GVA 9.30.2013 10Q

 

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, 2013
 
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. xYes o 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). xYes o No
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 28, 2013.
Class
 
Outstanding
Common Stock, $0.01 par value
 
38,878,364 shares



 


Index

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 101.INS 
EXHIBIT 101.SCH 
EXHIBIT 101.CAL 
EXHIBIT 101.DEF
EXHIBIT 101.LAB 
EXHIBIT 101.PRE 

 
 

2
 
 
 
 


Table of Contents

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,
2013
 
December 31,
2012
 
September 30,
2012
ASSETS
 
 
 
 
 
 
Current assets
 
 
 
 
 
 

Cash and cash equivalents ($57,133, $105,865 and $74,020 related to consolidated construction joint ventures (“CCJVs”))
 
$
212,463

 
$
321,990

 
$
287,322

Short-term marketable securities
 
22,892

 
56,088

 
47,185

Receivables, net ($47,696, $43,902 and $31,028 related to CCJVs)
 
422,609

 
325,529

 
363,455

Costs and estimated earnings in excess of billings
 
40,837

 
34,116

 
49,548

Inventories
 
61,667

 
59,785

 
63,999

Real estate held for development and sale
 
50,250

 
50,223

 
57,964

Deferred income taxes
 
36,687

 
36,687

 
38,571

Equity in construction joint ventures
 
161,063

 
105,805

 
97,890

Other current assets
 
33,204

 
31,834

 
13,974

Total current assets
 
1,041,672

 
1,022,057

 
1,019,908

Property and equipment, net ($28,194, $41,114 and $6,661 related to CCJVs)
 
456,524

 
481,478

 
432,293

Long-term marketable securities
 
64,014

 
55,342

 
37,802

Investments in affiliates
 
31,338

 
30,799

 
30,257

Goodwill
 
53,799

 
55,419

 
9,900

Other noncurrent assets
 
78,655

 
84,392

 
68,475

Total assets
 
$
1,726,002

 
$
1,729,487

 
$
1,598,635

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

 
 

Current liabilities
 
 

 
 

 
 

Current maturities of long-term debt
 
$
20

 
$
8,353

 
$
8,352

Current maturities of non-recourse debt
 
2,147

 
10,707

 
16,712

Accounts payable ($20,075, $34,536 and $30,975 related to CCJVs)
 
199,480

 
202,541

 
209,683

Billings in excess of costs and estimated earnings ($70,518, $72,490 and $13,955 related to CCJVs)
 
144,706

 
139,692

 
91,348

Accrued expenses and other current liabilities ($12,804, $8,312 and $3,495 related to CCJVs)
 
219,169

 
169,979

 
167,166

Total current liabilities
 
565,522

 
531,272

 
493,261

Long-term debt
 
270,148

 
270,148

 
200,168

Long-term non-recourse debt
 
7,048

 
922

 
4,375

Other long-term liabilities
 
46,474

 
47,124

 
47,913

Deferred income taxes
 
7,988

 
8,163

 
3,644

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 38,878,194 shares as of September 30, 2013, 38,730,665 shares as of December 31, 2012 and 38,706,966 shares as of September 30, 2012
 
388

 
387

 
387

Additional paid-in capital
 
123,681

 
117,422

 
114,917

Retained earnings
 
688,440

 
712,144

 
699,277

Total Granite Construction Incorporated shareholders’ equity
 
812,509

 
829,953

 
814,581

Noncontrolling interests
 
16,313

 
41,905

 
34,693

Total equity
 
828,822

 
871,858

 
849,274

Total liabilities and equity
 
$
1,726,002

 
$
1,729,487

 
$
1,598,635

The accompanying notes are an integral part of these condensed consolidated financial statements.

