GRANITE CONSTRUCTION INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter ended June 30, 2002

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 1-12911

GRANITE CONSTRUCTION INCORPORATED

State of Incorporation: I.R.S. Employer Identification Number:

Delaware 77-0239383

Corporate Administration:

585 W. Beach Street
Watsonville, California 95076
(831) 724-1011

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 12, 2002.

Class
Common Stock, $0.01 par value Outstanding
41,515,022 shares

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS (unaudited)
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES
	Item 3. DEFAULTS UPON SENIOR SECURITIES
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Exhibit 99.1
Exhibit 99.2

GRANITE CONSTRUCTION INCORPORATED

Index


				Page

PART I.		FINANCIAL INFORMATION			3

	Item 1.		Financial Statements (unaudited)

			Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001		4

			Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2002 and 2001		5

			Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001		6

			Notes to the Condensed Consolidated Financial Statements		7-12

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		13-20

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk		21

PART II.		OTHER INFORMATION			22

	Item 1.		Legal Proceedings		23

	Item 2.		Changes in Securities		23

	Item 3.		Defaults Upon Senior Securities		23

	Item 4.		Submission of Matters to a Vote of Security Holders		23

	Item 5.		Other Information		23

	Item 6.		Exhibits and Reports on Form 8-K		23

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (unaudited)

Granite Construction Incorporated

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


			June 30,			December 31,
			2002			2001

			(Unaudited)




Assets
Current assets
	Cash and cash equivalents		$	91,151		$	125,174
	Short-term investments			47,631			68,059
	Accounts receivable, net			330,037			277,684
	Costs and estimated earnings in excess of billings			42,496			49,121
	Inventories			31,958			19,746
	Deferred income taxes			13,426			13,185
	Equity in construction joint ventures			23,310			23,073
	Other current assets			12,446			10,874

		Total current assets		592,455			586,916

Property and equipment				342,782			262,423

Investments in affiliates				20,188			50,094

Other assets				32,037			30,251

			$	987,462		$	929,684





Liabilities and Stockholders’ Equity
Current liabilities
	Current maturities of long-term debt		$	12,901		$	8,114
	Accounts payable			143,735			129,515
	Billings in excess of costs and estimated earnings			103,866			114,991
	Accrued expenses and other current liabilities			100,747			85,883

		Total current liabilities		361,249			338,503

Long-term debt				134,516			131,391

Other long-term liabilities				13,765			10,026

Deferred income taxes				35,429			31,262

Commitments and contingencies

Minority interest in consolidated subsidiary				15,401			—

Stockholders’ equity
	Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding			—			—
	Common stock, $0.01 par value, authorized 100,000,000 shares; issued and outstanding 41,299,605 shares in 2002 and 41,089,487 in 2001			413			411
	Additional paid-in capital			67,199			62,380
	Retained earnings			375,854			367,546
	Accumulated other comprehensive loss			(840	)		(440	)

				442,626			429,897
	Unearned compensation			(15,524	)		(11,395	)

				427,102			418,502

			$	987,462		$	929,684


The accompanying notes are an integral part of these condensed consolidated financial statements.

Granite Construction Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited — in thousands, except per share data)


				Three Months Ended June 30,						Six Months Ended June 30,

				2002			2001			2002			2001

Revenue:
	Construction			$	397,326		$	326,735		$	635,188		$	524,682
	Material sales				61,684			49,947			92,967			79,615

		Total revenue			459,010			376,682			728,155			604,297

Cost of revenue:
	Construction				344,466			289,058			559,701			467,692
	Material sales				50,685			41,213			77,683			67,938

		Total cost of revenue			395,151			330,271			637,384			535,630

			Gross Profit		63,859			46,411			90,771			68,667
General and administrative expenses					35,531			26,843			65,986			51,287

			Operating income		28,328			19,568			24,785			17,380

Other income (expense):
	Interest income				1,902			1,932			3,892			4,763
	Interest expense				(2,531	)		(2,341	)		(4,176	)		(3,903	)
	Gain on sales of property and equipment				415			633			631			4,924
	Other, net				(395	)		1,019			(41	)		175

					(609	)		1,243			306			5,959

			Income before provision for income taxes and minority interest		27,719			20,811			25,091			23,339
Provision for income taxes					10,394			7,908			9,409			8,869

			Income before minority interest		17,325			12,903			15,682			14,470
Minority interest in consolidated subsidiary					(767	)		—			(767	)		—

			Net income	$	16,558		$	12,903		$	14,915		$	14,470

Net income per share
	Basic			$	0.41		$	0.32		$	0.37		$	0.36
	Diluted			$	0.41		$	0.32		$	0.37		$	0.36
Weighted average shares of common stock
	Basic				40,006			39,833			39,964			39,760
	Diluted				40,818			40,766			40,726			40,611
Dividends per share				$	0.08		$	0.08		$	0.16		$	0.16


The accompanying notes are an integral part of these condensed consolidated financial statements.

