GRANITE CONSTRUCTION INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

[ ] 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
(Exact name of registrant as specified in its charter)

DELAWARE 77-0239383
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

585 WEST BEACH STREET, WATSONVILLE, CALIFORNIA 95076
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 724-1011

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of voting and non-voting stock held by
non-affiliates of the registrant was approximately $800,536,786 as of March 19,
2002 based upon the average of the high and low sales prices per share of the
registrant's Common Stock as reported on the New York Stock Exchange on such
date. Shares of Common Stock held by each executive officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

At March 19, 2002, 41,046,642 shares of Common Stock, par value $0.01, of
the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held May 20, 2002, which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 2001.

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TABLE OF CONTENTS

1

PART I

ITEM 1. BUSINESS

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
adequacy of the Company's aggregate reserves, 2001 backlog expected to be
completed in 2002, 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 "outlook," "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; the availability and pricing of fuel and
energy and state referendums and initiatives. Forward-looking statements related
to the Company's aggregate reserves and completion of backlog carry risk factors
which include, without limitation, changes in estimates of existing reserves and
estimates of the Company's need for those reserves and delays in the progress of
work in the 2001 backlog.

INTRODUCTION

Granite Construction Incorporated (the "Company" or "Granite") was
incorporated in Delaware in January 1990 as the holding company for Granite
Construction Company, which was incorporated in California in 1922. Therefore,
references herein to the "Company" or "Granite" in the context of operations
should be read to mean Granite Construction Company and Granite Construction
Incorporated's other subsidiaries.

The Company is one of the largest heavy civil construction contractors in
the United States and operates nationwide, serving both public and private
sector clients. Within the public sector, the Company primarily concentrates on
infrastructure projects; including the construction of roads, highways, bridges,
dams, tunnels, canals, mass transit facilities and airports. Within the private
sector, the Company performs site preparation services for buildings, plants,
subdivisions and other facilities. Granite's diversification in both the public
and private sectors and its mix of project types and sizes have contributed to
the Company's revenue growth and profitability in various economic environments.

The Company owns and leases substantial aggregate reserves and owns 122
construction materials processing plants. The Company also has one of the
largest contractor owned heavy construction equipment fleets in the United
States. The Company believes that the ownership of these assets enables it to
compete more effectively by ensuring availability of these resources at a
favorable cost.

OPERATING STRUCTURE

The Company is organized into two operating segments, the Branch Division
and the Heavy Construction Division. The Branch Division is comprised of branch
offices that serve local markets, while the Heavy Construction Division ("HCD")
is composed of regional offices and pursues major infrastructure projects
throughout the nation. For reporting purposes, the activities of Intermountain
Slurry Seal, Inc. and Granite Halmar Construction Company, Inc., both wholly
owned subsidiaries of Granite Construction Incorporated, are included in the
operating results of the Branch Division and HCD, respectively. 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.

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The two divisions complement each other in a variety of ways. HCD is a
major user of large construction equipment and employs sophisticated techniques
on complex projects. The branches draw on these resources, which are generally
not available to smaller, local competitors. Conversely, the Branch Division has
greater knowledge of local markets and provides HCD with valuable local
information regarding larger projects in the branches' areas. The two divisions
sometimes jointly perform projects when a project in a particular region exceeds
the local branch's capabilities.

As decentralized profit centers, the branch offices and HCD independently
estimate, bid and complete contracts. Both divisions are supported by
centralized functions, including finance, accounting, tax, human resources,
labor relations, safety, legal, insurance, surety, corporate development and
information technology. The Company believes that centralized support for
decentralized profit centers results in a more market responsive business with
effective controls and reduced overhead.

In addition to cost and profitability estimates, Granite considers the
availability of estimating and project building personnel as key factors when
determining whether to bid on a project. Other factors considered include the
client, the geographic location, Granite's competitive advantages and
disadvantages relative to likely competitors for the project, current and
projected workload, and the likelihood of follow-up work. Both operating
divisions use a proprietary computer-based project estimating system that
reflects Granite's significant accumulated experience. Granite believes that an
exhaustive, detailed approach to a project's estimate and bid is important in
order to best identify the project's risks and opportunities. The Company's
estimates are comprehensive in nature, sometimes totaling hundreds of pages of
analysis. Each project is broken into items of work, for which separate labor,
equipment and material estimates are made. Once a project begins, the estimate
provides Granite with a budget against which actual project cost is regularly
measured, enabling Granite to manage its projects more effectively.

Information about the Company's business segments for the years ended
December 31, 2001, 2000 and 1999 is incorporated in Note 15 of the "Notes to the
Consolidated Financial Statements," located on page F-19 of this Annual Report
on Form 10K.

The Branch Division. In 2001, Branch Division contract revenue and sales
of aggregate products were $1,083.7 million (70.0% of Company revenue) as
compared with $1,010.9 million (75.0% of Company revenue) in 2000. The Branch
Division has both public and private sector clients. Public sector activities
include both new construction and improvement of streets, roads, highways and
bridges. For example, the branches widen and re-pave roads and modify and
replace bridges. Major private sector contracts include site preparation for
housing and commercial development, including excavation; grading and street
paving; and installation of curbs, gutters, sidewalks and underground utilities.

The Company currently has 11 branch offices with 16 satellite operations.
The Company's branch offices in California are located in Bakersfield, Hanford
(Central Valley), Watsonville (Monterey Bay Area), Palm Springs (Southern
California), Sacramento, San Jose, Santa Barbara and Stockton. The Company's
branch offices outside of California are located in Arizona, Nevada and Utah.
Each branch effectively operates as a local or regional construction company and
its management is encouraged to participate actively in the local community.
While individual branch revenues vary from year to year, in 2001 these revenues
ranged from $44 million to $170 million per branch.

As part of the Company's strategy, substantially all of Granite's branches
mine aggregates and operate plants which process aggregates into construction
materials for internal use and for sale to others. These activities provide both
a source of profits and a competitive advantage to the Company's construction
business. Approximately half of the aggregate products produced in these branch
operations are used in the Company's construction projects. The remainder is
sold to unaffiliated parties and accounted for $189.9 million of revenue in
2001, representing 12.3% of the Company's total 2001 revenue compared with
$159.9 million or 11.9% of the Company's total 2000 revenue. The Company has
significant aggregate reserves that it has acquired by ownership in fee or
through long-term leases.

Heavy Construction Division. In 2001, revenue from HCD was $464.3 million
(30.0% of Company revenue) as compared with $337.4 million (25.0% of Company
revenue) in 2000. HCD projects are usually

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larger and more complex than those performed by the Branch Division. The
Division has completed projects throughout the nation; including mass transit
projects in the metropolitan areas of Atlanta, Baltimore, Los Angeles, San
Francisco and Washington, D.C., and major dam and tunnel projects in twelve
states.

HCD builds infrastructure projects; including major highways, large dams,
mass transit facilities, bridges, pipelines, canals, tunnels, waterway locks and
dams and airport runways, and has engaged in contract mine stripping,
reclamation and large site preparation. It also performs activities such as
demolition, clearing, excavation, de-watering, drainage, embankment fill,
structural concrete and concrete and asphalt paving.

The division markets, estimates, bids and provides management overview of
its projects from its Watsonville, California headquarters and regional
estimating offices in New York, Texas, Georgia, and Florida. Project staff
located at job sites have the managerial, technical, and clerical capacity to
meet on-site project management requirements. HCD has the ability, if
appropriate, to process locally sourced aggregates into construction materials
using its own portable crushing, concrete and asphalt processing plants.

HCD participates in joint ventures with other large construction companies
from time to time. Joint ventures are used for large, technically complex
projects, including design/build projects, where it is desirable to share risk
and resources. Joint ventures provide independently prepared estimates, and
shared financing, equipment and expertise.

Design/build projects have emerged as an expanding market for HCD. Unlike
traditional projects where owners first hire a design firm and then put the
plans out to bid for construction, design/build projects provide the owner with
a single point of responsibility and a single contact for both design and
construction. Past design/build projects have included projects in California
such as the SR-91 Tollway which was completed in 1995 and the San Joaquin Hills
Transportation Corridor which was completed in 1996, the I-17 rebuild in Arizona
and a tollway in Texas -- both of which were completed in 2000 and the I-15
rebuild in Salt Lake City, Utah and the Atlantic City/Brigantine Connector in
New Jersey, which were completed in 2001. Ongoing projects include the Hathaway
Bridge Replacement in Panama City, Florida, the Hiawatha Light Rail in
Minnesota, and the Las Vegas Monorail in Nevada. The Company frequently bids
design/build projects as part of a joint venture team.

On July 1, 2001 the Company acquired 100% of the common stock of Halmar
Builders of New York, Inc., a Mt. Vernon, New York heavy-civil construction
company ("Halmar"). The new entity operates under the name Granite Halmar
Construction Company, Inc. ("Granite Halmar") as a wholly owned subsidiary of
Granite Construction Incorporated. Granite Halmar is one of the largest heavy
civil construction companies operating in the metropolitan New York City area.
Granite Halmar's major clients include the Port Authority of New York, the City
of New York, the New York Department of Transportation and various transit
authorities in the greater New York City area.

INVESTMENT IN WILDER CONSTRUCTION COMPANY

The Company entered into an agreement to purchase common stock of Wilder
Construction Company ("Wilder") in 1999. Founded in 1911, Wilder is a heavy
civil construction company with regional offices located in Washington, Oregon
and Alaska. The purchase agreement provides for the Company to increase its
ownership in Wilder to between 51% and 60% in April 2002 and to 75% in 2004. The
Company held a 39% minority interest in Wilder as of December 31, 2000 and
increased its interest to 48% during the year ended December 31, 2001.

INVESTMENT IN T.I.C. HOLDINGS, INC.

The Company currently holds a 27% minority interest in T.I.C. Holdings,
Inc. ("TIC"). In April 2000, the Company finalized an agreement with TIC to sell
its minority interest back to TIC over a three and one half-year period. Under
the agreement, TIC will have the opportunity to repurchase shares sooner based
on an agreed to formula. This will allow TIC to retain its independence while
allowing both companies to maintain their strategic alliance.

4

BUSINESS STRATEGY

Granite's fundamental objective is to increase long-term shareholder value
by focusing on consistent profitability from controlled revenue growth.
Shareholder value is measured by the appreciation of the value of Granite stock
over a period of years as well as a return from dividends. Further, it is a
specific measure of the Company's financial success to achieve a Return on Net
Assets ("RONA") greater than the cost of capital, creating "Granite Value
Added." To accomplish these objectives, Granite employs the following
strategies:

Infrastructure Construction Focus -- Granite concentrates its core
competencies on this segment of the construction industry, which includes
the building of roads, highways, bridges, dams and tunnels, mass transit
facilities, underground utilities and site preparation. This focus
emphasizes the Company's specialized strengths, which include grading,
paving and concrete structures.

