Granite Construction Incorporated Reports Second Quarter 2007 Results

WATSONVILLE, Calif., July 25 /PRNewswire-FirstCall/ -- Granite Construction Incorporated today announced its financial results for the second quarter ended June 30, 2007. The Company reported net income for the quarter of $43.8 million, or $1.05 per diluted share. This compares with net income of $33.3 million, or $0.80 per diluted share for the same period last year. For the six-month period ended June 30, 2007, net income was $41.6 million or $1.00 per share on a diluted basis compared with $31.9 million or $0.77 per share for the same period in 2006.

William G. Dorey, president and chief executive officer, said, "I am very pleased with our financial results this quarter. Our branch business in the west achieved record gross margin results driven by excellent execution on a strong backlog of work. With regard to the large projects in our Granite East division, I am particularly encouraged by the profit potential of our backlog and the overall financial improvement we are beginning to see from this business."

Operating Results - Quarter and Year-To-Date

For the second quarter of 2007, total revenue decreased 5.1% to $770.9 million compared with $812.0 million a year ago. Total gross profit as a percent of revenue increased to 16.6% compared with 11.5% for the same period last year. Operating income increased to $66.9 million compared with $48.2 million for the second quarter of 2006.

For the six-month period ended June 30, 2007, revenue totaled $1.26 billion compared with $1.31 billion for the same period last year. Total gross profit as a percent of revenue increased to 14.0% compared with 10.2% last year. Operating income increased to $61.3 million compared with $44.4 million for the same period in 2006.

Total Company backlog at June 30, 2007 remained flat at $2.5 billion compared to a year ago. New awards for the second quarter 2007 included the award of a $92.6 million highway project in Florida and a $37.3 million highway project in Texas. Also included in backlog at June 30, 2007 is approximately $47.6 million related to our 20% share of a joint venture project at the World Trade Center in New York.

General and Administrative expenses for the quarter totaled $65.1 million or 8.4% of revenue compared with $48.9 million or 6.0% of revenue in 2006. The $16.2 million increase is due primarily to increased personnel and related expenses to support our growth strategy, particularly in Granite West. Variable compensation increased due to higher income and greater participation in our incentive compensation plans in the 2007 periods.

Results by Segment

The following results by segment are presented reflecting changes to the Company's segment reporting structure. As of the quarter ended June 30, 2007, financial performance of our two largest operating units will be reported under two new segments; Granite West and Granite East. These new reportable segments conform to the Company's organizational and strategic realignment that was announced in February 2007. The Company formerly reported results under the Branch Division and Heavy Construction Division (HCD). Prior period results have been reclassified to conform to the new organizational structure.

Granite East revenue for the quarter totaled $218.0 million versus $292.8 million for the same period last year. Granite East backlog increased to $1.52 billion compared to $1.25 billion last year. Gross margin as a percent of revenue was 6.6% compared with a negative 3.8% in the prior period. Operating income for Granite East totaled $7.1 million compared with an operating loss of $18.9 million for the same period in 2006. This improved performance was due primarily to a net positive impact from significant project forecast adjustments in the quarter compared to a net negative impact in the same period last year.

For the six-month period ended June 30, 2007, Granite East revenue totaled $402.7 million compared with $528.9 million for the same period last year. Gross margin as a percent of revenue for the six months ended June 30, 2007 was 1.6% compared with a negative 2.7% last year. Operating loss for Granite East totaled $10.2 million for the six-month period compared with an operating loss of $31.0 million for the same period in 2006.

Granite West revenue for the quarter totaled $542.4 million, an increase of $56.9 million, or 11.7%, over the same period in 2007. Backlog for Granite West decreased to $986.3 million compared with $1.24 billion a year ago. Gross profit as a percent of revenue increased for the second quarter 2007 to 20.2% compared with 17.9% for the second quarter 2006 due to an increase in profitability on our construction work. Granite West operating income increased $14.2 million for the quarter to $75.7 million compared with $61.5 million for the second quarter last year.

For the six-month period ended June 30, 2007, Granite West revenue totaled $840.5 million compared with $745.4 million for the same period last year. Gross profit as a percent of revenue for the six months ended June 30, 2007 increased to 19.2% compared with 17.5% last year. Operating income for Granite West increased to $96.7 million for the same period compared with $80.3 million in 2006.