Granite Construction Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited — in thousands)


						Six Months Ended June 30,

					2002			2001

Operating Activities
	Net income				$	14,915		$	14,470
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation, depletion and amortization			26,174			23,169
			Gain on sales of property and equipment			(631	)		(4,924	)
			Change in deferred income taxes			1,457			(24	)
			Amortization of unearned compensation			2,912			2,454
			Common Stock contributed to ESOP			1,989			—
			Change in minority interest			767			—
			Equity in (income) loss of affiliates			(1,953	)		678
	Changes in assets and liabilities, net of the effects of acquisitions:
			Accounts and notes receivable			(37,730	)		(48,197	)
			Inventories			(2,692	)		(7,225	)
			Equity in construction joint ventures			(237	)		(7,390	)
			Other assets			502			(210	)
			Accounts payable			1,809			10,705
			Billings in excess of costs and estimated earnings, net			(7,593	)		24,056
			Accrued expenses and other liabilities			11,747			2,903

				Net cash provided by operating activities		11,436			10,465

Investing Activities
	Purchases of short-term investments					(281,112	)		(44,828	)
	Maturities of short-term investments					300,899			54,235
	Additions to property and equipment					(35,072	)		(46,757	)
	Proceeds from sales of property and equipment					1,413			5,745
	Proceeds from sale of equity investment					13,051			—
	Investment in affiliates					(636	)		(9,952	)
	Acquisitions of businesses, net of cash received					(22,100	)		—
	Other investing activities					(12	)		(343	)

				Net cash used by investing activities		(23,569	)		(41,900	)

Financing Activities
	Additions of long-term debt					2,000			85,000
	Repayments of long-term debt					(13,383	)		(10,912	)
	Repurchase of common stock and other					(4,347	)		(2,118	)
	Dividends paid					(6,593	)		(6,012	)
	Sale of subsidiary common stock					433			—

				Net cash provided (used) by financing activities		(21,890	)		65,958

Increase (decrease) in cash and cash equivalents						(34,023	)		34,523
Cash and cash equivalents at beginning of period						125,174			57,759

Cash and cash equivalents at end of period					$	91,151		$	92,282

Supplementary Information
	Cash paid during the period for:
		Interest			$	4,347		$	1,943
		Income taxes				1,016			1,922
	Non-cash investing and financing activity:
		Restricted stock issued for services			$	7,041		$	7,074
		Dividends accrued but not paid				3,304			3,289
		Undisbursed escrow funds available				—			7,286
		Subsidiary preferred stock exchanged for subsidiary common stock				3,299			—


The accompanying notes are an integral part of these condensed consolidated financial statements.

Granite Construction Incorporated

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	Basis of Presentation:

	The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with the Company’s Annual Report on Form 10K for the year ended December 31, 2001. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the financial position at June 30, 2002 and the results of operations and cash flows for the periods presented. The December 31, 2001 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

	Interim results are subject to significant seasonal variations and the results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.

2.	Newly Effective and Recently Issued Accounting Pronouncements:

	In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 became effective on January 1, 2002 and requires that goodwill and intangible assets with indefinite lives no longer be amortized but rather reviewed at least annually for impairment. At June 30, 2002, the Company had goodwill of approximately $19.2 million, which substantially relates to its acquisition of Halmar Builders of New York, Inc. in July of 2001 and is primarily included in the Heavy Construction Division operating segment. The Company did not record any significant amortization of goodwill during the six months ended June 30, 2001. The Company has completed a goodwill impairment review as of the beginning of 2002 and found no impairment. During the first six months of 2002, no goodwill was acquired, impaired or written off.

	In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which is effective for fiscal years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires, among other things, that the retirement obligations be recognized when they are incurred and displayed as liabilities on the balance sheet. In addition, the asset’s retirement costs are to be capitalized as part of the asset’s carrying amount and subsequently allocated to expense over the asset’s useful life. The Company is in the process of assessing the impact, if any, of SFAS 143 to the financial position and results of operations of the Company.

	In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



commitment to an exit plan, which is generally before an actual liability has been incurred. SFAS 146 is required to be adopted by the Company on January 1, 2003. The Company does not believe the adoption will have a material effect on its financial position, results of operations, or cash flows.

  3. Inventories: Inventories consist primarily of quarry products valued at the lower of average cost or market.

  4. Property and Equipment:



In thousands June 30, 2002 December 31, 2001

Land $ 50,630 $ 38,107

Quarry property 65,836 44,177

Buildings and leasehold improvements 51,790 44,039

Equipment and vehicles 654,099 550,423

Office furniture and equipment 9,613 9,180

831,968 685,926

Less accumulated depreciation, depletion and amortization 489,186 423,503

$ 342,782 $ 262,423



  5. Earnings Per Share:



Three Months Ended Six Months Ended

June 30, June 30,

In thousands, except per share data 2002 2001 2002 2001

Numerator — basic and diluted earnings per share

Net income
$ 16,558 $ 12,903 $ 14,915 $ 14,470

Denominator — basic earnings per share

Weighted average common stock outstanding
41,289 41,106 41,221 40,974

Less weighted average restricted stock outstanding
1,283 1,273 1,257 1,214

Total
40,006 39,833 39,964 39,760

Basic earnings per share
$ 0.41 $ 0.32 $ 0.37 $ 0.36

Denominator — diluted earnings per share

Denominator — basic earnings per share
40,006 39,833 39,964 39,760

Effect of dilutive securities:

Common stock options
21 17 20 17

Warrants
202 213 199 201

Restricted stock
589 703 543 633

Total
40,818 40,766 40,726 40,611

Diluted earnings per share
$ 0.41 $ 0.32 $ 0.37 $ 0.36



  6. Comprehensive Income: The components of comprehensive income, net of tax, are as follows:



Three Months Ended Six Months Ended

June 30, June 30,

In thousands 2002 2001 2002 2001

Net income
$ 16,558 $ 12,903 $ 14,915 $ 14,470

Other comprehensive income (loss):

Changes in net unrealized losses on investments
(420 ) 46 (400 ) (112 )

Total comprehensive income
$ 16,138 $ 12,949 $ 14,515 $ 14,358

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



  7. Commitments and Contingencies:

Disclosure of Significant Estimates — Litigation: The Company is a party to a number of legal proceedings and believes that the nature and number of these proceedings are typical for a construction firm of its size and scope. The Company’s litigation typically involves claims regarding public liability or contract related issues. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

  8. Business Segment Information:

The Company has two reportable segments: the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division is comprised of branch offices that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in the Company’s construction joint ventures.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained herein and in the Company’s 2001 10-K. The Company evaluates performance based on operating profit or loss, which does not include income taxes, interest income, interest expense, other income (expense), or minority interest.

