Granite Construction Incorporated Reports Fourth Quarter and Full Year 2006 Results

WATSONVILLE, Calif., Feb. 14 /PRNewswire-FirstCall/ -- GraniteConstruction Incorporated (NYSE: GVA) today announced financial results forthe fourth quarter and full year ended December 31, 2006. Revenue for thequarter totaled $715.2 million compared with $679.6 million for the fourthquarter ended December 31, 2005. Revenue for the year totaled $2.96 billioncompared with $2.64 billion in 2005.

The Company reported net income for the quarter of $0.6 million, or $0.02per diluted share, including $18.0 million for a write down of goodwillrelated to the Heavy Construction Division’s Granite Northeast operation. Ona pro forma non-GAAP basis, excluding this goodwill charge and the related taxbenefits, net income for the fourth quarter 2006 was $11.6 million, or $0.28per diluted share, compared with $35.8 million, or $0.86 per diluted share forthe same period last year. Pro forma non-GAAP net income for fiscal year 2006was $89.2 million, or $2.15 per diluted share, compared with $83.2 million, or$2.02 per diluted share in the prior year.

The following table reconciles GAAP net income to net income on a proforma non-GAAP basis (in thousands):

                               Three months ended          Years ended                                  December 31,             December 31,                                2006        2005         2006        2005    GAAP net income              $628     $35,812      $78,220     $83,150    Goodwill impairment     charge                    18,011          --       18,011          --    Tax benefit of goodwill     impairment charge         (7,006)         --       (7,006)         --    Non-GAAP net income       $11,633     $35,812      $89,225     $83,150    Non-GAAP diluted     earnings per share          0.28        0.86         2.15        2.02

"I am very pleased to report that 2006 was another record-breaking yearfor the Branch Division," said William G. Dorey, President and Chief ExecutiveOfficer. "I am extremely proud of what our team was able to accomplish thisyear in both our construction and aggregate materials businesses. Thanks tomild weather in the West, we were able to work late into the season and have astrong finish to the year. More importantly, we are successfully capitalizingon what we consider to be one of the best construction markets in ourhistory."

"Unfortunately, our fourth quarter and full-year 2006 financial resultsfor HCD were considerably below our expectations. As outlined in ouroperational realignment announcement made today, we are implementing keystrategic changes in our operating structure that will allow us to moreeffectively and profitably manage our large, complex projects. We arecommitted to doubling our efforts in all aspects of this business so that wecan successfully capture the profit potential on this work."

He added, "As our financial results reflect, we are writing down the $18.0million of goodwill from the 2001 acquisition of Halmar Builders of New York,Inc. While our performance to date does not support our original investment,we remain confident in our new management team and believe that the New Yorkmarket will continue to present profitable opportunities for us goingforward."

Operating Results -- Quarter and Year-To-Date

Total gross profit as a percent of revenue for the fourth quarter 2006decreased to 7.2% compared with 15.6% for the same period last year.

Other income for the quarter ended December 31, 2006 was positivelyimpacted primarily by interest income which increased $2.6 million to $7.4million as a result of higher average yield on a higher level of interest-bearing investments.

Total gross profit as a percent of revenue for the year ended December 31,2006 decreased to 9.8% compared with 12.1% last year. Operating income forthe year decreased to $83.3 million compared with $134.9 million for the sameperiod in 2005. Total company backlog at December 31, 2006 was essentiallyflat at $2.3 billion.

Results by Segment

Branch Division revenue for the quarter totaled $472.3 million, anincrease of $70.4 million or 18% over the same period in 2005. Backlog forthe Branch Division increased to $807.6 million compared with $728.3 millionfor the fourth quarter 2005. Gross profit as a percent of revenue increasedfor the fourth quarter 2006 to 21.6% compared with 19.1% for the fourthquarter 2005 due to record levels of profitability on our construction workand the sales of our construction materials. Branch Division operating incomeincreased $27.5 million for the quarter to a record $79.4 million comparedwith $51.8 million for the fourth quarter last year. The increase includesapproximately $4.8 million for the partial reversal of a previously recordedlegal provision related to settlement of a civil lawsuit in Nevada.

For the year ended December 31, 2006, Branch Division revenue totaled $1.8billion compared with $1.6 billion for the same period last year. Grossprofit as a percent of revenue for the year ended December 31, 2006 increasedto 19.7% compared with 16.0% last year. Operating income for the divisionincreased to a record $264.5 million for the same period compared with $153.7million in 2005.

