Three Months Ended March 31,
(in thousands)		2008			2007
Weighted average shares outstanding:
Weighted average common stock outstanding		38,913			41,841
Less: weighted average non-vested restricted stock outstanding		774			849
Total basic weighted average shares outstanding		38,139			40,992
Diluted weighted average shares outstanding:
Basic weighted average shares outstanding		38,139			40,992
Effect of dilutive securities:
Common stock options and units		33			-
Restricted stock		341			-
Total weighted average shares outstanding assuming dilution		38,513			40,992

Restricted stock representing approximately 225,000 shares and 497,000 shares for the quarters ended March 31, 2008 and 2007 have been excluded from the calculation of diluted shares because their impact would be anti-dilutive. Dilutive securities comprise restricted stock, common stock options and common stock units.

 

11.	Comprehensive Income (Loss):

 

The components of comprehensive income (loss) are as follows:

		Three Months Ended March 31,
(in thousands)		2008			2007
Net income (loss)		$	13,123		$	(2,249	)
Other comprehensive income (loss):
Changes in unrealized (loss) gain on investments			(2,942	)		573
Tax benefit (provision) on unrealized (loss) gain			1,151			(223	)
Total comprehensive income (loss)		$	11,332		$	(1,899	)

 

12.	Legal Proceedings:

 

Silica Litigation

 

Our wholly owned subsidiary Granite Construction Company (“GCCO”) is one of approximately 100 to 300 defendants in eight active California Superior Court lawsuits. Of the eight lawsuits, five were filed against GCCO in 2005 and three were filed against GCCO in 2006, in Alameda County ( Molina vs. A-1 Aggregates, et al.; Dominguez vs. A-1 Aggregates, et al.; Cleveland vs. A. Teichert & Son.; Guido vs. A. Teichert & Son, Inc.; Williams vs. A. Teichert & Son, Inc.; Horne vs. Teichert & Son, Inc.; Kammer vs.A-1 Aggregates, et al.; and Solis vs. The 3M Company et al.). Each lawsuit was brought by a single plaintiff who is seeking money damages by way of various causes of action, including strict product and market share liability, and alleges personal injuries caused by exposure to silica products and related materials during the plaintiffs’ use or association with sand blasting or grinding concrete. The plaintiff in each lawsuit has categorized the defendants as equipment defendants, respirator defendants, premises defendants and sand defendants. We have been identified as a sand defendant, meaning a party that manufactured, supplied or distributed silica-containing products. Our preliminary investigation revealed that we have not knowingly sold or distributed abrasive silica sand for sandblasting, and therefore, we believe the probability of these lawsuits resulting in an incurrence of a material liability is remote. We have been dismissed from sixteen other similar lawsuits.

Forward-Looking Disclosure

 

From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors that are not based on historical facts and which may be forward-looking in nature. Under the Private Securities Litigation Reform Act of 1995, a “safe harbor” may be provided to us for certain of these forward-looking statements. Words such as “outlook,” “believes,” “expects,” “appears,” “may,” “will,” “should,” “anticipates” or the negative thereof or comparable terminology, are intended to identify such forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and are based on our current expectations and projections concerning future events, many of which are outside of our control, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.” Granite undertakes no obligation to publicly revise or update any forward-looking statements for any reason. As a result, the reader is cautioned not to rely on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

 

Overview

 

We are one of the largest heavy civil contractors in the United States and are engaged in the construction and improvement of streets, roads, highways and bridges, as well as, dams, airport infrastructure, mass transit facilities and other infrastructure-related projects. We have offices in Alaska, Arizona, California, Florida, Nevada, New York, Oregon, Texas, Utah and Washington. Historically, our primary operations were organized into two operating segments, the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division was comprised of branch offices that served local markets, while HCD was composed of regional offices and pursued major infrastructure projects throughout the nation. During 2007, we completed an organizational realignment of our business operations. This realignment involved the reorganization of our operating divisions geographically into “Granite West” and “Granite East.” As a result of the realignment, we are reporting Granite West and Granite East as new reportable segments. Prior period results have been reclassified to conform to the new organizational structure.

 

Granite West has both public and private sector clients. Although most Granite West projects are started and completed within a year, the division also has the capability of constructing larger projects and currently has five such active projects, each with total contract revenue greater than $50.0 million. All of our revenue from the sale of construction materials is generated by Granite West which mines aggregates and operates plants that process aggregates into construction materials for internal use and for sale to others. These activities are vertically integrated into the Granite West business, providing both 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. Granite East construction contracts are typically greater than two years in duration with an average contract size of greater than $100.0 million. Additionally, we purchase, develop, operate, sell and otherwise invest in real estate through our Granite Land Company subsidiary (“GLC”) which also provides real estate services for other Granite operations. See Note 13 of the “Notes to the Condensed Consolidated Financial Statements” for additional information about our business segments.