Information about Profit and Assets (in thousands):


Three Months Ended June 30,		HCD			Branch		Total

2002
	Revenues from external customers	$	157,136		$	301,874	$	459,010
	Inter-segment revenue transfer		(5,884	)		5,884		—

	Net revenue		151,252			307,758		459,010
	Depreciation and amortization		2,453			7,965		10,418
	Operating profit		10,635			28,568		39,203

2001
	Revenues from external customers	$	103,091		$	273,591	$	376,682
	Inter-segment revenue transfer		(2,585	)		2,585		—

	Net revenue		100,506			276,176		376,682
	Depreciation and amortization		2,182			8,079		10,261
	Operating profit		1,952			26,334		28,286

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Six Months Ended June 30,		HCD			Branch		Total

2002
	Revenues from external customers	$	280,524		$	447,631	$	728,155
	Inter-segment revenue transfer		(11,157	)		11,157		—

	Net revenue		269,367			458,788		728,155
	Depreciation and amortization		5,261			16,110		21,371
	Operating profit		9,765			34,636		44,401
	Property and equipment		41,519			267,294		308,813

2001
	Revenues from external customers	$	180,801		$	423,496	$	604,297
	Inter-segment revenue transfer		(4,317	)		4,317		—

	Net revenue		176,484			427,813		604,297
	Depreciation and amortization		4,347			16,013		20,360
	Operating profit		1,853			32,213		34,066
	Property and equipment		38,140			208,336		246,476


	Reconciliation of Segment Profit to the Company’s Consolidated Totals (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,

	2002			2001			2002			2001

Profit:
Total profit for reportable segments	$	39,203		$	28,286		$	44,401		$	34,066
Other income		(609	)		1,243			306			5,959
Unallocated other corporate expenses		(10,875	)		(8,718	)		(19,616	)		(16,686	)

Income before provision for income taxes and minority interest	$	27,719		$	20,811		$	25,091		$	23,339


9.	Acquisitions:

	*Wilder Construction Company*

	On April 30, 2002 the Company purchased an additional 698,483 shares of Wilder Construction Company (“Wilder”) common stock for total consideration of $7.9 million (excluding $9.1 million of cash applied in consolidation). As a result of this transaction the Company’s interest in Wilder increased from 48.0% at March 31, 2002 to 55.3% at June 30, 2002. The Company accounted for this step acquisition using the purchase method of accounting and the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price allocation is preliminary and further refinements are likely to be made upon completion of certain post-closing activities.

	During the years ended December 31, 2001 and 2000, the Company made investments of $4.6 million and $14.8 million, respectively to acquire common stock representing a 48.0% interest in Wilder which was accounted for under the equity method until April 30, 2002. Under the equity method the Company allocated its investments to the assets and liabilities of Wilder based on their estimated fair values at the date of the investments.

	The Company’s share of the estimated fair value of Wilder’s net assets exceeded the purchase price at each investment date. Therefore no goodwill has been recorded. The consolidation of Wilder at April 30, 2002 resulted in an increase in assets of $77.5 million, an increase in liabilities of $46.9 million and a decrease in investments in affiliates of $19.0 million. These

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

amounts are considered non-cash items in the condensed consolidated statement of cash flows for the six months ended June 30, 2002.

The following summarized unaudited pro forma results of operations assume the Company acquired its majority interest in Wilder as of the beginning of 2001. The pro forma data has been prepared for comparative purposes only. It does not purport to be indicative of the results of operations that would have resulted had the acquisitions been consummated at the beginning of the periods presented, or that may occur in the future.


	Three Months Ended June 30,				Six Months Ended June 30,

(in millions, except per share data)	2002		2001		2002		2001

Revenue	$	468.1	$	416.8	$	755.1	$	654.6
Net income	$	16.4	$	12.9	$	14.6	$	14.0
Net income per diluted share	$	0.40	$	0.32	$	0.36	$	0.34


	*Robinson Construction Company and Parnum Paving, Inc.*

On April 30, 2002 the Company purchased certain assets and assumed certain contracts of Robinson Construction Company (“Robinson”), a northern California construction contractor and materials supplier, for cash consideration of $8.1 million. The Company accounted for this acquisition using the purchase method of accounting. The purchase price was allocated to assets acquired (primarily property and equipment and inventory) based on their estimated fair values at the date of acquisition. The estimated fair value of Robinson’s assets exceeded the purchase price. Therefore no goodwill was recorded. Robinson recorded revenue of approximately $8.6 million during the year ended December 31, 2001.

In May 2002 the Company purchased certain assets and assumed certain contracts and liabilities of Redwood Empire Aggregates and its wholly owned subsidiary Parnum Paving, Inc. (“Parnum”), a northern California construction contractor and materials supplier, for cash consideration of approximately $15.2 million. The Company accounted for this acquisition using the purchase method of accounting. The purchase price was allocated to the assets acquired (primarily property and equipment and inventory) and liabilities assumed (primarily environmental remediation liabilities) based on their estimated fair values at the date of acquisition. The purchase price allocation is preliminary and further refinements are likely to be made upon completion of certain post-closing activities. The estimated fair value of Parnum’s assets exceeded the purchase price, therefore no goodwill was recorded. Parnum recorded revenue of approximately $48.0 million during the year ended December 31, 2001.