3
 
 
 
 


Table of Contents

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,
 
 
2013
 
2012
 
2013
 
2012
Revenue
 
 
 
 
 
 
 
 
Construction
 
$
470,567

 
$
385,744

 
$
956,287

 
$
748,803

Large Project Construction
 
187,820

 
255,918

 
540,906

 
648,645

Construction Materials
 
83,172

 
86,782

 
173,107

 
175,754

Real Estate
 
16

 
38

 
141

 
5,055

Total revenue
 
741,575

 
728,482

 
1,670,441

 
1,578,257

Cost of revenue
 
 
 
 

 
 
 
 

Construction
 
420,932

 
352,471

 
868,300

 
688,989

Large Project Construction
 
190,363

 
198,104

 
498,639

 
540,343

Construction Materials
 
75,884

 
76,798

 
167,839

 
166,720

Real Estate
 
—

 
10

 
13

 
4,254

Total cost of revenue
 
687,179

 
627,383

 
1,534,791

 
1,400,306

Gross profit
 
54,396

 
101,099

 
135,650

 
177,951

Selling, general and administrative expenses
 
46,586

 
41,280

 
150,698

 
127,801

Loss (gain) on restructuring
 
474

 
—

 
(23
)
 
(2,527
)
Gain on sales of property and equipment
 
3,259

 
1,622

 
7,653

 
6,493

Operating income (loss)
 
10,595


61,441

 
(7,372
)
 
59,170

Other (expense) income
 
 
 
 

 
 
 
 

Interest income
 
602

 
485

 
1,110

 
2,140

Interest expense
 
(3,736
)
 
(2,561
)
 
(11,081
)
 
(8,570
)
Equity in (loss) income of affiliates
 
(2
)
 
1,481

 
273

 
380

Other income, net
 
1,022

 
2,013

 
1,630

 
3,866

Total other (expense) income
 
(2,114
)
 
1,418

 
(8,068
)
 
(2,184
)
 Income (loss) before provision for (benefit from) income taxes
 
8,481

 
62,859

 
(15,440
)
 
56,986

Provision for (benefit from) income taxes
 
4,026

 
17,113

 
(3,235
)
 
15,440

Net income (loss)
 
4,455

 
45,746

 
(12,205
)
 
41,546

Amount attributable to noncontrolling interests
 
6,542

 
(8,625
)
 
3,938

 
(14,249
)
Net income (loss) attributable to Granite Construction Incorporated
 
$
10,997

 
$
37,121

 
$
(8,267
)
 
$
27,297

 
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders (see Notes 13 and 14)
 
 
 
 
 
 
 
 

Basic
 
$
0.28

 
$
0.96

 
$
(0.21
)
 
$
0.71

Diluted
 
$
0.28

 
$
0.94

 
$
(0.21
)
 
$
0.70

Weighted average shares of common stock
 
 
 
 

 
 
 
 

Basic
 
38,876

 
38,518

 
38,773

 
38,418

Diluted
 
39,759

 
39,141

 
38,773

 
39,013

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
 
 
 
 


Table of Contents

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Nine Months Ended September 30,
 
2013
 
2012
Operating activities
 
 
 
 
Net (loss) income
 
$
(12,205
)
 
$
41,546

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
 

Depreciation, depletion and amortization
 
54,788

 
43,651

Non-cash restructuring, net
 
(23
)
 
(1,782
)
Other non-cash impairment charges
 
—

 
3,101

Gain on sales of property and equipment
 
(7,653
)
 
(6,493
)
Stock-based compensation
 
10,645

 
8,910

Changes in assets and liabilities, net of the effects of acquisition:
 
 
 
 

Receivables
 
(99,856
)
 
(115,066
)
Costs and estimated earnings in excess of billings, net
 
(1,707
)
 
(11,342
)
Inventories
 
(1,882
)
 
(13,024
)
Equity in construction joint ventures, including performance guarantees
 
(54,672
)
 
3,139

Other assets, net
 
(5,165
)
 
18,581

Accounts payable
 
5,578

 
51,025

Accrued expenses and other current liabilities, net, including performance guarantees
 
47,637

 
(2,083
)
Net cash (used in) provided by operating activities
 
(64,515
)
 
20,163

Investing activities
 
 

 
 

Purchases of marketable securities
 
(34,957
)
 
(59,936
)
Maturities of marketable securities
 
57,000

 
70,100

Proceeds from sale of marketable securities
 
5,000

 
55,000

Additions to property and equipment
 
(30,467
)
 
(25,971
)
Proceeds from sales of property and equipment
 
18,431

 
8,368

Payment of Kenny post-closing adjustments
 
(8,382
)
 
—

Other investing activities, net
 
1,088

 
1,165

Net cash provided by investing activities
 
7,713

 
48,726

Financing activities
 
 

 
 

Long-term debt principal payments
 
(10,900
)
 
(11,584
)
Cash dividends paid
 
(15,150
)
 
(15,078
)
Purchases of common stock
 
(5,457
)
 
