GRANITE CONSTRUCTION INC
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2013
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to ___________
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Commission File Number: 1-12911
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GRANITE CONSTRUCTION INCORPORATED
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State of Incorporation:
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I.R.S. Employer Identification Number:
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Delaware
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77-0239383
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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.
x
Yes
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).
x
Yes
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.
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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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
July 22, 2013
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Class
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Outstanding
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Common Stock, $0.01 par value
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38,874,400 shares
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Index
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EXHIBIT 101.INS
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EXHIBIT 101.SCH
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EXHIBIT 101.CAL
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EXHIBIT 101.DEF
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EXHIBIT 101.LAB
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EXHIBIT 101.PRE
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2
PART
I.
FINANCIAL INFORMATION
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Item 1.
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FINANCIAL STATEMENTS
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GRANITE CONSTRUCTION INCORPORATED
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||||||||||||
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CONDENSED CONSOLIDATED BALANCE SHEETS
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||||||||||||
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(Unaudited - in thousands, except share and per share data)
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||||||||||||
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June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
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ASSETS
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Current assets
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||||||||
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Cash and cash equivalents ($63,806, $105,865 and $67,685 related to consolidated construction joint ventures (“CCJVs”))
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$
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247,833
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$
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321,990
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$
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237,951
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|||
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Short-term marketable securities
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21,271
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56,088
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43,260
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Receivables, net ($59,807, $43,902 and $26,903 related to CCJVs)
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336,418
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325,529
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272,562
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Costs and estimated earnings in excess of billings
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63,341
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34,116
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69,688
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Inventories
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68,905
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59,785
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67,503
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Real estate held for development and sale
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50,697
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50,223
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57,367
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Deferred income taxes
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36,687
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36,687
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38,571
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Equity in construction joint ventures
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148,727
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105,805
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107,821
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Other current assets
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35,651
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31,834
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20,436
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Total current assets
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1,009,530
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1,022,057
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915,159
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Property and equipment, net ($34,891, $41,114 and $6,919 related to CCJVs)
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471,265
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481,478
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439,664
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Long-term marketable securities
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55,225
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55,342
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45,800
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Investments in affiliates
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31,421
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30,799
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28,521
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Goodwill
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53,598
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55,419
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9,900
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Other noncurrent assets
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80,365
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84,392
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68,603
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Total assets
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$
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1,701,404
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$
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1,729,487
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$
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1,507,647
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LIABILITIES AND EQUITY
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Current liabilities
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Current maturities of long-term debt
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$
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20
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$
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8,353
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$
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9,102
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Current maturities of non-recourse debt
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2,147
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10,707
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16,328
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Accounts payable ($18,297, $34,536 and $31,135 related to CCJVs)
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188,124
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202,541
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186,290
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||||||
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Billings in excess of costs and estimated earnings ($72,094, $72,490 and $17,979 related to CCJVs)
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144,044
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139,692
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75,629
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Accrued expenses and other current liabilities ($9,153, $8,312 and $3,027 related to CCJVs)
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200,521
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169,979
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155,322
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Total current liabilities
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534,856
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531,272
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442,671
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Long-term debt
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270,148
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270,148
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200,168
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||||||
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Long-term non-recourse debt
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7,354
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922
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4,641
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Other long-term liabilities
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46,817
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47,124
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47,393
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Deferred income taxes
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8,055
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8,163
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3,644
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Commitments and contingencies
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Equity
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Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding
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—
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—
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—
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Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 38,852,463 shares as of June 30, 2013, 38,730,665 shares as of December 31, 2012 and 38,684,540 shares as of June 30, 2012
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389
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387
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387
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Additional paid-in capital
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121,368
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117,422
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112,815
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Retained earnings
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682,610
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712,144
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667,278
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Total Granite Construction Incorporated shareholders’ equity
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804,367
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829,953
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780,480
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Noncontrolling interests
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29,807
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41,905
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28,650
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Total equity
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834,174
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871,858
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809,130
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Total liabilities and equity
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$
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1,701,404
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$
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1,729,487
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$
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1,507,647
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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GRANITE CONSTRUCTION INCORPORATED
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||||||||||||||||
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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||||||||||||||||
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(Unaudited - in thousands, except per share data)
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||||||||||||||||
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Three Months Ended June 30,
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Six Months Ended June 30,
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|||||||||||||||
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2013
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2012
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2013
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2012
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Revenue
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Construction
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$
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308,602
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$
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245,113
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$
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485,720
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$
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363,059
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Large Project Construction
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181,371
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228,799
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353,086
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392,727
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Construction Materials
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60,185
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63,349
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89,935
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88,972
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Real Estate
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4
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2,354
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125
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5,017
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||||||||
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Total revenue
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550,162
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539,615
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928,866
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849,775
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Cost of revenue
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||||||||||||
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Construction
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283,448
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227,152
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447,367
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336,518
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||||||||
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Large Project Construction
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159,283
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200,560
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308,278
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342,239
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||||||||
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Construction Materials
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56,231
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58,349
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91,955
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89,922
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||||||||
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Real Estate
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3
|
|
1,638
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13
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4,244
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||||||||
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Total cost of revenue
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498,965
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487,699
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847,613
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772,923
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||||||||
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Gross profit
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51,197
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|
51,916
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81,253
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76,852
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||||||||
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Selling, general and administrative expenses
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46,454
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40,806
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104,112
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85,882
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||||||||
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Gain on restructuring
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—
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—
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497
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1,888
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||||||||
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Gain on sales of property and equipment
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3,306
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2,954
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4,394
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4,871
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||||||||
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Operating income (loss)
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8,049
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14,064
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(17,968
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)
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(2,271
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)
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|||||||
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Other income (expense)
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||||||||||||
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Interest income
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380
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611
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|
508
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1,655
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||||||||
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Interest expense
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(3,700
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)
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(2,827
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)
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(7,345
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)
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(6,009
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)
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||||||||
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Equity in income (loss) of affiliates
|
698
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(484
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)
|
275
|
|
(1,101
|
)
|
||||||||
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Other (expense) income, net
|
(495
|
)
|
(5,018
|
)
|
608
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|
1,853
|
|
||||||||
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Total other expense
|
(3,117
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)
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(7,718
|
)
|
(5,954
|
)
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(3,602
|
)
|
||||||||
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Income (loss) before provision for (benefit from) income taxes
|
4,932
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|
6,346
|
|
(23,922
|
)
|
(5,873
|
)
|
||||||||
|
Provision for (benefit from) income taxes
|
1,766
|
|
1,859
|
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(7,261
|
)
|
(1,673
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)
|
||||||||
|
Net income (loss)
|
3,166
|
|
4,487
|
|
(16,661
|
)
|
(4,200
|
)
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||||||||
|
Amount attributable to noncontrolling interests
|
(448
|
)
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(2,538
|
)
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(2,603
|
)
|
(5,624
|
)
|
||||||||
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Net income (loss) attributable to Granite Construction Incorporated
|
$
|
2,718
|
|
$
|
1,949
|
|
$
|
(19,264
|
)
|
$
|
(9,824
|
)
|
||||
|
Net income (loss) per share attributable to common shareholders
(see Notes 12 and 13)
|
|
|
||||||||||||||
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Basic
|
$
|
0.07
|
|
$
|
0.05
|
|
$
|
(0.50
|
)
|
$
|
(0.26
|
)
|
||||
|
Diluted
|
$
|
0.07
|
|
$
|
0.05
|
|
$
|
(0.50
|
)
|
$
|
(0.26
|
)
|
||||
|
Weighted average shares of common stock
|
|
|
|
|
||||||||||||
|
Basic
|
38,829
|
|
38,471
|
|
38,720
|
|
38,368
|
|
||||||||
|
Diluted
|
39,769
|
|
39,151
|
|
38,720
|
|
38,368
|
|
||||||||
|
Dividends per common share
|
$
|
0.13
|
|
$
|
0.13
|
|
$
|
0.26
|
|
$
|
0.26
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
|
GRANITE CONSTRUCTION INCORPORATED
|
||||||||
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
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(
Unaudited - in thousands
)
|
||||||||
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Six Months Ended June 30,
|
2013
|
2012
|
||||||
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Operating activities
|
|
|
||||||
|
Net loss
|
$
|
(16,661
|
)
|
$
|
(4,200
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
||||||
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Depreciation, depletion and amortization
|
33,988
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|
29,573
|
|
||||
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Non-cash restructuring, net
|
(497
|
)
|
(1,888
|
)
|
||||
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Other non-cash impairment charges
|
—
|
|
2,752
|
|
||||
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Gain on sales of property and equipment
|
(4,394
|
)
|
(4,871
|
)
|
||||
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Stock-based compensation
|
8,101
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|
6,492
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|
||||
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Changes in assets and liabilities, net of the effects of acquisition:
|
|
|
||||||
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Receivables
|
(9,176
|
)
|
(20,771
|
)
|
||||
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Costs and estimated earnings in excess of billings, net
|
(24,873
|
)
|
(47,201
|
)
|
||||
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Inventories
|
(9,120
|
)
|
(16,528
|
)
|
||||
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Equity in construction joint ventures, including performance guarantees
|
(42,336
|
)
|
(6,792
|
)
|
||||
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Other assets, net
|
(5,957
|
)
|
15,753
|
|
||||
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Accounts payable
|
(10,548
|
)
|
27,632
|
|
||||
|
Accrued expenses and other current liabilities, net, including performance guarantees
|
29,825
|
|
(14,575
|
)
|
||||
|
Net cash used in operating activities
|
(51,648
|
)
|
(34,624
|
)
|
||||
|
Investing activities
|
|
|
|
|
||||
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Purchases of marketable securities
|
(14,975
|
)
|
(39,945
|
)
|
||||
|
Maturities of marketable securities
|
43,000
|
|
65,100
|
|
||||
|
Proceeds from sale of marketable securities
|
5,000
|
|
35,000
|
|
||||
|
Additions to property and equipment
|
(19,422
|
)
|
(19,855
|
)
|
||||
|
Proceeds from sales of property and equipment
|
8,481
|
|
6,078
|
|
||||
|
Payment of Kenny post-closing adjustments
|
(4,621
|
)
|
—
|
|
||||
|
Other investing activities, net
|
163
|
|
(978
|
)
|
||||
|
Net cash provided by investing activities
|
17,626
|
|
45,400
|
|
||||
|
Financing activities
|
|
|
|
|
||||
|
Long-term debt principal payments
|
(10,594
|
)
|
(10,834
|
)
|
||||
|
Cash dividends paid
|
(10,078
|
)
|
(10,050
|
)
|
||||
|
Purchases of common stock
|
(5,022
|
)
|
(4,054
|
)
|
||||
|
Contributions from noncontrolling partners
|
6,001
|
|
—
|
|
||||
|
Distributions to noncontrolling partners
|
(21,142
|
)
|
(5,440
|
)
|
||||
|
Other financing activities, net
|
700
|
|
563
|
|
||||
|
Net cash used in financing activities
|
(40,135
|
)
|
(29,815
|
)
|
||||
|
Decrease in cash and cash equivalents
|
(74,157
|
)
|
(19,039
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
321,990
|
|
256,990
|
|
||||
|
Cash and cash equivalents at end of period
|
$
|
247,833
|
|
$
|
237,951
|
|
||
|
Supplementary Information
|
|
|
||||||
|
Cash paid during the period for:
|
|
|
||||||
|
Interest
|
$
|
7,339
|
|
$
|
7,158
|
|
||
|
Income taxes
|
2,006
|
|
771
|
|
||||
|
Non-cash investing and financing activities:
|
|
|
|
|
||||
|
Restricted stock units issued, net of forfeitures
|
$
|
14,862
|
|
$
|
11,417
|
|
||
|
Accrued cash dividends
|
5,051
|
|
5,029
|
|
||||
|
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
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
June 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 our 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 six months ended
June 30, 2013
; therefore, the adoption of this ASU had no impact to 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 comprehensive loss was equal to net loss; therefore, the adoption of this ASU did not have an impact on our condensed consolidated financial statements.
|
Our operations are typically affected by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the
three and six
months ended
June 30, 2013
are not necessarily indicative of the results to be expected for the full year.
6
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
2.
|
Revisions in Estimates
|
Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this method, revisions in estimates are accounted for in their entirety in the period of change. As of
June 30, 2013
, we had no revisions in estimates that are reasonably certain to impact future periods.