Outlook

The Company's outlook for Granite West in 2007 remains positive. However, there has been an increase in competition for public sector projects in California which may affect Granite West's ability to meet or exceed last year's record operating performance. While the Company did not anticipate that the projects funded by the ballot measures approved by California voters last November would have a significant impact on bottom line results in 2007, the delay in project lettings, coupled with the slowdown in the private sector market, is creating a more competitive public sector bidding environment in California than was experienced last year.

The Company believes Granite East should achieve breakeven operating results in 2007. This guidance reflects our current forecasts of large projects in the newly realigned Granite East business. As outlined below, the Granite East business includes the former HCD projects, less three projects that were reassigned to Granite West. The gross profit associated with the three reassigned projects for the three and six month periods ended June 30, 2007 was $3.0 and $4.6 million, respectively.

Reporting Segment Profiles

Granite West is comprised of decentralized branch offices in the western United States that perform various heavy civil construction projects with a large portion of the work focused on new construction and improvement of streets, roads, highways and bridges as well as site preparation for housing and commercial development. Although most Granite West projects are started and completed within a year, the division also has the capability of constructing larger projects. Each of the 13 Granite West branch locations are aligned under one of three operating groups: Northwest, Northern California and Southwest.

All of the Company's revenue from the sale of construction materials is from Granite West. Each of the branch locations under Granite West operate facilities that process aggregates into construction materials for internal use or for sales to third parties. These activities are vertically integrated into the Granite West construction business, providing a source of profits and a competitive advantage to our construction business.

Granite East operates in the eastern portion of the United States with a focus on large, complex infrastructure projects including major highways, large dams, mass transit facilities, bridges, pipelines, canals, tunnels, waterway locks and dams, and airport infrastructure. Granite East operates out of three regional offices: the Central Region, based in Lewisville, Texas; the Southeast Region, based in Tampa, Florida; and the Northeast Region, based in Tarrytown, New York. Granite East construction contracts are typically greater than two years.

Projects Affecting New Segment Reporting Structure

Three projects from the Company's legacy Heavy Construction Division were reassigned to the new Granite West division. The following table shows the impact to Granite West and Granite East revenue and gross profit relating to these three projects:

Three Months Ended Six Months Ended Granite West June 30, June 30, (in thousands) 2007 2006 2007 2006 Branch Division revenue $511,862 $471,297 $793,304 $722,395 Reassigned projects revenue 30,585 14,261 47,237 22,994 Granite West Division revenue 542,447 485,558 840,541 745,389 Branch Division gross profit 106,394 86,886 157,146 130,495 Reassigned projects gross profit 3,015 -- 4,593 -- Granite West Division gross profit 109,409 86,886 161,739 130,495 Three Months Ended Six Months Ended Granite East June 30, June 30, (in thousands) 2007 2006 2007 2006 Heavy Construction Division revenue $248,613 $307,091 $449,914 $551,931 Reassigned projects revenue (30,585) (14,261) (47,237) (22,994) Granite East Division revenue 218,028 292,830 402,677 528,937 Heavy Construction Division gross profit (loss) 17,426 (11,242) 10,995 (14,200) Reassigned projects gross profit (3,015) -- (4,593) -- Granite East Division gross profit (loss) 14,411 (11,242) 6,402 (14,200)

The backlog related to the three projects reassigned was $199.1 million, $195.5 and $264.9 million at June 30, 2007, March 31, 2007 and June 30, 2006, respectively.

Financial Results

The financial information in this announcement reflects the Company's preliminary results subject to completion of the quarterly review. The final quarterly financial results will appear in Granite's Form 10-Q, which will be filed on or before August 9, 2007.

Conference Call

Granite will conduct a conference call tomorrow, July 26, 2007, at 11:00 a.m. ET/ 8:00 a.m. PT to discuss the results for the quarter. Access to a live audio webcast and presentation slides is available at http://www.graniteconstruction.com/investor-relations. The live conference call may be accessed by calling (877) 864-2735 in the U.S. and Canada and (706) 634- 7039 for international listeners. The conference ID for the call is 6841772. The conference call will be recorded and available for replay from approximately two hours after the live call through August 9, 2007 by calling (800) 642-1687 or (706) 645-9291. The conference ID for the recording is 6841772.

About Granite

Granite Construction Incorporated is a member of the S&P 400 Midcap Index, the Domini 400 Social Index and the Russell 2000. Granite Construction Company, a wholly owned subsidiary, is one of the nation's largest diversified heavy civil contractors and construction materials producers. Granite Construction Company serves public and private sector clients through its offices and subsidiaries nationwide. For the 4th straight year, Granite was named to FORTUNE'S List of 100 Best Companies to Work For. For more information about Granite, please visit their website at http://www.graniteconstruction.com/.

