Edgar Filing: GRANITE CONSTRUCTION INC

form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 1-12911

GRANITE CONSTRUCTION INCORPORATED

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

Address of principal executive offices:

585 W. Beach Street

Watsonville, California 95076

(831) 724-1011

Indicate by check mark 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 such 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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 26, 2010.

Class		Outstanding
Common Stock, $0.01 par value		38,774,960 shares

Index


PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2010, December 31, 2009 and June 30, 2009
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
		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
	Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3.	Defaults Upon Senior Securities
	Item 4.	Reserved
	Item 5.	Other Information
	Item 6.	Exhibits
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EXHIBIT 101.INS
EXHIBIT 101.SCH
EXHIBIT 101.CAL
EXHIBIT 101.LAB
EXHIBIT 101.PRE
EXHIBIT 101.DEF

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)

	June 30,		December 31,		June 30,
	2010		2009		2009
ASSETS
Current assets
Cash and cash equivalents	$	208,450	$	338,956	$	356,168
Short-term marketable securities		73,566		42,448		24,878
Receivables, net		295,779		280,252		281,432
Costs and estimated earnings in excess of billings		56,665		10,619		50,891
Inventories		48,529		45,800		68,755
Real estate held for development and sale		148,897		139,449		131,169
Deferred income taxes		31,870		31,034		43,314
Equity in construction joint ventures		72,571		67,693		50,215
Other current assets		39,031		50,467		46,719
Total current assets		975,358		1,006,718		1,053,541
Property and equipment, net		501,258		520,778		529,805
Long-term marketable securities		68,291		76,937		53,328
Investments in affiliates		31,210		24,644		17,310
Other noncurrent assets		79,060		80,498		80,300
Total assets	$	1,655,177	$	1,709,575	$	1,734,284
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt	$	8,538	$	15,017	$	15,348
Current maturities of non-recourse debt		39,657		43,961		49,500
Accounts payable		173,637		131,251		177,025
Billings in excess of costs and estimated earnings		144,935		156,041		184,665
Accrued expenses and other current liabilities		161,632		159,843		168,217
Total current liabilities		528,399		506,113		594,755
Long-term debt		216,870		225,203		225,220
Long-term non-recourse debt		16,615		19,485		8,455
Other long-term liabilities		49,197		48,998		46,686
Deferred income taxes		27,905		27,220		17,917
Commitments and contingencies
Equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding		-		-		-
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 38,788,581 shares as of June 30, 2010, 38,635,021 shares as of December 31, 2009 and 38,673,034 shares as of June 30, 2009		388		386		387
Additional paid-in capital		98,142		94,633		89,142
Retained earnings		677,873		735,632		699,050
Total Granite Construction Incorporated shareholders’ equity		776,403		830,651		788,579
Noncontrolling interests		39,788		51,905		52,672
Total equity		816,191		882,556		841,251
Total liabilities and equity	$	1,655,177	$	1,709,575	$	1,734,284

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

Table of Contents

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share data)

	Three Months Ended June 30,								Six Months Ended June 30,
		2010			2009				2010			2009
Revenue
Construction		$	237,943		$	277,456		$	319,129		$	445,505
Large project construction			153,328			125,770			259,653			274,830
Construction materials			61,089			57,315			87,253			87,161
Real estate			1,844			534			8,852			951
Total revenue			454,204			461,075			674,887			808,447
Cost of revenue
Construction			215,042			224,655			294,382			357,528
Large project construction			131,493			103,259			228,335			218,655
Construction materials			56,609			47,732			89,898			77,892
Real estate			1,362			1,534			6,860			1,741
Total cost of revenue			404,506			377,180			619,475			655,816
Gross profit			49,698			83,895			55,412			152,631
Selling, general and administrative expenses			51,357			56,319			106,649			110,674
Gain on sales of property and equipment			3,800			2,808			8,252			5,329
Operating income (loss)			2,141			30,384			(42,985	)		47,286
Other income (expense)
Interest income			1,098			1,109			2,037			3,170
Interest expense			(3,013	)		(2,853	)		(6,747	)		(6,341	)
Equity in (loss) income of affiliates			(387	)		783			(706	)		339
Other income, net			1,934			1,431			4,831			5,216
Total other (expense) income			(368	)		470			(585	)		2,384
Income (loss) before provision for (benefit from) income taxes			1,773			30,854			(43,570	)		49,670
Provision for (benefit from) income taxes			4,406			8,187			(3,207	)		13,016
Net (loss) income			(2,633	)		22,667			(40,363	)		36,654
Amount attributable to noncontrolling interests			(4,058	)		(4,718	)		(7,282	)		(9,785	)
Net (loss) income attributable to Granite Construction Incorporated		$	(6,691	)	$	17,949		$	(47,645	)	$	26,869

Net (loss) income per share attributable to common shareholders (see Note 13)
Basic		$	(0.18	)	$	0.46		$	(1.26	)	$	0.70
Diluted		$	(0.18	)	$	0.46		$	(1.26	)	$	0.70

Weighted average shares of common stock
Basic			37,850			37,584			37,770			37,530
Diluted			37,850			37,699			37,770			37,650

Dividends per common share		$	0.13		$	0.13		$	0.26		$	0.26

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

Table of Contents

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)