Construction
The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit were net decreases of
$0.5 million
and
$0.3 million
for the
three and six
months ended
June 30, 2013
, respectively. The net changes for the
three and six
months ended
June 30, 2012
were net decreases of
$1.6 million
and
$0.8 million
, respectively. The projects are summarized as follows:
Increases
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in millions)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Number of projects with upward estimate changes
|
1
|
|
1
|
|
2
|
|
3
|
|
||||||||
|
Range of increase in gross profit from each project, net
|
$
|
1.6
|
|
$
|
1.4
|
|
$
|
1.4 - 1.7
|
|
$
|
1.1 - 3.2
|
|
||||
|
Increase to project profitability
|
$
|
1.6
|
|
$
|
1.4
|
|
$
|
3.1
|
|
$
|
5.4
|
|
||||
The increases during the three and six months ended
June 30, 2013
were due to owner directed scope changes. The increases during the
three and six
months ended
June 30, 2012
were due to production at a higher rate than anticipated and settlement of outstanding issues with contract owners.
Decreases
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in millions)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Number of projects with downward estimate changes
|
1
|
|
2
|
|
2
|
|
2
|
|
||||||||
|
Range of reduction in gross profit from each project, net
|
$
|
2.1
|
|
$
|
1.1 - 1.9
|
|
$
|
1.0 - 2.4
|
|
$
|
1.4 - 4.8
|
|
||||
|
Decrease to project profitability
|
$
|
2.1
|
|
$
|
3.0
|
|
$
|
3.4
|
|
$
|
6.2
|
|
||||
The decreases during the
three and six
months ended
June 30, 2013
and 2012 were due to lower productivity than originally anticipated.
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
$8.7 million
and
$17.9 million
for the
three and six
months ended
June 30, 2013
, respectively. The net changes for the
three and six
months ended
June 30, 2012
were net increases of
$9.3 million
and
$13.7 million
, respectively. Amounts attributable to noncontrolling interests were
$0.4 million
and
$1.4 million
of the net increases for the
three and six
months ended
June 30, 2013
and were
$0.4 million
and
$0.9 million
of the net increases for the
three and six
months ended
June 30, 2012
, respectively. The projects are summarized as follows:
Increases
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in millions)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Number of projects with upward estimate changes
|
5
|
|
6
|
|
5
|
|
6
|
|
||||||||
|
Range of increase in gross profit from each project, net
|
$
|
1.3 - 8.3
|
|
$
|
1.2 - 3.6
|
|
$
|
1.5 - 16.1
|
|
$
|
1.4 - 5.2
|
|
||||
|
Increase to project profitability
|
$
|
15.8
|
|
$
|
14.9
|
|
$
|
31.9
|
|
$
|
23.1
|
|
||||
The increases during the
three and six
months ended
June 30, 2013
were due to production at a higher rate than anticipated, resolution of project uncertainties and owner directed scope changes. The increases during the
three and six
months ended
June 30, 2012
were due to owner directed scope changes and production at a higher rate than anticipated.
Decreases
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in millions)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Number of projects with downward estimate changes
|
2
|
|
1
|
|
2
|
|
2
|
|
||||||||
|
Range of reduction in gross profit from each project, net
|
$
|
2.8 - 4.3
|
|
$
|
5.6
|
|
$
|
5.2 - 8.8
|
|
$
|
1.5 - 7.9
|
|
||||
|
Decrease to project profitability
|
$
|
7.1
|
|
$
|
5.6
|
|
$
|
14.0
|
|
$
|
9.4
|
|
||||
The downward estimate changes during the
three and six
months ended
June 30, 2013
and 2012 were due to lower productivity than anticipated.
8
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
3.
|
Marketable Securities
|
All marketable securities were classified as held-to-maturity for the dates presented and the carrying amounts of held-to-maturity securities were as follows:
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
U.S. Government and agency obligations
|
$
|
613
|
|
$
|
7,375
|
|
$
|
20,107
|
|
|||
|
Commercial paper
|
14,992
|
|
34,966
|
|
14,967
|
|
||||||
|
Municipal bonds
|
5,666
|
|
8,738
|
|
3,065
|
|
||||||
|
Corporate bonds
|
—
|
|
5,009
|
|
5,121
|
|
||||||
|
Total short-term marketable securities
|
21,271
|
|
56,088
|
|
43,260
|
|
||||||
|
U.S. Government and agency obligations
|
55,225
|
|
55,342
|
|
40,041
|
|
||||||
|
Municipal bonds
|
—
|
|
—
|
|
5,759
|
|
||||||
|
Total long-term marketable securities
|
55,225
|
|
55,342
|
|
45,800
|
|
||||||
|
Total marketable securities
|
$
|
76,496
|
|
$
|
111,430
|
|
$
|
89,060
|
|
|||
Scheduled maturities of held-to-maturity investments were as follows (in thousands):
|
June 30, 2013
|
|
||
|
Due within one year
|
$
|
21,271
|
|
|
Due in one to five years
|
55,225
|
|
|
|
Total
|
$
|
76,496
|
|
9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
4.
|
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:
|
June 30, 2013
|
Fair Value Measurement at Reporting Date Using
|
|||||||||||||||
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
144,605
|
|
$
|
—
|
|
$
|
—
|
|
$
|
144,605
|
|
||||
|
Total assets
|
$
|
144,605
|
|
$
|
—
|
|
$
|
—
|
|
$
|
144,605
|
|
||||
|
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
|
|
||||
|
June 30, 2012
|
Fair Value Measurement at Reporting Date Using
|
|||||||||||||||
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
|
|
|
|
||||||||
|
Money market funds
|
$
|
167,427
|
|
$
|
—
|
|
$
|
—
|
|
$
|
167,427
|
|
||||
|
Held-to-maturity commercial paper
|
4,997
|
|
—
|
|
—
|
|
4,997
|
|
||||||||
|
Total assets
|
$
|
172,424
|
|
$
|
—
|
|
$
|
—
|
|
$
|
172,424
|
|
||||
A reconciliation of cash equivalents to consolidated cash and cash equivalents is as follows:
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
|
June 30,
2012 |
||||||||
|
Cash equivalents
|
$
|
144,605
|
|
$
|
206,542
|
|
|
$
|
172,424
|
|
||
|
Cash
|
|
103,228
|
|
|
115,448
|
|
|
65,527
|
|
|||
|
Total cash and cash equivalents
|
$
|
247,833
|
|
$
|
321,990
|
|
|
$
|
237,951
|
|
||
10
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:
|
June 30, 2013
|
December 31, 2012
|
June 30, 2012
|
||||||||||||||||||||||||
|
(in thousands)
|
Fair Value Hierarchy
|
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||||||||
|
Assets:
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Held-to-maturity marketable securities
1
|
Level 1
|
$
|
76,496
|
|
$
|
76,100
|
|
$
|
111,430
|
|
$
|
111,525
|
|
$
|
89,060
|
|
$
|
89,239
|
|
|||||||
|
Liabilities (including current maturities):
|
||||||||||||||||||||||||||
|
Senior notes payable
2
|
Level 3
|
$
|
200,000
|
|
$
|
227,902
|
|
$
|
208,333
|
|
$
|
243,118
|
|
$
|
208,333
|
|
$
|
239,443
|
|
|||||||
|
Credit Agreement loan
2
|
Level 3
|
70,000
|
|
69,321
|
|
70,000
|
|
70,444
|
|
—
|
|
—
|
|
|||||||||||||
1
Held-to-maturity marketable securities are periodically assessed for other-than-temporary impairment.
2
The fair values of the senior notes payable and Credit Agreement 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 six
months ended
June 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.
|
5.
|
Receivables, net
|
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Construction contracts:
|
|
|
|
|||||||||
|
Completed and in progress
|
$
|
207,488
|
|
$
|
195,244
|
|
$
|
146,509
|
|
|||
|
Retentions
|
76,288
|
|
93,800
|
|
66,265
|
|
||||||
|
Total construction contracts
|
283,776
|
|
289,044
|
|
212,774
|
|
||||||
|
Construction material sales
|
43,535
|
|
26,918
|
|
50,205
|
|
||||||
|
Other
|
11,700
|
|
12,316
|
|
12,624
|
|
||||||
|
Total gross receivables
|
339,011
|
|
328,278
|
|
275,603
|
|
||||||
|
Less: allowance for doubtful accounts
|
2,593
|
|
2,749
|
|
3,041
|
|
||||||
|
Total net receivables
|
$
|
336,418
|
|
$
|
325,529
|
|
$
|
272,562
|
|
|||
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 in general become due upon completion and acceptance of the contract by the owners. As of June 30, 2013, substantially all of the retentions receivable are expected to be collected within one year. Included in other receivables at
June 30, 2013
,
December 31, 2012
and
June 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
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financing receivables consisted of long-term notes receivable and retentions receivable. As of
June 30, 2013
, December 31, 2012 and
June 30, 2012
long-term notes receivable outstanding were
$1.6 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)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Escrow
|
$
|
31,892
|
|
$
|
41,494
|
|
$
|
42,421
|
|
|||
|
Non-escrow
|
44,396
|
|
52,306
|
|
23,844
|
|
||||||
|
Total retention receivables
|
$
|
76,288
|
|
$
|
93,800
|
|
$
|
66,265
|
|
|||
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 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 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)
|
|
June 30,
2013 |
|
December 31,
2012 |
|
June 30,
2012 |
||||||
|
Federal
|
|
$
|
3,325
|
|
|
$
|
3,234
|
|
|
$
|
2,464
|
|
|
State
|
|
2,757
|
|
|
2,971
|
|
|
4,626
|
|
|||
|
Local
|
|
32,500
|
|
|
31,559
|
|
|
9,944
|
|
|||
|
Private
|
|
5,814
|
|
|
14,542
|
|
|
6,810
|
|
|||
|
Total
|
|
$
|
44,396
|
|
|
$
|
52,306
|
|
|
$
|
23,844
|
|
12
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):
|
June 30, 2013
|
|
Current
|
|
1 - 90 Days
Past Due
|
|
Over 90 Days
Past Due
|
|
Total
|
||||||||
|
Federal
|
|
$
|
2,551
|
|
$
|
236
|
|
$
|
538
|
|
|
$
|
3,325
|
|
||
|
State
|
|
1,327
|
|
619
|
|
811
|
|
|
2,757
|
|
||||||
|
Local
|
|
25,362
|
|
1,496
|
|
5,642
|
|
|
32,500
|
|
||||||
|
Private
|
|
4,571
|
|
634
|
|
609
|
|
|
5,814
|
|
||||||
|
Total
|
|
$
|
33,811
|
|
|
$
|
2,985
|
|
|
$
|
7,600
|
|
|
$
|
44,396
|
|
|
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
|
|
|
June 30, 2012
|
|
Current
|
|
1 - 90 Days
Past Due
|
|
Over 90 Days
Past Due
|
|
Total
|
||||||||
|
Federal
|
|
$
|
1,746
|
|
$
|
—
|
|
$
|
718
|
|
|
$
|
2,464
|
|
||
|
State
|
|
3,552
|
|
208
|
|
866
|
|
|
4,626
|
|
||||||
|
Local
|
|
7,330
|
|
1,326
|
|
1,288
|
|
|
9,944
|
|
||||||
|
Private
|
|
6,363
|
|
92
|
|
355
|
|
|
6,810
|
|
||||||
|
Total
|
|
$
|
18,991
|
|
|
$
|
1,626
|
|
|
$
|
3,227
|
|
|
$
|
23,844
|
|
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. We generally receive payment within one year of owner acceptance. As of
June 30, 2013
,
December 31, 2012
and
June 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
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
6.
|
Construction and Line Item Joint Ventures
|
We participate in various construction joint venture partnerships and two limited liability company. 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
June 30, 2013
, there was approximately
$5.1 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
$3.7 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 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 six months ended June 30, 2013 and 2012, we determined no change was required to the accounting for existing construction joint ventures.
14
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)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Cash and cash equivalents
1
|
$
|
63,806
|
|
$
|
105,865
|
|
$
|
67,685
|
|
|||
|
Receivables, net
|
59,807
|
|
43,902
|
|
26,903
|
|
||||||
|
Other current assets
|
3,592
|
|
4,008
|
|
2,125
|
|
||||||
|
Total current assets
|
127,205
|
|
153,775
|
|
96,713
|
|
||||||
|
Property and equipment, net
|
34,891
|
|
41,114
|
|
6,919
|
|
||||||
|
Other noncurrent assets
|
1,253
|
|
1,700
|
|
—
|
|
||||||
|
Total assets
2
|
|
$
|
163,349
|
|
$
|
196,589
|
|
$
|
103,632
|
|
||
|
Accounts payable
|
$
|
18,297
|
|
$
|
34,536
|
|
$
|
31,135
|
|
|||
|
Billings in excess of costs and estimated earnings
1
|
72,094
|
|
72,490
|
|
17,979
|
|
||||||
|
Accrued expenses and other current liabilities
|
9,153
|
|
8,312
|
|
3,027
|
|
||||||
|
Total liabilities
2
|
$
|
99,544
|
|
$
|
115,338
|
|
$
|
52,141
|
|
|||
1
The 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.