Forward-Looking Statements

This press release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represents our management's beliefs and assumptions concerning future events such as statements related to the existence of bidding opportunities and economic conditions on the Company's future results. Additionally, forward-looking statements include statements that can be identified by the use of forward- looking terminology such as "believes," "expects," "appears," "may," "will," "should," "look for," or "anticipates," or the negative thereof or comparable terminology, or by discussions of strategy.

All such forward-looking statements are subject to risks and uncertainties that could cause actual results of operations and financial condition and other events, as well as the timing thereof, to differ materially from those expressed or implied in such forward-looking statements. Specific risk factors include, without limitation, changes in the composition of applicable federal and state legislation appropriation committees; federal and state appropriation changes for infrastructure spending; the general state of the economy; job productivity; accuracy of project estimates; weather conditions; competition and pricing pressures; and state referendums and initiatives. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this news release. You should also understand that many important factors in addition to those discussed, referred to or incorporated by reference in this press release, could cause our results to differ materially from those expressed in the forward-looking statements. In light of these risks and uncertainties, it is important to be aware that the forward-looking events discussed in this release may not occur. We undertake no obligation to revise or update publicly any forward-looking statements to conform the statement to actual results or changes in the Company's expectations.

For further information regarding risks and uncertainties associated with Granite's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Risk Factors" sections of Granite's SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Granite's investor relations department at (831) 724-1011 or at Granite's website at http://www.graniteconstruction.com/.

