filanc annual address 2011

Annual Company Address

2011… A Year in Review

trust

commit. collaborate. construct. communicate.

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CEO’s Message

Dear Filanc Employees and Friends,

2011 was a continuation of what we experienced in 2010… stiff competition, swollen bid lists, and margin erosion. These issues, coupled with the fact that we had the start date of one of our largest projects delayed by almost a year, created for us some very significant “headwinds”. That said, we finished the year successfully and are in a very strong position for 2012, something a number of other general contractors are not able to say. This major accomplishment was due primarily to the unselfish efforts and ingenuity of the talented people that make up our many Filanc teams. In addition, our continuing efforts to strengthen the processes we need to do business every day, along with the on-going emphasis on building our people and communication skills, produced some outstanding results.

In 2011, as with past years, we focused the bulk of our energies on achieving successful results. The following are a few excellent examples. First, we continued to finish all of our projects with integrity, including a couple of projects that were marginal performers. At the end of the day, we are very proud of what we accomplished, and we are especially pleased knowing our list of satisfied clients continues to grow. Second, the Strategic Planning process proved again to be a critical management tool by providing us with a clear vision as we continued to broaden the scope of what we do best. For example, we met all our Strategic Planning goals for 2011. This included opening our first office in Denver, Colorado where we are identifying excellent opportunities almost on a daily basis. We instituted our new Master Builder Program, which is already producing impressive results in the form of our first Design/Build project and a number of other very real opportunities are in the wings. Without question, we have “our boots firmly on the ground” when it comes to our construction/engineering capabilities.

Also in 2011, we continued to expand our Repair and Maintenance (R&M) initiatives including a “regional” presence not only in Northern California, but also in Colorado. In fact, the R&M group beat its goal of providing 10 percent of the Company’s revenue in 2011, which is an outstanding accomplishment

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given the state of the construction economy in general. Providing meaningful ways to grow our people, improving processes and expanding our bidding capabilities continued to be top priorities. From significant enhancements to our Pacesetters and Leadership Edge Programs, to implementing Part ll of the Leadership Development Program, to the continued emphasis on Filanc Construction University, to implementing a Connect Program to strengthen the “linkage” between our new project engineers and the Company’s culture, to producing a Productivity Planning Workbook, to bidding projects in new geographical areas such as Oklahoma, all made a very positive difference in this difficult year.

Finally, for us to achieve our goals and to maximize our successes, we must understand that our “behaviors” in whatever we set out to do will have a significant bearing on how successful our endeavors will be. Before we start to achieve a specific task, an assignment or goal, we need to ask ourselves “What do I need to do better? What behavior patterns do I need to change/enhance to ensure that the most positive results are achieved?” This is not only for us as individuals, but is as equally important for all our Filanc employee teams. The behavior patterns we utilize each day will determine, to a great extent, our ability to achieve excellence in whatever we undertake. There will be more on this subject later in this booklet under the heading “Why Our Behaviors Drive Excellence.”

We are very fortunate to have an excellent, profitable backlog for 2012, which is a real positive for the Company. With a goal of $350 million in revenue in 2015, all we have to do is achieve 20 percent of our opportunities in 2012 to be successful. Let’s always remember the following: Keep it simple….commit with purpose, caring and integrity…. follow through…..and always act with our Vision in mind. If we do this, we will have many “wins” to celebrate together in 2012.

Mark Filanc, CEO

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collaborate constructcommit

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Our Mission StatementFilanc provides construction services that result in added value beyond our clients’ expectations, consistently delivering the safest, highest quality product on schedule. We are the contractor that makes our customers say, “Wow!” For these reasons, Filanc is the trusted contractor-of-choice for owners, teaming partners, and employees.