Employee Development -- Granite recognizes that its employees are the
key to successful implementation of its business strategies. Significant
resources are employed to attract, nurture and retain extraordinary talent
and fully develop each employee's capabilities.

Ownership of Aggregate Materials and Construction Equipment -- Granite
owns aggregate reserves and processing plants which are vertically
integrated into its construction operations and a large fleet of carefully
maintained heavy construction equipment. By ensuring availability of these
resources at favorable cost, it believes it has significant bidding
advantages in many of its markets. Granite is continually evaluating other
opportunities to develop, acquire or invest in businesses that are a part
of the construction value chain.

Selective Bidding -- Once Granite selects a job that meets its bidding
criteria, the project is estimated using a highly detailed method with a
proprietary estimating system which details anticipated cost to construct
to which margin is added to achieve the appropriate bid price for the risk
assumed.

Diversification -- To mitigate the risks inherent in construction and
general economic factors, Granite pursues projects (i) in both the public
and private sectors; (ii) for a wide range of customers within each sector
(from the federal government to small municipalities and from large
corporations to individual homeowners); (iii) in diverse geographic
markets; and (iv) of various sizes, durations and complexity.

Decentralized Profit Centers -- Granite approaches each selected
market with a local focus through its decentralized structure. Each of
Granite's branches as well as the Heavy Construction Division is an
individual profit center.

Management Incentives -- The Company compensates its profit center
managers with lower-than-market fixed salaries coupled with a substantial
variable cash and restricted stock incentive element based on the annual
profit performance of their respective profit centers.

Controlled Expansion -- The Company intends to continue its expansion
by selectively adding branches in the western United States, pursuing major
infrastructure projects throughout the nation, expanding into other
construction related market segments through acquisitions, and by
leveraging its financial capacity for projects that will utilize Granite
for construction work and provide an acceptable return on the Company's
investment.

Accident Prevention -- Granite believes that the prevention of
accidents is both a moral obligation and good business. By identifying and
concentrating resources to address jobsite hazards the Company continues to
significantly reduce its incident rates and the costs associated with
accidents.

Environmental Affairs -- Granite believes it benefits everyone to
maintain environmentally responsible operations. The Company is committed
to effective air quality control measures and reclamation at its plant
sites and to waste reduction and recycling of the potentially
environmentally sensitive products used in its operations.

5

Quality and High Ethical Standards -- Granite emphasizes the
importance of performing high quality work and maintaining high ethical
standards through an established code of conduct and an effective corporate
compliance program.

CUSTOMERS

The Company has customers in both the public and private sectors. The
Branch Division's most significant customer is the California Department of
Transportation. In 2001, contracts with the California Department of
Transportation represented 14.4% of the Company's revenue. Other Branch Division
clients include county and city public works departments and developers and
owners of industrial, commercial and residential sites. The principal clients of
the Heavy Construction Division are in the public sector and currently include
the State Departments of Transportation in several states. (See Note 2 of Notes
to Consolidated Financial Statements.)

BACKLOG

The Company's backlog (anticipated revenue from uncompleted portions of
existing contracts) was $1,377.2 million at December 31, 2001, up from $1,120.5
million at December 31, 2000, and was $793.3 million at December 31, 1999.
Approximately $500.0 million of the December 31, 2001 backlog is expected to
remain at December 31, 2002. The Company includes a construction project in its
backlog at such time as a contract is awarded or a firm letter of commitment is
obtained, and funding is in place. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.") The Company believes its
backlog figures are firm, subject only to the cancellation and modification
provisions contained in various contracts. Substantially all of the contracts in
the backlog may be canceled or modified at the election of the client. However,
the Company has not been materially adversely affected by contract cancellations
or modifications in the past. (See "Business -- Contract Provisions and
Subcontracting.") A sizeable percentage of the Company's anticipated revenue in
any year is not reflected in its backlog at the start of the year due to the
short duration of smaller Branch Division projects that are initiated and
completed during such year.

EQUIPMENT

The Company purchases and maintains many pieces of equipment; including
cranes, bulldozers, scrapers, graders, loaders, trucks, pavers, rollers, and
construction materials processing plants. In 2001 and 2000, the Company spent
approximately $57.6 million and $48.6 million, respectively, for construction
equipment, plants and vehicles. The breakdown of the Company's construction
equipment, plants and vehicles at December 31, 2001 is as follows:

Heavy construction equipment................................ 2,189 units
Trucks, truck-tractors and trailers and vehicles............ 3,859 units
Aggregate crushing plants................................... 41 plants
Asphalt concrete plants..................................... 45 plants
Portland cement concrete batch plants....................... 23 plants
Thermal soil remediation plants............................. 1 plant
Asphalt rubber plants....................................... 4 plants
Lime slurry plants.......................................... 8 plants

The Company believes that ownership of equipment is preferable to leasing
because ownership ensures the equipment is available as needed and normally
results in lower equipment costs. The Company attempts to keep its equipment as
fully utilized as possible by pooling equipment for use by both the Branch
Division and the Heavy Construction Division. The Company regularly leases or
rents equipment on a short-term basis to supplement existing equipment and
respond to construction activity peaks.

6

EMPLOYEES

On December 31, 2001 Granite employed 1,467 salaried employees, who work in
management, estimating and clerical capacities, and 3,317 hourly employees. The
total number of hourly personnel employed by the Company is subject to the
volume of construction in progress. During 2001, the number of hourly employees
ranged from 2,394 to 5,117 and averaged approximately 3,900. The Company's
wholly owned subsidiaries, Granite Construction Company and Granite Halmar
Construction Company are parties to craft collective bargaining agreements in
many areas in which they work.

The Company believes its employees are its most valuable resource and that
its workforce possesses a strong dedication to and pride in the Company. Among
salaried and non-union hourly employees, this dedication is reinforced by 26.2%
equity ownership through the Employee Stock Ownership Plan ("ESOP"), the Profit
Sharing and 401k Plan and performance-based incentive compensation arrangements
at December 31, 2001. The Company's 601 managerial and supervisory personnel
have an average of 10 years of service with Granite.

COMPETITION

Factors influencing the Company's competitiveness are price, reputation for
quality, the availability of aggregate materials, machinery and equipment,
financial strength, knowledge of local markets and conditions, and project
management estimating abilities. The Company believes that it competes favorably
on the basis of the foregoing factors. Branch Division competitors range from
small local construction companies to large regional and national construction
companies. While the market areas of these competitors overlap with several of
the markets served by the Company's branches, few, if any, compete in all of the
Company's market areas. The Heavy Construction Division normally competes with
large regional and national construction companies. Although the construction
business is highly competitive, particularly for competitively bid projects in
the public sector, the Company believes it is well positioned to compete
effectively.

CONTRACT PROVISIONS AND SUBCONTRACTING

A significant portion of the Company's revenue is derived from contracts
that are "fixed unit price" under which the Company is committed to provide
materials or services required by a project at fixed unit prices (for example,
dollars per cubic yard of concrete or cubic yards of earth excavated). While the
fixed unit price contract shifts the risk of estimating the quantity of units
required for a particular project to the customer; any increase in the Company's
unit cost over the unit price bid, whether due to inflation, inefficiency,
faulty estimates or other factors, is borne by the Company unless otherwise
provided in the contract. Other contracts, including most design-build
contracts, are priced on a lump-sum basis under which the Company bears the risk
that it may not be able to perform all the work for the specified amount. The
Company's contracts are obtained primarily through competitive bidding in
response to advertisements by federal, state and local government agencies and
private parties. Less frequently, contracts may be obtained through direct
negotiation with private contract owners.

There are a number of factors that can create variability in contract
performance and results as compared to a project's original bid. The most
significant of these include, without limitation, site conditions that differ
from those assumed in the original bid to the extent contract remedies are
unavailable, the availability and skill level of workers in the geographic
location of the project, the availability and proximity of materials, the
accuracy of the original bid and inclement weather. Design-build projects carry
other risks such as design error risk, scope of work and quantities of
materials. All of these factors can impose inefficiencies on contract
performance and therefore have a direct impact on contract productivity (i.e.
drive up contract costs), which in turn can have a direct impact on contract
results.

All federal government contracts and most of the Company's other contracts
provide for termination of the contract for the convenience of the party
contracting with the Company, with provisions to pay the Company for work
performed through the date of termination. In addition, many of the Company's
contracts are subject to certain completion schedule requirements with
liquidated damages in the event schedules are not met. The Company has not been
materially adversely affected by these provisions in the past.
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The Company acts as prime contractor on most of the construction projects
it undertakes. The Company accomplishes the majority of its projects with its
own resources and subcontracts specialized activities such as electrical and
mechanical work. As prime contractor the Company is responsible for the
performance of the entire contract, including subcontract work. Thus, the
Company is subject to increased costs associated with the failure of one or more
subcontractors to perform as anticipated. The Company's subcontractors generally
furnish bonds if the Company believes it is necessary to provide an additional
measure of security of their performance. Disadvantaged business enterprise
regulations require the Company to use its best efforts to subcontract a
specified portion of contract work done for governmental agencies to certain
types of subcontractors. Some of these subcontractors may not be able to obtain
surety bonds. The Company has not incurred any material loss or liability on
work performed by subcontractors to date.

INSURANCE AND BONDING

The Company maintains general and excess liability, construction equipment,
and workers' compensation insurance; all in amounts consistent with industry
practices. Management believes its insurance programs are adequate.

In connection with its business, the Company generally is required to
provide various types of surety bonds that provide an additional measure of
security of its performance under certain public and private sector contracts.
The Company's ability to obtain surety bonds depends upon its capitalization,
working capital, past performance, management expertise and external factors
including the capacity of the overall surety market. Surety companies consider
such factors in light of the amount of the Company's backlog that is currently
bonded and their current underwriting standards, which may change from time to
time. The Company has been bonded by the same surety for more than 75 years and
has never been refused a bond. The inability to obtain surety bonds would have a
material adverse effect on the Company's business.

GOVERNMENT AND ENVIRONMENTAL REGULATIONS

The Company's operations are subject to compliance with regulatory
requirements of federal, state, and municipal agencies and authorities;
including regulations concerning labor relations and affirmative action.
Additionally, the Company's aggregate mining and construction materials
processing plants are subject to various federal, state and local laws and
regulations relating to the environment, including those relating to discharges
to air, water and land, the handling and disposal of solid and hazardous waste
and the cleanup of properties affected by hazardous substances. Certain
environmental laws impose substantial penalties for non-compliance and others,
such as the federal Comprehensive Environmental Response, Compensation and
Liability Act, impose strict, retroactive, joint and several liability upon
persons responsible for releases of hazardous substances. The Company
continually evaluates whether it must take additional steps at its locations to
ensure compliance with environmental laws. While compliance with applicable
regulatory requirements has not adversely affected the Company's operations in
the past, there can be no assurance that these requirements will not change and
that compliance will not adversely affect the Company's operations. In addition,
the aggregate materials operations of the Company require operating permits
granted by governmental agencies. The Company believes that tighter regulations
for the protection of the environment and other factors will make it
increasingly difficult to obtain new permits and renewal of existing permits may
be subject to more restrictive conditions than currently exist.