(4,521
)
Contributions from noncontrolling partners
 
6,007

 
—

Distributions to noncontrolling partners
 
(28,015
)
 
(8,022
)
Other financing activities
 
790

 
648

Net cash used in financing activities
 
(52,725
)
 
(38,557
)
(Decrease) increase in cash and cash equivalents
 
(109,527
)
 
30,332

Cash and cash equivalents at beginning of period
 
321,990

 
256,990

Cash and cash equivalents at end of period
 
$
212,463

 
$
287,322

Supplementary Information
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
7,940

 
$
6,948

Income taxes
 
2,338

 
1,131

Non-cash investing and financing activities:
 
 

 
 

Restricted stock units issued, net of forfeitures
 
$
13,942

 
$
11,532

Accrued cash dividends
 
5,054

 
5,032

Debt payments out of escrow from sale of assets
 
—

 
1,109

Debt extinguishment from joint venture interest transfer
 
—

 
9,115

Debt payment from refinancing
 
—

 
1,150

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
 
 
 
 


Table of Contents
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, 2012. 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 state fairly our financial position at September 30, 2013 and 2012 and the results of our operations and cash flows for the periods presented. The December 31, 2012 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 except for the adoption of the following new accounting standards in the first quarter of 2013:

•
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 became effective for the quarter ended March 31, 2013 and did not impact our condensed 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 became effective for our quarter ended March 31, 2013. No impairment analysis was necessary in relation to our indefinite lived intangible assets during the nine months ended September 30, 2013; therefore, the adoption of this ASU had no impact on our condensed 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 commencing with our quarter ended March 31, 2013. For all periods presented other comprehensive loss was not significant; therefore, the adoption of this ASU did not have an impact on our condensed consolidated financial statements.

Our operations are typically affected more 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 and profitability. Therefore, the results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year. 

The Company identified approximately $3.9 million in pre-tax adjustments ($2.4 million after-tax) relating to prior periods of 2013 which have been corrected in the current period. The most significant adjustments related to an alternative depreciation method for fixed assets purchased in connection with the acquisition of Kenny Construction Company (“Kenny”) (see Note 18) and an estimate related to project equipment. These out-of-period corrections, which were not material to the current period or any prior period, primarily resulted in an increase to cost of revenue for the three months ended September 30, 2013.


6
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.
Recently Issued Accounting Pronouncement

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 and applied prospectively with early adoption permitted. We do not expect that the adoption of this ASU will have a material impact on our condensed consolidated financial statements.

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 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 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 method, revisions in estimates are accounted for in their entirety in the period of change. As of September 30, 2013, we had no revisions in estimates that are reasonably certain to impact future periods. However, there can be no assurance that we will not experience further change in circumstances or otherwise be required to further revise our profitability estimates.
 
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 $1.5 million and $0.6 million for the three and nine months ended September 30, 2013. The net changes for the three and nine months ended September 30, 2012 were net decreases of $6.0 million and $9.4 million, respectively. The projects are summarized as follows:

Increases
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
 
2013
 
 
2012
 
 
2013
 
 
2012
Number of projects with upward estimate changes
 
 
4

 
 
1

 
 
5

 
 
4

Range of increase in gross profit from each project, net
 
$
1.3 - 2.7

 
$
1.6

 
$
1.1 - 3.0

 
$
1.0 - 3.0

Increase to project profitability
 
$
7.4

 
$
1.6

 
$
11.8

 
$
7.1

The increases during the three and nine months ended September 30, 2013 were due to owner directed scope changes and production at a higher rate than anticipated. The increases during the three and nine months ended September 30, 2012 were due to lower than anticipated costs and settlement of outstanding issues with contract owners.

Decreases
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
 
2013
 
 
2012
 
 
2013
 
 
2012
Number of projects with downward estimate changes
 
 
3

 
 
4

 
 
4

 
 
6

Range of reduction in gross profit from each project, net
 
$
1.5 - 2.5

 
$
1.1 - 3.9

 
$
1.1 - 4.3

 
$
1.1 - 6.3

Decrease to project profitability
 
$
5.9

 
$
7.6

 
$
11.2

 
$
16.5

The decreases during the three and nine months ended September 30, 2013 and 2012 were due to lower productivity than originally anticipated.