GRANITE CONSTRUCTION INCORPORATED COMPARATIVE FINANCIAL SUMMARY (Unaudited - In Thousands, Except Per Share Data) Three Months Ended June 30, Variance 2007 2006 Amount Percent Revenue Construction $660,384 $669,837 $(9,453) (1.4) Material sales $100,091 $108,551 $(8,460) (7.8) Real estate $10,401 $33,649 $(23,248) (69.1) Total revenue $770,876 $812,037 $(41,161) (5.1) Cost of revenue Construction $557,926 $621,843 $63,917 10.3 Material sales $78,878 $80,674 $1,796 2.2 Real estate $6,438 $16,410 $9,972 60.8 Total cost of revenue $643,242 $718,927 $75,685 10.5 Gross profit $127,634 $93,110 $34,524 37.1 Gross profit as a percent of revenue 16.6% 11.5% 5.1% -- General and administrative expenses $65,130 $48,935 $(16,195) (33.1) G&A expenses as a percent of revenue 8.4% 6.0% (2.4%) -- Gain on sales of property and equipment $4,346 $4,049 $297 7.3 Other income (expense) Interest income $6,439 $4,944 $1,495 30.2 Interest expense $(2,028) $(1,391) ($637) (45.8) Equity in (loss) income of affiliates $(29) $828 $(857) **** Other, net $(433) $3,314 $(3,747) **** Total other income $3,949 $7,695 $(3,746) (48.7) Income before provision for income taxes and minority interest $70,799 $55,919 $14,880 26.6 Minority interest $(4,799) $(5,585) $786 14.1 Net income $43,846 $33,289 $10,557 31.7 Net income per share: Basic $1.07 $0.81 $0.26 32.1 Diluted $1.05 $0.80 $0.25 31.3 Weighted average shares of common stock: Basic 41,096 40,896 200 0.5 Diluted 41,631 41,466 165 0.4 Six Months Ended June 30, Variance 2007 2006 Amount Percent Revenue Construction $1,077,016 $1,104,145 $(27,129) (2.5) Material sales $166,202 $170,181 $(3,979) (2.3) Real estate $15,318 $33,679 $(18,361) (54.5) Total revenue $1,258,536 $1,308,005 $(49,469) (3.8) Cost of revenue Construction $942,080 $1,025,378 $83,298 8.1 Material sales $132,986 $132,447 $(539) (0.4) Real estate $7,800 $16,835 $9,035 53.7 Total cost of revenue $1,082,866 $1,174,660 $91,794 7.8 Gross profit $175,670 $133,345 $42,325 31.7 Gross profit as a percent of revenue 14.0% 10.2% 3.8% -- General and administrative expenses $119,467 $97,191 $(22,276) (22.9) G&A expenses as a percent of revenue 9.5% 7.4% (2.1%) -- Gain on sales of property and equipment $5,059 $8,287 $(3,228) (39.0) Other income (expense) Interest income $13,282 $9,677 $3,605 37.3 Interest expense $(3,114) $(2,786) $(328) (11.8) Equity in (loss) income of affiliates $322 $751 $(429) (57.1) Other, net $(666) $2,708 $(3,374) **** Total other income $9,824 $10,350 $(526) (5.1) Income before provision for income taxes and minority interest $71,086 $54,791 $16,295 29.7 Minority interest $(7,246) $(6,652) $(594) (8.9) Net income $41,597 $31,867 $9,730 30.5 Net income per share: Basic $1.01 $0.78 $0.23 29.5 Diluted $1.00 $0.77 $0.23 29.9 Weighted average shares of common stock: Basic 41,044 40,818 226 0.6 Diluted 41,560 41,378 182 0.4 **** Represents percentages greater than 100% GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - In thousands, except share and per share data) June 30, December 31, 2007 2006 Assets Current assets Cash and cash equivalents $246,278 $204,893 Short-term marketable securities 98,199 141,037 Accounts receivable, net 489,435 492,229 Costs and estimated earnings in excess of billings 39,710 15,797 Inventories 53,320 41,529 Real estate held for sale 54,722 55,888 Deferred income taxes 36,015 36,776 Equity in construction joint ventures 32,400 31,912 Other current assets 57,811 63,144 Total current assets 1,107,890 1,083,205 Property and equipment, net 490,328 429,966 Long-term marketable securities 61,582 48,948 Investment in affiliates 24,816 21,471 Other assets 72,490 49,248 Total assets $1,757,106 $1,632,838 Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt $35,040 $28,660 Accounts payable 268,054 257,612 Billings in excess of costs and estimated earnings 242,469 287,843 Accrued expenses and other current liabilities 223,311 189,328 Total current liabilities 768,874 763,443 Long-term debt 139,715 78,576 Other long-term liabilities 67,378 58,419 Deferred income taxes 19,478 22,324 Minority interest in consolidated subsidiaries 30,675 15,532 Shareholders' equity Preferred stock, $0.01 par value, authorized 3,000,000 shares; none outstanding -- -- Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 41,947,610 shares in 2007 and 41,833,559 shares in 2006 419 418 Additional paid-in capital 81,293 78,620 Retained earnings 645,448 612,875 Accumulated other comprehensive income 3,826 2,631 Total shareholders' equity 730,986 694,544 Total liabilities and shareholders' equity $1,757,106 $1,632,838 June 30, December 31, Financial Position 2007 2006 Working capital $339,016 $319,762 Current ratio 1.44 1.42 Debt to total capitalization 0.19 0.13 Total liabilities to equity ratio 1.40 1.35 GRANITE CONSTRUCTION INCORPORATED REVENUE AND BACKLOG ANALYSIS (Unaudited - Dollars In Thousands) BY MARKET SECTOR Revenue Three Months Ended June 30, Variance 2007 2006 Amount Percent Public Sector $545,784 $554,059 $(8,275) (1.5) Private Sector 114,600 115,778 (1,178) (1.0) Aggregate sales 100,091 108,551 (8,460) (7.8) Real Estate 10,401 33,649 (23,248) (69.1) $770,876 $812,037 $(41,161) (5.1) Backlog June 30, Variance 2007 2006 Amount Percent Public Sector $2,315,479 $2,175,021 $140,458 6.5 Private Sector 187,622 317,845 (130,223) (41.0) $2,503,101 $2,492,866 $10,235 0.4 BY GEOGRAPHIC AREA Revenue Three Months Ended June 30, Variance 2007 2006 Amount Percent California $321,054 $333,215 $(12,161) (3.6) West (Excl. CA) 246,296 246,901 (605) (0.2) Midwest 26,594 19,162 7,432 38.8 Northeast 57,270 75,575 (18,305) (24.2) Southeast 79,688 70,985 8,703 12.3 South 39,974 66,199 (26,225) (39.6) $770,876 $812,037 $(41,161) (5.1) Backlog June 30, Variance 2007 2006 Amount Percent California $436,591 $655,071 $(218,480) (33.4) West (Excl. CA) 581,023 723,387 (142,364) (19.7) Midwest 380,190 17,134 363,056 **** Northeast 173,562 312,105 (138,543) (44.4) Southeast 743,054 463,437 279,617 60.3 South 188,681 321,732 (133,051) (41.4) $2,503,101 $2,492,866 $10,235 0.4 **** Represents percentages greater than 100%