Since December 2001, three private citizens groups have served thousands of
California businesses with 60-day notices of intent to sue under the California
Safe Drinking Water and Toxic Enforcement Act ("Prop 65"). Granite was one of
the many aggregate, hot mix asphalt and asphalt producers, suppliers and
contractors that were served with Prop. 65 60-day notices.

Prop 65 requires warnings to persons knowingly and intentionally exposed to
certain chemicals designated by the State as causing cancer and/or reproductive
toxicity. Although the 60-day notices that were served on Granite and many
others listed various Prop 65 chemicals that are allegedly constituents of
petroleum asphalt emissions and listed crystalline silica, the 60-day notices
contained no factual basis to support the general allegations that Granite
knowingly and intentionally exposed persons to Prop 65 listed-chemicals without

8

providing adequate Prop 65 warnings. And, while the statutory scheme underlying
Prop 65 allows the State Attorney General or local city or district attorney to
pursue actions against alleged violators of Prop 65's warning requirements, and
allows private parties to pursue actions if the government fails to intervene,
Granite is not currently the subject of any lawsuit alleging Prop 65 violations.

Moreover, the Company has, through safety information sheets, posted Prop
65 warnings, and through other means, communicated what it believes to be
appropriate warnings and cautions to employees and customers about the risks
associated with excessive, prolonged inhalation of emissions generated by
substances used by the Company and covered by Prop 65.

ITEM 2. PROPERTIES

The Company owns and leases real property for use in its construction and
aggregate mining and processing activities. The Company owns approximately
468,000 square feet of office and shop space and leases, pursuant to leases
expiring between March 2002 and May 2006, an additional 94,000 square feet of
office and shop space. The Company owns approximately 10,900 acres of land of
which 1,500 acres are un-permitted reserves available for future use and leases
approximately 4,500 additional acres of land at sites in California, Nevada,
Arizona and Utah. A majority of the land owned or leased by the Company is
intended to serve as aggregate reserves. There are no significant encumbrances
against owned property. The Company's leases for aggregate reserves generally
limit the Company's interest in the reserves to the right to mine the reserves.
These leases range from month-to-month leases to leases with expiration dates
ranging from December 2002 to June 2016. The Company considers its available and
future aggregate reserves adequate to meet its expected operating needs. The
Company pursues a plan of acquiring new sources of aggregate reserves to
replenish those depleted and to assure future growth.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to a number of legal proceedings. The Company
believes that the nature and number of these proceedings are typical for a
construction firm of its size and scope and that none of these proceedings is
material to the Company's financial position.

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

The Company did not submit any matters to a vote of security holders during
the fourth quarter of the year ended December 31, 2001.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

Granite Construction Incorporated was incorporated in Delaware in January
1990 as the holding company for Granite Construction Company, which was
incorporated in California in 1922. All dates of service for the executive
officers of the registrant also include the periods in which they served for
Granite Construction Company.

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Mr. Watts joined the Company in 1987 as President and Chief Executive
Officer and has served as a director since 1988, and Chairman of the Board since
1999. In May 1997, Mr. Watts became a director of TIC Holdings, Inc. He served
as a director of Wilder Construction from January 2000 to May 2001. From 1984
until 1987, Mr. Watts served as President, Chief Executive Officer and a
director of Ford, Bacon & Davis, Inc., an industrial engineering and
construction firm. From 1965 until 1984, Mr. Watts was employed by an underwater
services and construction firm in various capacities, including as President and
Chief Operating Officer. He received a B.A. degree in Economics from Cornell
University in 1960. Mr. Watts is a Past Chair of the California Chamber of
Commerce and serves as a Director of this and several other non-profit
organizations.

Mr. Dorey has been an employee of the Company since 1968 and has served in
various capacities, including Executive Vice President and Chief Operating
Officer since 1998, Senior Vice President and Manager, Branch Division from 1987
to 1998, and as Vice President and Assistant Manager, Branch Division from 1983
to 1987. In 1997, Mr. Dorey became a director of TIC Holdings, Inc. and in
January 2000 he also became a director of Wilder Construction Company. He
received a B.S. degree in Construction Engineering from Arizona State University
in 1967.

Mr. Barton has been an employee of the Company since 1980 and has served in
various capacities, including Senior Vice President and Chief Financial Officer
since 1999, Vice President and Chief Financial Officer from 1990 to 1999,
Controller in 1989, Treasurer in 1988 and Cash Manager from 1980 until 1988. In
1997, Mr. Barton became a director of TIC Holdings, Inc. and in January 2000 he
also became a director of Wilder Construction Company. He received a B.S. degree
in Accounting and Finance from San Jose State University in 1967 and an M.B.A.
degree from the University of Santa Clara in 1973.

Mr. Costanzo has been an employee of the Company since 1970 and has served
in various capacities, including Senior Vice President and Manager, Heavy
Construction Division, since 1990, Vice President and Assistant Manager, Heavy
Construction Division, from 1988 to 1989, and an Area or Project Manager with
the Heavy Construction Division from 1971 to 1987. In 1997, Mr. Costanzo became
a director of TIC Holdings, Inc. He received a B.S. degree in Civil Engineering
from the University of Connecticut in 1960 and a M.S. degree in Civil
Engineering from Stanford University in 1961.

Mr. Boitano has been an employee of the Company since 1977 and has served
in various capacities, including Senior Vice President and Manager, Branch
Division since 1998, Assistant Branch Division Manager from 1987 to 1998, Branch
Manager, Arizona operations from 1983 to 1987, Assistant Manager, Arizona
operations from 1980 to 1983, Assistant Manager, Salinas Branch in 1980, and
Project Manager Estimator from 1977 to 1980. In 2001 Mr. Boitano became a
director of Wilder Construction Company. He received a B.S. degree in Civil
Engineering from Santa Clara University in 1971 and an M.B.A. degree from
California State University, Fresno in 1977.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's common stock trades on the New York Stock Exchange under the
ticker symbol GVA. See Quarterly Results in Item 7 for a two-year summary of
quarterly dividends and high and low sales prices of the Company's stock.

Declaration and payment of dividends is within the sole discretion of the
Company's Board of Directors, subject to limitations imposed by Delaware law,
and will depend on the Company's earnings, capital requirements, financial
conditions and such other factors as the Board of Directors deems relevant. As
of March 19, 2002 there were 41,046,642 shares of common stock outstanding held
by approximately 825 stockholders of record.

10

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated operations data for 2001, 2000 and 1999 and
consolidated balance sheet data as of December 31, 2001 and 2000 set forth below
have been derived from consolidated financial statements of the Company, and are
qualified by reference to our consolidated financial statements included herein
audited by PricewaterhouseCoopers LLP, independent accountants. The selected
consolidated statement of income data for 1991 through 1998 and the consolidated
balance sheet data as of December 31, 1991 through 1999 have been derived from
our audited financial statements not included herein. These historical results
are not necessarily indicative of the results of operations to be expected for
any future period.

- ---------------

* Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."

** On February 21, 2001, the Company announced a three-for-two stock split in
the form of a 50% stock dividend on April 13, 2001. All share and per share
amounts are calculated on a post split basis.

11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Granite is one of the largest heavy civil contractors in the United States
and is engaged in the construction of highways, dams, airports, mass transit
facilities and other infrastructure-related projects. The Company has offices in
California, Texas, Georgia, Nevada, Arizona, Florida, New York and Utah.

The Company's contracts are obtained primarily through competitive bidding
in response to advertisements by federal, state and local agencies, and private
parties and to a lesser extent through negotiation with private parties. The
Company's bidding activity is affected by such factors as backlog, current
utilization of equipment and other resources, ability to obtain necessary surety
bonds and competitive considerations. Bidding activity, backlog and revenue
resulting from the award of new contracts to the Company may vary significantly
from period to period.

The Company's compensation strategy for selected management personnel is to
rely heavily on a variable cash and restricted stock performance-based incentive
element. Thus, the Company may experience an increase in general and
administrative expenses in a very profitable year and a decrease in less
profitable years. Certain profit sharing amounts are at the discretion of the
Board of Directors based on the Company reaching certain levels of profitability
each year.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our estimates, judgments and assumptions
are continually evaluated based on available information and experience, however
actual amounts could differ from those estimates. The Company's significant
accounting policies are described in Note 1 of the Notes to Consolidated
Financial Statements.

Certain of our accounting policies require higher degrees of judgment than
others in their application. These include the recognition of revenue and
earnings from construction contracts, accounting for construction joint
ventures, the valuation of long-term assets and the estimation of valuation
allowances and accrued liabilities. Management evaluates all of its estimates
and judgments on an on-going basis.

Revenue Recognition: The Company uses the percentage of completion
accounting method for construction contracts in accordance with the American
Institute of Certified Public Accountants Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts." Revenue and earnings on construction contracts, including
construction joint ventures are recognized on the percentage of completion
method in the ratio of costs incurred to estimated final costs. Provisions are
recognized in the statement of income for the full amount of estimated losses on
uncompleted contracts whenever evidence indicates that the estimated total cost
of a contract exceeds its estimated total revenue. Revenue in an amount equal to
cost incurred is recognized prior to contracts reaching 25% completion. The
related earnings are not recognized until the period in which such percentage
completion is attained. It is the Company's judgment that until a project
reaches 25% completion, there is insufficient information to determine with a
reasonable level of assurance what the estimated profit on the project will be.
Factors that can contribute to changes in estimates of contract profitability
include, without limitation, site conditions that differ from those assumed in
the original bid to the extent that contract remedies are unavailable, the
availability and skill level of workers in the geographic location of the
project, the availability and proximity of materials, the accuracy of the
original bid, inclement weather and timing and coordination issues inherent in
all projects, including design/build. Contract cost consists of direct costs on
contracts; including labor and materials, amounts payable to subcontractors,
direct overhead costs and equipment expense (primarily depreciation, fuel,
maintenance and repairs). Depreciation is provided using accelerated methods for
construction equipment. Contract cost is recorded as incurred and revisions in
contract revenue and cost estimates are reflected in the accounting period when
known. The 25% threshold is applied to all percentage of

12

completion projects without exception unless and until the Company projects a
loss on the project, in which case the estimated loss is immediately recognized.
Claims for additional contract revenue are recognized if it is probable that the
claim will result in additional revenue and the amount can be reliably
estimated. Revenue from contract change orders is recognized when the owner has
agreed to the change order. The foregoing as well as weather, stage of
completion and mix of contracts at different margins may cause fluctuations in
gross profit between periods and these fluctuations may be significant.

A significant portion of the Company's revenue is derived from contracts
that are "fixed unit price" under which the Company is committed to provide
materials or services required by a project at fixed unit prices (for example,
dollars per cubic yard of concrete or cubic yards of earth excavated). Other
contracts, including most design-build contracts, are priced on a lump-sum basis
under which the Company bears the risk that it may not be able to perform all
the work for the specified amount. All federal government contracts and many of
the Company's other contracts provide for termination of the contract for the
convenience of the party contracting with the Company, with provisions to pay
the Company for work performed through the date of termination.

