Acquisitions (Notes)

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

Acquisitions

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 approximately $141.5 million, subject to possible post-closing adjustments. 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 credit facility - see Note 12 for further discussion on the borrowings. In accordance with the terms of the agreement, we expect to pay approximately $8.7 million in post-closing adjustments during the second quarter of 2013. These post-closing adjustments are reflected in the purchase price and are included in accrued and other current liabilities on our consolidated balance sheet as of December 31, 2012.

The acquired business will be operating under the name Kenny Construction Company as a wholly owned subsidiary of Granite Construction Incorporated. Kenny operates in the tunneling, electrical power and underground 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 North America.  We have accounted for this transaction in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

Preliminary Purchase Price Allocation

In accordance with ASC 805, the total purchase price was allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of December 31, 2012 as presented in the table below (in thousands). These estimates 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.

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	7,222
Other current assets	6,039
Property and equipment, net	51,126
Identifiable intangible assets:
Acquired backlog	8,400
Customer relationships	2,500
Trade name	4,100
Total amount allocated to identifiable intangible assets	15,000
Accounts payable	44,753
Billings in excess of costs and estimated earnings	50,098
Accrued expenses and other current liabilities	16,806
Noncontrolling interests	14,788
Total identifiable net assets acquired	96,027
Goodwill	45,519
Total purchase price	$	141,546

Intangible assets

Intangible assets include backlog, customer relationships and trade name. We amortize the fair values using the straight-line method over their estimated useful lives. As the acquisition was effective on December 31, 2012, no amortization associated with these acquired intangibles was recorded during the year ended December 31, 2012. The estimated useful lives for backlog and customer relationships range from 1 to 8 years and represent existing contracts and the underlying customer relationships. They are amortized based on the period over which the economic benefits of the intangible assets are expected to be realized. Trade names represent the fair values of the acquired trade names and trademarks. The estimated useful lives of the trade names are 10 years. The identifiable intangible assets are expected to be deductible for income tax purposes.

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 $45.5 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.

Receivables

The fair value of assets acquired includes trade receivables of $61.6 million and retention receivables of $27.1 million. The gross amount due under contracts is $88.7 million.

Pro Forma Financial Information (unaudited)

The financial information in the table below summarizes the combined results of operations of Granite and Kenny, on a pro forma basis, as though the companies had been combined as of the beginning of 2011 (in thousands, except per share amounts). The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2011.

Years Ended December 31,	2012		2011
Revenue	$	2,388,790	$	2,289,043
Net income including noncontrolling interests	82,914		$	78,344
Net income attributable to Granite	58,225		$	55,993
Basic net income per share	1.50		$	1.46
Diluted net income per share	1.48		$	1.45

These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of Kenny to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2011. The income tax expense related to Kenny for the years ended December 31, 2012 and 2011 was minimal due to its status as an S Corporation for income tax purposes.  For purposes of this proforma financial information, the statutory tax rate of 39% was adjusted for estimated permanent items to arrive at 36%.

In 2012, Granite incurred $4.4 million of acquisition-related costs. These expenses are included in selling, general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2012.