We accomplish our mission by consistently delivering a project experience that is satisfying, not frustrating. Our relationships are friendly, not adversarial. We focus on solving problems, not creating them. We conduct our business with integrity. We work safely. We even have our fair share of fun.

communicate

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Caring…The Key to Attaining Excellence

A lot has been said in the last few years about business failures, large and small. The reasons were many. Some failed due to the “Great Recession”, while others were destined to fail because of poor management decisions, disappearing market share, foreign competition, and in some cases, just plain bad luck. Too often, the news media focused on these failures versus why many businesses continue to succeed, year-after-year. At Filanc, we have a strong, 60 year history of success. Why is that? It can be defined very simply….WE CARE. Over the last 60 years, we have seen numerous recessions come and go, competitors flourish and then fail, market trends change requiring us to change as well, all resulting in our having to make adjustments in just about every way we do business. This would not have been possible if each of us didn’t share one critical, common element…..our ability to CARE. Caring is not something new or unique to us. We demonstrate it in many different ways…..with our families, our friends, our hobbies, and in our respective careers. Let’s look at what CARE means and why it is so important to us at Filanc.

CARE EQUALS BEHAVIOR EQUALS SUCCESS: All of us hope for a certain result whenever we set out to do something. The key difference is the degree of CARE we give to whatever we want to achieve. As we formulate our thoughts and evaluate alternatives, it is the amount of CARE we decide to devote to the decisions we must make that

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Caring…The Key to Attaining Excellence

has a direct bearing on the development of certain behaviors, and ultimately determines if we are successful in achieving our desired outcomes. Think of CARE as being the starting point from which everything else evolves. If we care about making our job sites as safe as possible, CARE about our weekly bills being paid correctly and on time, CARE about properly maintaining our equipment; the more CARE we devote to an issue regardless of what it is, the better the chances for the right behaviors being in place. In the Breakout Session portion of this year’s Annual Company Address Meeting, we asked everyone to list what they thought were the key behaviors we should exhibit in all aspects of our business. Their comments are outlined at the end of this Booklet and are perfect examples of behaviors we must have to help ensure a successful future.

OUR DECISIONS AND ACTIONS: Each day, we all make decisions or take actions that have a direct affect on the well-being of the Company. It makes no difference how large or small these decisions or actions are, they each matter a great deal. It is the thought process we use that makes the difference. At Filanc, you never want to hear the words “good enough.” When we apply the highest degree of CARE to whatever we need to do, the correct behaviors will occur and the decisions you make and the actions you take will be the right ones with excellence resulting.

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Caring (continued)

OUR BEHAVIORS: How we interact and communicate with our team members, clients, subcontractors and vendors is critical to our success. From getting the best price possible on materials or a new piece of equipment, to how an estimate or proposal is prepared, to negotiating a difficult contract where the result is a “Win-Win” for all concerned, to finishing a very difficult project with the highest quality and a satisfied client, to something as simple as promptly returning a phone call; everything we do and how we do it makes a huge difference. Taking CARE in deciding what to say or not to say, how to turn a negative situation into a positive one, or even how to effectively say “no”, our behaviors, as an individual or as a team, will make a critical difference in the outcomes we hope to achieve and allow us to maximize results.

EXPECTATIONS: When we CARE, high expectations are a key component. All of us at Filanc take great pride in what we do. Thus, our expectations of what we hope to achieve ourselves and from others must always result in nothing less than excellence, and we must always hold ourselves and others accountable for anything less.

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MEASURE TWICE….CUT ONCE: Most everyone has heard this phrase before. While only four words, they clearly explain the importance of why we must CARE. Before we start a task, whether in the office or on the job site, make a phone call, send an email, go to a meeting, the CARE element is critical to being properly prepared; the chances for mistakes are minimized, while the chances for success are maximized. The CARE we take to work through the process beforehand makes all the difference.

As we think about all that we do each day, we must never forget the importance the CARE element plays in our daily lives, both personally and professionally. How effectively we apply it will give us that extra “edge” and greatly increase our chances for success. At Filanc, our ability over the last 60 years to CARE about everything we do has been the “glue” that kept us together and to achieve excellent results year after year, through good times and bad. We will continue to do so in the future since the WE CARE motto will always be part of the way we do business at Filanc.

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SIGNIFICANT “HEADWINDS” ENCOUNTERED: The year 2011 was not any different than 2010 in that we continued to face a multitude of challenges. That said, we took the steps necessary to effectively address the significant “headwinds” that were encountered. They included stiff competition, swollen bid lists, margin erosion, and the delay in starting one of our major projects for the year.

ON THE BRIGHT SIDE: We were successful in our approach to the challenges we faced in 2011. These efforts resulted in several major accomplishments for the year.