Total Revenue		Three Months Ended March 31,
(in thousands)		2008						2007
Revenue by Division:
Granite West		$	240,002			52.8	%	$	298,094			61.1	%
Granite East			214,125			47.1			184,649			37.9
Granite Land			673			0.1			4,917			1.0
Total		$	454,800			100.0	%	$	487,660			100.0	%

Granite West Revenue		Three Months Ended March 31,
(in thousands)		2008						2007
California:
Public sector		$	72,670			52.6	%	$	93,661			51.9	%
Private sector			29,964			21.7			41,757			23.1
Material sales			35,439			25.7			45,141			25.0
Total		$	138,073			100.0	%	$	180,559			100.0	%
West (excluding California):
Public sector		$	71,170			69.8	%	$	64,101			54.5	%
Private sector			14,644			14.4			32,464			27.6
Material sales			16,115			15.8			20,970			17.9
Total		$	101,929			100.0	%	$	117,535			100.0	%
Total Granite West Revenue:
Public sector		$	143,840			59.9	%	$	157,762			52.9	%
Private sector			44,608			18.6			74,221			24.9
Material sales			51,554			21.5			66,111			22.2
Total		$	240,002			100.0	%	$	298,094			100.0	%

 

Granite West Revenue: Revenue from Granite West decreased in the quarter ended March 31, 2008 by $58.1 million, or 19.5%, compared with the first quarter of 2007. The decrease was partially attributable to the existing difficult residential housing and credit markets which had a direct impact on private sector revenue and the external sales of construction materials. Additionally, there was an indirect impact on public sector revenue, as competitors migrated from the increasingly scarce private sector work. Revenue in the 2008 quarter was also impacted by weather – with significant seasonal rainfall early in the quarter in many of our locations. In the 2007 quarter, many of our locations experienced unusually mild and dry weather. Granite West revenue includes approximately $30.1 million and $30.8 million in revenue from projects with a contract value greater than $50.0 million in the three months ended March 31, 2008 and 2007, respectively.

Granite East Revenue		Three Months Ended March 31,
(in thousands)		2008						2007
Revenue by Geographic Area:
Midwest		$	40,357			18.8	%	$	16,159			8.7	%
Northeast			36,419			17.0			40,982			22.2
South			29,585			13.8			35,817			19.4
Southeast			71,009			33.2			78,669			42.6
West			36,755			17.2			13,022			7.1
Total		$	214,125			100.0	%	$	184,649			100.0	%
Revenue by Contract Type:
Fixed unit price		$	18,902			8.8	%	$	33,367			18.1	%
Fixed price, including design/build			195,223			91.2			151,282			81.9
Total		$	214,125			100.0	%	$	184,649			100.0	%

Granite East Revenue: Revenue from Granite East increased in the quarter ended March 31, 2008 by $29.5 million, or 16.0%, compared with the 2007 quarter.  The increase in the Midwest was attributable to revenue from a large design/build joint venture project which was added to backlog in 2007. The increase in the West was primarily due to the settlement of an outstanding revenue issue on a large design/build project in California which is now substantially complete.

 

Granite Land Company Revenue: Revenue from GLC for the three months ended March 31, 2008 decreased $4.2 million, or 86.3%, compared with the three months ended March 31, 2007. GLC’s revenue is primarily dependent on the timing of real estate sales transactions, which are relatively few in number and can cause variability in the timing of revenue and profit recognition.

Total Backlog
(in thousands)		March 31, 2008						December 31, 2007						March 31, 2007
Backlog by Division:
Granite West		$	868,530			44.7	%	$	854,142			41.0	%	$	955,771			38.3	%
Granite East			1,074,659			55.3			1,230,403			59.0			1,542,699			61.7
Total		$	1,943,189			100.0	%	$	2,084,545			100.0	%	$	2,498,470			100.0	%

 

Granite West Backlog
(in thousands)		March 31, 2008						December 31, 2007						March 31, 2007
California:
Public sector		$	380,358			87.6	%	$	352,398			83.9	%	$	377,289			81.9	%
Private sector			53,957			12.4			67,479			16.1			83,642			18.1
Total		$	434,315			100.0	%	$	419,877			100.0	%	$	460,931			100.0	%
West (excluding California):
Public sector		$	398,542			91.8	%	$	398,380			91.7	%	$	423,450			85.6	%
Private sector			35,673			8.2			35,885			8.3			71,390			14.4
Total		$	434,215			100.0	%	$	434,265			100.0	%	$	494,840			100.0	%
Total Granite West Backlog:
Public sector		$	778,900			89.7	%	$	750,778			87.9	%	$	800,739			83.8	%
Private sector			89,630			10.3			103,364			12.1			155,032			16.2
Total		$	868,530			100.0	%	$	854,142			100.0	%	$	955,771			100.0	%

 

Granite West Backlog: Granite West backlog of $868.5 million at March 31, 2008 was $14.4 million, or 1.7%, higher than at December 31, 2007 and $87.2 million, or 9.1%, lower than at March 31, 2007. The decrease from March 31, 2007 was primarily due to the slowing demand for residential construction, particularly in certain California and Nevada markets, as well as increased competition for the available public sector work as contractors migrate from the increasingly scarce private sector work. Granite West backlog includes approximately $236.5 million and $284.1 million from projects with a total contract value greater than $50.0 million at March 31, 2008 and 2007, respectively.

Granite East Backlog
(in thousands)		March 31, 2008						December 31, 2007						March 31, 2007
Backlog by Geographic Area:
Midwest		$	287,488			26.7	%	$	328,971			26.8	%	$	406,782			26.4	%
Northeast			104,896			9.8			133,052			10.8			195,879			12.7
South			126,593			11.8			144,210			11.7			180,426			11.6
Southeast			544,595			50.7			613,057			49.8			710,822			46.1
West			11,087			1.0			11,113			0.9			48,790			3.2
Total		$	1,074,659			100.0	%	$	1,230,403			100.0	%	$	1,542,699			100.0	%

 

Granite East Backlog: Granite East backlog of $1.1 billion at March 31, 2008 was $155.7 million, or 12.7% lower, than at December 31, 2007 and $468.0 million, or 30.3%, lower than at March 31, 2007. The decrease from December 31, 2007 reflects the progress on projects in the backlog and the lack of significant new awards during the 2008 quarter. Backlog at March 31, 2007 included the award in the 2007 quarter of a $463.9 million joint venture project in Maryland.