Construction Joint Ventures: As described under Note 5 to the Company's
Consolidated Financial Statements, the Company participates in various
construction joint venture partnerships. Generally, each construction joint
venture is formed to accomplish a specific project, is jointly controlled by the
joint venture partners and is dissolved upon completion of the project. The
Company selects its joint venture partners based on its analysis of the
prospective venturer's construction and financial capabilities, expertise in the
type of work to be performed and past working relationships with the company,
among other criteria. The joint venture agreements typically provide that the
interests of the Company in any profits and assets, and its respective share in
any losses and liabilities that may result from the performance of the contract
are limited to the Company's stated percentage interest in the project. The
venture's contract with the project owner typically requires joint and several
liability, however, the Company's agreements with its joint venture partners
provide that each party will assume and pay its full proportionate share of any
losses resulting from a project. Consistent with industry practice, the Company
accounts for its share of the operations of these jointly controlled ventures on
a pro rata basis in the consolidated statements of income and as a single line
item in the consolidated balance sheets. If we were to account for these
interests using a one line item equity method presentation in the consolidated
statements of income, revenue and contract costs would be materially lower,
however, net income would not change. Alternatively, if we were to account for
these interests using full consolidation, assets and liabilities in the
consolidated balance sheet would be materially higher and revenue and contract
costs in the consolidated statements of income would be materially higher,
however, net income would not change.

Valuation of Long-Term Assets: Long-lived assets, which include property,
equipment and acquired identifiable intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Impairment evaluations involve management
estimates of asset useful lives and future cash flows. Actual useful lives and
cash flows could be different from those estimated by management and this could
have a material effect on our operating results and financial position.
Additionally, the Company had approximately $19.5 million in goodwill at
December 31, 2001, which must be reviewed for impairment at least annually in
accordance with Statement of Financial Accounting Standards No. 142 ("SFAS
142"). The Company is required to complete its initial impairment review for its
goodwill in the first half of 2002 and management does not expect to record an
impairment charge. The impairment testing required by SFAS 142 requires
considerable judgment and there can be no assurance that an impairment charge
will not be required in the future.

Valuation Allowances and Accrued Liabilities: The Company grants credit to
customers that include general contractors, property owners and developers,
governmental agencies and other companies in a variety of industries. Although
the Company generally does not require collateral, the law provides the Company
with the ability to file mechanics liens on real property improved for private
customers in the event of non-payment. The Company is subject to potential
credit risk related to changes in business and the general economy. Management
analyzes specific customer accounts receivable including the age of specific
accounts, customer payment history and general economic trends when evaluating
the adequacy of the allowance for doubtful accounts. Additionally, certain
accrued liabilities, including insurance reserves, are estimates that rely on an
13

analysis of past trends and the exercise of significant management judgment.
There can be no assurance that the actual amounts of the Company's valuation
allowances and estimated accrued liabilities will not change as better
information becomes available and these changes could be significant.

CURRENT YEAR

Revenue and Backlog. The following is a breakdown of revenue for the years
ended December 31, 2001, 2000 and 1999 (in thousands):

Total revenue in 2001 increased to $1,548.0 million from $1,348.3 million
in 2000, which reflects increases in both divisions. Branch Division revenue
increased 7.2% in 2001 due to increases in public sector revenue and revenue
from material sales which were partially offset by a decrease in private sector
revenue. The increased revenue from material sales was due to both higher sales
volume and generally higher unit prices. The higher volume was largely due to
increases in construction activity near certain of our plant locations. HCD
revenue increased 37.6% in 2001 due primarily to revenue generated from
contracts added to backlog in late 2000 through mid 2001 and revenue contributed
by HCD's new Granite Halmar location in New York of approximately $65.0 million.
On a market sector basis, revenue from private sector contracts decreased $50.8
million to $282.5 million or 18.3% of total revenue in 2001, from $333.4 million
or 24.7% of total revenue in 2000. The Company's private sector work is
primarily comprised of site preparation for both commercial and residential
developments and privately funded transportation projects. Although the private
construction market remains strong in many of the areas that the Company works,
the Company remains cautious about the effect of the general economic slowdown
on private sector work in 2002 (see "Outlook"). The Company's revenue from
public sector contracts increased to $1,075.6 million or 69.5% of total revenue
in 2001 from $855.1 million or 63.4% of total revenue in 2000. The level of
funding for public sector projects remained strong through 2001 in most of the
Company's geographic markets.

14

The following is a breakdown of backlog as of December 31, 2001 and 2000
(in thousands):

The Company's backlog at December 31, 2001 was $1,377.2 million, up $256.7
million, or 22.9% from December 31, 2000. The increase in backlog is primarily
attributable to HCD as a result of backlog obtained as a result of the Halmar
acquisition as well as awards in the latter half of 2001 which included the
Company's $113.9 share of a subway reconstruction project in New York, the
Company's $69.5 million share of a design/build rail reconstruction project in
Florida and a $44.8 million highway project in North Carolina. Management
believes that approximately 63.0% of the work in the backlog at December 31,
2001 will be recognized as revenue during 2002.

For the year ended December 31, 2001, gross profit was $183.6 million, a
$7.0 million decrease from 2000. As a percentage of revenue, gross profit
decreased in 2001 to 11.9% from 14.1% in 2000. The decreased gross profit margin
reflected decreases in HCD that were partially offset by slightly increased
profit margins in the Branch Division. Contributing to the decline in the HCD
profit margin was a reduction in forecasted profitability of a non-sponsored
joint venture project on the East Coast, a generally less profitable mix of HCD
projects compared to a year ago and a higher level of revenue recognized for
projects less than 25% complete. Year to date revenue recognized for projects
less than 25% complete was approximately $70.2 million and $31.5 million at
December 31, 2001 and 2000, respectively. As described under "Critical
Accounting Policies" above, the Company recognizes revenue only to the extent of
cost incurred until a project reaches 25% complete. The reduction in forecasted
profitability of an East Coast joint venture project partially related to the
acceleration of work to complete the project on time to avoid paying liquidated
damages. The Company recorded a pretax loss of approximately $7.6 million for
its portion of the expected reduced profitability of the project in the year
ended December 31, 2001.

15

Cost of revenue consists of direct costs on contracts; including labor and
materials, amounts payable to subcontractors, direct overhead costs and
equipment expense (primarily depreciation, fuel, maintenance and repairs).
Although the composition of costs varies with each contract, the Company's gross
profit margins were not significantly impacted by changes in any one of these
costs during 2001. The Company did experience upward pressure on costs
associated with natural gas, fuel and asphalt prices early in 2001, but these
had substantially reversed by the end of the year and the Company's gross profit
margins were not materially impacted by these changes.

General and Administrative Expenses. For the years ended December 31,
2001, 2000 and 1999 general and administrative expenses comprised the following
(in thousands):

Salaries and related expenses increased in 2001 over 2000 due primarily to
increased staffing to support the Company's current and expected growth
including staff supporting the Company's new Granite Halmar location in New
York. Incentive compensation and discretionary profit sharing and pension costs
decreased in 2001 compared to 2000 primarily as a function of the Company's
decreased profitability and the absence of additional expense recognized in 2000
related to the impact of certain members of Company management reaching age 62.
Other general and administrative expenses include various costs to support the
Company's operations, none of which exceeded 10% of total general and
administrative expenses. The increase in other general and administrative
expenses in 2001 primarily reflects the increases in facilities, information
technology support, pre-bidding and other costs to support the Company's growth.

Operating Income. For the years ended December 31, 2001, 2000 and 1999
operating income was as follows:

HCD's contribution to operating income in 2001 decreased over the 2000
contribution due to the decreased gross profit margin as described in "gross
profit" above. Additionally, HCD's general and administrative expenses increased
during 2001 to support the higher level of revenue and backlog as well as
increased costs to support a high level of bidding activity during the year. The
Branch Division's contribution to operating income in 2001 increased compared to
2000 due primarily to increases in gross profit margin related to materials
sales during the year.

Other Income (Expense). Other income increased by $9.9 million to $17.2
million in 2001 from $7.3 million in 2000. The increase is attributable to gains
recognized on the sale of excess and developed property of approximately $5.1
million and higher equity in earnings recognized from the Company's investments
in TIC and Wilder. Although the Company had higher levels of cash equivalents
and other investments during 2001, the effect of declining interest rates left
interest income relatively flat as compared to 2000.

16

Provision for Income Taxes. The Company's effective tax rate was 38.0% in
2001 and 39.9% in 2000. The 1.9% decrease reflected the absence of additional
tax expense recognized in 2000 related to the Company reaching an agreement with
TIC to divest its 30% investment over a three and one-half year period.

OUTLOOK

Our Company is entering 2002 with a large backlog of work. As we begin to
anticipate how the year ahead will unfold, we are closely monitoring a number of
economic and political issues that may have an impact on our business this year.

On March 5th, California voters approved Proposition 42 -- a state
constitutional amendment that permanently transfers the sales tax on gasoline
from the general fund to the state transportation fund. Proposition 42 requires
that beginning July 1, 2003, all gasoline sales taxes will be earmarked for
transportation improvements, adding a projected $1.2 to $1.5 billion annually to
California's transportation budget. Starting in fiscal year 2003-2004,
Proposition 42 would require that the state's share of gasoline sales taxes be
used for projects designated under Governor Davis' Traffic Congestion Relief
Plan. Starting in 2008-2009, revenue would be allocated by the following
formula: 40 percent would go to major highway and transit construction projects
around the state; 40 percent would go to cities and counties for street and
highway maintenance, rehabilitation and reconstruction, and storm damage repair;
and 20 percent for public transit. California is Granite's largest market,
accounting for 46% of total revenues in 2001.

Another current issue is the proposed $8.6 billion decrease in the fiscal
year 2003 federal transportation budget, proposed by President Bush in February
of this year. This figure includes a $4.4 billion shortfall from the financing
adjustment formula created in the Transportation Act for the 21st Century
(TEA-21). This adjustment is known as the Revenue Aligned Budget Authority, or
RABA. Total appropriations, as determined by Congress and TEA-21 for fiscal year
2002 were $31.8 billion. This projected decline in 2003 spending relates to the
economic slowdown, as fiscal 2001 user taxes were significantly lower than
expected. In addition, fiscal year 2003 gas tax receipts are forecast to be
lower than the baseline amounts guaranteed under TEA-21. To help resolve this
issue, an agreement was reached in mid-March between House of Representatives
budget and transportation leaders that would work toward raising the 2003
funding level for federal highways from the President's budget amount of $23.3
billion to $27.7 billion, the level stipulated under the TEA-21 authorization.