7
 
 
 
 


Table of Contents
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 was a net decrease of $6.8 million for the three months ended September 30, 2013 and a net increase of $13.6 million for the nine months ended September 30, 2013, respectively. The net changes for the three and nine months ended September 30, 2012 were net increases of $35.9 million and $48.9 million, respectively. Amounts attributable to noncontrolling interests were $5.9 million of the net decrease for the three months ended September 30, 2013 and $4.3 million of the net increase for the nine months ended September 30, 2013. Amounts attributable to noncontrolling interests were $5.7 million and $6.6 million of the net increases for the three and nine months ended September 30, 2012, respectively. The projects are summarized as follows:
 
Increases
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
 
2013
 
 
2012
 
 
2013
 
 
2012
Number of projects with upward estimate changes
 
 
3

 
 
8

 
 
6

 
 
8

Range of increase in gross profit from each project, net
 
$
1.0 - 10.5

 
$
1.1 - 12.6

 
$
2.1 - 26.6

 
$
1.1 - 16.3

Increase to project profitability
 
$
12.9

 
$
35.9

 
$
47.5

 
$
54.7

The increases during the three and nine months ended September 30, 2013 were due to production at a higher rate than anticipated and owner directed scope changes. The increases during the three and nine months ended September 30, 2012 were due to owner directed scope changes and lower than anticipated construction costs.

Decreases
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
 
2013
 
 
2012
 
 
2013
 
 
2012
Number of projects with downward estimate changes
 
 
4

 
 
—

 
 
4

 
 
2

Range of reduction in gross profit from each project, net
 
$
1.4 - 14.7

 
$
—

 
$
1.6 - 23.5

 
$
1.7 - 4.1

Decrease to project profitability
 
$
19.7

 
$
—

 
$
33.9

 
$
5.8

The downward estimate changes during the three and nine months ended September 30, 2013 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 for any future compensation has yet to be finalized. The downward estimate changes during the nine months ended September 30, 2012 were due to lower productivity than anticipated, including with respect to the Washington State project discussed above.

8
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.
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)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
U.S. Government and agency obligations
 
$
1,260

 
$
7,375

 
$
15,062

Commercial paper 
 
19,982

 
34,966

 
19,976

Municipal bonds
 
1,650

 
8,738

 
7,082

Corporate bonds
 
—

 
5,009

 
5,065

Total short-term marketable securities
 
22,892

 
56,088

 
47,185

U.S. Government and agency obligations
 
64,014

 
55,342

 
36,103

Municipal bonds
 
—

 
—

 
1,699

Total long-term marketable securities
 
64,014

 
55,342

 
37,802

Total marketable securities
 
$
86,906

 
$
111,430

 
$
84,987


Scheduled maturities of held-to-maturity investments were as follows (in thousands):
September 30, 2013
 
Due within one year
$
22,892

Due in one to five years
64,014

Total
$
86,906


9
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5.
Fair Value Measurement
 
Fair value accounting standards describe three levels 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. 
The following tables summarize assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels:
September 30, 2013
 
Fair Value Measurement at Reporting Date Using
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
 
 

 
 

 
 

 
 

Money market funds
 
$
113,220

 
$
—

 
$
—

 
$
113,220

Total assets
 
$
113,220

 
$
—

 
$
—

 
$
113,220

December 31, 2012
 
Fair Value Measurement at Reporting Date Using
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents
 
 

 
 

 
 

 
 

Money market funds
 
$
201,542

 
$
—

 
$
—

 
$
201,542

Held-to-maturity commercial paper
 
5,000

 
—

 
—

 
5,000

Total assets
 
$
206,542

 
$
—

 
$
—

 
$
206,542

September 30, 2012
 
Fair Value Measurement at Reporting Date Using
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents  
 
 

 
 

 
 

 
 

Money market funds
 
$
185,586

 
$
—

 
$
—

 
$
185,586

Held-to-maturity commercial paper
 
14,495

 
—

 
—

 
14,495

Total assets
 
$
200,081

 
$
—

 
$
—

 
$
200,081


A reconciliation of cash equivalents to consolidated cash and cash equivalents is as follows:
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Cash equivalents
 
$
113,220

 
$
206,542

 
$
200,081

Cash
 
99,243

 
115,448

 
87,241

Total cash and cash equivalents
 
$
212,463

 
$
321,990

 
$
287,322




10
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The carrying values and estimated fair values of our financial instruments that are not required to be measured at fair value in the condensed consolidated balance sheets are as follows: 
 