2
The 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
June 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
$0.4 million
to
$120.5 million
. Our proportionate share of the equity in these joint ventures was between
51.0%
and
65.0%
. During the
three and six
months ended
June 30, 2013
, total revenue from consolidated construction joint ventures was
$45.5 million
and
$88.7 million
, respectively. During the
three and six
months ended
June 30, 2012
, total revenue from consolidated construction joint ventures was
$55.0 million
and
$96.6 million
, respectively. Total cash used in consolidated construction joint venture operations was
$16.3 million
and
$1.9 million
during the
six
months ended
June 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
June 30, 2013
, these unconsolidated joint ventures were engaged in
twelve
active construction projects with total contract values ranging from
$40.3 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
June 30, 2013
, our share of the revenue remaining to be recognized on these unconsolidated joint ventures ranged from
$0.3 million
to
$722.9 million
.
As of June 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, or the average rate in effect during the reporting period for results of operations. The associated foreign currency translation adjustments did not have a material impact on the financial statements for any of the periods presented.
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following is summary financial information related to unconsolidated construction joint ventures:
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Assets:
|
|
|
|
|||||||||
|
Cash and cash equivalents
1
|
$
|
342,534
|
|
$
|
244,686
|
|
$
|
337,102
|
|
|||
|
Other assets
|
439,812
|
|
301,412
|
|
300,744
|
|
||||||
|
Less partners’ interest
|
512,775
|
|
342,545
|
|
392,139
|
|
||||||
|
Granite’s interest
|
269,571
|
|
203,553
|
|
245,707
|
|
||||||
|
Liabilities:
|
|
|
|
|||||||||
|
Accounts payable
|
115,606
|
|
114,039
|
|
101,782
|
|
||||||
|
Billings in excess of costs and estimated earnings
1
|
262,259
|
|
161,268
|
|
265,883
|
|
||||||
|
Other liabilities
|
25,733
|
|
6,106
|
|
8,455
|
|
||||||
|
Less partners’ interest
|
282,521
|
|
183,432
|
|
238,234
|
|
||||||
|
Granite’s interest
|
121,077
|
|
97,981
|
|
137,886
|
|
||||||
|
Equity in construction joint ventures
2
|
$
|
148,494
|
|
$
|
105,572
|
|
$
|
107,821
|
|
|||
1
The 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.
2
As of June 30, 2013 and December 31, 2012, this balance included
$0.2 million
of deficit in unconsolidated construction joint ventures that is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Revenue:
|
|
|
|
|
||||||||||||
|
Total
1
|
$
|
259,255
|
|
$
|
284,095
|
|
$
|
484,558
|
|
$
|
489,926
|
|
||||
|
Less partners’ interest
1,2
|
172,656
|
|
183,861
|
|
326,361
|
|
316,064
|
|
||||||||
|
Granite’s interest
|
86,599
|
|
100,234
|
|
158,197
|
|
173,862
|
|
||||||||
|
Cost of revenue:
|
|
|
|
|
||||||||||||
|
Total
1
|
212,779
|
|
227,389
|
|
371,475
|
|
397,001
|
|
||||||||
|
Less partners’ interest
1,2
|
141,659
|
|
150,091
|
|
248,980
|
|
259,331
|
|
||||||||
|
Granite’s interest
|
71,120
|
|
77,298
|
|
122,495
|
|
137,670
|
|
||||||||
|
Granite’s interest in gross profit
|
$
|
15,479
|
|
$
|
22,936
|
|
$
|
35,702
|
|
$
|
36,192
|
|
||||
1
While Granite’s interest in revenue, cost of revenue and gross profit were correctly stated, total and partners’ interest for revenue and cost of revenue for the three and six month periods ended June 30, 2012 were inadvertently misstated in our Quarterly Report for the quarter ended June 30, 2012. Total revenue, partner’s interest in revenue, total cost of revenue and partners’ interest in cost of revenue reported were (in thousands):
$663,536
,
$563,302
,
$544,838
and
$467,540
, respectively, for the three months ended June 30, 2012, and
$869,368
,
$695,505
,
$714,450
and
$576,780
, respectively, for the six months ended June 30, 2012.
2
Partners’ 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
June 30, 2013
, we had
five
active line item joint venture construction projects with total contract values ranging from
$42.2 million
to
$138.2 million
of which our portion ranged from
$25.1 million
to
$59.5 million
. As of
June 30, 2013
, our share of revenue remaining to be recognized on these line item joint ventures ranged from
$0.3 million
to
$23.8 million
.
16
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
7.
|
Real Estate Entities and Investments in Affiliates
|
The operations of our Real Estate segment are conducted through our wholly owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects. 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. This may result in the future consolidation of entities that are currently accounted for under the equity method in our condensed consolidated financial statements. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. Our proportionate share of the profits and losses of these entities depends on the ultimate operating results of the entities.
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 six months ended
June 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 six months ended June 30, 2012 there was no increase to its authorized financial support. As of
June 30, 2013
,
$3.4 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 six months ended June 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 six months ended
June 30, 2013
and 2012.
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Real Estate Entities
As of
June 30, 2013
,
December 31, 2012
and
June 30, 2012
, real estate held for development and sale associated with consolidated real estate entities included in our condensed consolidated balance sheets was
$50.7 million
,
$50.2 million
and
$57.4 million
, respectively. Non-recourse debt, including current maturities, associated with these entities was
$9.5 million
,
$11.6 million
and
$21.0 million
as of
June 30, 2013
,
December 31, 2012
and
June 30, 2012
, respectively. All other amounts associated with these entities were insignificant for the periods presented. As of
June 30, 2013
,
December 31, 2012
and
June 30, 2012
,
$40.7 million
,
$40.3 million
and
$47.5 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)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Equity method investments in real estate affiliates
|
$
|
20,378
|
|
$
|
19,775
|
|
$
|
17,563
|
|
|||
|
Equity method investments in other affiliates
|
11,043
|
|
11,024
|
|
10,958
|
|
||||||
|
Total investments in affiliates
|
$
|
31,421
|
|
$
|
30,799
|
|
$
|
28,521
|
|
|||
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
$14.1 million
,
$13.8 million
and
$12.2 million
in residential real estate in Texas as of
June 30, 2013
,
December 31, 2012
and
June 30, 2012
, respectively. The remaining balances were in commercial real estate in Texas. As of
June 30, 2013
, these real estate entities had total assets ranging from approximately
$1.9 million
to
$47.2 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)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Total assets
|
$
|
160,422
|
|
$
|
166,112
|
|
$
|
158,431
|
|
|||
|
Net assets
|
93,771
|
|
92,106
|
|
87,197
|
|
||||||
|
Granite’s share of net assets
|
31,421
|
|
30,799
|
|
28,521
|
|
||||||
18
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
8.
|
Property and Equipment, net
|
Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net on our condensed consolidated balance sheets as follows:
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Equipment and vehicles
|
$
|
760,271
|
|
$
|
758,782
|
|
$
|
722,724
|
|
|||
|
Quarry property
|
180,325
|
|
180,567
|
|
177,792
|
|
||||||
|
Land and land improvements
|
125,489
|
|
125,961
|
|
126,396
|
|
||||||
|
Buildings and leasehold improvements
|
83,733
|
|
83,245
|
|
80,910
|
|
||||||
|
Office furniture and equipment
|
68,822
|
|
67,743
|
|
63,414
|
|
||||||
|
Property and equipment
|
1,218,640
|
|
1,216,298
|
|
1,171,236
|
|
||||||
|
Less: accumulated depreciation and depletion
|
747,375
|
|
734,820
|
|
731,572
|
|
||||||
|
Property and equipment, net
|
$
|
471,265
|
|
$
|
481,478
|
|
$
|
439,664
|
|
|||
|
9.
|
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
June 30, 2013
, December 31, 2012 and
June 30, 2012
.
The following table presents the goodwill balance by reporting segment:
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Construction
|
$
|
28,300
|
|
$
|
29,190
|
|
$
|
6,936
|
|
|||
|
Large Project Construction
|
23,184
|
|
24,115
|
|
850
|
|
||||||
|
Construction Materials
|
2,114
|
|
2,114
|
|
2,114
|
|
||||||
|
Total goodwill
|
$
|
53,598
|
|
$
|
55,419
|
|
$
|
9,900
|
|
|||
19
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:
|
June 30, 2013
|
|
Accumulated
|
|
|||||||||
|
(in thousands)
|
Gross Value
|
Amortization
|
Net Book Value
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(11,430
|
)
|
$
|
18,283
|
|
|||
|
Customer lists
|
4,398
|
|
(2,344
|
)
|
2,054
|
|
||||||
|
Covenants not to compete
|
1,588
|
|
(1,550
|
)
|
38
|
|
||||||
|
Acquired backlog
|
7,900
|
|
(3,447
|
)
|
4,453
|
|
||||||
|
Trade name
|
4,100
|
|
(216
|
)
|
3,884
|
|
||||||
|
Other
|
871
|
|
(797
|
)
|
74
|
|
||||||
|
Total amortized intangible assets
|
$
|
48,570
|
|
$
|
(19,784
|
)
|
$
|
28,786
|
|
|||
|
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
|
|
|||
|
June 30, 2012
|
|
|
|
|||||||||
|
(in thousands)
|
|
|
|
|||||||||
|
Permits
|
$
|
29,713
|
|
$
|
(9,494
|
)
|
$
|
20,219
|
|
|||
|
Customer lists
|
2,198
|
|
(2,056
|
)
|
142
|
|
||||||
|
Covenants not to compete
|
1,588
|
|
(1,536
|
)
|
52
|
|
||||||
|
Other
|
871
|
|
(658
|
)
|
213
|
|
||||||
|
Total amortized intangible assets
|
$
|
34,370
|
|
$
|
(13,744
|
)
|
$
|
20,626
|
|
|||
Amortization expense related to these intangible assets for the
three and six
months ended
June 30, 2013
was approximately
$2.3 million
and
$4.5 million
, respectively, and approximately
$1.0 million
and
$2.1 million
for the
three and six
months ended
June 30, 2012
, respectively. Based on the amortized intangible assets balance at
June 30, 2013
, amortization expense expected to be recorded in the future is as follows:
$4.8 million
for the remainder of 2013;
$2.2 million
in 2014;
$2.1 million
in 2015;
$1.8 million
in 2016;
$1.8 million
in 2017; and
$16.1 million
thereafter.
The change in goodwill and in the gross value of amortized intangible assets during each period is due to the acquisition of Kenny Construction Company (“Kenny”). See Note 17 for further details.
20
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
10.
|
Restructuring
|
We recorded net gains on restructuring of
$0.5 million
and
$1.9 million
during the six months ended June 30, 2013 and 2012, respectively. During 2013, we may record up to approximately
$25.0 million
of restructuring charges, primarily related to previously planned consolidation efforts and assets to be held-for-sale as part of our Enterprise Improvement Plan. The ultimate amount and timing of future restructuring charges is subject to market conditions and our ability to negotiate sales of certain assets at prices acceptable to us.
|
11.
|
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
June 30, 2013
, we were in compliance with the covenants contained in our note purchase agreements governing our senior notes payable, Credit Agreement and debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.
|
12.
|
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 June 30,
|
Six Months Ended June 30,
|
||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||
|
Weighted average shares outstanding:
|
|
|
|
|
||||||||
|
Weighted average common stock outstanding
|
38,829
|
|
38,664
|
|
38,782
|
|
38,666
|
|
||||
|
Less: weighted average unvested restricted stock outstanding
|
—
|
|
193
|
|
62
|
|
298
|
|
||||
|
Total basic weighted average shares outstanding
|
38,829
|
|
38,471
|
|
38,720
|
|
38,368
|
|
||||
|
Diluted weighted average shares outstanding:
|
|
|
|
|
||||||||
|
Weighted average common stock outstanding, basic
|
38,829
|
|
38,471
|
|
38,720
|
|
38,368
|
|
||||
|
Effect of dilutive securities:
|
|
|
|
|||||||||
|
Common stock options and restricted stock units
1
|
940
|
|
680
|
|
—
|
|
—
|
|
||||
|
Total weighted average shares outstanding assuming dilution
|
39,769
|
|
39,151
|
|
38,720
|
|
38,368
|
|
||||
1
Due to the net loss for the six months ended
June 30, 2013
and 2012, restricted stock units and common stock options representing approximately
851,000
and
580,000
shares, respectively, have been excluded from the number of shares used in calculating diluted net loss per share for the respective periods, as their inclusion would be antidilutive.