The Company believes that significant political support for highway
spending coupled with approximately $9.0 billion of unobligated funds in the
Highway Trust Fund will result in funding levels at least on a par with the 2003
authorization of $27.6 billion. It is also important to note that although
federal funding for 2003 could be less than was anticipated, the overall funding
amounts under TEA-21 remain at record levels.

Moreover, while federal funds do make up about 50% of U.S. highway
spending, state and local funding represents the balance of the equation. While
a few states have cut back on transportation funding, many of the larger states,
such as California and Florida, continue to have strong transportation funding
programs. This is because in those states, gasoline taxes, registration fees and
other related revenues are dedicated exclusively to transportation, and do not
compete with other state discretionary programs.

Florida, for example, has instituted Mobility 2000, a long-term program
that provides $6.0 billion in additional spending over a 10-year period. Texas
also recently passed Proposition 15, which created the Texas Mobility Fund -- a
revolving fund to finance highway construction and allow bonds to be sold to
help finance transportation projects throughout the state. Texas has
traditionally followed a pay-as-you-go approach to fund highways and other
transportation projects with the exception of toll roads where the bonds are
repaid from toll collections.

Looking ahead, it is unclear at this point what impact the current economic
marketplace will have on our Branch Division. With branches located in
California, Arizona, Nevada and Utah, we are witnessing very different economic
conditions in each of these states, and regions, in which we operate. Although
Granite has begun to see some reduction in private sector work being put out to
bid, some of our branches are expecting a strong private sector recovery in late
2002 and beyond. As we have witnessed in the past, a slow down in the

17

private sector economy tends to lead to a slow down in the private sector
marketplace. When this happens, Granite's competitors in the private sector will
typically shift over into the public sector bidding environment, thereby
increasing competition and placing downward pressure on margins. Although it
appears that the economy in the West is beginning to recover, the Branch
Division is anticipating a reduction in revenue growth in 2002, however, this
decline may be more than offset by a very strong year for HCD.

HCD is witnessing a consistent stream of new large projects coming out to
bid in both highway and transit construction. They are targeting bidding
opportunities from coast to coast, totaling more than $8.0 billion over the next
12-18 months -- excluding the approximately $1.7 billion in projects that our
Granite Halmar office in New York is targeting throughout that state. The
division is currently bidding on approximately 10 large projects with an
increasing number being design-build projects. As we have mentioned before, it
is our opinion that Granite's experience in the design-build area provides us
with a significant advantage over some of our competitors. In 2001, design-build
projects made up approximately 50% of HCD's year-end backlog.

Going forward, we are excited about the opportunities to grow the business
in 2003, given the strength of our backlog and the substantial bidding
opportunities ahead. We will continue to move forward on our strategy to grow
the Company both internally and through acquisitions and to improve our
financial performance in both divisions.

PRIOR YEARS

Revenue and Backlog. Total revenue in 2000 increased to $1,348.3 million
from $1,328.8 million in 1999, which reflects a modest increase in revenue from
the Branch Division partially offset by a decrease in HCD revenue. The HCD
revenue decrease resulted from a lack of new awards during the period from late
1999 through mid 2000. Although HCD did receive significant new awards in late
2000, they were booked too late in the year to make a significant contribution
to year 2000 revenue. On a market sector basis, revenue from private sector
contracts increased $20.0 million to $333.4 million or 24.7% of total revenue in
2000, from $313.4 million or 23.5% of total revenue in 1999. The Company's
private sector work is primarily comprised of site preparation for both
commercial and residential developments and privately funded transportation
projects. The Company's revenue from public sector contracts decreased slightly
to $855.1 million or 63.4% of total revenue in 2000 from $856.4 million or 64.5%
of total revenue in 1999. The level of funding for public sector projects
remained strong through 2000 in most of the Company's geographic markets.

The Company's backlog at December 31, 2000 was $1,120.5 million, up $327.2
million, or 41.3% from 1999. The increase in backlog was due primarily to
multiple HCD awards in the latter part of 2000, which included the Las Vegas
Monorail project in Nevada, the Company's portion of the Hiawatha light rail
joint venture in Minnesota and a major bridge and interchange project in
Florida.

Gross Profit. For the year ended December 31, 2000, gross profit reached
$190.6 million, an $11.4 million increase from 1999. As a percentage of revenue,
gross profit increased in 2000 to 14.1% from 13.5% in 1999. The increased gross
profit margin reflected increases in both Branch Division and HCD and was a
result of favorable market conditions in both the public and private sectors and
the overall successful execution of projects. Year to date revenue recognized
for projects less than 25% complete was approximately $31.5 million and $36.9
million at December 31, 2000 and 1999, respectively. As described under
"Critical Accounting Policies" above, the Company recognizes revenue only to the
extent of cost incurred until a project reaches 25% complete. During 2000, the
Company's gross profit margins were not significantly impacted by changes in the
revenue from projects that were less than 25% complete.

Cost of revenue consists of direct costs on contracts; including labor and
materials, subcontract costs, direct overhead costs and equipment expense
(primarily depreciation, fuel, maintenance and repairs). Although the
composition of costs varies with each contract, the Company's gross profit
margins were not significantly impacted by changes in any one of these costs
during 2000. The Company did experience upward pressure on costs associated with
labor markets and oil prices; however, the Company's gross profit margins were
not materially impacted by such changes during 2000.

18

General and Administrative Expenses. Salaries and related expenses
increased in 2000 over 1999 due primarily to increased staffing to support the
Company's current and expected growth. Incentive compensation and discretionary
profit sharing and pension costs increased in 2000 over 1999 as a function of
the Company's increased profitability and the impact of certain members of
Company management reaching age 62, at which time all the restricted stock
grants become fully vested. Other general and administrative expenses include
various costs to support its operations, none of which exceeds 10% of total
general and administrative expenses. The increase in other general and
administrative expenses in 2000 primarily reflects the increases in facilities
and other costs to support the Company's growth.

Operating Income. The Heavy Construction Division's contribution to
operating income in 2000 decreased slightly over the 1999 contribution due to a
decreased volume of work performed as a result of HCD projects nearing
completion. These HCD projects were replaced by several new awards in the latter
half of 2000 (see "Revenue and Backlog" above). However, these significant new
projects were awarded too late in the year to have a significant impact on
revenue and operating income in 2000. The Branch Division's contribution to
operating income in 2000 increased compared to 1999 due primarily to increases
in construction revenue and gross margins as described in the "Gross Profit"
section above.

Other Income (Expense). Other income increased $5.5 million to $7.3
million in 2000. The increase was primarily due to higher interest income
resulting from the combined factor of higher interest rates and higher invested
balances and the absence of the Company's share of a 1999 loss of approximately
$2.8 million experienced by TIC, partially offset by lower gains on the sale of
property and equipment.

Provision for Income Taxes. The Company's effective tax rate was 39.9% in
2000, an increase of 1.4% from 1999. The increase reflects additional tax
expense recognized in the first quarter of 2000 related to the Company reaching
an agreement with TIC to divest its 30% investment over a three and one-half
year period.

LIQUIDITY AND CAPITAL RESOURCES

During 2001 the Company generated cash and cash equivalents from operating
activities of $124.6 million, which represented an increase of $49.8 million
over 2000. Changes in cash from operating activities primarily reflect
variations based on the amount and progress of work being performed. In
particular, billings in excess of cost and estimated earnings, net, as of
December 31, 2001 increased as compared to December 31, 2000 largely due to cash
timing differences on several large projects in the early stages of
construction.

Cash used by investing activities in 2001 increased $38.2 million from
2000. Contributing to this increased use of cash was the $11.4 million net cash
used to acquire Halmar, increased purchases of property and equipment and
increased purchases of short-term investments.

The Company generated $39.9 million in cash from financing activities in
2001 due to additions to long-term debt, which included $75.0 million received
in May 2001 under a new senior credit facility with a group of institutional
holders. The borrowing is due in nine equal annual installments beginning in
2005 and bears interest at 6.96% per annum. The funds from this borrowing will
be used for general corporate purposes.

19

As more fully described in Note 9 and Note 14 to the Company's consolidated
financial statements, the following table summarizes the Company's significant
contractual obligations outstanding as of December 31, 2001:

Additionally, in March 2002 the Company entered into agreements to purchase
certain assets and assume certain liabilities and obligations of two materials
and construction businesses in California. The agreements require cash payments
of approximately $22.0 million plus the value of purchased inventory at the time
of close, subject to adjustment as provided in the agreements. Both transactions
are expected to close in the second quarter of 2002.

As discussed in Note 6 to the Company's Consolidated Financial Statements,
the Company entered into an agreement to purchase common stock of Wilder in
1999. The agreement provides for the Company to increase its ownership in Wilder
to between 51% and 60% in 2002 and to 75% in 2004. The ultimate purchase price
of additional Wilder common shares will be based largely on its financial
results. The Company currently estimates that it will pay approximately $8.0
million for additional Wilder common shares in 2002.

On January 30, 2002 the Company announced a quarterly cash dividend of
$0.08 per common share on the Company's common stock. The dividend is payable
April 15, 2002 to stockholders of record March 29, 2002.

The Company has standby letters of credit totaling approximately $14.3
million outstanding at December 31, 2001, all of which expire during 2002.
Additionally, the Company generally is required to provide various types of
surety bonds that provide an additional measure of security under certain public
and private sector contracts. At December 31, 2001 approximately $1.1 billion of
the Company's backlog was bonded and performance bonds totaling approximately
$3.0 billion were outstanding. Performance bonds do not have stated expiration
dates; rather, we are released from the bonds as the contractual performance is
completed. The Company's ability to obtain surety bonds depends upon its
capitalization, working capital, past performance, management expertise and
external factors including the capacity of the overall surety market. Surety
companies consider such factors in light of the amount of the Company's backlog
that is currently bonded and their current underwriting standards, which may
change from time to time. The Company has been bonded by the same surety for
more than 75 years and has never been refused a bond. The inability to obtain
surety bonds would have a material adverse effect on the Company's business.

As described under "Critical Accounting Policies" above, the Company
participates in various construction joint venture partnerships. The venture's
contract with the project owner typically requires joint and several liability,
however, the Company's agreements with its joint venture partners provide that
each party will assume and pay its full proportionate share of any losses
resulting from a project. The Company has not experienced any losses resulting
from a joint venture partner's unwillingness or inability to perform, however
there can be no assurance that the non-performance of a joint venture partner
will not occur in the future and such non-performance could have a material
adverse effect on the Company's business.

Restrictive covenants under the terms of debt agreements include the
maintenance of certain levels of working capital and cash flow. Other covenants
prohibit capital expenditures in excess of specified limits and require the
maintenance of tangible net worth (as defined) of approximately $306.6 million.
The Company was in compliance with these covenants at December 31, 2001. Failure
to comply with these covenants could cause the amounts due under the debt
agreements to become currently payable.

The Company expects the principal use of funds for the foreseeable future
will be for capital expenditures, working capital, acquisitions and other
investments. The Company has budgeted $69.8 million

20

for capital expenditures in 2002, which includes amounts for construction
equipment, aggregate and asphalt plants, buildings, leasehold improvements and
the purchase of land and aggregate reserves.

