Real Estate Entities and Investments in Affiliates

The operations of our Real Estate segment are conducted through our wholly-owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects.

We have determined that certain of these joint ventures are consolidated because they are VIEs, of which we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIEs. Based on our assessments during the years ended December 31, 2013, 2012 and 2011, we determined no change was required for existing real estate ventures.

Our real estate affiliates include limited partnerships or limited liability companies of which we are a limited partner or member. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility in the project. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. However, if one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume, at its option, full management and/or financial responsibility for the project.

Substantially all the assets of these real estate entities in which we are a participant through our GLC subsidiary are classified as real estate held for development and sale and are pledged as collateral for the associated debt. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt (i.e., the limited partnership or limited liability company of which we are a limited partner or member).

GLC receives authorization to provide additional financial support for certain of its real estate entities in increments to address changes in business plans. During the year ended December 31, 2013, GLC was authorized to increase its financial support to one consolidated real estate entity by $5.9 million to meet existing debt obligations. As of December 31, 2013, $2.5 million of the total authorized investment had yet to be contributed to the consolidated entity. During the year ended December 31, 2012, no authorization was provided and GLC did not increase its financial support to any real estate entity.

During the fourth quarter of 2013, management approved the plan to sell or otherwise dispose of all of the remaining consolidated real estate investments that were included in the EIP. As a result, during the year ended December 31, 2013, we recorded restructuring charges of $31.1 million, of which $3.9 million was attributable to non-controlling interests, which consisted of non-cash impairment charges on consolidated real estate assets. During the years ended December 31, 2012 and 2011, we recorded no significant restructuring charges related to our real estate development projects or investments. See Note 11. During the year ended December 31, 2013, we recorded amounts associated with the sale or other disposition of one project in Texas and during the year ended December 31, 2012, we recorded amounts associated with the sale or other disposition of one project in California, one project in Oregon, and one project in Washington. These dispositions did not have a significant impact on our consolidated statements of operations.

Other than described in Note 11, an evaluation of the entitlement status, market conditions, existing offers to purchase, cost of construction, debt load, development schedule, status of joint venture partners and other factors specific to the remainder of our real estate projects resulted in no significant impairment charges during the year ended December 31, 2013. Our quarterly evaluations of each project’s business plan yielded no significant impairment charges during the years ended December 31, 2012 and 2011.

Consolidated Real Estate Entities

As of December 31, 2013 and 2012, real estate held for development and sale associated with consolidated real estate entities included in our consolidated balance sheets was $12.5 million and $50.2 million, respectively. Non-recourse debt, including current maturities, associated with these entities was $8.0 million and $11.6 million as of December 31, 2013 and 2012, respectively. All other amounts associated with these entities were insignificant for the periods presented. As of December 31, 2013 and 2012, $12.5 million and $40.3 million, respectively, of the real estate held for development and sale balances were in Washington State residential real estate. The remaining balances were primarily in various commercial projects in California.

Investments in Affiliates

Our investments in affiliates balance consists of the following (in thousands):



December 31,	2013		2012
Equity method investments in real estate affiliates	$	21,392	$	19,775
Equity method investments in other affiliates	11,088		11,024
Total investments in affiliates	$	32,480	$	30,799

We have determined that certain real estate joint ventures are not consolidated because they are VIEs and we are not the primary beneficiary. We have determined that certain non-real estate joint ventures are not consolidated because they are not VIEs and we do not hold the majority voting interest. As such, these entities are accounted for using the equity method. We account for our share of the operating results of these equity method investments in other income in the consolidated statements of operations and as a single line item on our consolidated balance sheets as investments in affiliates.

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis (in thousands):



December 31,	2013		2012
Current assets	$	25,807	$	85,354
Long-term assets	148,181		80,758
Total assets	173,988		166,112
Current liabilities	6,000		8,262
Long-term liabilities	68,544		65,744
Total Liabilities	74,544		74,006
Net assets	$	99,444	$	92,106
Granite’s share of net assets	$	32,480	$	30,799

The equity method investments in real estate included $14.9 million and $13.8 million in residential real estate in Texas as of December 31, 2013 and 2012, respectively. The remaining balances were in commercial real estate in Texas. Of the $174.0 million in total assets as of December 31, 2013, real estate entities had total assets ranging from $4.4 million to $53.3 million. As of each of the periods presented, the most significant non-real estate equity method investment was a 50% interest in a limited liability company which owns and operates an asphalt terminal and operates an emulsion plant in Nevada.

During the year ended December 31, 2012, it was determined that the carrying amount of our cost method investment in a power generation equipment manufacturer exceeded its fair value, which required us to recognize a non-cash impairment charge of $2.8 million that was included in other income (expense), net on the consolidated statement of operations.

The following table provides summarized statement of operations information for our affiliates accounted for under the equity method on a combined basis (in thousands):



Years Ended December 31,	2013			2012		2011
Revenue	$	42,563		$	52,342	$	48,983
Gross profit	3,487			13,254		10,654
Income (loss) before taxes	(686		)	1,318		(399		)
Net (loss) income	(686		)	1,318		(399		)
Granite’s interest in affiliates’ net income	1,304			1,988		2,193