Acquisition (Notes)

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

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 expect to pay approximately $8.5 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 condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012.

The acquired business operates under the name Kenny Construction Company (“Kenny”) 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 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. The opening balance sheet has been adjusted to reflect 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		7,808
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		223,399
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		97,421
Goodwill		43,693
Purchase price		$	141,114

Intangible assets

Intangible assets include backlog, customer relationships and trade name. We amortize the fair values of acquired backlog intangible assets based on the associated project’s percent complete, and use the straight-line method over assets’ estimated useful lives for other intangible assets. During the three months ended March 31, 2013, we recorded amortization expense associated with the acquired intangible assets of $1.7 million in cost of revenue of our Construction segment and $0.2 million in selling, general and administrative expenses on our condensed consolidated statements of operations. The estimated useful lives for backlog and customer relationships range from 1 to 8 years and represent existing contracts and the underlying customer relationships. 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 $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.