In addition to its working capital and cash generated from operations, the
Company currently has access to funds under a $60 million bank revolving line of
credit, of which $48.4 million was available at December 31, 2001. The line of
credit expires in June 2004.

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
12 months.

Recent Accounting Pronouncements. In July 2001, the Financial Accounting
Standard Board ("FASB") issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations," and No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets." SFAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under a single method -- the
purchase method. Use of the pooling-of-interests method is no longer permitted.
SFAS 142 requires that goodwill no longer be amortized to earnings, but instead
be reviewed for impairment upon initial adoption and on an annual basis going
forward. The non-amortization provisions of SFAS 142 were effective for all
business combinations completed after June 30, 2001 and will be fully adopted
for fiscal years beginning after December 15, 2001. The Company's amortization
expense related to goodwill was not significant in the years ended December 31,
2001, 2000 or 1999. The Company believes that SFAS 142 will not have a material
effect on the financial position or results of operations of the Company.

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 on the financial position or results of operations of the Company.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal periods. SFAS 144 supersedes
FASB statement No. 121 and APB 30; however, it retains the requirement of APB 30
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of (by sales, by abandonment, or in a distribution to owners) or is classified
as held for sale. SFAS 144 also addresses financial reporting for the impairment
of certain long-lived assets to be disposed of. The Company is in the process of
assessing the impact, if any, of SFAS 144 on the financial position or results
of operations of the Company.

21

QUARTERLY RESULTS

The following table sets forth selected unaudited financial information for
the Company for the eight quarters in the period ended December 31, 2001. This
information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, contains all adjustments necessary
for a fair presentation thereof.

QUARTERLY FINANCIAL DATA
(UNAUDITED -- IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

Net income per share calculations are based on the weighted average common
shares outstanding for each period presented. Accordingly, the sum of the
quarterly net income per share amounts may not equal the per share amount
reported for the year.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to financial market risks due largely to changes in
interest rates, which it manages primarily by managing the maturities in its
investment portfolio. The Company does not use derivatives to alter the interest
characteristics of its investment securities or its debt instruments. The
Company has no holdings of derivative or commodity instruments and does not
transact business in foreign currencies.

22

The fair value of the Company's held-to-maturity investment portfolio and
related income would not be significantly impacted by changes in interest rates
since the investment maturities are short and the interest rates are primarily
fixed. The Company's mutual fund portfolio of $8.2 million is exposed to equity
price risks.

The Company has Senior Notes Payable of $60.0 million at December 31, 2001
which carry a fixed interest rate of 6.54% per annum with principal payments due
in nine equal annual installments beginning in 2002 and Senior Notes Payable of
$75.0 million at December 31, 2001 which carry a fixed interest rate of 6.96%
per annum with principal payments due in nine equal annual installments
beginning in 2005.

The table below presents principal amounts and related weighted average
interest rates by year for the Company's cash and cash equivalents,
held-to-maturity short-term investments and significant debt obligations:

The estimated fair value of the Company's cash, cash equivalents and
short-term investments approximate the principal amounts reflected above based
on the short maturities of these financial instruments. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt. Based on the borrowing rates
currently available to the Company for bank loans with similar terms and average
maturities, the fair value of the Senior Notes Payable was approximately $132.7
million as of December 31, 2001 and $57.3 million as of December 31, 2000.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of the Registrant and
auditor's report are included in Item 8 and appear following Item 14:

Report of Independent Accountants

Consolidated Balance Sheets -- At December 31, 2001 and 2000

Consolidated Statements of Income -- Years Ended December 31, 2001, 2000
and 1999

Consolidated Statements of Stockholders' Equity -- Years Ended December 31,
2001, 2000 and 1999

Consolidated Statements of Cash Flows -- Years Ended December 31, 2001,
2000 and 1999

Notes to Consolidated Financial Statements

Additionally, a two-year Summary of Quarterly Results is included in Item 7
under "Quarterly Results."

23

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

Not applicable.

PART III

Certain information required by Part III is omitted from this Report in
that the Company will file its definitive proxy statement for the Annual Meeting
of Stockholders to be held on May 21, 2002 (the "Proxy Statement") pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report, and certain information included therein is incorporated herein
by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to the directors of the Company is set forth under the
caption "Information about Granite -- Management, Directors" in the Proxy
Statement. Such information is incorporated herein by reference. Information
relating to the executive officers of the Company is set forth in Part I of this
report under the caption "Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation is set forth under the
caption "Information about Granite -- Compensation of Directors and Executive
Officers" in the Proxy Statement. Such information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information relating to ownership of equity securities of the Company by
certain beneficial owners and Management is set forth under the caption
"Information about Granite -- Stock Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement. Such information is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information relating to certain relationships and related transactions is
set forth under the caption "Information about Granite -- Management, Certain
Transactions with Management" in the Proxy Statement. Such information is
incorporated herein by reference.

24

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

The following documents are filed as part of this Report:

(a)1. Financial Statements. The following consolidated financial
statements are filed as part of this Report:

2. Financial Statement Schedule. The following financial
statement schedule of Granite Construction Incorporated for the years ended
December 31, 2001, 2000 and 1999 is filed as part of this Report and should
be read in conjunction with the consolidated financial statements of
Granite Construction Incorporated.

Schedules not listed above have been omitted because the required
information is not applicable or is shown in the financial statements or notes.

3. Exhibits. The Exhibits listed in the accompanying Exhibit
Index are filed or incorporated by reference as part of this Report.

(b) Reports on Form 8-K. The registrant was not required to file any
reports on Form 8-K during the fourth quarter of fiscal 2001.

25

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and the Stockholders
of Granite Construction Incorporated:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 25 present fairly, in all material
respects, the financial position of Granite Construction Incorporated and its
subsidiaries at December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) on page 25 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 15, 2002, except Note 17
(Asset Purchase Agreements) as to
which the date is March 8, 2002

F-1

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

The accompanying notes are an integral part of these consolidated financial
statements.
F-2

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these consolidated financial
statements.
F-3

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

F-5

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business: Granite Construction Incorporated (the "Company")
is a heavy civil contractor engaged in the construction of highways, dams,
airports, mass transit facilities, real estate site development and other
infrastructure related projects. The Company has offices in California, Texas,
Georgia, Nevada, Arizona, Utah, Florida and New York.

Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions and accounts have been eliminated. The Company uses the equity
method of accounting for affiliated companies where its ownership is between 20%
and 50%. Additionally, the Company participates in joint ventures with other
construction companies. The Company accounts for its share of the operations of
these jointly controlled ventures on a pro rata basis in the consolidated
statements of income and as a single line item in the consolidated balance
sheets.

Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Revenue Recognition: Revenue and earnings on construction contracts
including construction joint ventures are recognized on the percentage of
completion method in the ratio of costs incurred to estimate final costs.
Revenue in an amount equal to cost incurred is recognized prior to contracts
reaching 25% completion. The related earnings are not recognized until the
period in which such percentage completion is attained. It is the Company's
judgment that until a project reaches 25% completion, there is insufficient
information to determine with a reasonable level of comfort what the estimated
profit on the project will be. Factors that can contribute to changes in
estimates of contract profitability include, without limitation, site conditions
that differ from those assumed in the original bid to the extent that contract
remedies are unavailable, the availability and skill level of workers in the
geographic location of the project, the availability and proximity of materials,
the accuracy of the original bid, inclement weather and timing and coordination
issues inherent in all projects including design/build. Contract cost consists
of direct costs on contracts; including labor and materials, amounts payable to
subcontractors, direct overhead costs, equipment expense (primarily
depreciation, fuel, maintenance and repairs) and insurance costs. Depreciation
is provided using accelerated methods for construction equipment. Contract cost
is recorded as incurred and revisions in contract revenue and cost estimates are
reflected in the accounting period when known. The 25% threshold is applied to
all percentage of completion projects without exception unless and until the
Company projects a loss on the project, in which case the estimated loss is
immediately recognized. Claims for additional contract revenue are recognized if
it is probable that the claim will result in additional revenue and the amount
can be reliably estimated. Revenue from contract change orders is recognized
when the owner has agreed to the change order. The foregoing as well as weather,
stage of completion and mix of contracts at different margins may cause
fluctuations in gross profit between periods and these fluctuations may be
significant.

Revenue from the sale of materials is recognized when delivery and risk of
ownership passes to the customer.

A significant portion of the Company's revenue is derived from contracts
that are "fixed unit price" under which the Company is committed to provide
materials or services required by a project at fixed unit prices (for example,
dollars per cubic yard of concrete or cubic yards of earth excavated). Other
contracts, including most design-build contracts, are priced on a lump-sum basis
under which the Company bears the risk that it may not be able to perform all
the work for the specified amount. The Company's contracts are obtained
primarily through competitive bidding in response to advertisements by federal,
state and local government agencies and

F-6

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

private parties. Less frequently, contracts may be obtained through direct
negotiation with private contract owners. All federal government contracts and
many of the Company's other contracts provide for termination of the contract
for the convenience of the party contracting with the Company, with provisions
to pay the Company for work performed through the date of termination.

Balance Sheet Classifications: The Company includes in current assets and
liabilities amounts receivable and payable under construction contracts that may
extend beyond one year. A one-year time period is used as the basis for
classifying all other current assets and liabilities.

Cash and Cash Equivalents: Cash equivalents are securities held for cash
management purposes having original maturities of three months or less from the
date of purchase.

Short-Term Investments: Short-term investments that are deemed by
management to be held-to-maturity are reported at amortized cost. Short-term
investments that are considered available-for-sale are carried at fair value.
Unrealized gains and losses, if material, are reported net of tax as a separate
component of accumulated other comprehensive income until realized. Realized
gains and losses, if any, are determined using the specific identification
method.

Financial Instruments: The carrying value of short-term investments
approximates their fair value as determined by market quotes. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt. The carrying value of
receivables and other amounts arising out of normal contract activities,
including retentions, which may be settled beyond one year, is estimated to
approximate fair value.

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

Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided using accelerated methods over lives ranging from three
to ten years for construction equipment and the straight-line method over lives
from three to twenty years for the remaining depreciable assets. The Company
believes that accelerated methods best approximate the service provided by the
construction equipment. Depletion of quarry property is based on the usage of
depletable reserves. The cost and accumulated depreciation or depletion of
property sold or retired is removed from the accounts and gains or losses, if
any, are reflected in earnings for the period. The Company capitalized interest
costs related to certain self-constructed assets of $67 in 2001, $509 in 2000
and $577 in 1999. Maintenance and repairs are charged to operations as incurred.

Long-Lived Assets: Long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
is recorded when the assets' carrying value exceeds its estimated undiscounted
future cash flows. There have been no significant events or changes in
circumstances to date.

The Company frequently sells property and equipment that has reached the
end of its useful life or no longer meets the Company's needs, including
depleted quarry property. Such property is held in property and equipment until
sold.

