A Year in

Review

C O M M I T | C O L L A B O R A T E | C O N S T R U C T

2014ANNUAL

COMPANY ADDRESS

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Dear Filanc Employees and Friends,

Another year has passed and I’m pleased to report that 2014 was a good year for Filanc. We were fortunate to have some very exciting opportunities that resulted in numerous successes for the Company. As I have done in the past, I would like to review for you several of the more significant accomplishments we achieved along with some of the things we can look forward to in the coming year.

As most of you know, the past few years have been difficult ones for us. However, during this time we have grown a great deal as a company and have made major changes to the way we do business. As an example, we:

1. Expanded our Repair and Maintenance capabilities in Arizona.2. Established a very real and viable Marketing Program.3. Established numerous meaningful relationships in Northern CA.4. Utilized the Joint Venture process to formulate new business

opportunities.5. Establish R&M and Construction Operations in the Rocky

Mountain Region6. Established Big Sky Electric.7. Added in-house design services to our capabilities.8. Began diversifying our work portfolio to include military and

conveyance.

Each of these is remarkable given that we accomplished them during the worst recession the Country has experienced in decades. They were very tough years for us but we have been able to turn the Company around thanks to everyone’s efforts and support.

Included in this Booklet is a more in-depth review of these accomplishments as well as what they mean for the Company, going forward. In addition, I have outlined some of the more significant changes we have made to our various systems and procedures that

CEO’S MESSAGE

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are already providing the necessary results and support we need to succeed in the future. Finally, there is a look into what the future has in store for us and what we plan to do to maximize our success in what I see are some prosperous years ahead.

Again, the past few years presented some very real and significant challenges for us. It took bold determination on everyone’s part to achieve some remarkable results. Because of these efforts, we are a much stronger and profitable company today, and this has laid a solid foundation for us from which we can share some very rewarding accomplishments in 2015. As I have said before, we don’t need to be the biggest….just the best.

Mark Filanc, CEO

ACCOMPLISHMENTS….The Past Seven Years

Over the past seven years, we have had some very exciting changes to the way we do business. They were achieved at a time when our Country was experiencing the worst recession in decades. Here are some of these accomplishments and what they mean for the Company and our future.

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EXPAND REPAIR AND MAINTENANCE IN ARIZONA & COLORADOR&M is an ever-expanding market opportunity for Filanc. Because of their efforts, our R&M group in Arizona is regarded by our many clients as “top notch”. When they need something done, there is no doubt who they will call.

MARKETING PROGRAMSeven years ago, we didn’t have a Marketing Program. Today, we have a team of talented individuals who produce “world class” proposals that can compete with anyone and whose efforts have resulted in numerous, exciting and varied project opportunities for the Company.

NORTHERN CALIFORNIAWe have successfully built numerous relationships and have strategically positioned ourselves to be a very competitive player in this viable market area.

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ACCOMPLISHMENTS….The Past Seven Years

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BIG SKY ELECTRICThis Company was started in the middle of the recession. It has an incredible resume, has become “a contractor of choice” for many, and it is doing very well. Today, its volume is in excess of $7 million and it is recognized as a major player in the electrical contracting arena.

JOINT VENTURESFilanc has long been recognized as a premier provider of construction services. This excellent reputation has resulted in the Company being sought out for numerous Joint Ventures over the past seven years. These contractual arrangements have also provided us an opportunity to learn “best practices” from our partners and subsequently leverage them into our Company. Currently, we have six JV’s underway with more to come.

ROCKY MOUNTAIN REGION MARKETWe expanded R&M and Construction Operations into this region as a means of diversifying our market. Now, we have anywhere from $10 to $15 million of backlog at any given time. This has proven to be an exciting market for us with a very bright future as we take full advantage of the upswing in the economy.

DESIGN-BUILD/MILITARY AND WATER CONVEYANCE WORKOur capabilities in the design-build arena have expanded to the pointthat, today, one half of our “Book” is in design-build. In addition, severalyears ago we added in-house design services so we are now evenmore competitive. Finally, our initiatives have resulted in our adding staff to accommodate even more military and water work conveyance project opportunities.

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CHANGES MADEFor us to be successful, we must have the proper systems, policies and procedures in place to properly support the Company’s various internal functions. To this end, our Strategic Planning process in recent years has been more “hygiene” in nature designed to “retool” a number of the ways we do business. Here is a summary of our efforts that are already producing some excellent results.