HCD revenue for the quarter totaled $242.6 million versus $260.7 millionfor the same period last year. HCD backlog decreased to $1.4 billion comparedwith $1.6 billion as of year end 2005. Gross margin as a percent of revenuewas a loss of 21.0% compared with a profit of 6.8% in the prior period. Thisdecrease reflects a net reduction in gross profit of approximately $70.0million resulting from changes in estimates of project profitability comparedwith a net increase of $1.5 million from such changes in the fourth quarterlast year. Largely as a product of these estimate changes in the fourthquarter 2006, operating loss for HCD totaled $76.5 million compared withoperating income of $4.3 million for the same period in 2005.

The two largest downward forecast adjustments affecting the fourth quarterwere on the State Route 22 Design-Build project in Southern California and theUS-20 Design-Build project in Oregon. The Company believes it has strongcontractual support for additional revenue on both projects and is hopefulthat it will recover these costs through negotiations with the owners.However, there is no guarantee of recovery and no additional revenuerecognition is reflected in our financial results.

For the year ended December 31, 2006, HCD revenue totaled $1.1 billioncompared with $1.0 billion for the same period last year. Gross margin as apercent of revenue for the year ended December 31, 2006 was a loss of 8.5%compared with a profit of 4.9% last year. Operating loss for HCD totaled$142.6 million in 2006 compared with operating income of $12.5 million in2005.

Business Outlook

The outlook for the Branch Division in 2007 is extremely positive. Drivenby healthy funding levels and strong local economies, the branches continue toexperience one of the best public sector construction markets they havewitnessed in many years. Pricing for construction materials is expected to behealthy in 2007 as demand for aggregates from both the public and privatesector remains strong.

The Company is currently forecasting HCD to break even in 2007 followed bya return to acceptable operating margins as the existing backlog is worked offand the benefits of the organizational realignment are realized.

Financial Results

The financial information in this announcement reflects the Company’spreliminary results subject to completion of the annual audit. Auditedfinancial results will appear in Granite’s Form 10-K, which will be filed onor before March 1, 2007.

Use of Non-GAAP Financials

In addition, to supplement the GAAP financial information, we haveprovided non-GAAP net income and earnings per share information that excludethe $18.0 million ($11.0 million net of tax) non-cash write down of goodwill.The goodwill impairment was primarily due to our recent reevaluation of ourstrategy in New York, which was largely driven by continuing losses. We areproviding this information because we believe doing so provides a moremeaningful and consistent comparison of our ongoing operating results comparedwith historical results. A table reconciling the GAAP financial information tonon-GAAP information is included in today’s release.

Conference Call

Granite will conduct a conference call today at 2:30 p.m. PT/ 5:30 p.m. ETto discuss its financial results and organizational realignment. Theconference call will be webcast live and can be accessed athttp://www.graniteconstruction.com/investor-relations. The live conferencecall may also be accessed by calling (877) 864-2735 in the U.S. and Canada and(706) 634-7039 for international listeners. A replay will be availableapproximately two hours after the live call through Friday, March 2nd bycalling (800) 642-1687 or (706) 645-9291. The conference ID for both the livecall and the replay is 6555946.

Company Description

Granite, a member of the S&P 400 Midcap Index, the Domini 400 Social Indexand the Russell 2000, is one of the nation’s largest diversified heavy civilcontractors and construction materials producers. Granite Construction servespublic and private sector clients through its offices nationwide. For the 4thstraight year, Granite was named to FORTUNE’S List of 100 Best Companies toWork For. For more information about the company, please visit their websiteat www.graniteconstruction.com.

This press release contains forward-looking statements, within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934, as amended, which represents ourmanagement’s beliefs and assumptions concerning future events such asstatements related to the existence of bidding opportunities and economicconditions on the Company’s future results. Additionally, forward-lookingstatements 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 comparableterminology, or by discussions of strategy. All such forward-lookingstatements are subject to risks and uncertainties that could cause actualresults of operations and financial condition and other events, as well as thetiming thereof, to differ materially from those expressed or implied in suchforward-looking statements. Specific risk factors include, without limitation,changes in the composition of applicable federal and state legislationappropriation committees; federal and state appropriation changes forinfrastructure spending; the general state of the economy; job productivity;accuracy of project estimates; weather conditions; competition and pricingpressures; and state referendums and initiatives. You should not place unduereliance on these forward-looking statements, which speak only as of the dateof this news release. You should also understand that many important factorsin addition to those discussed, referred to or incorporated by reference inthis press release, could cause our results to differ materially from thoseexpressed in the forward-looking statements. In light of these risks anduncertainties, it is important to be aware that the forward-looking eventsdiscussed in this release may not occur. We undertake no obligation to reviseor update publicly any forward-looking statements to conform the statement toactual results or changes in the Company’s expectations.