Six Months Ended June 30,	2010			2009
Operating activities
Net (loss) income	$	(40,363	)	$	36,654
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Impairment of real estate held for development and sale		107			1,036
Depreciation, depletion and amortization		35,839			39,670
Provision for (recovery of) doubtful accounts		406			(3,386	)
Gain on sales of property and equipment		(8,252	)		(5,329	)
Stock-based compensation		6,885			4,561
Gain on company owned life insurance		(1,748	)		-
Changes in assets and liabilities, net of the effects of consolidations:
Receivables		(16,802	)		28,679
Inventories		(2,729	)		(13,532	)
Real estate held for development and sale		(6,352	)		(8,887	)
Equity in construction joint ventures		(5,491	)		(5,534	)
Other assets, net		13,376			8,517
Accounts payable		42,066			2,294
Accrued expenses and other current liabilities, net		1,292			(10,483	)
Billings in excess of costs and estimated earnings, net		(57,152	)		(80,295	)
Net cash used in operating activities		(38,918	)		(6,035	)
Investing activities
Purchases of marketable securities		(60,073	)		(39,043	)
Maturities of marketable securities		34,900			27,610
Proceeds from company owned life insurance		2,078			-
Additions to property and equipment		(21,809	)		(55,659	)
Proceeds from sales of property and equipment		11,936			7,416
Purchase of private preferred stock		(6,400	)		-
Contributions to affiliates		(1,014	)		(4,971	)
Issuance of notes receivable		(1,242	)		-
Collection of notes receivable		1,720			374
Other investing activities		(333	)		65
Net cash used in investing activities		(40,237	)		(64,208	)
Financing activities
Proceeds from long-term debt		95			4,911
Long-term debt principal payments		(18,155	)		(17,475	)
Cash dividends paid		(10,067	)		(10,003	)
Purchase of common stock		(3,434	)		(2,821	)
Distributions to noncontrolling partners, net		(19,797	)		(9,080	)
Other financing activities		7			36
Net cash used in financing activities		(51,351	)		(34,432	)
Decrease in cash and cash equivalents		(130,506	)		(104,675	)
Cash and cash equivalents at beginning of period		338,956			460,843
Cash and cash equivalents at end of period	$	208,450		$	356,168

Supplementary Information
Cash paid during the period for:
Interest	$	9,706	$	9,479
Income taxes		308		3,325
Non-cash investing and financing activities:
Stock issued for services, net of forfeitures	$	6,908	$	19,127
Accrued cash dividends		5,043		5,028
Debt payments from sale of assets		4,400		-

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

Table of Contents

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” “Company” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe the disclosures 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 our financial position at June 30, 2010 and 2009 and the results of our operations and cash flows for the periods presented. In preparing these financial statements, we have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. The December 31, 2009 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.

We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements, except for the change in our reportable business segments described in Note 17, “Business Segment Information” and the adoption of two new accounting standards. We adopted Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, which clarified fair value disclosure requirements for assets and liabilities measured on a recurring basis (see Note 5). Additionally, we adopted the new consolidation requirements applicable to our construction and real estate joint ventures that are considered variable interest entities (“VIEs”) as defined by ASC Topic 810, Consolidation. To ascertain if we are required to consolidate a VIE, we determine whether we are the VIE’s primary beneficiary. This new accounting standard changes the method used to determine the primary beneficiary of a VIE and requires the following:

·	determination of the VIE’s primary beneficiary using a qualitative approach based on:

i)	the power to direct the activities that most significantly impact the economic performance of the VIE; and

ii)	the obligation to absorb losses or right to receive benefits of the VIE that could be significant.

·	ongoing evaluation of the VIE’s primary beneficiary; and

·	disclosures about a company’s involvement with the VIE including separate presentation on the condensed consolidated balance sheets of a consolidated VIE’s non-recourse debt.

Prior to the adoption of this accounting standard, determination of the VIE’s primary beneficiary was based on a quantitative and qualitative analysis and was reconsidered only upon the occurrence of specific triggering events. The adoption of this new accounting standard resulted in the consolidation of one construction joint venture (see Note 7) and did not have a material impact on our consolidation of real estate entities (see Note 8).

Interim results are subject to significant seasonal variations and the results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year.

Reclassifications of certain costs between cost of revenue and selling, general and administrative expenses have been made to prior years condensed consolidated financial statements and footnote disclosures to conform to current year presentation. These reclassifications did not have a significant impact on our previously reported net operating results.

2.	Recently Issued Accounting Pronouncement

In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-06. This ASU amends the accounting guidance in ASC Topic 820, Fair Value Measurements and Disclosures, regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3 fair value measurements). This ASU requires separate disclosures about purchases, sales, issuances and settlements and will be effective for us in 2011. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.	Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this option, revisions in estimates are accounted for in their entirety in the period of change. As of June 30, 2010, we had no revisions in estimates that are reasonably certain to impact future periods.

Construction

There were no revisions in estimates, either increases or decreases, that individually had an impact of $1.0 million or more on gross profit during the three months ended June 30, 2010. The net change in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit was a net decrease to gross profit of $1.6 million for the six months ended June 30, 2010 and net increases in gross profit of $5.9 million and $18.7 million for the three and six months ended June 30, 2009, respectively. The projects are summarized as follows:

Increases

	Three Months Ended June 30,					Six Months Ended June 30,
(dollars in millions)	2010		2009			2010		2009
Number of projects with upward estimate changes		-		3		-		10
Range of increase in gross profit from each project, net	$	-	$	1.2 - 2.4	$	-	$	1.0 - 4.8
Increase on project profitability	$	-	$	5.9	$	-	$	19.8

The increases during the three and six months ended June 30, 2009 were due to the resolution of certain project uncertainties, higher productivity than originally anticipated and the settlement of outstanding issues with contract owners.

Decreases

	Three Months Ended June 30,					Six Months Ended June 30,
(dollars in millions)	2010		2009			2010		2009
Number of projects with downward estimate changes		-		-		1		1
Range of reduction in gross profit from each project, net	$	-	$	-	$	1.6	$	1.1
Decrease on project profitability	$	-	$	-	$	1.6	$	1.1

The downward estimate change during the six months ended June 30, 2010 was due to rework costs to meet contract specifications.