First, our success would not have been possible if it were not for the tremendous efforts of all employees. Regardless of position or responsibility within Filanc, everyone did what had to be done to make sure we succeeded. Our energies were focused on solving problems responsively and with integrity, always managing our resources in the “smartest” way possible, and making sure that expenses were controlled at all times. These efforts, and at times sacrifices, of our employees made sure that the health of the Company was never an issue and, as a consequence, we continue to maintain a very strong Balance Sheet.

2011 In Review

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2011 saw the completion of two projects where the financial results were a disappointment. However, the major efforts on the part of the management teams culminated in finished projects that we all can be proud of and continued our tradition of client satisfaction through “people doing the right thing”. On the bright side, we have an excellent backlog in 2012 with a number of very promising project opportunities to pursue.

The development of our employees continued to be a major factor to address in 2011. Part II of our highly successful Leadership Development Program was initiated, the Pacesetters and Leadership Edge (LE) Programs were updated, and a “second generation” of LE participants was welcomed. In addition, strong emphasis continued to be placed on the many benefits afforded employees through attending Filanc Construction University classes and we developed the Connect Program to help “link” our newer project engineers with Filanc’s culture. Overall, 2011 was another successful year for our employees and their career development.

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2011 In Review (continued)

Several enhancements to the way we do business each and every day were also a focal point in 2011. We inaugurated our Master Builder Program and hired our first Director of Design Engineering. This initiative has already produced some very impressive results and will continue to do so as Filanc significantly expands its construction/engineering capabilities. As part of our 2011 Strategic Plan, a new regional office was opened in Denver, CO. Filanc and its management team are in place and their efforts will be critical to our success as we become a Rocky Mountain Regional Contractor. Filanc’s Repair and Maintenance group continues to produce one impressive result after another. In fact, it beat its revenue goals for 2011! Starting with its long history of completing successful projects in Southern California and Arizona, R&M is now using its expertise to pursue projects in Northern California and Colorado, and has an impressive list of satisfied customers to build upon as it continues its expansion efforts. A new Productivity Planning Workbook for piping systems was developed, which should be a major help to our mechanical installation crews in the field.

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Finally, Strategic Planning has played a critical role for us over many years as we plan for the future and 2011 was no exception. Each of our goals for the year was successfully met and we will continue to use this process in the years to come. We said we would do it and we did it……together!

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OPPORTUNITIES… OPPORTUNITIES… OPPORTUNITIES…

While in 2012, there will still be a number of challenges for us to overcome; the year will also provide us with an abundance of opportunities to pursue. Fortunately for us, we started the year with an excellent backlog of $132 mm, which should be very profitable work. While Estimating and Business Development are working harder than ever to identify new opportunities for us, we know the normal “Design/Bid/Build” method of doing business is dead for the foreseeable future. We could not survive long working in this fashion. As a result, we need to make a conscious effort to determine the most intelligent use of our Estimating, Operations and Business Development resources so we have the best opportunity to control our future. To this end, we will always be “intentional” in the way we pursue projects and how we approach opportunities in new geographical areas. Developing “alliances” with other general contractors and engineering professionals will also continue to be a critical and positive factor as we pursue new work in 2012.

The many opportunities we have before us, both in the self-perform and joint venture arenas, will result in the continued expansion of our construction/engineering capabilities and the pursuit of projects in new geographical areas. R&M will continue its expansion efforts and already has a number of excellent new-work possibilities to pursue.

What’s In Store For 2012?

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Also in 2012, we will be focusing a great deal on developing “lean construction practices”. Simply put, this means doing all we can to improve productivity, reduce costs by eliminating waste and fat, all with the ultimate goal of maximizing profitable opportunities. You will be hearing a lot more about this initiative in the months to come.

Our Strategic Plan for 2012 is realistic and removes any doubt as to what we hope to accomplish. The planning process last fall was our best one yet and the effort resulted in five “Objectives” that will appropriately support our overall vision for the Company. An outline of these Objectives is included in a separate section of this booklet.

There will be a great deal of emphasis placed on all of us better understanding our “behaviors” and their relationship to what we each hope to achieve. This also will further emphasize the positive difference each Filanc team member can make regardless of their role within the Company. We will continue our strong emphasis on our various employee development programs, which have produced so many successes in the past as we commit to always improving. Finally, effective communication by everyone is critical. This includes being respectful of others’ ideas and opinions, and providing meaningful feedback whenever the opportunity arises.