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

                       GRANITE CONSTRUCTION INCORPORATED                        COMPARATIVE FINANCIAL SUMMARY              (Unaudited - In Thousands, Except Per Share Data)                             Three Months Ended                                December 31,                  Variance    Operations                2006         2005       Amount      Percent    Revenue      Construction        $608,624     $583,831      $24,793          4.2      Material sales      $106,603      $95,721      $10,882         11.4        Total revenue     $715,227     $679,552      $35,675          5.2    Cost of revenue      Construction        $581,661     $501,690     $(79,971)       (15.9)      Material sales       $82,423      $71,838     $(10,585)       (14.7)        Total cost of         revenue          $664,084     $573,528     $(90,556)       (15.8)      Gross profit         $51,143     $106,024     $(54,881)       (51.8)        Gross profit as a         percent of         revenue              7.2%        15.6%        (8.4%)          --    General and     administrative     expenses              $48,530      $53,767       $5,237          9.7      G&A expenses as a       percent of       revenue                6.8%         7.9%         1.1%           --    Provision for legal     judgment              $(4,800)          --       $4,800           --    Impairment of     goodwill              $18,011           --     $(18,011)          --    Gain on sales of     property and     equipment                $891       $3,579      $(2,688)       (75.1)    Other income (expense)      Interest income       $7,380       $4,753       $2,627         55.3      Interest expense       $(387)     $(1,531)      $1,144         74.7      Equity in income       of affiliates          $636       $1,489        $(853)       (57.3)      Other, net             $(96)       $1,806      $(1,902)        ****        Total other         income             $7,533       $6,517       $1,016         15.6    Income (loss) before     provision for     (benefit from)     income taxes and     minority interest     $(2,174)     $62,353     $(64,527)        ****    Minority interest         $951      $(8,447)      $9,398         ****    Net income                $628      $35,812     $(35,184)       (98.2)    Net income per share:      Basic                  $0.02        $0.88       $(0.86)       (97.7)      Diluted                $0.02        $0.86       $(0.84)       (97.7)    Weighted average     shares of common     stock:      Basic                 40,935       40,676          259          0.6      Diluted               41,581       41,417          164          0.4                              Year Ended                              December 31,                 Variance    Operations             2006          2005         Amount      Percent    Revenue      Construction      $2,554,745   $2,307,062     $247,683         10.7      Material sales      $410,159     $334,290      $75,869         22.7        Total revenue   $2,964,904   $2,641,352     $323,552         12.2    Cost of revenue      Construction      $2,361,155   $2,060,680    $(300,475)       (14.6)      Material sales      $313,329     $261,300     $(52,029)       (19.9)        Total cost of         revenue        $2,674,484   $2,321,980    $(352,504)       (15.2)    Gross profit          $290,420     $319,372     $(28,952)        (9.1)      Gross profit as       a percent of       revenue                9.8%        12.1%        (2.3%)          --    General and     administrative     expenses             $204,281     $183,392     $(20,889)       (11.4)      G&A expenses       as a percent       of revenue             6.9%         6.9%           --           --    Provision for     legal judgment        $(4,800)      $9,300      $14,100         ****    Impairment of     goodwill              $18,011           --     $(18,011)          --    Gain on sales of     property and     equipment             $10,408       $8,235       $2,173         26.4    Other income     (expense)      Interest income      $24,112      $11,573      $12,539         ****      Interest expense     $(4,492)     $(6,932)      $2,440         35.2      Equity in income       of affiliates        $2,157       $1,497         $660         44.1      Other, net            $2,604       $1,258       $1,346         ****        Total other         income            $24,381       $7,396      $16,985         ****    Income (loss)     before provision     for (benefit from)     income taxes and     minority interest    $107,717     $142,311     $(34,594)       (24.3)    Minority interest       $7,720     $(17,748)     $25,468         ****    Net income             $78,220      $83,150      $(4,930)        (5.9)    Net income per share:      Basic                  $1.91        $2.05       $(0.14)        (6.8)      Diluted                $1.89        $2.02       $(0.13)        (6.4)    Weighted average     shares of common     stock:      Basic                 40,874       40,614          260          0.6      Diluted               41,471       41,249          222          0.5    **** Represents percentages greater than 100%                      GRANITE CONSTRUCTION INCORPORATED                    CONDENSED CONSOLIDATED BALANCE SHEETS         (Unaudited - In thousands, except share and per share data)                                                 December 31,     December 31,                                                    2006              2005                                      Assets    Current assets       Cash and cash equivalents                  $204,893          $199,881       Short-term marketable securities            141,037            68,540       Accounts receivable, net                    492,229           476,453       Costs and estimated earnings in        excess