 
 
 
September 30, 2013
 
December 31, 2012
 
September 30, 2012
(in thousands)
 
Fair Value Hierarchy
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Assets:
 
 
 
 

 
 

 
 
 
 
 
 
 
 

Held-to-maturity marketable securities1
 
Level 1
 
$
86,906

 
$
86,594

 
$
111,430

 
$
111,525

 
$
84,987

 
$
85,133

Liabilities (including current maturities):
 
 
 
 
 
 
 
 
 
 
Senior notes payable2
 
Level 3
 
$
200,000

 
$
226,110

 
$
208,333

 
$
243,118

 
$
208,333

 
$
243,219

Credit Agreement loan2
 
Level 3
 
70,000

 
70,166

 
70,000

 
70,444

 
—

 
—

1Held-to-maturity marketable securities are periodically assessed for other-than-temporary impairment.
2The fair values of the senior notes payable and Credit Agreement (as defined under “Credit Agreement” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) 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. During the three and nine months ended September 30, 2013 and 2012, 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,
2013
 
December 31,
2012
 
September 30,
2012
Construction contracts:
 
 
 
 
 
 
Completed and in progress
 
$
275,182

 
$
195,244

 
$
228,865

Retentions
 
76,114

 
93,800

 
68,590

Total construction contracts
 
351,296

 
289,044

 
297,455

Construction material sales
 
55,466

 
26,918

 
59,396

Other
 
18,412

 
12,316

 
9,029

Total gross receivables
 
425,174

 
328,278

 
365,880

Less: allowance for doubtful accounts
 
2,565

 
2,749

 
2,425

Total net receivables
 
$
422,609

 
$
325,529

 
$
363,455


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. 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 condensed 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 September 30, 2013, substantially all of the retentions receivable are expected to be collected within one year. Included in other receivables at September 30, 2013, December 31, 2012 and September 30, 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.



11
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Financing receivables consisted of long-term notes receivable and retentions receivable. As of September 30, 2013, December 31, 2012 and September 30, 2012 long-term notes receivable outstanding were $1.5 million, $2.0 million and $1.9 million, respectively, and primarily related to loans made to employees and were included in other noncurrent assets in our condensed consolidated balance sheets.

We segregate our retention receivables into two categories: escrow and non-escrow. The balances in each category were as follows:
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Escrow
 
$
23,794

 
$
41,494

 
$
42,297

Non-escrow
 
52,320

 
52,306

 
26,293

Total retention receivables
 
$
76,114

 
$
93,800

 
$
68,590


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 low; 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.

The following table summarizes the amount of our non-escrow retention receivables within each category:
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Federal
 
$
5,161

 
$
3,234

 
$
2,569

State
 
3,444

 
2,971

 
3,595

Local
 
35,003

 
31,559

 
12,003

Private
 
8,712

 
14,542

 
8,126

Total
 
$
52,320

 
$
52,306

 
$
26,293

 

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Table of Contents
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, 2013
 
Current
 
1 - 90 Days
Past Due
 
Over 90 Days
Past Due
 
Total
Federal
 
$
4,121

 
$
237

 
$
803

 
$
5,161

State
 
1,685

 
368

 
1,391

 
3,444

Local
 
24,845

 
2,924

 
7,234

 
35,003

Private
 
5,238

 
968

 
2,506

 
8,712

Total
 
$
35,889

 
$
4,497

 
$
11,934

 
$
52,320

December 31, 2012
 
Current
 
1 - 90 Days
Past Due
 
Over 90 Days
Past Due
 
Total
Federal
 
$
3,116

 
$
72

 
$
46

 
$
3,234

State
 
2,148

 
502

 
321

 
2,971

Local
 
25,743

 
1,082

 
4,734

 
31,559

Private
 
13,310

 
716

 
516

 
14,542

Total
 
$
44,317

 
$
2,372

 
$
5,617

 
$
52,306

September 30, 2012
 
Current
 
1 - 90 Days
Past Due
 
Over 90 Days
Past Due
 
Total
Federal
 
$
2,012

 
$
—

 
$
557

 
$
2,569

State
 
3,177

 
239

 
179

 
3,595

Local
 
11,141

 
555

 
307

 
12,003

Private
 
7,495

 
321

 
310

 
8,126

Total
 
$
23,825

 
$
1,115

 
$
1,353

 
$
26,293


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 was the case with the majority of local agencies with past due balances as of September 30, 2013. We generally receive payment within one year of owner acceptance. As of September 30, 2013, December 31, 2012 and September 30, 2012, our allowance for doubtful accounts contained no material provision related to non-escrow retention receivables as we determined there were no significant collectibility issues.