21
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
13.
|
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 June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands, except per share amounts)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Basic
|
|
|
|
|
|
|||||||||||
|
Numerator:
|
|
|
|
|
|
|||||||||||
|
Net income (loss) attributable to Granite
|
$
|
2,718
|
|
$
|
1,949
|
|
$
|
(19,264
|
)
|
$
|
(9,824
|
)
|
||||
|
Less: net income allocated to participating securities
|
—
|
|
10
|
|
—
|
|
—
|
|
||||||||
|
Net income (loss) allocated to common shareholders for basic calculation
|
$
|
2,718
|
|
$
|
1,939
|
|
$
|
(19,264
|
)
|
$
|
(9,824
|
)
|
||||
|
Denominator:
|
|
|
|
|
|
|||||||||||
|
Weighted average common shares outstanding, basic
|
38,829
|
|
38,471
|
|
38,720
|
|
38,368
|
|
||||||||
|
Net income (loss) per share, basic
|
$
|
0.07
|
|
$
|
0.05
|
|
$
|
(0.50
|
)
|
$
|
(0.26
|
)
|
||||
|
Diluted
|
|
|
|
|
|
|||||||||||
|
Numerator:
|
|
|
|
|
|
|||||||||||
|
Net income (loss) attributable to Granite
|
$
|
2,718
|
|
$
|
1,949
|
|
$
|
(19,264
|
)
|
$
|
(9,824
|
)
|
||||
|
Less: net income allocated to participating securities
|
—
|
|
10
|
|
—
|
|
—
|
|
||||||||
|
Net income (loss) allocated to common shareholders for diluted calculation
|
$
|
2,718
|
|
$
|
1,939
|
|
$
|
(19,264
|
)
|
$
|
(9,824
|
)
|
||||
|
Denominator:
|
|
|
|
|
|
|||||||||||
|
Weighted average common shares outstanding, diluted
|
39,769
|
|
39,151
|
|
38,720
|
|
38,368
|
|
||||||||
|
Net income (loss) per share, diluted
|
$
|
0.07
|
|
$
|
0.05
|
|
$
|
(0.50
|
)
|
$
|
(0.26
|
)
|
||||
22
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
14.
|
Equity
|
The following tables summarize our equity activity for the periods presented:
|
(in thousands)
|
Granite Construction Incorporated
|
Noncontrolling Interests
|
Total Equity
|
|||||||||
|
Balance at December 31, 2012
|
$
|
829,953
|
|
$
|
41,905
|
|
$
|
871,858
|
|
|||
|
Purchase of common stock
1
|
(5,022
|
)
|
—
|
|
(5,022
|
)
|
||||||
|
Other transactions with shareholders
3
|
8,796
|
|
—
|
|
8,796
|
|
||||||
|
Transactions with noncontrolling interests, net
4
|
—
|
|
(14,701
|
)
|
(14,701
|
)
|
||||||
|
Net (loss) income
|
(19,264
|
)
|
2,603
|
|
(16,661
|
)
|
||||||
|
Dividends on common stock
|
(10,096
|
)
|
—
|
|
(10,096
|
)
|
||||||
|
Balance at June 30, 2013
|
$
|
804,367
|
|
$
|
29,807
|
|
$
|
834,174
|
|
|||
|
(in thousands)
|
|
|
|
|||||||||
|
Balance at December 31, 2011
|
$
|
799,197
|
|
$
|
28,466
|
|
$
|
827,663
|
|
|||
|
Purchase of common stock
2
|
(4,054
|
)
|
—
|
|
(4,054
|
)
|
||||||
|
Other transactions with shareholders
3
|
5,211
|
|
—
|
|
5,211
|
|
||||||
|
Transactions with noncontrolling interests, net
4
|
—
|
|
(5,440
|
)
|
(5,440
|
)
|
||||||
|
Net (loss) income
|
(9,824
|
)
|
5,624
|
|
(4,200
|
)
|
||||||
|
Dividends on common stock
|
(10,050
|
)
|
—
|
|
(10,050
|
)
|
||||||
|
Balance at June 30, 2012
|
$
|
780,480
|
|
$
|
28,650
|
|
$
|
809,130
|
|
|||
1
Represents
168,000
shares purchased in connection with employee tax withholding for shares/units granted under our Amended and Restated 1999 Equity Incentive Plan.
2
Represents
139,000
shares purchased in connection with employee tax withholding for shares/units granted under our Amended and Restated 1999 Equity Incentive Plan.
3
Amounts are comprised primarily of amortized restricted stock and units.
4
Amounts are comprised primarily of distributions to noncontrolling partners.
23
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
15.
|
Legal Proceedings
|
In the ordinary course of business, we are involved in various legal proceedings that are pending against us and our affiliates alleging, among other things, breach of contract or tort in connection with the performance of professional services, the various outcomes of which cannot be predicted with certainty. The most significant of these proceedings are as follows:
|
•
|
Investigation Related to Grand Avenue Project Disadvantaged Business Enterprise (“DBE”) Issues:
On March 6, 2009, the U.S. Department of Transportation, Office of Inspector General served upon our wholly-owned subsidiary, Granite Construction Northeast, Inc. (“Granite Northeast”), a United States District Court Eastern District of New York Grand Jury subpoena to produce documents. The subpoena sought all documents pertaining to the use of a DBE firm (the “Subcontractor”), and the Subcontractor’s use of a non-DBE lower tier subcontractor/consultant, on the Grand Avenue Bus Depot and Central Maintenance Facility for the Borough of Queens Project (the “Grand Avenue Project”), a Granite Northeast project. The subpoena sought any documents regarding the use of the Subcontractor as a DBE on any other projects and any other documents related to the Subcontractor or to the lower-tier subcontractor/consultant. Granite Northeast produced the requested documents, together with other requested information. Subsequently, Granite Northeast was informed by the DOJ that it is a subject of the investigation, along with others. In January 2013, Granite Northeast met with Assistant United States Attorneys from the DOJ, along with other federal and state agencies (the “Agencies”), to discuss the status of the government’s criminal investigation of the Grand Avenue Project participants and some of their representatives, including Granite Northeast. In addition to the documents produced in response to the Grand Jury subpoena, Granite Northeast has provided information to the Agencies concerning other projects for which Granite Northeast has claimed DBE credit. Granite Northeast is fully cooperating with the Agencies’ investigation. We cannot, however, rule out the possibility of actions being brought against Granite Northeast which could result in civil, criminal, and/or administrative penalties or sanctions.
Granite is unable to estimate at this time the entire losses or the most likely amount that it may incur in this matter. Such penalty or sanctions are probable; therefore, Granite recorded the low end of the estimated range of losses.
Under certain circumstances the resolution of the matters under investigation could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations and/or liquidity.
|
|
•
|
Other Legal Proceedings/Government Inquiries:
We are a party to a number of other legal proceedings arising in the normal course of business. From time to time, we also receive inquiries from public agencies seeking information concerning our compliance with government construction contracting requirements and related laws and regulations. We believe that the nature and number of these proceedings and compliance inquiries are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes, after consultation with counsel, that the ultimate outcome of pending proceedings and compliance inquiries, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations or cash flows, litigation is subject to inherent uncertainties. Were one or more unfavorable rulings to occur, there exists the possibility of a material adverse effect on our financial position, results of operations, cash flows and/or liquidity for the period in which the ruling occurs. In addition, our government contracts could be terminated, we could be suspended or debarred, or payment of our costs could be disallowed. While any one of our pending legal proceedings is subject to early resolution as a result of our ongoing efforts to settle, whether or when any legal proceeding will be resolved through settlement is neither predictable nor guaranteed.
|
We record amounts in our condensed consolidated balance sheets representing our estimated liability relating to legal proceedings and government inquiries. During the
three and six
months ended
June 30, 2013
and
2012
, there were no significant additions or revisions to the estimated liability that were recorded in our condensed consolidated statements of operations, or significant changes to our accrual for such litigation loss contingencies on our condensed consolidated balance sheets.
24
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
16.
|
Business Segment Information
|
Our reportable segments are: Construction, Large Project Construction, Construction Materials and Real Estate.
The Construction segment performs various construction projects with a large portion of the work focused on new construction and improvement of streets, roads, highways, bridges, site work and other infrastructure projects. These projects are typically bid-build projects completed within two years with a contract value of less than $75 million.
The Large Project Construction segment focuses on large, complex infrastructure projects which typically have longer duration than our Construction segment work. These projects include major highways, mass transit facilities, bridges, tunnels, waterway locks and dams, pipelines, canals and airport infrastructure. This segment primarily includes bid-build, design-build and construction management/general contractor contracts, generally with contract values in excess of $75 million.
The Construction Materials segment mines and processes aggregates and operates plants that produce construction materials for internal use and for sale to third parties.
The Real Estate segment develops, operates, and sells real estate related projects and provides real estate services for the Company’s operations. The Real Estate segment’s current portfolio consists of residential, retail and office site development projects for sale to home and commercial property developers in Washington, California and Texas. In October 2010, we announced our Enterprise Improvement Plan that includes plans to orderly divest of our real estate investment business consistent with our strategy to focus on our core business.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies contained in our 2012 Annual Report on Form 10-K. We evaluate segment performance based on gross profit or loss, and do not include overhead and non-operating income or expense. Segment assets include property and equipment, intangibles, goodwill, inventory, equity in construction joint ventures and real estate held for development and sale.
25
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summarized segment information is as follows:
|
|
Three Months Ended June 30,
|
|||||||||||||||||||
|
(in thousands)
|
Construction
|
Large Project Construction
|
Construction Materials
|
Real Estate
|
Total
|
|||||||||||||||
|
2013
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue from reportable segments
|
$
|
308,602
|
|
$
|
181,371
|
|
$
|
97,872
|
|
$
|
4
|
|
$
|
587,849
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(37,687
|
)
|
—
|
|
(37,687
|
)
|
||||||||||
|
Revenue from external customers
|
308,602
|
|
181,371
|
|
60,185
|
|
4
|
|
550,162
|
|
||||||||||
|
Gross profit
|
25,154
|
|
22,088
|
|
3,954
|
|
1
|
|
51,197
|
|
||||||||||
|
Depreciation, depletion and amortization
|
6,033
|
|
3,182
|
|
5,891
|
|
—
|
|
15,106
|
|
||||||||||
|
2012
|
|
|
|
|
|
|
|
|||||||||||||
|
Total revenue from reportable segments
|
$
|
245,113
|
|
$
|
228,799
|
|
$
|
115,852
|
|
$
|
2,354
|
|
$
|
592,118
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(52,503
|
)
|
—
|
|
(52,503
|
)
|
||||||||||
|
Revenue from external customers
|
245,113
|
|
228,799
|
|
63,349
|
|
2,354
|
|
539,615
|
|
||||||||||
|
Gross profit
|
17,961
|
|
28,239
|
|
5,000
|
|
716
|
|
51,916
|
|
||||||||||
|
Depreciation, depletion and amortization
|
3,233
|
|
909
|
|
7,179
|
|
—
|
|
11,321
|
|
||||||||||
|
|
Six Months Ended June 30,
|
|||||||||||||||||||
|
(in thousands)
|
Construction
|
Large Project Construction
|
Construction Materials
|
Real Estate
|
Total
|
|||||||||||||||
|
2013
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue from reportable segments
|
$
|
485,720
|
|
$
|
353,086
|
|
$
|
136,261
|
|
$
|
125
|
|
$
|
975,192
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(46,326
|
)
|
—
|
|
(46,326
|
)
|
||||||||||
|
Revenue from external customers
|
485,720
|
|
353,086
|
|
89,935
|
|
125
|
|
928,866
|
|
||||||||||
|
Gross profit (loss)
|
38,353
|
|
44,808
|
|
(2,020
|
)
|
112
|
|
81,253
|
|
||||||||||
|
Depreciation, depletion and amortization
|
11,692
|
|
5,158
|
|
11,456
|
|
—
|
|
28,306
|
|
||||||||||
|
Segment assets
|
161,524
|
|
206,778
|
|
351,295
|
|
50,697
|
|
770,294
|
|
||||||||||
|
2012
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total revenue from reportable segments
|
$
|
363,059
|
|
$
|
392,727
|
|
$
|
146,861
|
|
$
|
5,017
|
|
$
|
907,664
|
|
|||||
|
Elimination of intersegment revenue
|
—
|
|
—
|
|
(57,889
|
)
|
—
|
|
(57,889
|
)
|
||||||||||
|
Revenue from external customers
|
363,059
|
|
392,727
|
|
88,972
|
|
5,017
|
|
849,775
|
|
||||||||||
|
Gross profit (loss)
|
26,541
|
|
50,488
|
|
(950
|
)
|
773
|
|
76,852
|
|
||||||||||
|
Depreciation, depletion and amortization
|
6,813
|
|
2,177
|
|
14,557
|
|
—
|
|
23,547
|
|
||||||||||
|
Segment assets
|
110,119
|
|
119,652
|
|
365,690
|
|
57,367
|
|
652,828
|
|
||||||||||
A reconciliation of segment gross profit to consolidated income (loss) before provision for (benefit from) income taxes is as follows:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Total gross profit from reportable segments
|
$
|
51,197
|
|
$
|
51,916
|
|
$
|
81,253
|
|
$
|
76,852
|
|
||||
|
Selling, general and administrative expenses
|
46,454
|
|
40,806
|
|
104,112
|
|
85,882
|
|
||||||||
|
Gain on restructuring
|
—
|
|
—
|
|
497
|
|
1,888
|
|
||||||||
|
Gain on sales of property and equipment
|
3,306
|
|
2,954
|
|
4,394
|
|
4,871
|
|
||||||||
|
Total other expense
|
(3,117
|
)
|
(7,718
|
)
|
(5,954
|
)
|
(3,602
|
)
|
||||||||
|
Income (loss) before provision for (benefit from) income taxes
|
$
|
4,932
|
|
$
|
6,346
|
|
$
|
(23,922
|
)
|
$
|
(5,873
|
)
|
||||
26
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
17.