	Both the Robinson and Parnum acquisitions extend the Company’s geographic operations further into northern California and the results of their operations were included in the Company’s consolidated results from their respective acquisition dates.



10.	Investment in T.I.C. Holdings:

At March 31, 2002, the Company held a 27.0% minority interest in T.I.C. Holdings, Inc. (“TIC”) which it accounted for under the equity method of accounting. In June 2002, TIC repurchased 1.1 million shares of the TIC shares held by the Company for a cash payment to the Company of $13.1 million. The transaction reduced the Company’s interest in TIC to 15.5% and the Company discontinued applying the equity method in favor of the cost method as of the date of the transaction.

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   11.     Subsequent Events:



On August 1, 2002 the Company’s Board of Directors declared a regular quarterly cash dividend of $0.08 per common share on the Company’s common stock. The dividend is payable October 15, 2002 to stockholders of record September 30, 2002.



On March 17, 1999, the Company’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $35.0 million of its common stock on the open market, exclusive of repurchases related to employee benefit plans, of which approximately $14.0 million remained at June 30, 2002. During the period from July 1, 2002 to August 9, 2002, the Company repurchased and retired 110,700 shares for a total repurchase price of $2.0 million.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Disclosure:



     This report contains forward-looking statements; such as statements related to the impact of government regulations on the Company’s operations, the existence of bidding opportunities and the impact of legislation, availability of highway funds 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,” 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 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; weather conditions; competition and pricing pressures; and state referendums and initiatives.

Results of Operations


			Three Months Ended										Six Months Ended
Revenue			June 30,										June 30,

(in millions)			2002		2001		Change			%			2002		2001		Change			%

By Division
	Branch Division		$	307.7	$	276.2	$	31.5			11.4	%	$	458.8	$	427.8	$	31.0			7.2	%
	Heavy Construction Division			151.3		100.5		50.8			50.5	%		269.4		176.4		93.0			52.7	%

			$	459.0	$	376.7	$	82.3			21.8	%	$	728.2	$	604.2	$	124.0			20.5	%

By Geographic Area:
	California		$	190.1	$	186.6	$	3.5			1.9	%	$	293.2	$	289.2	$	4.0			1.4	%
	West (excluding California)			157.9		101.1		56.8			56.2	%		229.8		158.5		71.3			45.0	%
	Midwest			18.8		12.4		6.4			51.6	%		35.4		18.1		17.3			95.6	%
	Northeast			26.5		8.1		18.4			227.2	%		46.5		18.4		28.1			152.7	%
	South			65.7		68.5		(2.8	)		-4.1	%		123.3		120.0		3.3			2.8	%

			$	459.0	$	376.7	$	82.3			21.8	%	$	728.2	$	604.2	$	124.0			20.5	%

By Market Sector:
	Federal Agencies		$	14.2	$	18.9	$	(4.7	)		-24.9	%	$	25.5	$	28.6	$	(3.1	)		-10.8	%
	State Agencies			181.1		157.9		23.2			14.7	%		302.3		244.9		57.4			23.4	%
	Local Public Agencies			126.7		90.1		36.6			40.6	%		184.0		141.4		42.6			30.1	%

		Total Public Sector		322.0		266.9		55.1			20.6	%		511.8		414.9		96.9			23.4	%
	Private Sector			75.3		59.9		15.4			25.7	%		123.4		109.7		13.7			12.5	%
	Material Sales			61.7		49.9		11.8			23.6	%		93.0		79.6		13.4			16.8	%

			$	459.0	$	376.7	$	82.3			21.8	%	$	728.2	$	604.2	$	124.0			20.5	%

Revenue: Revenue for the three and six month periods ended June 30, 2002 increased over the corresponding 2001 periods by $82.3 million and $124.0 million, respectively. Branch Division revenue for the three and six month periods in 2002 includes $35.9 million in revenue from the newly consolidated Wilder Construction Company (“Wilder”) subsidiary (see Note 9 to the condensed consolidated financial statements). Excluding the Wilder revenue, Branch Division revenue for the three and six month periods

ended June 30, 2002 decreased over the corresponding 2001 periods by $4.4 million and $4.9 million, respectively. Revenue from the Company’s Heavy Construction Division (“HCD”) increased 50.5% and 52.7% in the three and six months ended June 30, 2002 over the corresponding periods in 2001. The increased HCD revenue reflects larger volume from higher backlog at the beginning of 2002 and includes revenue from the new Granite Halmar location in New York of $26.0 million and $46.1 million in the three and six month periods ended June 30, 2002, respectively.

Overall, the Company has seen its largest revenue growth in the public sector, reflecting the continued strength of the market for publicly funded infrastructure projects (see “Outlook”). The growth in private sector revenue for the three and six months ended June 30, 2002 over the comparable 2001 periods was due to the inclusion of revenue from Wilder and the Company’s Granite Halmar subsidiary in the 2002 periods. Excluding revenue from Wilder and Granite Halmar, private sector revenue actually decreased slightly in the 2002 periods. The increase in revenue from the sales of construction materials in both the three and six month periods ended June 30, 2002 reflects continued strong demand, particularly in California.