13
 
 
 
 


Table of Contents
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 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.
 
The agreements with our joint venture partners and limited liability company members (“partners(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 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 September 30, 2013, there was approximately $5.0 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $1.4 billion represented our share and the remaining $3.6 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 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 variable interest entities (“VIEs”) and we are the primary beneficiary, or because they are not VIEs and we hold the majority voting interest. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners. Based on our initial primary beneficiary analysis for one construction joint venture, we determined that decision making responsibility is shared between the venture partners. Therefore, this joint venture did not have an identifiable primary beneficiary partner and we continue to report the pro rata results. All other joint ventures were assigned one primary beneficiary partner.

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 nine months ended September 30, 2013 and 2012, we determined no change was required for existing construction joint ventures.

  

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Table of Contents
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,
2013
 
December 31,
2012
 
September 30,
2012
Cash and cash equivalents1 
 
$
57,133

 
$
105,865

 
$
74,020

Receivables, net
 
47,696

 
43,902

 
31,028

Other current assets
 
3,815

 
4,008

 
1,351

Total current assets
 
108,644

 
153,775

 
106,399

Property and equipment, net
 
28,194

 
41,114

 
6,661

Other noncurrent assets
 
—

 
1,700

 
—

Total assets2

$
136,838

 
$
196,589

 
$
113,060

 
 
 
 
 
 
 
Accounts payable 
 
$
20,075

 
$
34,536

 
$
30,975

Billings in excess of costs and estimated earnings1 
 
70,518

 
72,490

 
13,955

Accrued expenses and other current liabilities 
 
12,804

 
8,312

 
3,495

Total liabilities2
 
$
103,397

 
$
115,338

 
$
48,425

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 September 30, 2013, we were engaged in four active consolidated construction joint venture projects with total contract values ranging from $0.4 million to $336.9 million. The total revenue remaining to be recognized on these consolidated joint ventures ranged from $0.3 million to $111.0 million. Our proportionate share of the equity in these joint ventures was between 51.0% and 65.0%. During the three and nine months ended September 30, 2013, total revenue from consolidated construction joint ventures was $42.4 million and $131.1 million, respectively. During the three and nine months ended September 30, 2012, total revenue from consolidated construction joint ventures was $77.4 million and $174.0 million, respectively. Total cash used in consolidated construction joint venture operations was $10.4 million and $16.1 million during the nine months ended September 30, 2013 and 2012, 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, 2013, these unconsolidated joint ventures were engaged in eleven active construction projects 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 September 30, 2013, our share of the revenue remaining to be recognized on these unconsolidated joint ventures ranged from $0.2 million to $691.0 million.

As of September 30, 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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Table of Contents
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,
2013
 
December 31,
2012
 
September 30,
2012
Assets:
 
 
 
 
 
 
Cash and cash equivalents1
 
$
412,506

 
$
244,686

 
$
304,065

Other assets
 
439,655

 
301,412

 
273,848

Less partners’ interest
 
557,857

 
342,545

 
353,165

Granite’s interest
 
294,304

 
203,553

 
224,748

Liabilities:
 
 
 
 
 
 
Accounts payable
 
127,695

 
114,039

 
94,788

Billings in excess of costs and estimated earnings1
 
274,052

 
161,268

 
243,578

Other liabilities
 
68,379

 
5,873

 
8,299

Less partners’ interest
 
336,885

 
183,432

 
219,807

Granite’s interest
 
133,241

 
97,748

 
126,858

Equity in construction joint ventures
 
$
161,063

 
$
105,805

 
$
97,890

 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.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
Revenue:
 
 
 
 
 
 
 
 
Total
 
$
363,523

 
$
286,308

 
$
848,082

 
$
776,235

Less partners’ interest1
 
259,655

 
181,679

 
586,016

 
497,743

Granite’s interest
 
103,868

 
104,629

 
262,066

 
278,492

Cost of revenue:
 
 
 
 
 
 
 