There were no amounts attributable to noncontrolling interests included in these revisions in estimates during the three and six months ended June 30, 2010 or 2009.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Large Project Construction

The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit were net increases of $6.3 million and $5.9 million for the three and six months ended June 30, 2010, respectively, and $6.8 million and $30.0 million for the three and six months ended June 30, 2009, respectively. These revisions in estimates included amounts attributable to noncontrolling interests of $0.5 million and $1.9 million for the three and six months ended June 30, 2010, respectively, and $1.0 million and $2.6 million for the three and six months ended June 30, 2009, respectively. The projects are summarized as follows:

Increases

	Three Months Ended June 30,					Six Months Ended June 30,
(dollars in millions)	2010		2009			2010		2009
Number of projects with upward estimate changes		3		3		4		6
Range of increase in gross profit from each project, net	$	1.1 - 4.0	$	1.7 - 3.0	$	1.0 - 4.2	$	1.1 - 17.3
Increase on project profitability	$	6.3	$	6.8	$	10.6	$	30.0

The increases during the three and six months ended June 30, 2010 were due to settlement of design issues with a subcontractor, resolution of project uncertainties and improved productivity. The increases during the three and six months ended June 30, 2009 included resolution of project uncertainties, the settlement of outstanding revenue issues with various contract owners and improved productivity on certain projects. Gross profit for the six months ended June 30, 2009 included a negotiated claims settlement with the owner on a project in Pennsylvania for approximately $17.3 million.

Decreases

	Three Months Ended June 30,					Six Months Ended June 30,
(dollars in millions)	2010		2009			2010		2009
Number of projects with downward estimate changes		-		-		2		-
Range of reduction in gross profit from each project, net	$	-	$	-	$	1.8 - 2.9	$	-
Decrease on project profitability	$	-	$	-	$	4.7	$	-

The downward estimate changes during the six months ended June 30, 2010 were due to owner directed scope changes as well as site conditions that were different than anticipated.

On a large highway project in mountainous terrain in Oregon, several hillsides have experienced unanticipated ground movement. In some locations, the ground movements have caused damage to completed portions of bridge structures. The Company and the project owner, the Oregon Department of Transportation, are discussing the technical issues associated with these ground movements and identifying and analyzing possible remedial work plans to address these developments. At this time, the Company cannot reasonably estimate the impact, if any, these developments may have on the projected financial results for this project. Therefore, no revisions in estimates have been made this quarter related to these developments.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.	Marketable Securities

The carrying amounts of marketable securities were as follows (in thousands):

June 30, 2010	Held-to-Maturity		Trading		Total
U.S. Government and agency obligations	$	30,388	$	-	$	30,388
Commercial paper		24,969		-		24,969
Municipal bonds		13,020		-		13,020
Mutual funds		-		5,189		5,189
Total short-term marketable securities		68,377		5,189		73,566
U.S. Government and agency obligations		60,430		-		60,430
Municipal bonds		7,861		-		7,861
Total long-term marketable securities		68,291		-		68,291
Total marketable securities	$	136,668	$	5,189	$	141,857

December 31, 2009
U.S. Government and agency obligations	$	14,508	$	-	$	14,508
Commercial paper		4,993		-		4,993
Municipal bonds		21,019		-		21,019
Mutual funds		-		1,928		1,928
Total short-term marketable securities		40,520		1,928		42,448
U.S. Government and agency obligations		71,254		-		71,254
Municipal bonds		5,683		-		5,683
Total long-term marketable securities		76,937		-		76,937
Total marketable securities	$	117,457	$	1,928	$	119,385

June 30, 2009
Municipal bonds	$	17,910	$	-	$	17,910
Mutual funds		-		6,968		6,968
Total short-term marketable securities		17,910		6,968		24,878
U.S. Government and agency obligations		29,235		-		29,235
Municipal bonds		24,093		-		24,093
Total long-term marketable securities		53,328		-		53,328
Total marketable securities	$	71,238	$	6,968	$	78,206

Scheduled maturities of held-to-maturity investments were as follows (in thousands):

June 30, 2010
Due within one year	$	68,377
Due in one to five years		68,291
Total	$	136,668

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.	Fair Value Measurement

The following tables summarize each class of assets and liabilities measured at fair value on a recurring basis:

June 30, 2010		Fair Value Measurement at Reporting Date Using
(in thousands)		Level 11	Level 22		Level 33		Total
Cash equivalents
Money market funds	$	176,139	$	-	$	-	$	176,139
Trading securities
Debt securities - mutual funds		5,189		-		-		5,189
Total	$	181,328	$	-	$	-	$	181,328

December 31, 2009		Fair Value Measurement at Reporting Date Using
(in thousands)		Level 11	Level 22		Level 33		Total
Cash equivalents
Money market funds	$	337,817	$	-	$	-	$	337,817
Trading securities
Debt securities - mutual funds		1,928		-		-		1,928
Total	$	339,745	$	-	$	-	$	339,745

June 30, 2009		Fair Value Measurement at Reporting Date Using
(in thousands)		Level 11	Level 22		Level 33		Total
Cash equivalents
Money market funds	$	351,204	$	-	$	-	$	351,204
Trading securities
Debt securities - mutual funds		6,968		-		-		6,968
Total	$	358,172	$	-	$	-	$	358,172

1Quoted prices in active markets for identical assets or liabilities.

2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We believe the carrying values of receivables, other current assets, and other current liabilities approximate their fair values. The fair value of the senior notes payable was based on borrowing rates available to us for bank loans with similar terms, average maturities, and credit risk. The carrying amount and estimated fair value of senior notes payable were:

	June 30,		December 31,			June 30,
(in thousands)	2010		2009			2009
Carrying amount:
Senior notes payable (including current maturities)	$	225,000	$	240,000	$	240,000

Fair value:
Senior notes payable (including current maturities)	$	246,088	$	249,159	$	231,692

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.	Receivables, Net

	June 30,		December 31,			June 30,
(in thousands)	2010		2009			2009
Construction contracts:
Completed and in progress	$	155,343	$	121,083	$	152,562
Retentions		88,973		96,887		86,057
Total construction contracts		244,316		217,970		238,619
Construction material sales		39,989		22,817		33,140
Other		15,106		43,382		15,719
Total gross receivables		299,411		284,169		287,478
Less: allowance for doubtful accounts		3,632		3,917		6,046
Total net receivables	$	295,779	$	280,252	$	281,432

Included in other receivables at June 30, 2010, December 31, 2009 and June 30, 2009 were items such as notes receivable, interest receivable, fuel tax refunds and income tax refunds.

7.	Construction and Line Item Joint Ventures

We participate in various construction joint venture partnerships. We also participate in various “line item” joint ventures under which each partner is responsible for performing certain discrete items of the total scope of contracted work.