Backlog			June 30, 2002					March 31, 2002					June 30, 2001

(in millions)			Amount		%			Amount		%			Amount		%

By Division
	Branch Division		$	570.8		35.9	%	$	365.9		27.3	%	$	577.8		40.2	%
	Heavy Construction Division			1,017.1		64.1	%		973.3		72.7	%		858.5		59.8	%

			$	1,587.9		100.0	%	$	1,339.2		100.0	%	$	1,436.3		100.0	%

By Geographic Area:
	California		$	373.4		23.5	%	$	283.8		21.2	%	$	442.7		30.8	%
	West (excluding California)			338.2		21.3	%		262.6		19.6	%		395.0		27.5	%
	Midwest			126.3		8.0	%		144.9		10.8	%		186.0		13.0	%
	Northeast			243.3		15.3	%		212.1		15.8	%		2.7		0.2	%
	South			506.7		31.9	%		435.8		32.6	%		409.9		28.5	%

			$	1,587.9		100.0	%	$	1,339.2		100.0	%	$	1,436.3		100.0	%

By Market Sector:
	Federal Agencies		$	41.1		2.6	%	$	40.8		3.1	%	$	56.4		3.9	%
	State Agencies			783.0		49.3	%		668.1		49.9	%		956.0		66.6	%
	Local Public Agencies			649.1		40.9	%		515.8		38.5	%		310.0		21.6	%

		Total Public Sector		1,473.2		92.8	%		1,224.7		91.5	%		1,322.4		92.1	%
	Private Sector			114.7		7.2	%		114.5		8.5	%		113.9		7.9	%

			$	1,587.9		100.0	%	$	1,339.2		100.0	%	$	1,436.3		100.0	%

Backlog: The Company’s backlog at June 30, 2002 of $1,587.9 million was $151.6 million higher than the backlog at June 30, 2001, including $99.3 million related to the newly consolidated Wilder subsidiary and $243.2 million from its Granite Halmar location in New York. Branch Division backlog decreased by $106.3 million or 18.4% from June 30, 2001 to June 30, 2002, after adjusting to remove the Wilder backlog from the 2002 balance. This represents a 27% decrease in private sector backlog and a 16% decrease in public sector backlog for the Branch Division (excluding Wilder) which the Company believes is attributable to the impact of a slowdown in private development projects and the related increased competitiveness in bidding for public sector projects due to recent economic slowdowns — particularly in the West (see “Outlook”).

Heavy Construction Division backlog at June 30, 2002 of $1,017.1 million represents an increase of $158.6 million from its backlog at June 30, 2001 and $43.8 million from its backlog at March 31, 2002 and includes $243.2 million from its Granite Halmar location in New York. HCD’s awards for the second quarter of 2002 included a $55.0 million design-build bridge and highway contract in New York, a $73.5

million interchange reconstruction project in Florida and a $38.0 million share of a joint venture contract in Arkansas.

In the period from July 1, 2002 to July 22, 2002 the Company was awarded four large new contracts totaling $309.2 million consisting of a $43.6 million highway rehabilitation project in southern California, a $67.3 million share of a joint venture highway project in New Mexico, a $27.6 million infrastructure project in Florida and a $170.7 million design-build railroad project in Nevada, none of which are included in backlog at June 30, 2002.


	Three Months Ended						Six Months Ended
Gross Profit	June 30,						June 30,

(in millions)	2002			2001			2002			2001

Total Gross Profit	$	63.9		$	46.4		$	90.8		$	68.7
Percent of revenue		13.9	%		12.3	%		12.5	%		11.4	%

Gross Profit: Gross profit as a percent of revenue increased to 13.9% in the second quarter 2002 from 12.3% in the second quarter 2001 and to 12.5% for the six months ended June 30, 2002 from 11.4% in the corresponding 2001 period. Gross profit in the quarter ended June 30, 2002 was positively impacted by a lower volume of revenue from projects less than 25% complete. The Company recognizes revenue only to the extent of cost incurred until a project reaches 25% complete. The amount of revenue generated in the quarter by jobs below the 25% completion threshold was approximately $35.0 million versus $58.0 million in the same period in 2001. This decrease was partially due to the $153.0 million Las Vegas Monorail project reaching the 25% completion threshold during the quarter. Partially offsetting the positive effect of lower revenue from jobs less than 25% complete was the recognition of additional costs to complete several New York area projects, which negatively impacted gross profit in the quarter by approximately $3.0 million (see “Outlook”).

Cost of revenue consists of direct costs on contracts, including labor and materials, subcontractor costs, direct overhead costs and equipment expense (primarily depreciation, maintenance and repairs).


		Three Months Ended						Six Months Ended
General and Administrative		June 30,						June 30,

(in millions)		2002			2001			2002			2001

Salaries and related expenses		$	17.9		$	11.9		$	34.7		$	25.4
Incentive compensation, discretionary profit sharing and pension			5.4			4.3			7.9			6.8
Other general and administrative expenses			12.2			10.6			23.4			19.1

	Total	$	35.5		$	26.8		$	66.0		$	51.3

Percent of revenue			7.7	%		7.1	%		9.1	%		8.5	%

General and Administrative Expenses: Salaries and related expenses increased for the three and six months ended June 30, 2002 over the comparable periods in 2001 due to increased staffing to support the Company’s current and expected growth, including approximately $3.3 million and $5.1 million for the three and six month periods ended June 30, 2002, respectively, in costs associated with the Company’s geographic expansion into New York and northern California as well as the inclusion of costs in 2002 from the newly consolidated Wilder subsidiary. Incentive compensation and discretionary profit sharing and pension costs increased as a function of the Company’s higher operating profit in 2002. Increases in other general and administrative expenses primarily result from costs associated with the Company’s continued growth, including approximately $2.2 million and $3.1 million for the three and six month periods ended June 30, 2002, respectively, in costs associated with the Company’s expansion into New York and northern California as well as the inclusion of costs from the newly consolidated Wilder subsidiary. Other general and administrative costs include information technology, occupancy, office equipment and supplies,

depreciation, travel and entertainment, outside services, advertising and marketing, training and other miscellaneous expenses, none of which individually exceeded 10% of total general and administrative expense.