1FINANCIAL SYSTEMSWe now have much better accounting, cost control and forecasting procedures in place resulting in the availability of more accurate and timely financial information. In addition, Viewpoint is up and running and our other key reporting systems have been overhauled. While there are still certain “Integration” initiatives that will have to be completed in 2015, the changes made have provided a financial information reporting capability that was not available before. Our new projects will see the full effect of these efforts as they are “rolled out” during the course of the coming year.

2BID REVIEW PROCESSWe now make it a practice to review our pending bids with a “team” comprised of both Operations and Estimating personnel. This wealth of experience provides a much higher degree of input and critique, and has resulted in a vast improvement to the overall bid review process.

3�REDEPLOYMENT OF CONSTRUCTION

ENGINEERING SERVICESOur engineering services have been significantly improved. We now have in place the construction engineering resources to do what is needed to properly support our projects.

1FINANCIAL SYSTEMSWe now have much better accounting, cost control and forecasting procedures in place resulting in the availability of more accurate and timely financial information. In addition, Viewpoint is up and running and our other key reporting systems have been overhauled. While there are still certain “Integration” initiatives that will have to be completed in 2015, the changes made have provided a financial information reporting capability that was not available before. Our new projects will see the full effect of these efforts as they are “rolled out” during the course of the coming year.

2BID REVIEW PROCESSWe now make it a practice to review our pending bids with a “team” comprised of both Operations and Estimating personnel. This wealth of experience provides a much higher degree of input and critique, and has resulted in a vast improvement to the overall bid review process.

3�REDEPLOYMENT OF CONSTRUCTION

ENGINEERING SERVICESOur engineering services have been significantly improved. We now have in place the construction engineering resources to do what is needed to properly support our projects.

4SCHEDULINGWe have a much better scheduling process in place and now have an expert supporting this critical area. The scheduling process improvements we have made will provide us with the information necessary to support such critical areas as determining project performance, change order implications and other potential financial consequences

5PURCHASING PROTOCOLLike the others, this is a critical area that requires a great deal of attention. We now are much “smarter” in how we manage the purchasing process as well as the Terms and Conditions element that is so closely related to our overall purchasing protocol.

6�CHANGE MANAGEMENTFails Management Institute [FMI] performed a comprehensive study of our processes and procedures and found we were losing money on change orders. The reasons varied from poor systems in place, to being late in addressing the subject, to having insufficient data to properly assess all impacts. These deficiencies resulted in us adding the necessary resources for change order management. It has also created better owner relations in that we are “on top” of our schedules and costs, and don’t wait until the very end of a project to raise change order issues.

7�LEAN CONSTRUCTIONLeadership edge has spent considerable time on this important issue. They have developed “mosaic” by which we can be much more efficient and effective in receiving, identifying, storing, and retrieving equipment parts and pieces, materials and related information. This will be a tremendous help in further controlling our project costs as well as improving productivity.

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FUTURETHE

HOW WILL WE CAPTURE OUR SHAREOF THE PROSPERITY?

The future for Filanc looks very good. The economy is getting stronger and the outlook for our water industry is bright. The continuing drought in the West has highlighted even more the importance of investing in our water infrastructure. This all relates to more construction opportunities for Filanc in the future. It feels a little like “springtime in construction” to us! We are putting in place the mechanisms necessary to make sure we “narrow down” these opportunities so we can make the best choices and take full advantage of the potential that is before us. To this end, here are some of the things we will be focusing in 2015.

1INTERNAL SYSTEMS

8JOINT

VENTURES

2REBUILD

THEBALANCE

SHEET

7BACKLOG

ALLOCATION

3THE

RIGHTOPPORTUNITES

6BACKLOG

TURNOVER

4PEOPLE

RESOURCES

5BACKLOG

MANAGEMENT

2015 INITIATIVES

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HOW WILL WE CAPTURE OUR SHAREOF THE PROSPERITY?

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2015 INITIATIVESFUTURETH

EHOW WILL WE CAPTURE OUR SHAREOF THE PROSPERITY? CONT

1FOCUS ON OUR SYSTEMSThis is an area that we must be constantly evaluating to make continuous improvements. This is imperative if we are to deliver projects in a faster, better and more profitable manner. It is up to each of us to be “lifelong learners” when it comes to making sure our systems produce the results we need and to make sure we all understand the importance of learning from each other.

2REBUILD THE BALANCE SHEETEach of us has control over the dollars we spend so we must do it wisely. It will make the Company stronger and result in an even greater opportunity for all of us to share in the wealth. Over the past few years, we were able to address our financial issues and turn things around. This was done while maintaining our Core Values at all times.