Our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each party will assume and pay for any losses it is responsible for under the joint venture agreement. Circumstances that could lead to a loss under our joint venture arrangements beyond our stated ownership interest include a partner’s inability to contribute additional funds to the venture in the event the project incurs a loss, or additional costs that we could incur should a partner fail to provide the services and resources toward project completion that had been committed to in the joint venture agreement. Due to the joint and several liability obligations under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for performance of the outstanding work.

At June 30, 2010, there was approximately $1.8 billion of construction work to be completed on unconsolidated construction joint venture contracts of which $634.0 million is our portion and the remaining $1.2 billion represents our partners’ share. We are not able to estimate other amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partner’s corporate and/or other guarantees.

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Construction Joint Ventures

Generally, each construction joint venture is formed to complete a specific contract and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities resulting from the performance of the contract are limited to our stated percentage interest in the project. We have no significant commitments beyond completion of the contracts. Under our contractual arrangements, we provide capital to these joint ventures in return for an ownership interest. In addition, partners dedicate resources to the ventures necessary to complete the contracts and are reimbursed for their cost. The operational risks of each construction joint venture are passed along to the joint venture partners. As we absorb our share of these risks, our investment in each venture is exposed to potential losses.

As discussed in Note 1, effective in 2010 we adopted an accounting standard that provides a new approach for determining a VIE’s primary beneficiary and requires continual evaluation of the primary beneficiary. The factors we consider in determining whether we are a construction joint venture’s primary beneficiary include the decision making authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners. The adoption of the new accounting standard resulted in the consolidation of one construction joint venture in our condensed consolidated financial statements on March 31, 2010 that was previously reported on a pro rata basis. This consolidation resulted in increases of $2.4 million in assets, $1.7 million in liabilities and $0.8 million in noncontrolling interests in our condensed consolidated financial statements.

As part of our ongoing primary beneficiary evaluations, we determined that decision making responsibility was shared between the venture partners for one joint venture. Therefore, this joint venture did not have an identifiable primary beneficiary partner and we continued to report its pro rata results. All other joint ventures were assigned one primary beneficiary partner.

Consolidated Construction Joint Ventures

The carrying amounts and classification of assets and liabilities of construction joint ventures we are required to consolidate are included in our condensed consolidated financial statements as follows:

	June 30,		December 31,			June 30,
(in thousands)	2010		2009			2009
Cash and cash equivalents	$	105,690	$	122,438	$	120,940
Other current assets		15,202		3,220		14,470
Total current assets	$	120,892	$	125,658	$	135,410
Noncurrent assets		829		1,443		3,741
Total assets1	$	121,721	$	127,101	$	139,151

Accounts payable	$	32,145	$	23,057	$	25,589
Billings in excess of costs and estimated earnings		66,706		69,354		79,503
Accrued expenses and other current liabilities		11,125		11,834		11,871
Total current liabilities	$	109,976	$	104,245	$	116,963
Noncurrent liabilities		505		3		-
Total liabilities1	$	110,481	$	104,248	$	116,963

1The assets and liabilities of the joint ventures are used only for the particular joint venture’s operations.

At June 30, 2010, our consolidated construction joint ventures were engaged in two active projects with total contract values of $11.6 million and $468.9 million and our proportionate share of the equity in these joint ventures was 45.0% and 57.3%, respectively.

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Unconsolidated Construction Joint Ventures

We account for our share of construction joint ventures that we are not required to consolidate on a pro rata basis in the condensed consolidated statements of operations and as a single line item on the condensed consolidated balance sheets. As of June 30, 2010, these unconsolidated joint ventures were engaged in eight active construction projects with total contract values ranging from $18.7 million to $972.2 million. Our proportionate share of the equity in these unconsolidated joint ventures ranged from 20.0% to 42.5%.

Following is summary financial information related to unconsolidated construction joint ventures:

	June 30,		December 31,			June 30,
(in thousands)	2010		2009			2009
Assets:
Total	$	412,165	$	337,959	$	253,211
Less partners’ interest		253,234		219,777		175,567
Granite’s interest		158,931		118,182		77,644
Liabilities:
Total		250,868		168,114		120,296
Less partners’ interest		164,508		117,625		92,867
Granite’s interest		86,360		50,489		27,429
Equity in construction joint ventures	$	72,571	$	67,693	$	50,215

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2010		2009			2010		2009
Revenue:
Total	$	136,592	$	91,075	$	258,398	$	192,275
Less partners’ interest		91,875		71,528		179,635		152,224
Granite’s interest		44,717		19,547		78,763		40,051
Cost of revenue:
Total		119,209		80,392		228,384		172,224
Less partners’ interest		75,442		63,020		149,929		134,668
Granite’s interest		43,767		17,372		78,455		37,556
Granite’s interest in gross profit	$	950	$	2,175	$	308	$	2,495

Line Item Joint Ventures

The revenue for each line item joint venture partner’s discrete items of work is defined in the contract with the project owner and each venture partner bears the profitability risk associated with its own work. There is not a single set of books and records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We account for our portion of these contracts as project revenues and costs in our accounting system and include receivables and payables associated with our work in our condensed consolidated financial statements. As of June 30, 2010, we had one active line item joint venture construction project with a total contract value of $148.3 million of which our portion is $66.6 million. As of June 30, 2010, we had approximately $18.0 million of work to be completed on this project.

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8.	Real Estate Entities and Investments in Affiliates

Our Real Estate segment is a participant in various real estate entities through our Granite Land Company (“GLC”) subsidiary. Generally, each entity is formed to accomplish a specific real estate development project. The agreements with our partners in these real estate entities define each partner’s management role and financial responsibility in the project. If one of our partners is unable to fulfill its management role or make its required financial contribution, we may assume full management or financial responsibility for the project. This may result in the consolidation of entities that are accounted for under the equity method in our consolidated financial statements. The amount of our exposure is limited to our equity investment in the real estate joint venture.

