Construction and Line Item Joint Ventures

We participate in various construction joint venture partnerships. We also participate in various “line item” joint venture agreements under which each partner is responsible for performing certain discrete items of the total scope of contracted work.

Our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each party will pay for any losses it is responsible for under the joint venture agreement. Circumstances that could lead to a loss under our joint venture arrangements beyond our stated ownership interest include the failure of a partner to contribute additional funds to the venture in the event the project incurs a loss or additional costs that we could incur should a partner fail to provide the services and resources that it had committed to provide in the joint venture agreement. Due to the joint and several nature of the obligations under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for performance of the outstanding work.

At September 30, 2012, there was approximately $1.6 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.6 billion represented our share and the remaining $1.0 billion represented our partners’ share. Due to the uncertainties associated with the nature of our work, we are not able to quantify our maximum exposure on the underlying arrangements and contracts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.

Construction Joint Ventures

Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities resulting from the performance of the contracts are limited to our stated percentage interest in the project. We have no significant commitments beyond completion of the contracts. Under our contractual arrangements, we provide capital to these joint ventures in return for an ownership interest. In addition, partners dedicate resources to the ventures necessary to complete the contracts and are reimbursed for their cost. The operational risks of each construction joint venture are passed along to the joint venture partners. As we absorb our share of these risks, our investment in each venture is exposed to potential losses.

We have determined that certain of these joint ventures are variable interest entities (“VIEs”) as defined by Accounting Standards Codification (“ASC”) Topic 810, Consolidation, and related standards. To ascertain if we are required to consolidate the VIE, we continually evaluate whether we are the VIE’s primary beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners.

Based on our initial primary beneficiary analysis, we determined that decision making responsibility is shared between the venture partners for one construction joint venture. 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. Based on our primary beneficiary assessment during the nine months ended September 30, 2012, we determined no change was required to the accounting for existing construction joint ventures.

Consolidated Construction Joint Ventures

The carrying amounts and classification of assets and liabilities of construction joint ventures we are required to consolidate are included in our condensed consolidated financial statements as follows:



(in thousands)	September 30, 2012		December 31, 2011		September 30, 2011
Cash and cash equivalents¹	$	74,020	$	75,122	$	65,350
Other current assets	32,379		33,750		31,215
Total current assets	106,399		108,872		96,565
Noncurrent assets	6,661		8,671		9,821
Total assets²	$	113,060	$	117,543	$	106,386

Accounts payable	$	30,975	$	38,193	$	36,660
Billings in excess of costs and estimated earnings¹	13,955		22,251		17,116
Accrued expenses and other current liabilities	3,495		5,129		5,997
Total current liabilities	48,425		65,573		59,773
Noncurrent liabilities	—		4		33
Total liabilities²	$	48,425	$	65,577	$	59,806

¹The volume and stage of completion of contracts from our consolidated construction joint ventures may cause fluctuations in cash and cash equivalents, as well as billings in excess of costs and estimated earnings between periods.

²The assets and liabilities of each joint venture relate solely to that joint venture. The decision to distribute joint venture cash and cash equivalents and assets must generally be made jointly by all of the partners and, accordingly, these cash and cash equivalents and assets generally are not available for the working capital needs of Granite.

At September 30, 2012, we were engaged in two active consolidated construction joint venture projects with total contract values of $245.1 million and $334.3 million. Our proportionate share of the equity in these joint ventures was 45.0% and 60.0%, respectively. During the three and nine months ended September 30, 2012, total revenue of the consolidated construction joint ventures was $77.4 million and $174.0 million, respectively. During the three and nine months ended September 30, 2011, total revenue of the consolidated construction joint ventures was $73.9 million and $171.1 million, respectively. Total cash provided by consolidated construction joint venture operations was $16.1 million and $6.0 million during the nine months ended September 30, 2012 and 2011, respectively.

Unconsolidated Construction Joint Ventures

We account for our share of construction joint ventures that we are not required to consolidate on a pro rata basis in the condensed consolidated statements of income and as a single line item on the condensed consolidated balance sheets. As of September 30, 2012, these unconsolidated joint ventures were engaged in eight active construction projects with total contract values ranging from $59.4 million to $1.2 billion. Our proportionate share of the equity in these unconsolidated joint ventures ranged from 20.0% to 50.0%. As of September 30, 2012, our share of the revenue remaining to be recognized on these unconsolidated joint ventures ranged from $0.4 million to $186.6 million.

Following is summary financial information related to unconsolidated construction joint ventures:



(in thousands)	September 30, 2012		December 31, 2011		September 30, 2011
Assets:
Cash and cash equivalents¹	$	304,065	$	338,681	$	356,399
Other assets	273,848		264,901		265,549
Less partners’ interest	353,165		364,979		378,523
Granite’s interest	224,748		238,603		243,425
Liabilities:
Accounts payable	94,788		85,075		85,602
Billings in excess of costs and estimated earnings¹	243,578		280,650		302,039
Other liabilities	8,299		8,595		9,460
Less partners’ interest	219,807		236,746		251,091
Granite’s interest	126,858		137,574		146,010
Equity in construction joint ventures	$	97,890	$	101,029	$	97,415

¹The volume and stage of completion of contracts from our unconsolidated construction joint ventures may cause fluctuations in cash and cash equivalents, as well as billings in excess of costs and estimated earnings between periods.



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2012		2011		2012		2011
Revenue:
Total¹	$	286,308	$	243,654	$	776,235	$	667,920
Less partners’ interest^1,2	181,679		158,079		497,743		448,357
Granite’s interest	104,629		85,575		278,492		219,563
Cost of revenue:
Total¹	200,688		212,485		597,689		546,495
Less partners’ interest^1,2	129,840		140,506		389,171		370,865
Granite’s interest	70,848		71,979		208,518		175,630
Granite’s interest in gross profit	$	33,781	$	13,596	$	69,974	$	43,933

¹While 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 was (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. Total revenue, partner’s interest in revenue, total cost of revenue and partners’ interest in cost of revenue should have been (in thousands): $284,095, $183,861, $227,389, and $150,091, respectively, for the three months ended June 30, 2012, and $489,926, $316,064, $397,001, and $259,331, respectively, for the six months ended June 30, 2012.

²Partners’ interest represents amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest, adjusted to reflect our accounting policies.

Line Item Joint Ventures

The revenue for each line item joint venture partner’s discrete items of work is defined in the contract with the project owner and each venture partner bears the profitability risk associated with its own work. There is not a single set of books and records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We account for our portion of these contracts as project revenues and costs in our accounting system and include receivables and payables associated with our work in our condensed consolidated financial statements. As of September 30, 2012, we had five active line item joint venture construction projects with total contract values ranging from $42.0 million to $133.2 million of which our portions ranged from $21.9 million to $55.7 million. As of September 30, 2012, our share of revenue remaining to be recognized on these line item joint ventures ranged from $2.5 million to $29.0 million.