Acquisition (Notes)

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Acquisition

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 post-closing adjustments of $4.6 million and $3.8 million in the second and third quarters of 2013, respectively. Each of these post-closing adjustments is reflected in the purchase price above. The purchase price included $13.0 million held in escrow for indemnification liabilities (as defined by the definitive agreement). All claims are expected to be finalized and released in or before September 2014.

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. The underground business utilizes cutting-edge trenchless construction technologies and processes. This acquisition expanded our presence in these markets and has enabled us to leverage our capabilities and geographic footprint. 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 nine months ended September 30, 2013, we adjusted the preliminary values assigned to property and equipment by $0.8 million to reflect additional information obtained. We expect to finalize the purchase price allocation during the fourth quarter of 2013. 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		51,909
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		223,036
Accounts payable		43,591
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		97,215
Goodwill		43,899
Purchase price		$	141,114

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. 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		Nine Months Ended
(in thousands)	September 30, 2013
Cost of revenue - Construction	$	1,600	$	4,800
Cost of revenue - Large Project Construction	99		347
Selling, general and administrative expenses	181		544
Total	$	1,880	$	5,691

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 $43.9 million of goodwill that resulted from this acquisition is included in our Construction and Large Project Construction segments - see Note 10. 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 (as defined under “Credit Agreement” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) 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.