		Three Months Ended						Six Months Ended
Operating Income		June 30,						June 30,

(in millions)		2002			2001			2002			2001

Branch Division		$	28.6		$	26.3		$	34.6		$	32.2
Heavy Construction Division			10.6			2.0			9.8			1.9
Unallocated Corporate Expenses			(10.9	)		(8.7	)		(19.6	)		(16.7	)

	Total	$	28.3		$	19.6		$	24.8		$	17.4

Operating Income: The Heavy Construction Division’s contribution to operating income increased in the second quarter 2002 compared to the second quarter 2001 due primarily to increased volume at a higher profit margin as described in “Revenue” and “Gross Profit” above. Branch Division operating income for the quarter and six months ended June 30, 2002 includes approximately $2.8 million from the newly consolidated Wilder subsidiary. Excluding the effects of Wilder, Branch Division operating income decreased slightly in the 2002 periods due to lower revenue as described in “Revenue” above and higher general and administrative costs primarily related to geographic expansion into northern California.


		Three Months Ended						Six Months Ended
Other Income (Expense)		June 30,						June 30,

(in millions)		2002			2001			2002			2001

Interest Income		$	1.9		$	1.9		$	3.9		$	4.8
Interest Expense			(2.5	)		(2.3	)		(4.2	)		(3.9	)
Gain on sales of property and equipment			0.4			0.6			0.6			4.9
Other, net			(0.4	)		1.0			—			0.2

	Total	$	(0.6	)	$	1.2		$	0.3		$	6.0

Other Income (Expense): Other income decreased by $5.7 million to $0.3 million for the six months ended June 30, 2002 over the same period in 2001. The decrease was due primarily to the absence of a $1.8 million gain on the sale of equipment and a $2.2 million gain from the sale of developed property in Texas, both recorded in the first quarter of 2001 as well as the impact of discontinuing recording the results of T.I.C. Holdings and Wilder in other income under the equity method of accounting during the second quarter of 2002 (see Notes 9 and 10 to the condensed consolidated financial statements).


	Three Months Ended						Six Months Ended
Provision for Income Taxes	June 30,						June 30,

(in millions)	2002			2001			2002			2001

Provision for income taxes	$	10.4		$	7.9		$	9.4		$	8.9
Effective tax rate		37.5	%		38.0	%		37.5	%		38.0	%

Income Taxes: The Company’s effective tax rate decreased to 37.5% for the three and six month periods ended June 30, 2002 compared to 38.0% in the comparable 2001 periods. The decrease is primarily due to the impact of higher percent depletion deductions related to quarry properties.

Outlook

Nationally, we are entering the second half of 2002 with a strong backlog with healthy margins and are on track for another positive year. The Company also continues to experience a sizeable increase in new awards. New awards for the second quarter ended June 30, 2002 totaled $707.8 million (including $102.9 million added as a result of the initial consolidation of Wilder), leading to a backlog at June 30, 2002 of $1.6 billion, (including $99.3 million related to the newly consolidated Wilder), an increase of 10.6 percent over the backlog at June 30, 2001.

Although the Company has reduced forecasted results for the year 2002 to between $1.25 and $1.30 per common share, the fundamentals of its public sector business are still strong. The bulk of the Company’s new awards comes from its public marketplace. Fueled by recent high levels of expenditures from federal, state and local sources, the Company expects that its public sector market will provide good bidding opportunities as the year unfolds.

The condition of the private sector construction market, however, is less clear at this time. The Branch Division has witnessed some softening in this marketplace, and believes that this is due primarily to a weaker and more uncertain economy, which has prompted private developers to delay planned commercial and residential projects. The effect on Granite’s business is expected to be a decrease in private sector bidding opportunities and the resulting expectation of increased competition in the public sector. Accordingly, as the Company has stated previously, it expects Branch Division earnings and revenue for 2002 to decrease approximately 15 percent from the previous year. While the Branch Division has been awarded a number of large projects during the first half of the year, it sees weakness in its “turn business” (work that is awarded and completed within the year) going forward.

Our entry into the New York-area market has not been without its challenges. In late July, the Company announced that its expectations for earnings were lower than Wall Street’s consensus estimate for the second quarter ended June 30, 2002 and for the year 2002. The reduced earnings expectations are not only related to the lower expectations from the Branch “turn business,” but is also related to the increased costs on certain contracts at Granite Halmar, our New York subsidiary. We continue working to build the capabilities of our team in the New York region and have been incorporating Granite’s processes and systems as well as providing the training necessary of Granite Halmar personnel to support the size of their business. This effort includes training on Granite’s bid estimating and job cost systems. While the transition and integration process for Granite Halmar has been challenging, we believe that by providing the appropriate tools and training, it can successfully improve its operations going forward and take advantage of significant upcoming opportunities in the New York area.

On the federal front, the full Senate Appropriations Committee approved a fiscal year 2003 transportation spending measure that would provide $31.8 billion for the federal highway program—the same investment level as the current year. The proposed highway investment level would eliminate the potential $8.6 billion reduction in federal highway investment that was the result of the economic recession and overly optimistic forecasts of Highway Trust Fund receipts. The measure would also provide $7.3 billion for the federal transit program, $100.0 million above the TEA-21 guaranteed funding level. According to the American Road and Transportation Builders Association, any Senate action will have to be resolved with the House of Representatives, which is expected to offer a highway funding level closer to the TEA-21 guaranteed investment of $27.7 billion for FY 2003.

Politically in California, the state entered its new fiscal year on July 1st without an approved state budget. Although the Senate passed its version of the $99.0 billion annual spending plan in late June, the bill continues to be stuck in the Assembly where lawmakers are debating over how to bridge the state’s $23.6 billion shortfall. Since most of the projects we are currently working on for the California Department of Transportation (“Caltrans”) are projects awarded during the state’s fiscal year 2002 and are therefore being paid for with 2002 funds, we have not been negatively impacted by the budget impasse to

date. However, a continued stalemate has the potential to delay the number of projects that Caltrans puts out to bid until a resolution is reached. It is important to note that other states have also been reporting lower tax receipts that are placing stress on future year budgets; however, it is uncertain what impact this fiscal strain will have on state highway budgets going forward.

Also included in the proposed California state budget is a provision that specifies that $175.0 million would be loaned from the state highway account to go into the general fund. The plan could include loaning another $1.054 billion from Governor Gray Davis’ Transportation Congestion Relief Plan to the general fund. While no money has been loaned from the highway account to date, Caltrans has stated that its building program will not be delayed or cancelled as a result of these loans.

Another political issue we are closely monitoring is Referendum 51 in Washington State. Referendum 51 is a measure on the November ballot that would raise $7.7 billion for transportation projects statewide. If approved by voters, Referendum 51 would increase highway capacity, public transportation, passenger and freight rail, and transportation financing accountability through increased fuel excise taxes, sales taxes on vehicles, and weight fees on trucks and large vehicles. Earlier this year, Granite increased its ownership in Wilder to 55.3%. Wilder has regional offices located in Washington, Oregon and Alaska and had annual revenues of approximately $160.0 million in 2001. Approximately 60% of Wilder’s revenues are generated in the state of Washington.

Overall, despite the weakness in our Branch “turn business” and the challenge in New York, we are very pleased with the success of our current operations, the strength of our backlog and the bidding opportunities ahead. For the time being the Company continues to witness a strong public sector marketplace nationwide and a high level of bidding opportunities, particularly in the area of large, design-build projects. As a result, we remain very positive in our outlook for the business going forward.

Liquidity and Capital Resources


		Six Months Ended June 30,

(in millions)		2002			2001

Cash and cash equivalents		$	91.2		$	92.3
Net cash provided (used) by:
	Operating activities		11.4			10.5
	Investing activities		(23.6	)		(41.9	)
	Financing activities		(21.9	)		66.0
Capital expenditures			35.1			46.8

Cash provided by operating activities of $11.4 million for the six months ended June 30, 2002 was slightly higher than the comparable period in 2001 due primarily to higher net income in the 2002 period. Changes in cash from operating activities primarily reflect seasonal variations based on the amount and progress of work being performed. The change in accounts and notes receivable for the six months ended June 30, 2002 of $37.7 million decreased as compared to the change for the six months ended June 30, 2001 of $48.2 million due primarily to a larger quarter-to-quarter increase in revenue from the fourth quarter 2000 to the second quarter 2001 compared to the growth from the fourth quarter 2001 to the second quarter 2002. The change in accrued liabilities for the six months ended June 30, 2002 of $11.7 million increased as compared to the change for the six months ended June 30, 2001 of $2.9 million due to higher accrued costs primarily related to a higher volume of work in the six months ended June 30, 2002 as compared to the same period in 2001. Billings in excess of cost decreased during the six month period ended June 30, 2002 due primarily to the progress of work on several projects that had received advanced payments in 2001. Included in costs and estimated earnings in excess of billings at June 30, 2002 is approximately $12.0 million related to claims and unexecuted change orders acquired from Halmar Builders of New York, Inc. that the Company believes are probable of collection.

Cash used by investing activities for the six months ended June 30, 2002 decreased $18.3 million over the corresponding 2001 period due primarily to higher net maturities of short-term investments, cash received from T.I.C. Holdings, Inc. (“TIC”) related to the repurchase of TIC shares held by the Company and a decrease in additions to property and equipment, partially offset by amounts paid for business acquisitions during the period. The lower property and equipment purchases reflect purchasing timing differences and are not indicative of the Company’s expectations for the year.

Cash used by financing activities for the six months ended June 30, 2002 was $21.9 million as compared to $66.0 million provided by financing activities in the corresponding 2001 period, reflecting the absence of significant proceeds from long-term debt during the 2002 period.

Included in long-term debt at June 30, 2002 is $15.8 million from the Company’s newly consolidated Wilder subsidiary, of which $6.1 million is collateralized by certain of Wilder’s assets. This Wilder debt bears interest at rates varying between the bank’s prime rate less 1.0% and 8.0% per annum and is generally payable in installments through 2010. Wilder also has a $10.0 million line of credit with a bank, collateralized by certain of Wilder’s assets, of which $7.0 million was available at June 30, 2002.

The Company has budgeted $69.8 million for capital expenditures in 2002, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of aggregate reserves. In addition to its working capital and cash generated from operations, the Company currently has access to funds under a $60.0 million bank revolving line of credit (exclusive of the Wilder line of credit described above), of which $55.7 million was available at June 30, 2002.