 
Total
 
290,112

 
200,688

 
661,587

 
597,689

Less partners’ interest1
 
203,804

 
129,840

 
452,784

 
389,171

Granite’s interest
 
86,308

 
70,848

 
208,803

 
208,518

Granite’s interest in gross profit
 
$
17,560

 
$
33,781

 
$
53,263

 
$
69,974

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 condensed consolidated financial statements. As of September 30, 2013, we had five active line item joint venture construction projects with total contract values ranging from $42.2 million to $138.6 million of which our portion ranged from $23.0 million to $60.8 million. As of September 30, 2013, our share of revenue remaining to be recognized on these line item joint ventures ranged from $0.1 million to $23.8 million.

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Table of Contents
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. 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. 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. 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 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 nine months ended September 30, 2013, GLC was authorized to increase its financial support to one consolidated real estate entity by $5.9 million to meet existing debt obligations, and during the nine months ended September 30, 2012 there was no increase to its authorized financial support. As of September 30, 2013, $3.0 million of the total authorized investment had yet to be contributed to the consolidated entity.

We have determined that certain of these joint ventures are consolidated because they are VIEs and we are the 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.

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 nine months ended September 30, 2013 and 2012, we determined no change was required for existing real estate entities.

To determine if impairment charges should be recognized, the carrying amount of each consolidated real estate development project is reviewed on a quarterly basis. Based on our quarterly evaluations of each project’s business plan, we recorded no material impairment charges to our real estate development projects or investments during the three and nine months ended September 30, 2013 and 2012.


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Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidated Real Estate Entities
 
As of September 30, 2013, December 31, 2012 and September 30, 2012, real estate held for development and sale associated with consolidated real estate entities included in our condensed consolidated balance sheets was $50.3 million, $50.2 million and $58.0 million, respectively. Non-recourse debt, including current maturities, associated with these entities was $9.2 million, $11.6 million and $21.1 million as of September 30, 2013, December 31, 2012 and September 30, 2012, respectively. All other amounts associated with these entities were insignificant for the periods presented. As of September 30, 2013, December 31, 2012 and September 30, 2012, $40.8 million, $40.3 million and $48.1 million, respectively, of the real estate held for development and sale balances were in Washington residential real estate. The remaining balances were primarily in various commercial projects in Texas and California.

Investments in Affiliates
 
Our investments in affiliates balance consists of the following:
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Equity method investments in real estate affiliates
 
$
20,488

 
$
19,775

 
$
18,873

Equity method investments in other affiliates
 
10,850

 
11,024

 
11,384

Total investments in affiliates
 
$
31,338

 
$
30,799

 
$
30,257


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 were 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 condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as investments in affiliates.

The equity method investments in real estate included $14.0 million, $13.8 million and $12.8 million in residential real estate in Texas as of September 30, 2013, December 31, 2012 and September 30, 2012, respectively. The remaining balances were in commercial real estate in Texas. As of September 30, 2013, these real estate entities had total assets ranging from approximately $1.9 million to $49.7 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.

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Total assets
 
$
166,601

 
$
166,112

 
$
156,992

Net assets
 
$
95,490

 
$
92,106

 
$
85,162

Granite’s share of net assets
 
$
31,338

 
$
30,799

 
$
30,257

 

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Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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,
2013
 
December 31,
2012
 
September 30,
2012
Equipment and vehicles
 
$
754,598

 
$
758,782

 
$
718,965

Quarry property
 
180,205

 
180,567

 
177,814

Land and land improvements
 
125,606

 
125,961

 
125,842

Buildings and leasehold improvements
 
83,743

 
83,245

 
80,916

Office furniture and equipment
 
69,265

 
67,743

 
64,767

Property and equipment
 
1,213,417

 
1,216,298

 
1,168,304

Less: accumulated depreciation and depletion
 
756,893

 
734,820

 
736,011

Property and equipment, net
 
$
456,524

 
$
481,478

 
$
432,293


10.
Intangible Assets
 
Indefinite-lived 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 condensed consolidated balance sheets as of September 30, 2013, December 31, 2012 and September 30, 2012.

The following table presents the goodwill balance by reporting segment:
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
September 30,
2012
Construction
 
$
28,398

 
$
29,190

 
$
6,937

Large Project Construction
 
23,287

 
24,115

 
849

Construction Materials
 
2,114

 
2,114

 
2,114

Total goodwill
 
$
53,799

 
$
55,419

 
$
9,900


The change in goodwill and in the gross value of amortized intangible assets during each period is due to the acquisition of Kenny. See Note 18 for further details.


