Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this option, revisions in estimates are accounted for in their entirety in the period of change. As of June 30, 2012, we had no revisions in estimates that are reasonably certain to impact future periods.

Construction

Increases



		Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)		2012		2011		2012		2011
Number of projects with upward estimate changes		1		1		3		2
Range of increase in gross profit from each project, net	$	1.4	$	1.4	$	1.1 - 3.2	$	1.4 - 1.5
Increase on project profitability	$	1.4	$	1.4	$	5.4	$	2.9

The increases during the three and six months ended June 30, 2012 were due to lower than anticipated costs and settlement of outstanding issues with contract owners. The increases during the three and six months ended June 30, 2011 were due to construction costs lower than anticipated and owner directed scope changes.

Decreases



		Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)		2012		2011		2012		2011
Number of projects with downward estimate changes		2		—		2		—
Range of reduction in gross profit from each project, net	$	1.1 - 1.9	$	—	$	1.4 - 4.8	$	—
Decrease on project profitability	$	3.0	$	—	$	6.2	$	—

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

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 $9.3 million and $13.7 million for the three and six months ended June 30, 2012, respectively. The net changes for the three and six months ended June 30, 2011 were a net decrease of $0.3 million and a net increase of $5.2 million, respectively. Amounts attributable to noncontrolling interests were $0.4 million and $0.9 million of the net increases for the three and six months ended June 30, 2012, respectively, and were $0.4 million of the net increase for the six months ended June 30, 2011. There were no amounts attributable to noncontrolling interests for the three months ended June 30, 2011. The projects are summarized as follows:

Increases



		Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)		2012		2011		2012		2011
Number of projects with upward estimate changes		6		1		6		4
Range of increase in gross profit from each project, net	$	1.2 - 3.6	$	1.3	$	1.4 - 5.2	$	1.0 - 4.2
Increase on project profitability	$	14.9	$	1.3	$	23.1	$	11.0

The increases during the three and six months ended June 30, 2012 were due to owner directed scope changes and lower than anticipated construction costs. The increases during the three and six months ended June 30, 2011 were due to lower than anticipated construction costs and resolution of a project claim.

Decreases



		Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)		2012		2011		2012		2011
Number of projects with downward estimate changes		1		1		2		2
Range of reduction in gross profit from each project, net	$	5.6	$	1.6	$	1.5 - 7.9	$	2.6 - 3.2
Decrease on project profitability	$	5.6	$	1.6	$	9.4	$	5.8

The downward estimate changes during the three and six months ended June 30, 2012 and 2011 were due to lower productivity than anticipated.

Our wholly owned subsidiaries, Granite Construction Company (“GCCO”) and Granite Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which was under contract with the Oregon Department of Transportation (“ODOT”) to construct a new road alignment of U.S. Highway 20 near Eddyville, Oregon. In addition to previous geologic landslide issues, unanticipated ground movement was observed at several hillsides beginning in 2010. YRC and ODOT were in dispute regarding their respective responsibilities under the terms of the contract relative to the project revisions necessary on account of the unanticipated ground movement. In May 2012, ODOT and YRC reached a settlement that ended YRC’s responsibility to perform any further work following limited final activities, which have been completed; released both parties from claims against the other, including from ODOT’s Notice of Default, which was rescinded and withdrawn; and contained terms calling for YRC to make certain payments to ODOT and for ODOT to release certain earned amounts to YRC. The settlement did not have a material impact on the Company’s financial position or results of operations.