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Our 2012 Strategic Objectives

Each year, our Strategic Planning Process seems to get better and better, and 2011 was no exception. The October Retreat results were excellent and provided a series of Objectives, which outline what we will have to do to support our overall Vision for the future. It is worth noting that most of the 2012 Objectives are a continuation of what was established for 2011. This was done purposely since their magnitude of importance to the Company is such that we need to remain focused year-to-year to achieve the appropriate outcomes.

The process not only produced several outstanding 2012 Strategic Objectives, but it also identified specific “strategies” that we will need to follow in order for us to be successful. The following are the five 2012 Strategic Objectives.

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OBJECTIVE 1: Filanc will deliver water works by all viable alternative contracting methods by 2015.

OBJECTIVE 2: Expand the presence of Filanc throughout the Western US with a goal of generating 20% of its revenue outside of California by 2015.

OBJECTIVE 3: Expand R&M throughout the Western US to generate 10% of total Company revenue.

OBJECTIVE 4: Create a Communication Driven Culture.

OBJECTIVE 5: Develop a capability in Lean Construction to reduce labor costs by 10% and overall project costs by 5% while bringing better value to the owner by 2015.

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Annual Address Feedback

Each year at the end of the Annual Company Address Meeting, those attending have an opportunity to provide meaningful feedback. Two important questions were asked to all attendees. Small groups were formed and they responded accordingly. As in past years, excellent discussions took place and resulted in some very valuable feedback information that will be referred to throughout 2012. While it would be impossible to list all the responses in the Booklet, here are the two questions that were asked along with a selection of the responses. It is important to note that the responses to question number 1 reflected exactly the type of behaviors that are so important to the WE CARE attitude shared by everyone at Filanc.

1. What five behaviors/qualities should we exhibit that will lead to excellent results in all aspects of our business?

ANSWER: ■ Have customer focus/empathy. ■ Display a positive/can do attitude. ■ Show passion. ■ Accept the concept of continuous improvement. ■ It is important that mentors share their knowledge. ■ Have a sense of urgency/timeliness in delivery. ■ Take pride in our work. ■ Don’t be the problem, be the solution through creativity and innovation.

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2. What are the top three priorites for implementing lean construction?

ANSWER: ■ Utilize efficiencies. ■ Have the proper tools for the project. ■ Improve the knowledge base. ■ Have a clear definition of LEAN. It doesn’t always mean less. ■ Maximize crew times. ■ Know your costs. ■ Plan your work….work your plan. ■ Follow through. ■ Improve/streamline the channels of communication ■ Develop best practices….share them….use them.

Again, the above is just a summary of the responses from the feedback portion of the meeting. Management will be reviewing them in more detail in the coming months and updates will be provided as we develop the appropriate action items.

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F.E. Weymouth Water Treatment Plant Inlet Conduit Relocation and Rapid Mix SystemOCSD Trickling Filter Rehabilitation Project

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In Summary

FINANCIAL RESOURCES: We have a strong backlog and balance sheet in 2012 and expect a profitable year.

OUR POSITION IN THE MARKET PLACE: While we will continue to have many challenges in 2012, we are very fortunate to be positioned in such a manner that we will be able to take full advantage of the many opportunities we will pursue during the year. We are financially strong, have a wonderful group of talented Filanc team members, have a clear vision of what we want to accomplish, and the systems and procedures are in place to make a real and positive difference in 2012.

OUR PEOPLE: We can’t say it enough. Our Filanc team members are among the most dedicated and talented in the industry. It is through their unselfish efforts year after year that we are able to succeed and be regarded as one of the leaders in our industry nationally.

STRATEGIC OBJECTIVES: The Strategic Planning Process is one of the key management tools we use each year as our guide for the future. As with previous years, we were successful in meeting our Objectives in 2011 and will do so again in 2012.

AT FILANC…WE CARE: The starting point for whatever we want to accomplish is the degree of CARE we give to the effort. How successful we are will ultimately depend on this key factor and the behaviors that evolve directly from it. We must always remember, at Filanc CARE equals BEHAVIORS equals SUCCESS!

communicate

filanc annual address 2011

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