79,173 | 12 | $ | 75,716 | 10 | $ | 151,638 | 11 | ||||||||||||
Washington | $ | 47,109 | 2 | $ | 44,598 | 2 | $ | 87,194 | 2 | ||||||||||||
California1 | 16,382 | 8 | 13,437 | 6 | 25,815 | 7 | |||||||||||||||
Texas | 8,859 | 1 | 8,859 | 1 | 8,716 | 1 | |||||||||||||||
Oregon | 6,823 | 1 | 8,822 | 1 | 29,913 | 1 | |||||||||||||||
Total | $ | 79,173 | 12 | $ | 75,716 | 10 | $ | 151,638 | 11 | ||||||||||||
1The increase in the number of projects from December 31, 2010 to September 30, 2011 is due to the reclassification of two projects from property and equipment to real estate held for development and sale. The reclassifications were due to a change in business plans for the projects in connection with our Enterprise Improvement Plan.
Investments in Affiliates
We account for our share of unconsolidated real estate entities in which we have determined we are not the primary beneficiary in other income in the condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as investments in affiliates. At September 30, 2011, these entities were engaged in real estate development projects with total assets ranging from approximately $3.1 million to $48.4 million. Our proportionate share of the profits and losses of these entities depends on the ultimate operating results of the entities.
Additionally, we have investments in non-real estate affiliates that are accounted for using the equity method. The most significant of these investments is a 50% interest in a limited liability company which owns and operates an asphalt terminal in Nevada. We also have a cost method investment in the preferred stock of a corporation that designs and manufactures power generation equipment.
20
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our investments in affiliates balance consists of the following:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Equity method investments in real estate affiliates | $ | 15,856 | $ | 12,128 | $ | 14,290 | ||||||
Equity method investments in other affiliates | 11,129 | 12,882 | 11,825 | |||||||||
Total equity method investments | 26,985 | 25,010 | 26,115 | |||||||||
Cost method investments | 6,450 | 6,400 | 6,400 | |||||||||
Total investments in affiliates | $ | 33,435 | $ | 31,410 | $ | 32,515 | ||||||
The breakdown by type and location of our interests in real estate ventures is summarized below:
September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||||||||||||
(dollars in thousands) | Amount | Number of Projects | Amount | Number of Projects | Amount | Number of Projects | |||||||||||||||
Residential | $ | 11,511 | 2 | $ | 9,029 | 2 | $ | 8,893 | 2 | ||||||||||||
Commercial | 4,345 | 3 | 3,099 | 3 | 5,397 | 3 | |||||||||||||||
Total | $ | 15,856 | 5 | $ | 12,128 | 5 | $ | 14,290 | 5 | ||||||||||||
Texas | $ | 15,856 | 5 | $ | 12,128 | 5 | $ | 14,290 | 5 | ||||||||||||
Total | $ | 15,856 | 5 | $ | 12,128 | 5 | $ | 14,290 | 5 | ||||||||||||
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a 100% combined basis:
(in thousands) | September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
Total assets | $ | 157,054 | $ | 156,868 | $ | 165,653 | ||||||
Net assets | 80,306 | 84,368 | 88,530 | |||||||||
Granite’s share of net assets | 26,985 | 25,010 | 26,115 | |||||||||
9. | 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 condensed consolidated balance sheets as follows:
(in thousands) | September 30, 2011 | December 31, 2010 | ||||||||||