3�FOCUS ON THE RIGHT OPPORTUNITESIn simple terms, if we don’t see “greener pastures” when we evaluate an opportunity, then we will pass on it. Our goal is to focus on only those projects that present us with a reasonable return. We have the systems and procedures in place to do it successfully, and we are being much more scientific when it comes to selecting project opportunities. It is now part of our culture.

4�DEVELOP OUR PEOPLE RESOURCESThis is a Strategic Plan item that will be addressed in further detail later in this Booklet. We must remember we work in a service industry so “it’s everyone at Filanc that makes it happen”. We must have the best and brightest team in the business if we are to leverage our resume to the greatest extent possible and grow the Company.

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BACKLOG MANAGEMENTWe must continue to manage our backlog efficiently and effectively. Like the People Resources topic, this is a Strategic Plan item. Some of the things we are doing include:A. Taking a much stronger look at Repair and

Maintenance opportunities.B. Viewing margins from both a time and money standpoint.C. Leveraging Joint Venture relationships to reduce risk and

increase opportunities.D. Diversifying our market platforms and making sure we always

allocate the resources to support them properly.E. Maintaining a “keep calm and carry on” philosophy.

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BACKLOG TURNOVERWe need to continually look at our projects to determine how fast we can have the best backlog turnover. The “velocity” of a given project is a key determining factor. We must place greater focus on risk and profitability, and the duration and size of projects are major factors in determining the amount of Operating Margin we will be able to generate. This thought process is used when considering such things as which projects to pursue or what JV partners to select, and is especially true when we need to prioritize opportunities due to available resources. This is “the right way to look at our world”.

7�BACKLOG ALLOCATIONOur diversity helps us to effectively change our market focus based on the economy at any given time. Currently, we have eight separate market area platforms and we work in seven different contract disciplines. While always evaluating the risk factor, this portfolio diversity provides us with a great deal of flexibility and broadens our chances for maintaining a strong and profitable backlog.

8�JOINT VENTURESOur Joint Ventures are working very well, especially given the fact that we are able to leverage the talents of both partners and, at the same time, mitigate the risk factor. In addition, we have been able to learn a great deal from our various partners, and we are afforded significant bonding resources when we choose our partners wisely. Finally, we are able to add projects of a longer duration which helps normalize our revenue.

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OUR PEOPLEThe people who make up Filanc are our most critical resource and without them we are not a company. This is why, at our 2014 Strategic Planning Session, we agreed to refocus on our people to ensure a positive future for the Company. It starts with hiring the right people and continues with providing the training, resources, opportunities, and support necessary to grow successful careers at Filanc. To this end, we have established specific objectives and criteria for each of these categories.

HIRING

We must make sure the candidates we hire “fit” and have the required

skill sets.

TRAININGWe need to “reinstall”

training into our Company culture.

Everyone needs to be a “life-long learner” and understand its benefits.

�RETAINING EMPLOYEES

We must have a work environment that

creates a place where our people want to stay.

RECRUITING We must always be

“deliberate” in identifying and attracting only the best candidates to become part

of the Filanc team. We need to be “deliberate” in the way we recruit. This is especially

true with our college recruiting initiatives.

1. COLLEGE RECRUITMENT�Our college recruiting efforts for both interns and recent graduates have been ramped up to ensure we attract and hire only the best candidates. These efforts include:A. Targeting specific colleges and universities.B. Targeting specific programs that match most closely our needs and where the students have

a desire to stay and work in our market areas.C. Identifying a specific PI and then hire only those who have the right match.D. Becoming involved with the colleges and universities and their programs to maintain a high

Company profile. Our goal is to be “imbedded” into the institutions where we are actively recruiting.

E. Maintaining an effective Intern Program that provides us the ability to evaluate each intern, and to be on the “inside track” when hiring for full-time positions upon graduation.

2. HIRING�We have put in place the key hiring elements needed to make sure candidates “fit” within our culture, have the necessary skill sets required for the available positions, and to help ensure the hiring process is successful. These elements include:

A. Making sure the candidate’s PI is a match.B. Conducting extensive interviews and evaluations.C. Performing comprehensive reference checks.D. Making offers strategically based on appropriate salary and benefit data.E. “Selling” Filanc in the most positive manner possible to maximize our competitiveness for

the best candidates.

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3. TRAINING�At Filanc, we need to commit to training at all levels. This means we need to be “intentional” when it comes to training. It needs to be part of our culture, and we must understand that we all have a part in embracing, promoting and buying into Company training initiatives. Finally, we must do all we can to “leverage” everyone’s experience. If we do so, it will help us be a much stronger company and improve our ability to stay ahead of our competition. Specifically, we will do the following:

A. Create a culture that embraces training.B. Commit to “on-boarding” training of all systems, policies and procedures.C. Provide training for all disciplines and positions.D. Use the Coaching process to identify specific training needs.E. Establish training budgets for all departments.F. Track training initiatives just like we track safety training so we know how we are doing.G. Ensure new Project Engineers complete the Pacesetter Program’s rotations.H. Develop and track training benchmark metrics.I. Identify and utilize a mix of both internal and external training resources and programs.J. Always be ready to recognize and take full advantage of those “teaching moments”.

4. RETAINING EMPLOYEES�We need to remember that hiring a great candidate is just the beginning not the end of the employment cycle. At Filanc, we need to be aware of what it takes to retain our best employees. This includes the following:

A. Providing a desirable, engaging, supportive place to work where there is respect and trust for each other, and where having some fun along the way is considered important.

B. Providing meaningful training and career opportunities.C. Provide quality compensation that is competitive in the industry.D. Using Leadership Edge to enhance various training initiatives and to create and improve

upon the processes, systems and procedures needed to appropriately support various Company functions.

E. Using initiatives such as CONNECT to help strengthen networking opportunities for younger project engineers, accounting and other department’s personnel.

F. Promoting an “Open Door” policy as a means of encouraging better communication at all levels.

G. Taking full advantage of the completely new Filanc Mentoring Management Program to support our salaried employees. It is a wonderful way to encourage such things as employee creativity, idea sharing, skill development, and improved communication. It also can be a very satisfying experience for those who become involved with the Program.

H. Understanding the Coaching process is part of the training experience and is a very effective tool in promoting career growth opportunities and employee retention initiatives. It should be used to identify what training and skill enhancements are needed and as a means of “moving someone’s career along” in a proactive manner.

I. Looking more closely at succession planning is something we will do. For example, we need to identify the best way to “backfill” for those who are contemplating retirement at some point in the near future. This is a great way to identify potential career advancement initiatives. Also, we need to understand that coaching, mentoring, training, employee retention, and creating career opportunities are integral parts of succession planning. All of us have an obligation to actively support these initiatives and commit to developing our own succession plans.

GETTING BETTER:

We are getting better at everything

we do. Remember,

we don’t need to be the biggest…

just the best!

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Filanc has always been a leader when it comes to thinking strategically. Our resume and position within our industry are a direct result of turning great ideas into reality. These ideas are fostered through our annual Strategic Planning process where specific Action Plans define the concrete tactics necessary to make these ideas become a reality.

We take great pride in being a leader in setting the pace for our industry. However, the economic reality of the last several years forced us to use our “strategic” thinking time to look internally at systems that were neglected during the “go-go” years of construction. We have made significant progress improving upon those internal systems, and will continue to do so, especially in the areas of lean construction. Leadership Edge has played a key role in developing Lean Practices including the adaption of new technologies that will continue to enhance our productivity making us more competitive and profitable.

While we continue to develop our internal systems and best practices, we are also working hard toward achieving our “Filanc Vision” that was formalized a few years ago during a very productive Strategic Planning session. We have made great strides in this effort and will continue to focus on making it a reality!

SUMMARY

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Below is a recap of our Vision. Everyone at Filanc should take a moment to read, understand and commit it to memory. Consider how this Vision relates to your everyday decisions and actions. After all, our future success depends on all of us pulling in one direction toward the same common goals.

FILANC VISIONFilanc will be a leader in water and wastewater construction in the western United States by continuing to expand geographically in CA, AZ, CO.

Repair and Maintenance will comprise approximately 25 percent of our total revenue delivering a gross margin of 15 percent.

Secure all work through alternative delivery contract methods, prequalified bid list, or shortlisted invitations to bid.

Be a Master Builder capable of self-performing design and construction on design-build projects and providing expert construction and construction management on every project under every type of contract.

Maintain safe operations on all projects with a goal of zero lost time injuries.

Meet an annual minimum revenue goal of $100 M delivering a fair return for the Company.

Promote career growth and have fun along the way.

J.R. Filanc Construction Company, Inc.www.filanc.comCORPORATE HEADQUARTERS740 North Andreasen Drive Escondido, California 92029760.941.7130

ARIZONA2928 North 35th Avenue, Suite 2Phoenix, AZ 85017 602.544.3600

ROCKY MOUNTAIN 2727 W. 92nd Avenue, Suite 10 Federal Heights, CO 80260 303-513-2559