of billings                          15,797            43,660       Inventories                                  41,529            33,161       Real estate held for sale                    55,888            46,889       Deferred income taxes                        38,237            22,996       Equity in construction joint        ventures                                    31,912            27,408       Other current assets                         63,144            57,960           Total current assets                  1,084,666           976,948    Property and equipment, net                    429,966           397,111    Long-term marketable securities                 48,948            32,960    Investment in affiliates                        21,471            15,855    Other assets                                    50,798            49,356                 Total assets                   $1,635,849        $1,472,230    Liabilities and Shareholders’ Equity    Current liabilities       Current maturities of long-term        debt                                       $28,660           $26,888       Accounts payable                            257,612           232,807       Billings in excess of costs and        estimated earnings                         292,543           208,883       Accrued expenses and other current        liabilities                                189,928           140,569           Total current liabilities               768,743           609,147    Long-term debt                                  78,576           124,415    Other long-term liabilities                     58,419            46,556    Deferred income taxes                           22,324            37,325    Minority interest in consolidated     subsidiaries                                   15,532            33,227    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 in 2006 and 100,000,000        shares in 2005;          issued and outstanding           41,833,559 shares in          2006 and 41,682,010 shares in           2005                                        418               417       Additional paid-in capital                   78,620            80,619       Retained earnings                           610,586           549,101       Accumulated other comprehensive        income                                       2,631             1,602       Unearned compensation                            --           (10,179)           Total shareholders’ equity              692,255           621,560                 Total liabilities and                  shareholders’ equity          $1,635,849        $1,472,230                                                 December 31,     December 31,    Financial Position                              2006               2005       Working capital                            $315,923          $367,801       Current ratio                                  1.41              1.60       Debt to total capitalization                   0.13              0.20       Total liabilities to equity ratio              1.36              1.37                      GRANITE CONSTRUCTION INCORPORATED                         REVENUE AND BACKLOG ANALYSIS                      (Unaudited - Dollars In Thousands)                                 BY MARKET SECTOR                                                   Revenue                                Year Ended December 31,          Variance                                 2006            2005         Amount  Percent      Public Sector           $2,021,301      $1,808,026     $213,275  11.8      Private Sector             533,444         499,036       34,408   6.9      Aggregate sales            410,159         334,290       75,869  22.7                              $2,964,904      $2,641,352     $323,552  12.2                                                    Backlog                                     December 31,                 Variance                                 2006            2005          Amount  Percent      Public Sector           $2,066,950      $2,083,824      $(16,874)  (0.8)      Private Sector             189,037         247,716       (58,679) (23.7)                              $2,255,987      $2,331,540      $(75,553)  (3.2)                                BY GEOGRAPHIC AREA                                                   Revenue                                      Year Ended December 31,     Variance                                         2006        2005      Amount  Percent      California                      $1,294,323  $1,028,041  $266,282   25.9      West (Excl. CA)                    866,092     788,682    77,410    9.8      Midwest                             58,726      92,931   (34,205) (36.8)      Northeast                          281,552     324,477   (42,925) (13.2)      Southeast                          244,233     176,088    68,145   38.7      South                              219,978     231,133   (11,155)  (4.8)                                      $2,964,904  $2,641,352  $323,552   12.2                                                     Backlog                                           December 31,          Variance                                         2006        2005      Amount  Percent       California                       $559,169    $598,914  $(39,745)  (6.6)       West (Excl. CA)                   516,614     585,269   (68,655) (11.7)       Midwest                           443,909      76,464   367,445   ****       Northeast                         248,605     491,944  (243,339) (49.5)       Southeast                         272,881     224,549    48,332   21.5       South                             214,809     354,400  (139,591) (39.4)                                      $2,255,987  $2,331,540  $(75,553)  (3.2)     **** Represents percentages greater than 100%

SOURCE Granite Construction Incorporated