Intangible Assets: Included in other assets at December 31, 2001 is
goodwill in the amount of $19.5 million and other intangible assets in the
amount of $4.1 million. In accordance with Statement of Financial Accounting
Standards No. 142 goodwill, primarily relating to the Company's acquisition of
Halmar on July 1, 2001, is not amortized. Rather, the Company evaluates the
recoverability of goodwill on an annual basis. Other intangible assets include
covenants not to compete, permits, trademarks and acquired contract value which
are being amortized on a straight-line basis over terms from 2 to 10 years.

Income Taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carry-forwards and deferred tax liabilities

F-7

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Computation of Earnings Per Share: Basic earnings per share is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding, excluding restricted common stock. Diluted
earnings per share are computed giving effect to all dilutive potential common
shares that were outstanding during the period. Dilutive potential common shares
consist of the incremental common shares issuable upon the exercise of stock
options, warrants and upon the vesting of restricted common stock.

Stock Split: On February 21, 2001, the Board of Directors declared a
three-for-two stock split in the form of a 50% stock dividend payable April 13,
2001 to stockholders of record as of March 31, 2001. All references in the
financial statements to number of shares and per share amounts of the Company's
common stock have been retroactively restated to reflect the increased number of
shares outstanding.

Reclassifications: Certain financial statement items have been
reclassified to conform to the current year's format. These reclassifications
had no impact on previously reported net income, financial position or cash
flows.

Recent Accounting Pronouncements: In July 2001, the Financial Accounting
Standard Board ("FASB") issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations," and No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets." SFAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under a single method-the
purchase method. Use of the pooling-of-interests method is no longer permitted.
SFAS 142 requires that goodwill no longer be amortized to earnings, but instead
be reviewed for impairment upon initial adoption and on an annual basis going
forward. The non-amortization provisions of SFAS 142 were effective for all
business combinations completed after June 30, 2001 and will be fully adopted
for fiscal years beginning after December 15, 2001. The Company's amortization
expense related to goodwill was not significant in the years ended December 31,
2001, 2000 or 1999. The Company believes that SFAS 142 will not have a material
effect on the financial position or results of operations of the Company.

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 on the financial position or results of operations of the Company.

In October 2001, the FASB issued statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal periods. SFAS 144 supersedes
FASB statement No. 121 and APB 30; however, it retains the requirement of APB 30
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of (by sales, by abandonment, or in a distribution to owners) or is classified
as held for sale. SFAS 144 also addresses financial reporting for the impairment
of certain long-lived assets to be disposed of. The Company is in the process of
assessing the impact, if any, of SFAS 144 on the financial position or results
of operations of the Company.

F-8

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT RISKS AND UNCERTAINTIES

Revenue Recognition: As outlined in the Summary of Significant Accounting
Policies, the Company's construction revenue is recognized on the percentage of
completion basis. Consequently, construction revenue and gross margin for each
reporting period is determined on a contract-by-contract basis by reference to
estimates by the Company's engineers of expected costs to be incurred to
complete each project. These estimates include provisions for known and
anticipated cost overruns, if any exist or are expected to occur. These
estimates may be subject to revision in the normal course of business.

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 and that none of these proceedings will
have a material impact on the Company's financial position, results of
operations or cash flows. The Company's litigation typically involves claims
regarding public liability or contract related issues.

Concentrations: The Company maintains the majority of cash balances and
all of its short-term investments with several financial institutions. The
Company invests with high credit quality financial institutions, and, by policy,
limits the amount of credit exposure to any financial institution. A significant
portion of the Company's labor force is subject to collective bargaining
agreements. Collective bargaining agreements covering approximately 22% of the
Company's unionized labor force at December 31, 2001 will expire during 2002.

Revenue received by both the Branch Division and the Heavy Construction
Division from federal, state and local government agencies amounted to
$1,075,586 (69.5%) in 2001, $855,069 (63.4%) in 2000, and $856,399 (64.5%) in
1999. California Department of Transportation represented $223,916 (14.4%) in
2001, $174,560 (12.9%) in 2000, and $135,265 (10.2%) in 1999 of total revenue.
At December 31, 2001 and 2000, the Company had significant amounts receivable
from these agencies. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral, although the law provides
the Company the ability to file mechanics liens on real property improved for
private customers in the event of non-payment by such customers. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. The Company has no foreign operations.

3. SHORT-TERM INVESTMENTS

The carrying amounts of short-term investments are as follows at December
31, 2001 and 2000:

Held-to-maturity investments are carried at amortized cost, which
approximates fair value. Unrealized holding gains and losses for all debt
securities were insignificant for the years ended December 31, 2001 and 2000.
The Company recognized gross unrealized holding losses of $710 ($440 after tax)
related to its available-for-sale investment in mutual funds as a component of
other comprehensive income for the year ended December 31, 2001.

F-9

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 2001, scheduled maturities of held-to-maturity investments
were as follows:

Within one year............................................. $57,076
-------
After one year through five years........................... 2,781
-------
$59,857
=======

For the years ended December 31, 2001 and 2000, purchases and maturities
were as follows:

4. ACCOUNTS RECEIVABLE AND COSTS AND ESTIMATED EARNING IN EXCESS OF BILLINGS

The Company's accounts receivable comprised:

Accounts receivable includes amounts billed and billable for public and
private contracts. The balances billed but not paid by customers pursuant to
retainage provisions in construction contracts generally become due upon
completion of the contracts and acceptance by the owners. Retainage amounts at
December 31, 2001 are expected to be collected as follows: $82,128 in 2002,
$4,502 in 2003, $279 in 2004 and $171 in 2005 and thereafter.

Included in the Company's costs and estimated earnings in excess of
billings at December 31, 2001 is approximately $17.9 million related to claims
and unexecuted change orders acquired from Halmar Builders of New York, Inc.
(Note 16) that the Company believes are probable of collection during 2002.

5. EQUITY IN CONSTRUCTION JOINT VENTURES

The Company participates in various construction joint venture
partnerships. Generally, each construction joint venture is formed to accomplish
a specific project, is jointly controlled by the joint venture partners and is
dissolved upon completion of the project. The joint venture agreements typically
provide that the interests of the Company in any profits and assets, and its
respective shares in any losses and liabilities that

F-10

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

may result from the performance of the contract are limited to the Company's
stated percentage interest in the project. Although the venture's contract with
the project owner typically requires joint and several liability, the Company's
agreements with its joint venture partners provide that each party will assume
and pay its full proportionate share of any losses resulting from a project. The
Company has no significant commitments beyond completion of the contract. The
Company's share of equity in these ventures ranges from 15% - 65% the most
significant of which include a 65% share of a highway project in Tempe, Arizona,
a 60% share in a rapid transit project in New York, New York, a 57% share of a
light rail project in Minneapolis, Minnesota and a 60% share of a bridge
construction project in Panama City, Florida.

The combined assets, liabilities and net assets of these ventures are as
follows:

The revenue and costs of revenue of construction joint ventures are as
follows:

6. INVESTMENTS IN AFFILIATES

The Company has investments in affiliates that are accounted for on the
equity method. The most significant of these investments is a 48% interest in
Wilder Construction Company ("Wilder"), a 27% interest in T.I.C. Holdings,
Incorporated ("TIC"), a 50% interest in a limited liability company which owns
and operates an asphalt terminal in Nevada and a 22.2% limited partnership
interest in a partnership which constructed and operates a private toll road.
During 2001 the Company made advances to the asphalt terminal limited liability
company of which $3,100 remained outstanding at December 31, 2001. The Company
had a

F-11

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commitment supported by a letter of credit of $2,755 at December 31, 2001
related to its limited partnership interest in the private toll road.

During the years ended December 31, 2001 and 2000, the Company made
investments of $4,554 and $14,841, respectively, in the common stock of Wilder.
Wilder is a heavy-civil construction company with regional offices in
Washington, Oregon and Alaska. The purchase agreement provides for the Company
to increase its ownership in Wilder to between 51% and 60% in 2002 and to 75% in
2004.

In April 2000, the Company finalized an agreement with TIC to sell its
minority interest back to TIC over a three and one half-year period. Under the
agreement, TIC will have the opportunity to repurchase shares earlier based on
an agreed formula. On June 5, 2000, TIC repurchased 478,012 TIC common shares
held by the Company. The Company received $5.0 million in proceeds from the
transaction and recognized a gain of $600. At December 31, 2001 the Company held
2,093,248 shares of TIC common stock.

Differences between the carrying amount of the Company's investments and
the underlying equity in net assets, which approximate $9,600 at December 31,
2001 of which $7,200 is being amortized over an estimated useful life of 10
years. The summarized financial information below represents an aggregation of
the Company's investments in affiliates:

7. PROPERTY AND EQUIPMENT

F-12

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

9. LONG-TERM DEBT AND CREDIT ARRANGEMENTS

The aggregate minimum principal maturities of long-term debt for each of
the five years following December 31, 2001 are as follows: 2002 - $8,114;
2003 - $8,796; 2004 - $6,877; 2005 - $15,234; 2006 - $15,239; and beyond
2006 - $85,245.

The Company has a bank revolving line of credit of $60,000, which allows
for unsecured borrowings for up to three years through June 29, 2004, with
interest rate options. Outstanding borrowings under the revolving line of credit
are at the LIBOR interest rate plus margin (1.87% and 1.38%, respectively at
December 31, 2001) with principal payable semiannually beginning December 2001
through June 2006 and interest payable quarterly. There were no amounts
outstanding at December 31, 2001.

The Company has standby letters of credit totaling approximately $14,346
outstanding at December 31, 2001 of which $11,591 reduces the amount available
under the revolving line of credit and $2,755 supports the commitment by the
Company related to its investment in a limited partnership. The unused and
available portion of the line of credit at December 31, 2001 was $48,409.

Senior Notes Payable in the amount of $60,000 are due to a group of
institutional holders. The notes are due in nine equal annual installments
beginning in 2002 and bear interest at 6.54% per annum. Additional Senior Notes
Payable in the amount of $75,000 are due to a group of institutional holders.
The notes are due in nine equal annual installments beginning in 2005 and bear
interest at 6.96% per annum.

Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of the Senior
Notes Payable was approximately $132,700 as of December 31, 2001 and $57,300 as
of December 31, 2000.

Restrictive covenants under the terms of debt agreements include the
maintenance of certain levels of working capital and cash flow. Other covenants
prohibit capital expenditures in excess of specified limits and require the
maintenance of tangible net worth (as defined) of approximately $306,643. The
Company is in compliance with these covenants at December 31, 2001.

Other notes payable are comprised primarily of notes incurred in connection
with the purchase of property and equipment, and other assets. These notes are
collateralized by the assets purchased and bear interest at 6.5% to 8.8% per
annum with principal and interest payable in installments through 2007.