19
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Amortized Intangible Assets:

Following is the breakdown of our amortized intangible assets that are included in other noncurrent assets on our condensed consolidated balance sheets:
September 30, 2013
 
 
 
Accumulated
 
 
(in thousands)
 
Gross Value
 
Amortization
 
Net Book Value
Permits
 
$
29,713

 
$
(11,711
)
 
$
18,002

Customer lists
 
4,398

 
(2,418
)
 
1,980

Covenants not to compete
 
1,588

 
(1,551
)
 
37

Acquired backlog
 
7,900

 
(5,147
)
 
2,753

Trade name
 
4,100

 
(324
)
 
3,776

Other
 
871

 
(827
)
 
44

Total amortized intangible assets
 
$
48,570

 
$
(21,978
)
 
$
26,592

December 31, 2012
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Permits
 
$
29,713

 
$
(10,869
)
 
$
18,844

Customer lists
 
4,698

 
(2,170
)
 
2,528

Covenants not to compete
 
1,588

 
(1,546
)
 
42

Acquired backlog
 
8,400

 
—

 
8,400

Trade name
 
4,100

 
—

 
4,100

Other
 
871

 
(734
)
 
137

Total amortized intangible assets
 
$
49,370

 
$
(15,319
)
 
$
34,051

September 30, 2012
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Permits
 
$
29,713

 
$
(10,588
)
 
$
19,125

Customer lists
 
2,198

 
(2,113
)
 
85

Covenants not to compete
 
1,588

 
(1,541
)
 
47

Other
 
871

 
(696
)
 
175

Total amortized intangible assets
 
$
34,370

 
$
(14,938
)
 
$
19,432

Amortization expense related to these intangible assets for the three and nine months ended September 30, 2013 was approximately $2.2 million and $6.7 million, respectively, and approximately $1.2 million and $3.3 million for the three and nine months ended September 30, 2012, respectively. Based on the amortized intangible assets balance at September 30, 2013, amortization expense expected to be recorded in the future is as follows: $2.6 million for the remainder of 2013; $2.2 million in 2014; $2.1 million in 2015; $1.8 million in 2016; $1.7 million in 2017; and $16.2 million thereafter.


20
 
 
 
 


Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.
Restructuring
 
We recorded no significant restructuring amounts during the nine months ended September 30, 2013 and recorded net gains on restructuring of $2.5 million during the nine months ended September 30, 2012. During the fourth quarter of 2013, we expect to conclude our 2010 Enterprise Improvement Plan (“EIP”) and to record at least $30.0 million of restructuring charges, primarily related to previously planned consolidation efforts and assets to be held-for-sale as part of our EIP. The ultimate amount and timing of future restructuring charges is subject to market conditions and our ability to estimate sales values of certain assets at prices acceptable to us and that would result in a sale within a year of the assets being held-for-sale.

12.
Covenants and Events of Default
 
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the agreements, (2) termination of the agreements, (3) the requirement that any letters of credit under the agreements be cash collateralized, (4) acceleration of the maturity of outstanding indebtedness under the agreements and/or (5) foreclosure on any collateral securing the obligations under the agreements.
 
As of September 30, 2013, we were in compliance with the covenants contained in our note purchase agreements governing our senior notes payable, Credit Agreement (as defined under “Credit Agreement” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and 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.

13.
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 condensed consolidated statements of operations is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Weighted average common stock outstanding
 
38,876

 
38,707

 
38,814

 
38,679

Less: weighted average unvested restricted stock outstanding
 
—

 
189

 
41

 
261

Total basic weighted average shares outstanding
 
38,876

 
38,518

 
38,773

 
38,418

 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding:
 
 
 
 
 
 
 
 
Weighted average common stock outstanding, basic
 
38,876

 
38,518

 
38,773

 
38,418

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Common stock options and restricted stock units1
 
883

 
623

 
—

 
595

Total weighted average shares outstanding assuming dilution
 
39,759

 
39,141

 
38,773

 
39,013

1Due to the net loss for the nine months ended September 30, 2013, restricted stock units and common stock options representing approximately 863,000 have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.



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Table of Contents
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14.
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):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per share amounts)
 
2013
 </