|
Acquisition
|
On December 28, 2012, we signed a definitive agreement to acquire 100% of the outstanding shares of Kenny, a national contractor and construction manager based in Northbrook, Illinois for
$141.1 million
. The acquisition was effective December 31, 2012 and was funded through cash on hand and
$70.0 million
of proceeds from borrowings under Granite’s existing revolving credit facility. In accordance with the terms of the agreement, we paid a post-closing adjustment of
$4.6 million
in the second quarter of 2013 that was included in accrued and other current liabilities on our condensed consolidated balance sheet as of December 31, 2012. We expect to pay an additional
$3.9 million
of post-closing adjustment in the third quarter of 2013 that is included in accrued and other current liabilities on our condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012. Each of these post-closing adjustments is reflected in the purchase price.
The acquired business operates under the name Kenny Construction Company as a wholly owned subsidiary of Granite Construction Incorporated. Kenny operates in the tunneling, electrical power, underground and civil businesses. Their underground business utilizes cutting-edge trenchless construction technologies and processes. This acquisition expands our presence in these markets and enables us to leverage our capabilities and geographic footprint. Kenny has approximately
475
employees and a network of
12
offices in the United States. We have accounted for this transaction in accordance with ASC Topic 805,
Business Combinations (“ASC 805”)
.
Purchase Price Allocation
In accordance with ASC 805, a preliminary allocation of the purchase price was made to the net tangible and identifiable intangible assets based on their estimated fair values as of December 31, 2012. During the three months ended March 31, 2013, we adjusted the preliminary values assigned to certain assets and liabilities to reflect additional information obtained by
$1.8 million
, and made no such adjustments during the three months ended June 30, 2013. The condensed consolidated balance sheet as of June 30, 2013 reflects these changes, the most significant of which included an increase of
$1.1 million
to property and equipment. These adjustments are subject to revision, which may result in adjustments to the values presented below. We expect to finalize these amounts within 12 months from the acquisition date and do not expect any adjustments to be material. The following table presents the adjusted purchase price allocation (in thousands):
|
Cash and cash equivalents
|
$
|
53,185
|
|
|||||
|
Receivables
|
88,725
|
|
||||||
|
Costs and estimated earnings in excess of billings
|
444
|
|
||||||
|
Inventories
|
731
|
|
||||||
|
Equity in construction joint ventures
|
7,803
|
|
||||||
|
Other current assets
|
6,039
|
|
||||||
|
Property and equipment, net
|
52,267
|
|
||||||
|
Identifiable intangible assets:
|
||||||||
|
Acquired backlog
|
7,900
|
|
||||||
|
Customer list
|
2,200
|
|
||||||
|
Trade name
|
4,100
|
|
||||||
|
Total identifiable intangible assets
|
14,200
|
|
||||||
|
Total identifiable assets acquired
|
223,394
|
|
||||||
|
Accounts payable
|
43,748
|
|
||||||
|
Billings in excess of costs and estimated earnings
|
50,098
|
|
||||||
|
Accrued expenses and other current liabilities
|
16,806
|
|
||||||
|
Noncontrolling interests
|
15,326
|
|
||||||
|
Net identifiable assets acquired
|
97,416
|
|
||||||
|
Goodwill
|
43,698
|
|
||||||
|
Purchase price
|
$
|
141,114
|
|
|||||
27
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible assets
Acquired intangible assets included backlog, customer relationships and trade name. We amortize the fair value of backlog intangible assets based on the associated project’s percent complete, and use the straight-line method over the assets’ estimated useful lives for other intangible assets. The estimated useful lives for backlog and customer relationships range from 1 to 8 years and represent existing contracts and the underlying customer relationships. The estimated useful lives of the trade names are 10 years and represent the fair values of the acquired trade names and trademarks. The identifiable intangible assets are expected to be deductible for income tax purposes. We recorded amortization expense associated with the acquired intangible assets as follows:
|
|
Three Months Ended
|
Six Months Ended
|
|||||||
|
(in thousands)
|
June 30, 2013
|
||||||||
|
Cost of revenue - Construction
|
$
|
1,600
|
|
$
|
3,200
|
|
|||
|
Cost of revenue - Large Project Construction
|
140
|
|
247
|
|
|||||
|
Selling, general and administrative expenses
|
181
|
|
362
|
|
|||||
|
Total
|
$
|
1,921
|
|
$
|
3,809
|
|
|||
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The factors that contributed to the recognition of goodwill from the acquisition of Kenny include acquiring a workforce with capabilities in the power, tunnel and underground markets, cost savings opportunities and the significant synergies expected to arise. The
$43.7 million
of goodwill that resulted from this acquisition is included in our Construction and Large Project Construction segments - see Note 9. The goodwill is expected to be deductible for income tax purposes.
In connection with the acquisition, Kenny became a guarantor of our obligations under the Credit Agreement and outstanding senior notes and pledged substantially all of its assets to collateralize such obligations, in each case on substantially the same terms as our other subsidiaries that are guarantors of such obligations.
28
|
Item 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
Forward-Looking Disclosure
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements which constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and are based on our current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.”
Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason
.
29
Overview
We are one of the largest diversified heavy civil contractors and construction materials producers in the United States, engaged in the construction and improvement of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, electrical utilities, tunnels, dams and other infrastructure-related projects. We own aggregate reserves and plant facilities to produce construction materials for use in our construction business and for sale to third parties. We also operate a real estate investment business that we plan to orderly divest of as part of our Enterprise Improvement Plan (“EIP”) initiated in 2010. Our permanent offices are located in Alaska, Arizona, California, Colorado, Florida, Illinois, Nevada, New York, Pennsylvania, Texas, Utah and Washington. We have four reportable business segments: Construction, Large Project Construction, Construction Materials and Real Estate (see Note 16 of “Notes to the Condensed Consolidated Financial Statements”).
Our construction contracts are obtained through competitive bidding in response to solicitations by both public agencies and private parties and on a negotiated basis as a result of solicitations from private parties. Project owners use a variety of methods to make contractors aware of new projects, including posting bidding opportunities on agency websites, disclosing long-term infrastructure plans, advertising and other general solicitations. Our bidding activity is affected by such factors as the nature and volume of advertising and other solicitations, contract backlog, available personnel, current utilization of equipment and other resources, our ability to obtain necessary surety bonds and competitive considerations. Our contract review process includes identifying risks and opportunities during the bidding process and managing these risks through mitigation efforts such as insurance and pricing. Contracts fitting certain criteria of size and complexity are reviewed by various levels of management and, in some cases, by the Executive Committee of our Board of Directors. Bidding activity, contract backlog and revenue resulting from the award of new contracts may vary significantly from period to period.
Our typical construction project begins with the preparation and submission of a bid to a customer. If selected as the successful bidder, we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as identified in the contract. We usually invoice our customers on a monthly basis. Our contracts frequently call for retention that is a specified percentage withheld from each payment until the contract is completed and the work accepted by the customer. Additionally, we generally defer recognition of profit on projects until they reach at least 25% completion (see “Gross Profit (Loss)” section below) and our profit recognition is based on estimates that may change over time. Our revenue, gross margin and cash flows can differ significantly from period to period due to a variety of factors including the projects’ stage of completion, the mix of early and late stage projects, our estimates of contract costs and the payment terms of our contracts. The timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital.
The four primary economic drivers of our business are (1) the overall health of the economy, (2) federal, state and local public funding levels, (3) population growth resulting in public and private development, and (4) the need to replace or repair aging infrastructure. A stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector. This reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector. Greater competition can reduce our revenues and/or have a downward impact on our gross profit margins. In addition, a stagnant or declining economy tends to produce less tax revenue for public agencies, thereby decreasing a source of funds available for spending on public infrastructure improvements. Some funding sources that have been specifically earmarked for infrastructure spending, such as diesel and gasoline taxes, are not as directly affected by a stagnant or declining economy, unless actual consumption is reduced. However, even these can be temporarily at risk as state and local governments take actions to balance their budgets. Additionally, high fuel prices can have a dampening effect on consumption, resulting in overall lower tax revenue. Conversely, increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement.
Our market sector information reflects four groups defined as follows: 1) California; 2) Northwest, which primarily includes offices in Alaska, Nevada, Utah and Washington; 3) East, which primarily includes offices in Arizona, Florida, New York and Texas; and 4) Kenny, which primarily includes offices in Colorado, Illinois, and Pennsylvania. Each of these groups includes operations from our Construction and Large Project Construction lines of business. Our California, Northwest and East groups include operations from our Construction Materials line of business. A project’s results are reported in the group that is responsible for the project, not necessarily the geographic area where the work is located. In some cases, the operations of a group include the results of work performed outside of that geographic region.
30
Current Economic Environment and Outlook
There is a significant amount of large projects out to bid across the country in each of our market areas. We continue, however, to operate in a highly competitive bidding environment. Competition coupled with funding issues for public sector infrastructure projects and weak demand for commercial and residential development in many of our markets has impacted, and may continue to impact, our ability to grow backlog at adequate margins and increase profitability. While we expect these challenging conditions to persist through most of 2013, we are encouraged by improvements in the private sector across the country which has the potential to positively impact our business in 2014. In addition, we are proactively seeking opportunities outside our traditional markets, specifically in the power, tunnel and water markets through the acquisition of Kenny Construction Company (“Kenny”), as well as the rail, industrial and federal markets through expanded Granite lines of business. We continue to be encouraged by the opportunities driven by the Transportation Infrastructure Financing and Innovation Act, authorized in the 2012 federal highway bill, which we believe will help facilitate and accelerate several projects that would not have moved forward otherwise.
During 2013, we may record up to approximately
$25.0 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 our ability to negotiate sales of certain assets at prices acceptable to us. The majority of restructuring charges associated with the EIP were recorded in 2010. During the six months ended June 30, 2013 and 2012, we recorded net gains on restructuring of $0.5 million and $1.9 million, respectively.