F-13

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan: The Company's Employee Stock Ownership Plan
("ESOP") covers all employees not included in collective bargaining agreements.
As of December 31, 2001, the ESOP owned 9,111,344 shares of the Company's common
stock. Dividends on shares held by the ESOP are charged to retained earnings and
all shares held by the ESOP are treated as outstanding in computing the
Company's earnings per share.

Contributions to the ESOP are discretionary and comprise shares of the
Company's stock that were purchased on the market and immediately contributed to
the plan. Compensation cost is measured as the cost to purchase the shares
(market value on the date of purchase and contribution). Contribution expense
for the years ended December 31, 2001 2000 and 1999 was $1,989, $632 and $1,769,
respectively.

Profit Sharing and 401k Plan: The plan is a defined contribution plan
covering all employees not included in collective bargaining agreements. Each
employee can elect to have up to 10% of gross pay contributed to the 401K plan
on a before-tax basis. The plan allows for Company matching and additional
contributions at the discretion of the Board of Directors.

Company contributions to the Profit Sharing and 401k Plan for the years
ended December 31, 2001, 2000 and 1999 were $5,005, $5,021 and $3,414,
respectively. Included in the contributions were 401k matching contributions of
$3,872, $2,990 and $2,762, respectively.

Other: Two of the Company's wholly owned subsidiaries, Granite
Construction Company and Granite Halmar Construction Company, Inc., also
contribute to various multi-employer pension plans on behalf of union employees.
Contributions to these plans for the years ended December 31, 2001, 2000 and
1999 were approximately $16,537, $14,532 and $14,435, respectively.

11. STOCKHOLDERS' EQUITY

1999 Equity Incentive Plan: On May 24, 1999, the Company's stockholders
approved the 1999 Equity Incentive Plan (the "Plan"), which replaced the
Company's 1990 Omnibus Stock and Incentive Plan (the "1990 Plan"). The Plan
provides for the grant of restricted common stock, incentive and nonqualified
stock options, performance units and performance shares to employees and awards
to the Company's Board of Directors in the form of stock units or stock options
("Director Options"). A total of 3,750,000 shares of the Company's common stock
have been reserved for issuance under the Plan. The exercise price for incentive
and nonqualified stock options granted under the Plan may not be less than 100%
and 85%, respectively, of the fair market value at the date of the grant.
Options granted will be exercisable at such times and be subject to such
restrictions and conditions as determined by the compensation committee, but no
option shall be exercisable later than ten years from the date of grant.
Restricted common stock is issued for services to be rendered and may not be
sold, transferred or pledged for such period as determined by the compensation
committee.

Restricted shares outstanding at December 31, 2001 were 1,260,560 shares.
Restricted stock compensation cost is measured at the stock's fair value on the
date of grant. The compensation cost is recognized ratably over the vesting
period -- generally three to five years. Restricted shares generally become
fully vested when a holder reaches age 62. An employee may not sell or otherwise
transfer unvested shares and, in the event that an employee terminates his or
her employment prior to the end of the vesting period, any unvested shares are
surrendered to the Company. The Company has no obligation to repurchase
restricted stock. Compensation

F-14

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expense related to restricted shares for the years ended December 31, 2001, 2000
and 1999 was $4,973, $5,901 and $4,834, respectively.

Stock options granted under the 1990 Plan, all of which were granted
in 1990 expired in 2000. All options were granted, cancelled and exercised
at $5.04 per share. Stock option transactions under the 1990 Plan during
2000 and 1999 are summarized as follows:

The Company granted Director Options under the Plan to purchase shares
of the Company's stock for the years ended December 31, 2001 and 2000 at a
weighted average exercise price of $11.91 in 2001, $8.54 in 2000 and $6.90
in 1999. The options are immediately exercisable and 40,187 shares remain
outstanding at December 31, 2001. Director's option transactions are
summarized as follows:

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). All of the options were granted at prices less than
fair market value. Accordingly, compensation cost for the options granted in
2001, 2000 and 1999 was recognized to the extent the fair market value exceeded
the exercise price.

The fair value of each option grant was estimated at the grant date using a
Black-Scholes option-pricing model with the following assumptions:

Based on these assumptions, the aggregate fair value and weighted
average fair value per share of options granted in 2001, 2000 and 1999 was
as follows:

The Company recognized $188, $150 and $78 of compensation expense
related to grants of stock options in 2001, 2000 and 1999, respectively.
Had compensation expense been determined based upon fair values at the
grant date in accordance with SFAS 123, the Company's net earnings would
have been

F-15

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reduced to the pro forma amount indicated below, however the Company's
earnings per share would be unchanged.

The options outstanding and exercisable by exercise price under the
Plan at December 31, 2001 are as follows:

Dividend Reinvestment and Stock Purchase Plan: During 2001 the Company
adopted a Dividend Reinvestment and Stock Purchase Plan (the "DRP Plan") under
which 4,500,000 shares of common stock are authorized for purchase. The DRP Plan
offers participation to record holders of common stock or other interested
investors. Under the DRP Plan, participants may buy additional shares of common
stock by automatically reinvesting all or a portion of the cash dividends paid
on their shares of common stock or by making optional cash investments.

Other: The Company has issued warrants to purchase 675,000 shares of its
common stock at an exercise price of $8.91 per share. The warrants expire on
July 25, 2002. As of December 31, 2001 there were 322,950 warrants outstanding.

F-16

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EARNINGS PER SHARE

A reconciliation of the numerator and denominator of basic and diluted
earnings per share is provided as follows (in thousands, except per share data):

13. INCOME TAXES

Provision for income taxes:

F-17

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliation of statutory to effective tax rate:

DEFERRED TAX ASSETS AND LIABILITIES:

The deferred tax asset for insurance accruals relates primarily to the self
funded portion of the Company's workers compensation and public liability
insurance which is deductible in future periods. The deferred tax asset for
other accrued liabilities relates to various items including accrued vacation
and accrued reclamation costs which are deductible in future periods. The
deferred tax liability for the TIC basis difference represents the undistributed
earnings of TIC for which income and the related tax provision have been
recognized on the Company's records.

F-18

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. LEASES

Minimum rental commitments under all noncancellable operating leases,
primarily quarry property and construction equipment, in effect at December 31,
2001 were:

Operating lease rental expense was $4,964 in 2001, $5,455 in 2000, and
$4,726 in 1999.

15. 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 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.
Substantially all of the revenue from these joint ventures is included in HCD's
revenues from external customers (Note 5).

F-19

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (Note 1). The Company evaluates
performance based on operating profit or loss which does not include income
taxes, interest income, interest expense or other income (expense).

F-20

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. ACQUISITION OF HALMAR BUILDERS OF NEW YORK, INC.

On July 1, 2001 the Company acquired 100% of the common stock of Halmar
Builders of New York, Inc., a Mt. Vernon, New York heavy-civil construction
company ("Halmar") for a cash purchase price of approximately $13.0 million
($11.4 million net of cash acquired) and assumption of net liabilities of
approximately $7.0 million. The new entity operates under the name Granite
Halmar Construction Company, Inc. ("Granite Halmar") as a wholly owned
subsidiary of Granite Construction Incorporated. If Granite Halmar achieves
certain predetermined financial results over a two-year period, the Company will
pay the former Halmar shareholders up to an additional $2.0 million which will
be recorded as an adjustment to purchase price by the Company at the time the
predetermined financial results have been achieved. The acquisition was
accounted for in accordance with SFAS 141, "Business Combinations." The results
of operations of Granite Halmar are included in these consolidated financial
statements as of July 1, 2001. Included in the Company's other assets is
approximately $18.0 million of goodwill and approximately $2.0 million of other
intangible assets related to this transaction. Additionally, included in the
Company's costs and estimated earnings in excess of billings at December 31,
2001 is approximately $17.9 million related to claims and unexecuted change
orders acquired from Halmar that the Company believes are probable of collection
during 2002. The acquisition is not considered material, therefore, certain
disclosures otherwise required have been omitted.

F-21

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. SUBSEQUENT EVENTS

Dividend: On January 30, 2002 the Company announced a quarterly cash
dividend of $0.08 per common share on the Company's common stock. The dividend
is payable April 15, 2002 to stockholders of record on March 29, 2002

Asset Purchase Agreements: In March 2002 the Company entered into
agreements to purchase certain assets and assume certain liabilities and
obligations of two materials and construction businesses in California. The
agreements require cash payments of approximately $22.0 million plus the value
of purchased inventory at the time of close, subject to adjustment as provided
in the agreements. Both transactions are expected to close in the second quarter
of 2002.

F-22

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 33-36482 and 33-36485) and Form S-3 (File No.
333-43422) of Granite Construction Incorporated of our report dated February 15,
2002, except Note 17 (Asset Purchase Agreements) as to which the date is March
8, 2002, relating to the financial statements and financial statement schedule,
which appears in this Annual Report on Form 10-K. We also consent to the
reference to us under the heading "Selected Consolidated Financial Data" in such
Annual Report.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
March 28, 2002

26

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

By: /s/ WILLIAM E. BARTON
------------------------------------
[William E. Barton, Senior Vice
President and Chief Financial
Officer]

Date: March 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 28, 2002 by the following persons in the
capacities indicated.

/s/ DAVID H. WATTS Chairman of the Board, President, Chief
- -------------------------------------------------------- Executive Officer and Director
[David H. Watts]

/s/ WILLIAM E. BARTON Senior Vice President and Chief Financial
- -------------------------------------------------------- Officer, Principal Accounting and Financial
[William E. Barton] Officer

/s/ JOSEPH J. BARCLAY Director
- --------------------------------------------------------
[Joseph J. Barclay]

/s/ RICHARD M. BROOKS Director
- --------------------------------------------------------
[Richard M. Brooks]

/s/ LINDA GRIEGO Director
- --------------------------------------------------------
[Linda Griego]

/s/ BRIAN C. KELLY Director
- --------------------------------------------------------
[Brian C. Kelly]

/s/ REBECCA A. MCDONALD Director
- --------------------------------------------------------
[Rebecca A. McDonald]

/s/ RAYMOND E. MILES Director
- --------------------------------------------------------
[Raymond E. Miles]

/s/ J. FERNANDO NIEBLA Director
- --------------------------------------------------------
[J. Fernando Niebla]

/s/ GEORGE B. SEARLE Director
- --------------------------------------------------------
[George B. Searle]

27

INDEX TO FORM 10-K EXHIBITS

- ---------------

(a) Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (No. 33-33795).

(b) Incorporated by reference to the exhibits filed with the Company's Form 10-K
for the year ended December 31, 1991.

(c) Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1995.

(d) Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1996.

(e) Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1997.

(f) Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1998.

(g) Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 1999.

(h) Incorporated by reference to the exhibits filed with the Company's 10-K for
the year ended December 31, 2000.

(i) Incorporated by reference to the exhibits filed with the Company's 10-Q for
the quarter ended June 30, 2001.

29

SCHEDULE II

GRANITE CONSTRUCTION INCORPORATED

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

- ---------------

(1) Accounts deemed to be uncollectible

S-1