As discussed in Note 1, effective in 2010 we adopted an accounting standard that provides a new approach for determining a VIE’s primary beneficiary and requires continual evaluation of the primary beneficiary. The adoption of the new accounting standard did not have a material impact on the treatment of any of our real estate entities or investments in affiliates.

Substantially all the assets of these real estate entities in which we are participants through our GLC subsidiary are classified as real estate held for sale or use. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt. Our real estate affiliates include limited partnerships and limited liability companies of which we are a limited partner or member.

GLC routinely assists its real estate entities in securing debt financing from various sources. The amount of financial support to be provided by GLC to consolidated VIEs was increased by $9.7 million in 2010 and by $8.8 million in 2009 as a result of changes in the entities’ business plans. These amounts represent additional financial support in the form of current or future cash contributions to the consolidated entities, beyond what GLC had previously committed to provide. As of June 30, 2010, we had contributed $11.5 million of the total increased commitment of $18.5 million to the consolidated entities.

The carrying amounts of all real estate development assets are evaluated for recoverability in accordance with ASC Topic 360, Property, Plant, and Equipment. Based on our evaluations, we recognized pretax, non-cash impairment charges of $0.1 million and $1.0 million on assets classified as real estate held for development and sale during the quarters ended June 30, 2010 and 2009, respectively. We recorded the charge in cost of revenue of our Real Estate segment in our condensed consolidated statements of operations.

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Consolidated Real Estate Entities

The carrying amounts and classification of assets and liabilities of real estate entities we are required to consolidate are included in our condensed consolidated financial statements as follows:

	June 30,		December 31,			June 30,
(in thousands)	2010		2009			2009
Real estate held for development and sale	$	148,897	$	139,449	$	131,169
Other current assets		3,893		5,477		4,832
Total current assets		152,790		144,926		136,001
Property and equipment, net		7,894		14,905		15,386
Other noncurrent assets		2,081		11,989		10,847
Total assets	$	162,765	$	171,820	$	162,234

Current maturities of non-recourse debt	$	39,657	$	43,961	$	49,500
Other current liabilities		4,189		5,845		6,747
Total current liabilities		43,846		49,806		56,247
Long-term non-recourse debt		16,615		19,485		8,455
Other noncurrent liabilities		451		553		817
Total liabilities	$	60,912	$	69,844	$	65,519

For our consolidated real estate entities, substantially all of the real estate held for development and sale as well as property and equipment are pledged as collateral for the debt of the real estate entities. All outstanding debt of the real estate entities is recourse only to the real estate affiliate that incurred the debt, the limited partnership or limited liability company, of which we are a limited partner or member. Our proportionate share of the results of these entities varies depending on the ultimate profitability of the entities.

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Included in current assets on our condensed consolidated balance sheets is real estate held for development and sale. The breakdown by type and location of our real estate held for development and sale is summarized below:

	June 30,		December 31,		June 30,
(in thousands)	2010		2009		2009
Residential	$	127,111	$	121,101	$	116,072
Commercial		21,786		18,348		15,097
Total	$	148,897	$	139,449	$	131,169

Washington	$	85,500	$	80,703	$	77,118
Oregon		29,580		29,280		28,757
California		24,901		20,848		16,988
Texas		8,916		8,618		8,306
Total	$	148,897	$	139,449	$	131,169

Investments in Affiliates

We account for our share of unconsolidated real estate entities in which we have determined we are not the primary beneficiary in other income (expense) in the condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as Investments in Affiliates. At June 30, 2010, these entities were engaged in real estate development projects with total assets ranging from approximately $6.4 million to $50.8 million. Our proportionate share of the operating results of these entities varies depending on the ultimate profitability of the entities.

Additionally, we have investments in non-real estate affiliates that are accounted for using the equity method. The most significant of these investments is a 50% interest in a limited liability company which owns and operates an asphalt terminal in Nevada.

We also have a cost method investment that represents a 3.6% interest in a corporation that designs and manufactures power generation equipment. During the three months ended June 30, 2010, we entered into an agreement with that corporation to create a limited liability company whose purpose is to develop and construct power generation facilities in the western United States. Our investment in the company as of June 30, 2010 was $0.6 million. Our share of profits and losses will vary depending on the operating results of the company. We evaluated the entity and determined that it is a VIE and we are not the primary beneficiary; therefore, we account for it as an investment in affiliates.

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Our investments in affiliates balance consists of the following:

		June 30,		December 31,		June 30,
(in thousands)		2010		2009		2009
Equity method investments in real estate affiliates	$	13,408	$	13,325	$	13,375
Equity method investments in other affiliates		11,402		11,319		3,935
Total equity method investments		24,810		24,644		17,310
Cost method investments		6,400		-		-
Total investments in affiliates	$	31,210	$	24,644	$	17,310

The breakdown by type and location of our interests in real estate ventures is summarized below:

	June 30,		December 31,		June 30,
(in thousands)	2010		2009		2009
Residential	$	8,894	$	8,759	$	8,780
Commercial		4,514		4,566		4,595
Total	$	13,408	$	13,325	$	13,375

Texas	$	13,408	$	13,325	$	13,375
Total	$	13,408	$	13,325	$	13,375

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined 100% basis, which primarily relates to our real estate affiliates:

	June 30,		December 31,		June 30,
(in thousands)	2010		2009		2009
Total assets	$	163,720	$	169,325	$	153,525
Net assets		87,027		84,939		71,102
Granite’s share of net assets		24,810		24,644		17,310

9.	Property and Equipment, Net

Balances of major classes of assets and allowances for depreciation and depletion are included in property and equipment, net on our condensed consolidated balance sheets as follows:

	June 30,		December 31,		June 30,
(in thousands)	2010		2009		2009
Land and land improvements	$	124,621	$	126,162	$	124,744
Quarry property		172,140		160,618		142,744
Buildings and leasehold improvements		89,209		96,725		96,589
Equipment and vehicles		807,267		829,195		857,430
Office furniture and equipment		39,441		38,096		37,415
Property and equipment		1,232,678		1,250,796		1,258,922
Less: accumulated depreciation and depletion		731,420		730,018		729,117
Property and equipment, net	$	501,258	$	520,778	$	529,805

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10.	Intangible Assets

The balances of the following intangible assets are included in other noncurrent assets on our condensed consolidated balance sheets at carrying value:

Indefinite-lived Intangible Assets:

	June 30,		December 31,		June 30,
(in thousands)	2010		2009		2009
Goodwill1	$	9,900	$	9,900	$	9,900
Use rights and other		1,319		1,319		2,954
Total unamortized intangible assets	$	11,219	$	11,219	$	12,854

1Goodwill for all periods presented primarily relates to our Construction segment.