Results of Operations
Our operations are typically affected by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the
three and six
months ended
June 30, 2013
are not necessarily indicative of the results to be expected for the full year.
|
Comparative Financial Summary
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Total revenue
|
$
|
550,162
|
|
$
|
539,615
|
|
$
|
928,866
|
|
$
|
849,775
|
|
||||
|
Gross profit
|
51,197
|
|
51,916
|
|
81,253
|
|
76,852
|
|
||||||||
|
Operating income (loss)
|
8,049
|
|
14,064
|
|
(17,968
|
)
|
(2,271
|
)
|
||||||||
|
Total other expense
|
(3,117
|
)
|
(7,718
|
)
|
(5,954
|
)
|
(3,602
|
)
|
||||||||
|
Amount attributable to noncontrolling interests
|
(448
|
)
|
(2,538
|
)
|
(2,603
|
)
|
(5,624
|
)
|
||||||||
|
Net income (loss) attributable to Granite Construction Incorporated
|
2,718
|
|
1,949
|
|
(19,264
|
)
|
(9,824
|
)
|
||||||||
31
Revenue
|
Total Revenue by Segment
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||||||||||||||
|
Construction
|
$
|
308,602
|
|
56.1
|
%
|
$
|
245,113
|
|
45.5
|
%
|
$
|
485,720
|
|
52.3
|
%
|
$
|
363,059
|
|
42.7
|
%
|
||||||||
|
Large Project Construction
|
181,371
|
|
33.0
|
|
228,799
|
|
42.4
|
|
353,086
|
|
38.0
|
|
392,727
|
|
46.2
|
|
||||||||||||
|
Construction Materials
|
60,185
|
|
10.9
|
|
63,349
|
|
11.7
|
|
89,935
|
|
9.7
|
|
88,972
|
|
10.5
|
|
||||||||||||
|
Real Estate
|
4
|
|
—
|
|
2,354
|
|
0.4
|
|
125
|
|
—
|
|
5,017
|
|
0.6
|
|
||||||||||||
|
Total
|
$
|
550,162
|
|
100.0
|
%
|
$
|
539,615
|
|
100.0
|
%
|
$
|
928,866
|
|
100.0
|
%
|
$
|
849,775
|
|
100.0
|
%
|
||||||||
|
Construction Revenue
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||||||||||||||
|
California:
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Public sector
|
$
|
94,284
|
|
30.6
|
%
|
$
|
112,546
|
|
45.9
|
%
|
$
|
156,620
|
|
32.2
|
%
|
$
|
179,959
|
|
49.6
|
%
|
||||||||
|
Private sector
|
20,089
|
|
6.5
|
|
11,704
|
|
4.8
|
|
35,530
|
|
7.3
|
|
19,587
|
|
5.4
|
|
||||||||||||
|
Northwest:
|
|
|
|
|
|
|||||||||||||||||||||||
|
Public sector
|
108,078
|
|
35.0
|
|
74,473
|
|
30.4
|
|
126,122
|
|
26.0
|
|
91,283
|
|
25.1
|
|
||||||||||||
|
Private sector
|
24,009
|
|
7.8
|
|
33,337
|
|
13.6
|
|
39,333
|
|
8.1
|
|
46,631
|
|
12.8
|
|
||||||||||||
|
East:
|
|
|
|
|
||||||||||||||||||||||||
|
Public sector
|
10,944
|
|
3.5
|
|
10,783
|
|
4.4
|
|
19,433
|
|
4.0
|
|
21,333
|
|
5.9
|
|
||||||||||||
|
Private sector
|
1,635
|
|
0.5
|
|
2,270
|
|
0.9
|
|
5,821
|
|
1.2
|
|
4,266
|
|
1.2
|
|
||||||||||||
|
Kenny:
|
||||||||||||||||||||||||||||
|
Public sector
|
49,563
|
|
16.1
|
|
—
|
|
—
|
|
102,861
|
|
21.2
|
|
—
|
|
—
|
|
||||||||||||
|
Total
|
$
|
308,602
|
|
100.0
|
%
|
$
|
245,113
|
|
100.0
|
%
|
$
|
485,720
|
|
100.0
|
%
|
$
|
363,059
|
|
100.0
|
%
|
||||||||
Construction revenue for the
three and six
months ended
June 30, 2013
increased by
$63.5 million
, or
25.9%
, and
$122.7 million
, or
33.8%
, respectively, compared to the same periods in
2012
primarily due to the acquisition of Kenny in December 2012. The decrease in California public sector revenue and the increases in Northwest public sector and California private sector revenues were the result of fluctuations in bidding success.
32
|
Large Project Construction Revenue
1
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||||||||||||||
|
California
|
$
|
30,875
|
|
17.0
|
%
|
$
|
25,893
|
|
11.3
|
%
|
$
|
65,368
|
|
18.5
|
%
|
$
|
46,019
|
|
11.7
|
%
|
||||||||
|
Northwest
|
30,070
|
|
16.6
|
|
86,839
|
|
38.0
|
|
65,551
|
|
18.6
|
|
130,355
|
|
33.2
|
|
||||||||||||
|
East
|
103,335
|
|
57.0
|
|
116,067
|
|
50.7
|
|
194,633
|
|
55.1
|
|
216,353
|
|
55.1
|
|
||||||||||||
|
Kenny
|
17,091
|
|
9.4
|
|
—
|
|
—
|
|
27,534
|
|
7.8
|
|
—
|
|
—
|
|
||||||||||||
|
Total
|
$
|
181,371
|
|
100.0
|
%
|
$
|
228,799
|
|
100.0
|
%
|
$
|
353,086
|
|
100.0
|
%
|
$
|
392,727
|
|
100.0
|
%
|
||||||||
1
For the periods presented, all Large Project Construction revenue was earned from the public sector.
Large Project Construction revenue for the
three and six
months ended
June 30, 2013
decreased by
$47.4 million
, or
20.7%
, and
$39.6 million
, or
10.1%
, respectively, compared to the same periods in
2012
primarily due to ongoing projects nearing completion in the Northwest and East while new projects were just beginning. These decreases were partially offset by increases from progress on projects in California and the impact of the acquisition of Kenny in December 2012.
|
Construction Materials Revenue
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||||||||||||||
|
California
|
$
|
31,837
|
|
52.9
|
%
|
$
|
39,673
|
|
62.7
|
%
|
$
|
52,398
|
|
58.2
|
%
|
$
|
59,000
|
|
66.3
|
%
|
||||||||
|
Northwest
|
20,110
|
|
33.4
|
|
17,251
|
|
27.2
|
|
24,079
|
|
26.8
|
|
20,266
|
|
22.8
|
|
||||||||||||
|
East
|
8,238
|
|
13.7
|
|
6,425
|
|
10.1
|
|
13,458
|
|
15.0
|
|
9,706
|
|
10.9
|
|
||||||||||||
|
Total
|
$
|
60,185
|
|
100.0
|
%
|
$
|
63,349
|
|
100.0
|
%
|
$
|
89,935
|
|
100.0
|
%
|
$
|
88,972
|
|
100.0
|
%
|
||||||||
Construction Materials revenue decreased
$3.2 million
, or
5.0%
, for the
three months ended
June 30, 2013
and increased by
$1.0 million
, or
1.1%
, for the
six months ended
June 30, 2013
compared to the same periods in
2012
. Although revenue increased for the six months ended June 30, 2013 when compared to 2012, the construction materials business continues to be impacted by the weakness in the commercial and residential development markets.
Real Estate Revenue
Real Estate revenue decreased
$2.4 million
and
$4.9 million
for the
three and six
months ended
June 30, 2013
, respectively, compared to the same periods in
2012
. The decreases were primarily attributable to the sale of a commercial property in California during the first quarter of 2012 with no corresponding sales in 2013. Factors that contribute to fluctuations in revenue include national and local market conditions, entitlement status of properties and buyers access to capital. Additionally, as we execute on our EIP, we have less real estate for sale.
Contract Backlog
Our contract backlog consists of the remaining unearned revenue on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in our contract backlog at the time it is awarded and funding is in place. Certain federal government contracts where funding is appropriated on a periodic basis are included in contract backlog at the time of the award. Substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past.
The following tables illustrate our contract backlog as of the respective dates:
|
Total Contract Backlog by Segment
|
|
|
|||||||||||||||||||
|
(dollars in thousands)
|
June 30, 2013
|
March 31, 2013
|
June 30, 2012
|
||||||||||||||||||
|
Construction
|
$
|
807,686
|
|
28.9
|
%
|
$
|
740,259
|
|
30.8
|
%
|
$
|
697,535
|
|
35.8
|
%
|
||||||
|
Large Project Construction
|
1,989,156
|
|
71.1
|
|
1,660,056
|
|
69.2
|
|
1,252,828
|
|
64.2
|
|
|||||||||
|
Total
|
$
|
2,796,842
|
|
100.0
|
%
|
$
|
2,400,315
|
|
100.0
|
%
|
$
|
1,950,363
|
|
100.0
|
%
|
||||||
33
|
Construction Contract Backlog
|
|
|
|
||||||||||||||||||
|
(dollars in thousands)
|
June 30, 2013
|
March 31, 2013
|
June 30, 2012
|
||||||||||||||||||
|
California:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
$
|
366,583
|
|
45.4
|
%
|
$
|
330,484
|
|
44.6
|
%
|
$
|
367,737
|
|
52.7
|
%
|
||||||
|
Private sector
|
37,309
|
|
4.6
|
|
38,676
|
|
5.2
|
|
13,374
|
|
1.9
|
|
|||||||||
|
Northwest:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
250,137
|
|
31.0
|
|
212,305
|
|
28.8
|
|
231,574
|
|
33.2
|
|
|||||||||
|
Private sector
|
46,159
|
|
5.7
|
|
15,806
|
|
2.1
|
|
44,690
|
|
6.4
|
|
|||||||||
|
East:
|
|
|
|
|
|
|
|||||||||||||||
|
Public sector
|
6,485
|
|
0.8
|
|
11,894
|
|
1.6
|
|
33,935
|
|
4.9
|
|
|||||||||
|
Private sector
|
4,271
|
|
0.5
|
|
4,503
|
|
0.6
|
|
6,225
|
|
0.9
|
|
|||||||||
|
Kenny:
|
|||||||||||||||||||||
|
Public sector
|
49,902
|
|
6.2
|
|
49,071
|
|
6.6
|
|
—
|
|
—
|
|
|||||||||
|
Private sector
|
46,840
|
|
5.8
|
|
77,520
|
|
10.5
|
|
—
|
|
—
|
|
|||||||||
|
Total
|
$
|
807,686
|
|
100.0
|
%
|
$
|
740,259
|
|
100.0
|
%
|
$
|
697,535
|
|
100.0
|
%
|
||||||
Construction contract backlog of
$807.7 million
at
June 30, 2013
was
$67.4 million
, or
9.1%
, higher than at
March 31, 2013
and
$110.2 million
, or
15.8%
, higher than at
June 30, 2012
. The increase from
March 31, 2013
was primarily due to new awards in the California and Northwest public sectors as well as in the Northwest private sector, partially offset by progress on existing projects. New awards during the
three months ended
June 30, 2013
included a highway improvement project of $33.8 million in California and a rail improvement project of $20.0 million in Washington. The increase from
June 30, 2012
was primarily due to the acquisition of Kenny contract backlog, partially offset by progress on existing projects.
|
Large Project Construction Contract Backlog
1
|
|
|
|
||||||||||||||||||
|
(dollars in thousands)
|
June 30, 2013
|
March 31, 2013
|
June 30, 2012
|
||||||||||||||||||
|
California
|
$
|
153,428
|
|
7.7
|
%
|
$
|
116,755
|
|
7.0
|
%
|
$
|
177,047
|
|
14.1
|
%
|
||||||
|
Northwest
|
132,608
|
|
6.7
|
|
157,016
|
|
9.5
|
|
323,337
|
|
25.8
|
|
|||||||||
|
East
|
1,513,085
|
|
76.0
|
|
1,181,537
|
|
71.2
|
|
752,444
|
|
60.1
|
|
|||||||||
|
Kenny
2
|
190,035
|
|
9.6
|
|
204,748
|
|
12.3
|
|
—
|
|
—
|
|
|||||||||
|
Total
|
$
|
1,989,156
|
|
100.0
|
%
|
$
|
1,660,056
|
|
100.0
|
%
|
$
|
1,252,828
|
|
100.0
|
%
|
||||||
1
For the periods presented, all Large Project Construction contract backlog is related to contracts with public agencies.
2
As of June 30, 2013 and March 31, 2013, $69.5 million and $70.7 million, respectively, of Kenny contract backlog was translated from Canadian dollars to U.S. dollars at the spot rate in effect at the date of reporting.