The Company believes that its current cash and cash equivalents, short-term investments, cash generated from operations and amounts available under its existing credit facilities will be sufficient to meet its expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with its existing operations through at least the next twelve months.

Newly Effective and Recently Issued Accounting Pronouncements: In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 became effective on January 1, 2002 and requires that goodwill and intangible assets with indefinite lives no longer be amortized but rather reviewed at least annually for impairment. At June 30, 2002, the Company had goodwill of approximately $19.2 million, which substantially relates to its acquisition of Halmar Builders of New York, Inc. in July of 2001 and is primarily included in the Heavy Construction Division operating segment. The Company did not record any significant amortization of goodwill during the six months ended June 30, 2001. The Company has completed a goodwill impairment review as of the beginning of 2002 and found no impairment. During the first six months of 2002, no goodwill was acquired, impaired or written off.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which is effective for fiscal years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires, among other things, that the retirement obligations be recognized when they are incurred and displayed as liabilities on the balance sheet. In addition, the asset’s retirement costs are to be capitalized as part of the asset’s carrying amount and subsequently allocated to expense over the asset’s useful life. The Company is in the process of assessing the impact, if any, of SFAS 143 to the financial position or results of operations of the Company.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. SFAS 146 is required to be adopted by the company on January 1, 2003. The Company does not believe the adoption will have a material effect on its financial position, results of operations, or cash flows

Subsequent Events: On August 1, 2002 the Company’s Board of Directors declared a regular quarterly cash dividend of $0.08 per common share on the Company’s common stock. The dividend is payable October 15, 2002 to stockholders of record September 30, 2002.

On March 17, 1999, the Company’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $35.0 million of its common stock on the open market, exclusive of repurchases related to employee benefit plans, of which approximately $14.0 million remained at June 30, 2002. During the period from July 1, 2002 to August 9, 2002, the Company repurchased and retired 110,700 shares for a total repurchase price of $2.0 million.


Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the Company’s exposure to market risk since December 31, 2001.

PART II. OTHER INFORMATION


Item 1.		LEGAL PROCEEDINGS

		None


Item 2.		CHANGES IN SECURITIES

		None


Item 3.		DEFAULTS UPON SENIOR SECURITIES

		None


Item 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

		At the Company’s Annual Meeting of Shareholders on May 20, 2002, the following members were elected to the Board of Directors:


	Affirmative Votes		Withhold

David H. Watts		37,681,732		129,338
Joseph J. Barclay		37,681,084		129,986
J. Fernando Niebla		27,664,557		146,513


		The following proposals were approved at the Company’s Annual Meeting:


	Affirmative Votes		Against		Abstain

To ratify the appointment of PricewaterhouseCoopers LLP as the independent accountants of the Company for the fiscal year ending December 31, 2002		36,583,795		1,159,637		67,638


Item 5.		OTHER INFORMATION

		None


Item 6.	EXHIBITS AND REPORTS ON FORM 8-K

	a)	Exhibits

		99.1 — Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		99.2 — Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	b)	Reports on Form 8-K

		None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GRANITE CONSTRUCTION INCORPORATED

Date: August 13, 2002	By:	/s/ William E. Barton William E. Barton Senior Vice President and Chief Financial Officer

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(Mark one)




[X]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter ended June 30, 2002

[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from _______________ to _______________


State of Incorporation:		I.R.S. Employer Identification Number:
Delaware		77-0239383


Class Common Stock, $0.01 par value		Outstanding 41,515,022 shares


	commitment to an exit plan, which is generally before an actual liability has been incurred. SFAS 146 is required to be adopted by the Company on January 1, 2003. The Company does not believe the adoption will have a material effect on its financial position, results of operations, or cash flows.

3.	Inventories: Inventories consist primarily of quarry products valued at the lower of average cost or market.

4.	Property and Equipment:


In thousands	June 30, 2002		December 31, 2001

Land	$	50,630	$	38,107
Quarry property		65,836		44,177
Buildings and leasehold improvements		51,790		44,039
Equipment and vehicles		654,099		550,423
Office furniture and equipment		9,613		9,180

		831,968		685,926
Less accumulated depreciation, depletion and amortization		489,186		423,503

	$	342,782	$	262,423


6.	Comprehensive Income: The components of comprehensive income, net of tax, are as follows:


7.	Commitments and Contingencies:

	*Disclosure of Significant Estimates — Litigation:* The Company is a party to a number of legal proceedings and believes that the nature and number of these proceedings are typical for a construction firm of its size and scope. The Company’s litigation typically involves claims regarding public liability or contract related issues. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

8.	Business Segment Information:

	The Company has two reportable segments: the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division is comprised of branch offices that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in the Company’s construction joint ventures.

	The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained herein and in the Company’s 2001 10-K. The Company evaluates performance based on operating profit or loss, which does not include income taxes, interest income, interest expense, other income (expense), or minority interest.

	Information about Profit and Assets (in thousands):


	amounts are considered non-cash items in the condensed consolidated statement of cash flows for the six months ended June 30, 2002.


	On August 1, 2002 the Company’s Board of Directors declared a regular quarterly cash dividend of $0.08 per common share on the Company’s common stock. The dividend is payable October 15, 2002 to stockholders of record September 30, 2002.

	On March 17, 1999, the Company’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $35.0 million of its common stock on the open market, exclusive of repurchases related to employee benefit plans, of which approximately $14.0 million remained at June 30, 2002. During the period from July 1, 2002 to August 9, 2002, the Company repurchased and retired 110,700 shares for a total repurchase price of $2.0 million.