Amortized Intangible Assets:

June 30, 2010			Accumulated
(in thousands)	Gross Value		Amortization			Net Value
Permits	$	33,582	$	(5,984	)	$	27,598
Customer lists		2,198		(1,601	)		597
Covenants not to compete		1,588		(1,247	)		341
Other		1,082		(567	)		515
Total amortized intangible assets	$	38,450	$	(9,399	)	$	29,051

December 31, 2009
(in thousands)
Permits	$	33,582	$	(5,151	)	$	28,431
Customer lists		2,198		(1,399	)		799
Covenants not to compete		1,588		(1,106	)		482
Other		1,082		(478	)		604
Total amortized intangible assets	$	38,450	$	(8,134	)	$	30,316

June 30, 2009
(in thousands)
Permits	$	36,070	$	(4,593	)	$	31,477
Customer lists		2,198		(1,109	)		1,089
Covenants not to compete		1,588		(901	)		687
Other		1,082		(388	)		694
Total amortized intangible assets	$	40,938	$	(6,991	)	$	33,947

Amortization expense related to these intangible assets for the three and six months ended June 30, 2010 was approximately $0.6 million and $1.3 million, respectively, and approximately $0.7 million and $1.6 million for the three and six months ended June 30, 2009, respectively. Based on the amortized intangible assets balance at June 30, 2010, amortization expense expected to be recorded in the future is as follows: $1.1 million for the balance of 2010; $2.2 million in 2011; $2.1 million in 2012; $1.8 million in 2013; $1.7 million in 2014; and $20.1 million thereafter.

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11.	Line of Credit

On June 22, 2010, we refinanced our $150.0 million bank revolving line of credit (“LOC”), which allows for unsecured borrowings through June 22, 2013. Borrowings under the LOC bear interest at LIBOR plus an applicable margin based upon certain financial ratios calculated quarterly. The margin was 2.75% at June 30, 2010. The unused and available portion of the LOC was $145.8 million at June 30, 2010. We had standby letters of credit (“Letters”) totaling approximately $4.2 million outstanding at June 30, 2010, all of which will expire between October 2010 and March 2011. These Letters will likely be replaced upon expiration.

Restrictive covenants under the terms of our debt agreements require the maintenance of certain levels of cash flow, financial ratios and tangible net worth (as defined by the debt agreements). We were in compliance with these covenants at June 30, 2010.

12.	Weighted Average Shares Outstanding

A reconciliation of the weighted average shares outstanding used in calculating basic and diluted net (loss) income per share in the accompanying condensed consolidated statements of operations is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
(in thousands)	2010	2009	2010	2009
Weighted average shares outstanding:
Weighted average common stock outstanding	38,798	38,675	38,734	38,503
Less: weighted average unvested restricted stock outstanding	948	1,091	964	973
Total basic weighted average shares outstanding	37,850	37,584	37,770	37,530
Diluted weighted average shares outstanding:
Weighted average common stock outstanding, basic	37,850	37,584	37,770	37,530
Effect of dilutive securities:
Common stock options and units1	-	115	-	120
Total weighted average shares outstanding assuming dilution	37,850	37,699	37,770	37,650

1Due to the net loss for the three and six months ended June 30, 2010, stock options and units representing 119 and 115 shares, respectively, have been excluded from the number of shares used in calculating diluted loss per share for that period, as their inclusion would be antidilutive.

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13.	Earnings Per Share

We calculate earnings per share (“EPS”) under the two-class method by allocating earnings to both common shares and unvested restricted stock which are considered participating securities. However, net losses are not allocated to participating securities for purposes of computing EPS under the two-class method. The following is a reconciliation of net (loss) income attributable to Granite and related weighted average shares of common stock outstanding for purposes of calculating basic and diluted net (loss) income per share using the two-class method:

		Three Months Ended June 30,							Six Months Ended June 30,
(in thousands, except per share amounts)			2010			2009			2010			2009

Basic
Numerator:
Net (loss) income attributable to Granite	$	(6,691	)	$	17,949	$	(47,645	)	$	26,869
Less: net income allocated to participating securities		-			500		-			667
Net (loss) income allocated to common shareholders for basic calculation	$	(6,691	)	$	17,449	$	(47,645	)	$	26,202

Denominator:
Weighted average common shares outstanding		37,850			37,584		37,770			37,530

Net (loss) income per share, basic	$	(0.18	)	$	0.46	$	(1.26	)	$	0.70

Diluted
Numerator:
Net (loss) income attributable to Granite	$	(6,691	)	$	17,949	$	(47,645	)	$	26,869
Less: net income allocated to participating securities		-			499		-			665
Net (loss) income allocated to common shareholders for diluted calculation	$	(6,691	)	$	17,450	$	(47,645	)	$	26,204

Denominator:
Weighted average common shares outstanding		37,850			37,699		37,770			37,650

Net (loss) income per share, diluted	$	(0.18	)	$	0.46	$	(1.26	)	$	0.70

14.	Income Taxes

It is reasonably possible that we will resolve various uncertain tax positions resulting in a decrease of up to $3.4 million in unrecognized tax benefits within the next twelve months.