Large Project Construction contract backlog of
$2.0 billion
at
June 30, 2013
was
$329.1 million
, or
19.8%
, higher than at
March 31, 2013
, and
$736.3 million
, or
58.8%
, higher than at
June 30, 2012
. The increase from
March 31, 2013
was primarily due to an improved success rate on bidding activity partially offset by progress on existing projects. Awards included a $296.0 million highway rebuild project in Texas, a $130.1 million highway reconstruction project in North Carolina and a $61.3 million dam removal project in northern California. The increase from
June 30, 2012
was primarily due to the award of the Tappan Zee Bridge project in the East as well as the acquisition of Kenny contract backlog, partially offset by progress on existing projects.
Noncontrolling interests included in Large Project Construction contract backlog as of
June 30, 2013
,
March 31, 2013
, and
June 30, 2012
were
$82.3 million
,
$96.2 million
and
$117.3 million
, respectively.
34
Gross Profit (Loss)
The following table presents gross profit (loss) by business segment for the respective periods:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Construction
|
$
|
25,154
|
|
$
|
17,961
|
|
$
|
38,353
|
|
$
|
26,541
|
|
||||
|
Percent of segment revenue
|
8.2
|
%
|
7.3
|
%
|
7.9
|
%
|
7.3
|
%
|
||||||||
|
Large Project Construction
|
22,088
|
|
28,239
|
|
44,808
|
|
50,488
|
|
||||||||
|
Percent of segment revenue
|
12.2
|
|
12.3
|
|
12.7
|
|
12.9
|
|
||||||||
|
Construction Materials
|
3,954
|
|
5,000
|
|
(2,020
|
)
|
(950
|
)
|
||||||||
|
Percent of segment revenue
|
6.6
|
|
7.9
|
|
(2.2
|
)
|
(1.1
|
)
|
||||||||
|
Real Estate
|
1
|
|
716
|
|
112
|
|
773
|
|
||||||||
|
Percent of segment revenue
|
25.0
|
|
30.4
|
|
89.6
|
|
15.4
|
|
||||||||
|
Total gross profit
|
$
|
51,197
|
|
$
|
51,916
|
|
$
|
81,253
|
|
$
|
76,852
|
|
||||
|
Percent of total revenue
|
9.3
|
%
|
9.6
|
%
|
8.7
|
%
|
9.0
|
%
|
||||||||
We generally defer profit recognition until a project reaches at least 25% completion. In the case of large, complex design/build projects, we may defer profit recognition beyond the point of 25% completion until such time as we believe we have enough information to make a reasonably dependable estimate of contract revenue and cost. Because we have a large number of smaller projects at various stages of completion in our Construction segment, this policy generally does not impact gross profit significantly on a quarterly or annual basis. However, our Large Project Construction segment has fewer projects at any given time; therefore, gross profit can vary significantly in periods where one or more projects reach our percentage of completion threshold and the deferred profit is recognized or, conversely, in periods where contract backlog is growing rapidly and a higher percentage of projects are in their early stages with no associated gross profit recognition.
The following table presents revenue from projects that have not yet reached our profit recognition threshold:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Construction
|
$
|
37,144
|
|
$
|
14,065
|
|
$
|
41,194
|
|
$
|
14,645
|
|
||||
|
Large Project Construction
|
12,728
|
|
16,789
|
|
12,777
|
|
26,727
|
|
||||||||
|
Total revenue from contracts with deferred profit
|
$
|
49,872
|
|
$
|
30,854
|
|
$
|
53,971
|
|
$
|
41,372
|
|
||||
35
We do not recognize revenue from contract claims until we have a signed agreement and payment is assured, nor do we recognize revenue from contract change orders until the owner has agreed to the change order in writing. However, we do recognize the costs related to any contract claims or pending change orders when such costs are incurred, and we revise estimated total costs as soon as the obligation to perform is determined. As a result, our gross profit as a percent of revenue can vary depending on the magnitude and timing of the settlement of claims and change orders.
When we experience significant contract forecast changes, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as a change in estimate for the current period. In our review of these changes for the
three and six
months ended
June 30, 2013
and
2012
, we did not identify any material amounts that should have been recorded in a prior period.
Construction gross profit for the
three and six
months ended
June 30, 2013
increased
$7.2 million
and
$11.8 million
, respectively, compared to the same periods in
2012
. The increases were primarily due to $8.5 million and $13.2 million in gross profit from Kenny operations that are reflected in the
three and six
months ended
June 30, 2013
results, respectively, and not in 2012. The increases from Kenny operations were partially offset by decreases in gross profit due to increased competition and challenging market conditions, primarily in the Northwest. Construction gross profit as a percent of segment revenue remained relatively unchanged during the
three and six
months ended
June 30, 2013
compared to the same periods in
2012
.
Large Project Construction gross profit for the
three and six
months ended
June 30, 2013
decreased
$6.2 million
and
$5.7 million
, respectively, compared to the same periods in 2012. The gross profit decrease was primarily due to lower volume on several projects in the East that are nearing completion, decreases from revisions in estimates on projects in the East and Northwest, and newly awarded projects in the East which have not yet reached the profit recognition threshold. Large Project Construction gross profit as a percent of segment revenue remained relatively unchanged during the
three and six
months ended
June 30, 2013
compared to the same periods in
2012
.
Construction Materials and Real Estate gross profit remained relatively unchanged for the
three and six
months ended
June 30, 2013
compared to the same period in
2012
as residential, commercial and private markets remained depressed.
36
Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Selling
|
|
|
|
|
|
|
|
|
||||||||
|
Salaries and related expenses
|
$
|
9,703
|
|
$
|
10,122
|
|
$
|
21,240
|
|
$
|
19,950
|
|
||||
|
Other selling expenses
|
73
|
|
1,858
|
|
2,112
|
|
3,887
|
|
||||||||
|
Total selling
|
9,776
|
|
11,980
|
|
23,352
|
|
23,837
|
|
||||||||
|
General and administrative
|
|
|
|
|
|
|
|
|
||||||||
|
Salaries and related expenses
|
15,700
|
|
13,925
|
|
32,502
|
|
28,637
|
|
||||||||
|
Incentive compensation
|
3,540
|
|
1,893
|
|
5,390
|
|
3,097
|
|
||||||||
|
Restricted stock amortization and related expenses
|
2,609
|
|
2,296
|
|
9,569
|
|
6,492
|
|
||||||||
|
Other general and administrative expenses
|
14,829
|
|
10,712
|
|
33,299
|
|
23,819
|
|
||||||||
|
Total general and administrative
|
36,678
|
|
28,826
|
|
80,760
|
|
62,045
|
|
||||||||
|
Total selling, general and administrative
|
$
|
46,454
|
|
$
|
40,806
|
|
$
|
104,112
|
|
$
|
85,882
|
|
||||
|
Percent of revenue
|
8.4
|
%
|
7.6
|
%
|
11.2
|
%
|
10.1
|
%
|
||||||||
Selling, general and administrative expenses for the
three and six
months ended
June 30, 2013
increased
$5.6 million
, or
13.8%
, and
$18.2 million
, or
21.2%
, compared to the same periods in 2012.
Selling Expenses
Selling expenses include the costs for aggregate permits, business development, estimating and bidding. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses during the
three and six
months ended
June 30, 2013
decreased
$2.2 million
, or
18.4%
, and
$0.5 million
, or
2.0%
, compared to the same periods in 2012 primarily due to a decrease in costs related to bidding activities partially offset by the addition of expenses associated with Kenny employees.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. These costs include variable cash and restricted stock performance-based incentives for select management personnel on which our compensation strategy heavily relies. The cash portion of these incentives is expensed when earned while the restricted stock portion is expensed as earned over the vesting period of the restricted stock award (generally three years). Other general and administrative expenses include changes in the fair market value of our Non-Qualified Deferred Compensation plan liability, depreciation, information technology, occupancy, office supplies, outside services, training, travel and entertainment and other miscellaneous expenses none of which individually exceeded 10% of total general and administrative expenses.
Total general and administrative expenses for the
three and six
months ended
June 30, 2013
increased
$7.9 million
, or
27.2%
, and
$18.7 million
, or
30.2%
, respectively, compared to the same periods in
2012
. The increase during the three months ended June 30, 2013 was primarily due to the addition of expenses associated with Kenny, including $2.0 million of salaries and related expenses, $0.9 million of incentive compensation and $3.9 million of other general and administrative expenses. The increase during the six months ended June 30, 2013 was primarily due to the addition of expenses associated with Kenny, including $4.1 million of salaries and related expenses, $1.3 million of incentive compensation and $6.8 million of other general and administrative expenses. The increase in other general and administrative expenses during the six months ended June 30, 2013 was also due to a $1.5 million increase in consulting fees and Kenny integration costs.
37
Other Expense
The following table presents the components of other expense for the respective periods:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Interest income
|
$
|
380
|
|
$
|
611
|
|
$
|
508
|
|
$
|
1,655
|
|
||||
|
Interest expense
|
(3,700
|
)
|
(2,827
|
)
|
(7,345
|
)
|
(6,009
|
)
|
||||||||
|
Equity in income (loss) of affiliates
|
698
|
|
(484
|
)
|
275
|
|
(1,101
|
)
|
||||||||
|
Other (expense) income, net
|
(495
|
)
|
(5,018
|
)
|
608
|
|
1,853
|
|
||||||||
|
Total other expense
|
$
|
(3,117
|
)
|
$
|
(7,718
|
)
|
$
|
(5,954
|
)
|
$
|
(3,602
|
)
|
||||
Interest expense during the three and six months ended June 30, 2013 increased $0.9 million and $1.3 million, respectively, when compared to 2012 primarily due to borrowings under Granite’s existing revolving credit facility. Other (expense) income, net for the three and six months ended June 30, 2012 included a $2.8 million non-cash impairment charge associated with our cost method investment in the preferred stock of a corporation that designs and manufactures solar power generation equipment. Other (expense) income, net for the six months ended June 30, 2012 included a $5.3 million gain related to the sale of gold, a by-product of aggregate production.
Income Taxes
The following table presents the provision (benefit from) for income taxes for the respective periods:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(dollars in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Provision for (benefit from) income taxes
|
$
|
1,766
|
|
$
|
1,859
|
|
$
|
(7,261
|
)
|
$
|
(1,673
|
)
|
||||
|
Effective tax rate
|
35.8
|
%
|
29.3
|
%
|
30.4
|
%
|
28.5
|
%
|
||||||||
We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our year-to-date ordinary earnings. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs.
Our effective tax rate increased to
35.8%
and
30.4%
for the
three and six
months ended
June 30, 2013
, respectively and was
29.3%
and
28.5%
for the
three and six
months ended
June 30, 2012
, respectively. These changes were primarily due to adjusting the effective tax rate to the current estimate of our annual effective tax rate.
Noncontrolling Interests
The following table presents the amount attributable to noncontrolling interests in consolidated subsidiaries for the respective periods:
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
(in thousands)
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
Amount attributable to noncontrolling interests
|
$
|
(448
|
)
|
$
|
(2,538
|
)
|
$
|
(2,603
|
)
|
$
|
(5,624
|
)
|
||||
The amount attributable to noncontrolling interests represents the noncontrolling owners’ share of the income or loss of our consolidated construction joint ventures and real estate entities.
38
Certain Legal Proceedings
As discussed in Note 15 of “Notes to the Condensed Consolidated Financial Statements”, under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.
Liquidity and Capital Resources
We believe our cash and cash equivalents, short-term investments and cash expected to be generated from operations will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments, and other liquidity requirements associated with our existing operations through the next twelve months. We maintain a collateralized revolving credit facility of $215.0 million, of which $132.0 million was available at
June 30, 2013
, primarily to provide capital needs to fund growth opportunities, either internally or generated through acquisition (see “Credit Agreement” section below for further discussion). We do not anticipate that this credit facility will be required to fund future working capital needs associated with our existing operations. If we experience a prolonged change in our business operating results or make a significant acquisition, we may need to acquire additional sources of financing, which, if available, may be limited by the terms of our existing debt covenants, or may require the amendment of our existing debt agreements. There can be no assurance that sufficient capital will continue to be available in the future or that it will be available at terms acceptable to us.