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15.	Equity and Other Comprehensive (Loss) Income

The following tables summarize our equity activity for the periods presented:

(in thousands)	Granite Construction Inc.				Noncontrolling Interests		Total Equity
Balance at December 31, 2009	$	830,651		$	51,905		$	882,556
Purchase of common stock1		(3,434	)		-			(3,434	)
Other transactions with shareholders		6,918			-			6,918
Transactions with noncontrolling interests, net3		-			(19,399	)		(19,399	)
Comprehensive (loss) income:
Net (loss) income		(47,645	)		7,282			(40,363	)
Total comprehensive (loss) income		(47,645	)		7,282			(40,363	)
Dividends on common stock		(10,087	)		-			(10,087	)
Balance at June 30, 2010	$	776,403		$	39,788		$	816,191

(in thousands)
Balance at December 31, 2008	$	767,509		$	36,773	$	804,282
Purchase of common stock2		(2,821	)		-		(2,821	)
Other transactions with shareholders		6,932			-		6,932
Transactions with noncontrolling interests, net3		-			6,114		6,114
Comprehensive income:
Net income		26,869			9,785		36,654
Other comprehensive income		146			-		146
Total comprehensive income		27,015			9,785		36,800
Dividends on common stock		(10,056	)		-		(10,056	)
Balance at June 30, 2009	$	788,579		$	52,672	$	841,251

1Represents 120,687 shares purchased in connection with employee tax withholding for shares vested.

2Represents 77,683 shares purchased in connection with employee tax withholding for shares vested.

3Amount is comprised primarily of contributions from (distributions to) noncontrolling partners.

The components of other comprehensive income are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2010			2009		2010		2009
Changes in unrealized gain on investments	$	-	$	-	$	-	$	238
Tax provision on unrealized loss		-		-		-		(92	)
Total other comprehensive income	$	-	$	-	$	-	$	146

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16.	Legal Proceedings

Silica Litigation

Our wholly-owned subsidiary Granite Construction Company (“GCCO”) was one of approximately 100 to 300 defendants in six California Superior Court lawsuits remaining from the silica-related lawsuits filed against GCCO. GCCO has been dismissed from the six lawsuits (four of which were filed in 2005 and two in 2006) this quarter. Each lawsuit was brought by a single plaintiff who was seeking money damages by way of various causes of action, including strict product and market share liability, and alleged personal injuries caused by exposure to silica products and related materials during the plaintiffs’ use or association with sand blasting or grinding concrete. GCCO has now been dismissed from a total of 24 silica-related lawsuits in which GCCO was served, and no such lawsuits are currently pending.

Hiawatha Project DBE Issues

The Hiawatha Light Rail Transit (“HLRT”) project was performed by Minnesota Transit Constructors (“MnTC”), a joint venture that consisted of GCCO and other unrelated companies. GCCO was the managing partner of the joint venture, with a 56.5% interest. The Minnesota Department of Transportation (“MnDOT”) is the contracting agency for this federally funded project. The Metropolitan Council is the local agency conduit for providing federal funds to MnDOT for the HLRT project. MnDOT and the U.S. Department of Transportation Office of Inspector General (“OIG”) each conducted a review of the Disadvantaged Business Enterprise (“DBE”) program maintained by MnTC for the HLRT project. In addition, the U.S. Department of Justice (“USDOJ”) is conducting an investigation into compliance issues with respect to MnTC’s DBE Program for the HLRT project. MnDOT and the OIG (collectively, the “Agencies”) have initially identified certain compliance issues in connection with MnTC’s DBE Program and, as a result, have determined that MnTC failed to meet the DBE utilization criteria as represented by MnTC. Although there has been no formal administrative subpoena issued, nor has a civil complaint been filed in connection with the administrative reviews or the investigation, MnDOT has proposed a monetary sanction of $4.3 million against MnTC and specified DBE training for personnel from the members of the MnTC joint venture as a condition of awarding future projects to joint venture members of MnTC on MnDOT and Metropolitan Council work. MnTC and its members are fully cooperating with the Agencies and the USDOJ. MnTC has presented its detailed written responses to the initial determinations of the Agencies as well as the investigation by the USDOJ. MnTC, USDOJ, and the Agencies are continuing to engage in informal discussions in an attempt to resolve this matter. Such discussions, if successful, are expected to include resolution of issues with the USDOT and with the state agencies. We cannot, however, rule out the possibility of civil or criminal actions or administrative sanctions being brought against MnTC or one or more of its members which could result in civil and criminal penalties.

US Highway 20 Project

GCCO and our wholly-owned subsidiary, Granite Northwest, Inc. are the members of a joint venture known as Yaquina River Constructors (“YRC”) which is currently constructing a new road alignment of US Highway 20 near Eddyville, Oregon under contract with the Oregon Department of Transportation (“ODOT”). The project involves constructing seven miles of new road through steep and forested terrain in the Coast Range Mountains. During the fall and winter of 2006, extraordinary rain events produced runoff that overwhelmed erosion control measures installed at the project and resulted in discharges to surface water in alleged violations of YRC’s stormwater permit. In June 2009, YRC was informed that the USDOJ had assumed the criminal investigation that the Oregon Department of Justice had previously been conducting in connection with stormwater runoff from the project. YRC and its members are fully cooperating in the investigation. We do not know whether any criminal charges or civil lawsuits will be brought or against whom, as a result of the investigation. Therefore, we cannot estimate what, if any, criminal or civil penalty or conditional assessment may result from this investigation.

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City of San Diego Fire Debris Cleanup

In the aftermath of the 2007 San Diego County wildfires, GCCO bid for and was awarded a fixed unit price, variable quantity contract with the City of San Diego (the “City”) to perform specified debris cleanup work. GCCO began work in November 2007 and completed the work in April 2008. In August 2008, the City announced that it would conduct an independent audit of the project. In December 2008, the City’s audit report was released with findings that, while some GCCO billings contained mistakes, rates paid to GCCO appear to be generally reasonable. GCCO has reimbursed the City for the undisputed overbilled amount of less than $3,000. The former San Diego City Attorney, after conducting a separate investigation of GCCO’s work on the project, filed a civil lawsuit in California Superior Court, County of San Diego on October 17, 2008 against GCCO and another contractor that had been awarded a similar cleanup contract with the City. In the complaint, the City alleges that both contractors knowingly presented to the City false claims for payment in violation of the California False Claims Act. The City seeks trebled damages in an amount to be determined, and a civil penalty in the amount of $10,000 for each false claim made. After the November 2008 election in which a new City Attorney was elected, GCCO and the City Attorney agreed to stay the lawsuit in order to allow the City Attorney time to complete its investigation. The parties have agreed to jointly request a stay that will expire October 5, 2010, during which time a proposed resolution will be presented by the City Attorney to the City Council for approval. GCCO believes the allegations in the City’s complaint to be without factual or legal basis and, therefore, we believe the City’s entitlement to relief sought under the California False Claims Act is remote.

Grand Avenue Project DBE Issues

On March 6, 2009, the U.S. Department of Transportation, Office of Inspector General (“OIG”) served upon our wholly-owned subsidiary, Granite Construction Northeast, Inc. (“Granite Northeast”), a United States District Court Eastern District of New York subpoena to testify before a grand jury by producing documents. The subpoena seeks all documents pertaining to the use of a Disadvantaged Business Enterprise (“DBE”) firm (the “Subcontractor”), and the Subcontractor’s use of a non-DBE lower tier subcontractor/consultant, on the Grand Avenue Bus Depot and Central Maintenance Facility for the Borough of Queens Project (the “Grand Avenue Project”), a Granite Northeast project. The subpoena also seeks any documents regarding the use of the Subcontractor as a DBE on any other projects and any other documents related to the Subcontractor or to the lower-tier subcontractor/consultant. We have complied with the subpoena and are fully cooperating with the OIG’s investigation. To date, Granite Northeast has not been notified that it is either a subject or target of the OIG’s investigation. Accordingly, we do not know whether any criminal charges or civil lawsuits will be brought or against whom, as a result of the investigation. Therefore, we cannot estimate what, if any, criminal or civil penalty or conditional assessment may result from this investigation.

Other Legal Proceedings/Government Inquiries

We are a party to a number of other legal proceedings arising in the normal course of business. From time to time, we also receive inquiries from public agencies seeking information concerning our compliance with government construction contracting requirements and related laws and regulations. We believe that the nature and number of these proceedings and compliance inquiries are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes, after consultation with counsel, that the ultimate outcome of pending proceedings and compliance inquiries, individually and in the aggregate, will not have a material adverse affect on our financial position or overall trends in results of operations or cash flows, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse effect on our results of operations, cash flows and/or financial position for the period in which the ruling occurs. In addition, our government contracts could be terminated, we could be suspended or debarred, or payment of our costs disallowed. While any one of our pending legal proceedings is subject to early resolution as a result of our ongoing efforts to settle, whether or when any legal proceeding will be resolved through settlement is neither predictable nor guaranteed.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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17.	Business Segment Information

On August 31, 2009, we announced changes in our organizational structure. In conjunction with the restructure, we changed our reportable business segments to reflect our lines of business rather than geographies, on which our segment reporting was previously based. Effective January 1, 2010, our new reportable segments are: Construction, Large Project Construction, Construction Materials and Real Estate. The prior period segment information presented below has been reclassified to conform to our new reportable segments.

The Construction segment performs various heavy civil construction projects with a large portion of the work focused on new construction and improvement of streets, roads, highways, bridges, site work and other infrastructure projects. These projects are typically bid-build projects completed within two years with a contract value of less than $75 million.

The Large Project Construction segment focuses on large, complex infrastructure projects which are long-term in nature. These projects include major highways, mass transit facilities, bridges, tunnels, waterway locks and dams, pipelines, canals and airport infrastructure. This segment primarily includes bid-build, design-build and construction management/general contractor contracts, generally with contract values in excess of $75 million.

The Construction Materials segment mines and processes aggregates and operates plants that produce construction materials for internal use and for sale to third parties.

The Real Estate segment purchases, develops, operates, sells and invests in real estate related projects and provides real estate services for the Company’s operations.

The accounting policies of the segments are the same as those described in the Summary of Significant Account Policies contained in our 2009 Annual Report on Form 10-K. We evaluate segment performance based on gross profit or loss, and do not include overhead and non-operating income or expense. Segment assets include property and equipment, intangibles, inventory, equity in construction joint ventures and real estate held for development and sale.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Summarized segment information is as follows:

	Three Months Ended June 30,
(in thousands)	Construction		Large Project Construction			Construction Materials		Real Estate				Total
2010
Total revenue from reportable segments	$	237,943	$	153,328	$	108,598		$	1,844		$	501,713
Elimination of intersegment revenue		-		-		(47,509	)		-			(47,509	)
Revenue from external customers		237,943		153,328		61,089			1,844			454,204
Gross profit		22,901		21,835		4,480			482			49,698
Depreciation, depletion and amortization		5,110		542		7,453			138			13,243
2009
Total revenue from reportable segments	$	277,456	$	125,770	$	104,086		$	534		$	507,846
Elimination of intersegment revenue		-		-		(46,771	)		-			(46,771	)
Revenue from external customers		277,456		125,770		57,315			534			461,075
Gross profit (loss)		52,801		22,511		9,583			(1,000	)		83,895
Depreciation, depletion and amortization		6,314		1,383		7,948			125			15,770

	Six Months Ended June 30,
(in thousands)	Construction		Large Project Construction		Construction Materials			Real Estate					Total
2010
Total revenue from reportable segments	$	319,129	$	259,653	$	142,318			$	8,852		$	729,952
Elimination of intersegment revenue		-		-		(55,065	)			-			(55,065	)
Revenue from external customers		319,129		259,653		87,253				8,852			674,887
Gross profit (loss)		24,747		31,318		(2,645	)			1,992			55,412
Depreciation, depletion and amortization		10,626		1,469		15,552				329			27,976
Segment assets		138,207		81,565		378,256				165,081			763,109
2009
Total revenue from reportable segments	$	445,505	$	274,830	$	142,823			$	951		$	864,109
Elimination of intersegment revenue		-		-		(55,662	)			-			(55,662	)
Revenue from external customers		445,505		274,830		87,161				951			808,447
Gross profit (loss)		87,977		56,175		9,269				(790	)		152,631