The following table presents our cash, cash equivalents and marketable securities, including amounts from our consolidated joint ventures, as of the respective dates:
|
(in thousands)
|
June 30,
2013 |
December 31,
2012 |
June 30,
2012 |
|||||||||
|
Cash and cash equivalents excluding consolidated joint ventures
|
$
|
184,027
|
|
$
|
216,125
|
|
$
|
170,266
|
|
|||
|
Consolidated construction joint venture cash and cash equivalents
1
|
63,806
|
|
105,865
|
|
67,685
|
|
||||||
|
Total consolidated cash and cash equivalents
|
247,833
|
|
321,990
|
|
237,951
|
|
||||||
|
Short-term and long-term marketable securities
2
|
76,496
|
|
111,430
|
|
89,060
|
|
||||||
|
Total cash, cash equivalents and marketable securities
|
$
|
324,329
|
|
$
|
433,420
|
|
$
|
327,011
|
|
|||
1
The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in joint venture cash and cash equivalents between periods. These funds generally are not available for the working capital or other liquidity needs of Granite until distributed.
2
See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for the composition of our marketable securities.
Our primary sources of liquidity are cash and cash equivalents and marketable securities. We may also from time to time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions.
Our cash and cash equivalents consisted of commercial paper, deposits and money market funds held with established national financial institutions. Marketable securities consist of U.S. Government and agency obligations, commercial paper, municipal bonds and corporate bonds. Cash and cash equivalents held by our consolidated joint ventures represent the working capital needs of each joint venture’s project. The decision to distribute joint venture cash must generally be made jointly by all of the partners and, accordingly, these funds generally are not available for the working capital or other liquidity needs of Granite until distributed.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness, and acquire assets or businesses that are complementary to our operations, such as with the acquisition of Kenny in December 2012.
39
|
Cash Flows
|
Six Months Ended June 30,
|
|||||||
|
(in thousands)
|
2013
|
2012
|
||||||
|
Net cash (used in) provided by:
|
|
|
||||||
|
Operating activities
|
$
|
(51,648
|
)
|
$
|
(34,624
|
)
|
||
|
Investing activities
|
17,626
|
|
45,400
|
|
||||
|
Financing activities
|
(40,135
|
)
|
(29,815
|
)
|
||||
Cash flows from operating activities result primarily from our earnings or losses, and are also impacted by changes in operating assets and liabilities which consist primarily of working capital balances. As a large heavy civil contractor and construction materials producer, our operating cash flows are subject to the seasonality of our business and the cycles associated with winning, performing and closing projects, including the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform.
Cash used in operating activities of
$51.6 million
for the
six
months ended
June 30, 2013
represents a
$17.0 million
increase from the amount of cash used in operating activities during the same period in
2012
. The increase was primarily attributable to the increase in our net loss in the six month period in 2013 to
$16.7 million
, as compared to the loss of
$4.2 million
experienced in the same period in 2012. In addition, during the six months ended June 30, 2013, net distributions from unconsolidated construction joint ventures were $17.8 million compared to $15.4 million during the same period in 2012. These net distributions were offset by an unfavorable change in our working capital items in 2013 compared to 2012 consistent with the cyclical nature of our business.
Cash provided by investing activities of
$17.6 million
for the
six
months ended
June 30, 2013
represents a
$27.8 million
decrease compared to the same period in
2012
. The decrease was primarily due to a decrease in net proceeds and maturities of marketable securities during the
six
months ended
June 30, 2013
when compared to 2012. These changes were a result of our cash management activities that are generally based on the Company’s cash flow requirements and/or as investments mature. There were no unusual investing activities related to our cash management practices during the six months ended
June 30, 2013
.
Cash used in financing activities of
$40.1 million
for the
six
months ended
June 30, 2013
represents a
$10.3 million
increase from the amount of cash used in financing activities during the same period in
2012
. The increase was driven by a $9.7 million increase in net distributions to noncontrolling partners primarily related to two projects nearing completion in our Large Project Construction segment.
Capital Expenditures
During the
six
months ended
June 30, 2013
, we had capital expenditures of
$19.4 million
compared to
$19.9 million
during the same period in
2012
. Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. We currently anticipate investing between $45.0 million and $55.0 million in capital expenditures during
2013
. During the year ended December 31, 2012, we had capital expenditures of $37.6 million.
40
Credit Agreement
We have a $215.0 million committed revolving credit facility, with a sublimit for letters of credit of $100.0 million (the “Credit Agreement”), which expires October 11, 2016, of which $132.0 million was available at June 30, 2013. At
June 30, 2013
and December 31, 2012, there was a revolving loan of $70.0 million outstanding under the Credit Agreement related to financing the Kenny acquisition, the balance of which is included in long-term debt on our condensed consolidated balance sheets. In addition, as of
June 30, 2013
there were standby letters of credit totaling approximately
$13.0 million
. The letters of credit will expire between
August 2013
and
December 2016
.
Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at our option), plus an applicable margin based on certain financial ratios calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin is based upon certain financial ratios calculated quarterly. The applicable margin was
2.00%
for loans bearing interest based on LIBOR and
1.00%
for loans bearing interest at the base rate at
June 30, 2013
. Accordingly, the effective interest rate was between
2.27%
and
4.25%
at
June 30, 2013
. Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Credit Agreement’s maturity date. Borrowings at a LIBOR rate have a term no less than one month and no greater than one year. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a LIBOR rate with similar terms, not to exceed the maturity date of the Credit Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the obligations under the 2019 Notes (defined below) by first priority liens (subject only to other liens permitted under the Credit Agreement) on substantially all of the assets of the Company and our subsidiaries that are guarantors or borrowers under the Credit Agreement.
The Credit Agreement provides for the release of the liens securing the obligations, at our option and expense, after June 30, 2013, so long as certain conditions as defined by the terms in the Credit Agreement are satisfied (“Collateral Release Period”). If, subsequently, our Consolidated Fixed Charge Coverage Ratio is less than 1.25 or our Consolidated Leverage Ratio is greater than 2.50, then we will be required to promptly re-pledge substantially all of the assets of the Company and our subsidiaries that are guarantors or borrowers under the Credit Agreement.
Senior Notes Payable
Senior notes payable in the amount of
$200.0 million
were due to a group of institutional holders in five equal annual installments beginning in 2015 and bear interest at 6.11% per annum (“2019 Notes”).
Our obligations under the note purchase agreements governing the 2019 Notes (the “2019 NPA”) are guaranteed by certain of our subsidiaries and are collateralized on an equivalent basis with the Credit Agreement by liens on substantially all of the assets of the Company and subsidiaries that are guarantors or borrowers under the Credit Agreement. The 2019 NPA provides for the release of liens and re-pledge of collateral on substantially the same terms and conditions as those set forth in the Credit Agreement.
Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At
June 30, 2013
, approximately
$2.4 billion
of our contract backlog was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.
A significant portion of our real estate held for development and sale is subject to mortgage indebtedness. All of this indebtedness is non-recourse to Granite but is recourse to the real estate entities that incurred the indebtedness. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entities to repay portions of the debt. As of
June 30, 2013
, the principal amount of debt of our real estate entities secured by mortgages was
$9.5 million
, of which
$2.1 million
was included in current liabilities and
$7.4 million
was included in long-term liabilities on our condensed consolidated balance sheet.
41
Covenants and Events of Default
The most significant restrictive covenants under the terms of our 2019 NPA and Credit Agreement require the maintenance of a minimum Consolidated Tangible Net Worth, a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. The calculations and terms of such financial covenants are defined in the Credit Agreement filed as Exhibit 10.1 to our Form 10-Q filed November 7, 2012 and in the 2019 NPA filed as Exhibit 10.7 to our Form 10-Q filed November 7, 2012. As of
June 30, 2013
and pursuant to the definitions in the agreements, our Consolidated Tangible Net Worth was
$720.5 million
, which exceeded the minimum of
$683.7 million
, the Consolidated Interest Coverage Ratio was
10.50
, which exceeded the minimum of
4.00
and the Consolidated Leverage Ratio was
1.97
, which did not exceed the maximum of
3.25
for the Credit Agreement and the maximum of
3.50
for the 2019 NPA. The maximum Consolidated Leverage Ratio for the Credit Agreement and 2019 NPA decreases to 3.00 and 3.25, respectively, for the quarter ending December 31, 2013, and each quarter ending thereafter. During any Collateral Release Period, the maximum Consolidated Leverage Ratio decreases to 2.50.
Our debt and credit agreements require us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described above. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under certain circumstances, the occurrence of an event of default under one of our debt or credit agreements (or the acceleration of the maturity of the indebtedness under one of our agreements) may constitute an event of default under one or more of our other debt or credit agreements. Default under our debt and credit agreements could result in (1) us no longer being entitled to borrow under the agreements, (2) termination of the agreements, (3) the requirement that any letters of credit under the agreements be cash collateralized, (4) acceleration of the maturity of outstanding indebtedness under the agreements and/or (5) foreclosure on any collateral securing the obligations under the agreements.
As of
June 30, 2013
, we were in compliance with the covenants contained in our 2019 NPA, Credit Agreement and debt agreements related to our consolidated real estate entities. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in
their debt agreements. Our compliance with these covenants may be under pressure if our net income further declines, at which point we may elect to take a number of actions, including negotiating with our lenders.
Share Purchase Program
In 2007, our Board of Directors authorized us to purchase up to $200.0 million of our common stock at management’s discretion. As of
June 30, 2013
, $64.1 million was available for purchase. We did not purchase shares under the share purchase program in any of the periods presented. The specific timing and amount of any future purchases will vary based on market conditions, securities law limitations and other factors. Purchases under the share purchase program may be commenced, suspended or discontinued at any time and from time to time without prior notice.
Recent Accounting Pronouncements
See Note 1 of the “Notes to the Condensed Consolidated Financial Statements” for a description of recent accounting pronouncements, including the expected dates of adoption and effects on our condensed consolidated balance sheets, statements of operations and statements of cash flows.
Website Access
Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission. The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the U.S. Securities and Exchange Commission, www.sec.gov.
42
|
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There has been no significant change in our exposure to market risks since
December 31, 2012
.
|
Item 4.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
Our management carried out, as of
June 30, 2013
, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
June 30, 2013
, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the second quarter of 2013, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
43
PART II. OTHER INFORMATION
|
Item 1.
|
LEGAL PROCEEDINGS
|
The description of the matters set forth in Part I, Item 1 of this Report under “Note 15 - Legal Proceedings” is incorporated herein by reference.
Item 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2012
.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the
six
months ended
June 30, 2013
, we did not sell any of our equity securities that were not registered under the Securities Act of 1933, as amended. The following table sets forth information regarding the repurchase of shares of our common stock during the
three months ended
June 30, 2013
:
|
Period
|
|
Total number of shares purchased
1
|
|
Average price paid per share
|
|
Total number of shares purchased as part of publicly announced plans or programs
|
|
Approximate dollar value of shares that may yet be purchased under the plans or programs
2
|
|
||||||
|
April 1, 2013 through April 30, 2013
|
|
2,526
|
|
|
$
|
31.12
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
May 1, 2013 through May 31, 2013
|
|
192
|
|
|
$
|
31.09
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
June 1, 2013 through June 30, 2013
|
|
749
|
|
|
$
|
30.89
|
|
|
—
|
|
|
$
|
64,065,401
|
|
|
|
|
|
3,467
|
|
|
$
|
31.07
|
|
|
—
|
|
|
|
|
||
1
The number of shares purchased is in connection with employee tax withholding for shares/units granted under our Amended and Restated 1999 Equity Incentive Plan.
2
In October 2007, our Board of Directors authorized us to purchase, at management’s discretion, up to $200.0 million of our common stock. Under this purchase program, the Company may purchase shares from time to time on the open market or in private transactions. The specific timing and amount of purchases will vary based on market conditions, securities law limitations and other factors. Purchases under the share purchase program may be commenced, suspended or discontinued at any time and from time to time without prior notice.
|
Item 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None.
|
Item 4.
|
MINE SAFETY DISCLOSURES
|
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
|
Item 5.
|
OTHER INFORMATION
|
Not Applicable.
44
Item 6. EXHIBITS
|
101.INS
|
†
|
XBRL Instance Document
|
|
101.SCH
|
†
|
XBRL Taxonomy Extension Schema
|
|
101.CAL
|
†
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
†
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
†
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
†
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
|
|
|
|
†
|
Filed herewith
|
|
|
††
|
Furnished herewith
|
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
GRANITE CONSTRUCTION INCORPORATED
|
|
|
|
|
|
|
|
Date:
|
August 2, 2013
|
|
By:
|
/s/ Laurel J. Krzeminski
|
|
|
|
|
|
Laurel J. Krzeminski
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
||||
46
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint