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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the Quarter ended March 31, 2003

Commission File No. 1-12911

GRANITE CONSTRUCTION INCORPORATED

Corporate Administration:

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

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

Yes  ( X)      No  (  )

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 12, 2003.

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act) Yes (X)      No   (   )

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GRANITE CONSTRUCTION INCORPORATED

Index

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PART I. FINANCIAL INFORMATION

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Item 1. FINANCIAL STATEMENTS (unaudited)

Granite Construction Incorporated

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

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Granite Construction Incorporated

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

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Granite Construction Incorporated

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

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Granite Construction Incorporated

1.		Basis of Presentation: The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we”, “us”, “our” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although we believe the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2003 and the results of our operations and cash flows for the periods presented. The December 31, 2002 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
		Interim results are subject to significant seasonal variations and the results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year.
2.		Newly Effective and Recently Issued Accounting Pronouncements:
		Recent Accounting Pronouncements: In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which was effective for our fiscal year beginning January 1, 2003. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 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 adoption of SFAS 143 did not have a material effect on our financial position, results of operations or cash flows.
		In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 supercedes FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”. The disclosure provisions of FIN 45 are effective for financial statements of both interim and annual periods that end after December 15, 2002 and the initial recognition and measurement provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of the prospective measurement provisions of this statement did not have a material effect on our financial position, results of operations or cash flows.
		In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51.” FIN 46 addresses consolidation accounting for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all variable interest entities created or acquired after January 31, 2003.

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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are in the process of assessing the impact, if any, of FIN 46 on our financial position or results of operations.
3.		Inventories: Inventories consist primarily of quarry products valued at the lower of average cost or market.
4.		Property and Equipment:

5.

Earnings Per Share:

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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.		Commitments and Contingencies:
		Litigation: Our wholly-owned subsidiary, Granite Construction Company (“GCCO”), as a member of a joint venture, Wasatch Constructors (“Wasatch”), is among a number of construction companies, including Wasatch, who, together with the Utah Department of Transportation (“UDOT”), are named as defendants in a lawsuit filed in the United States District Court for the District of Utah. The plaintiffs are two independent trucking contractors who filed the lawsuit on behalf of the United States under the federal False Claims Act seeking to recover damages and civil penalties in excess of $46,400,000. The lawsuit alleges that, beginning in 1997 and thereafter, the defendants submitted false claims to the United States Government during the reconstruction of a portion of Interstate 15 in the Salt Lake Valley pursuant to a prime contract between UDOT and Wasatch.
		Among other things, the plaintiffs allege that certain defendants, who were subcontractors to Wasatch defrauded the Government by charging Wasatch for dirt and fill material they did not provide and that Wasatch and UDOT knowingly paid for such excess material. The plaintiffs also allege that Wasatch committed certain other acts including providing substandard workmanship and materials; failure to comply with clean air and clean water standards and the filing of false certifications regarding its entitlement to the payment of bonuses. The original complaint was filed in January, 1999 and the Third Amended Complaint was filed in February, 2003.
		Although GCCO owns a 23% interest in Wasatch, it was not the managing partner of Wasatch nor was it principally involved in the ongoing management of the project. We and GCCO believe that the allegations in the lawsuit are without merit and intend to contest them vigorously. The lawsuit is in the preliminary stage and we cannot predict its outcome with certainty. The litigation process is inherently uncertain, and this type of litigation is particularly complex and can extend for a protracted period of time. As a result, GCCO’s defense of the lawsuit, regardless of its eventual outcome, may be costly. Should the outcome of the lawsuit be adverse to GCCO, it could be required to pay significant monetary damages. In addition, since GCCO is a general partner of Wasatch, it would be jointly and severally liable for damages or penalties assessed against Wasatch, although we and GCCO have no reason to believe that the other joint venture partners would not bear their pro rata share of any such damages or penalties.
		We are a party to a number of other legal proceedings and believe that the nature and number of these proceedings are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations for the period in which the ruling occurs.
8.		Business Segment Information:
		We have two reportable segments: the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division is comprised of branch offices that serve local markets, including our majority owned subsidiary, Wilder Construction Company, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch

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Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in our construction joint ventures.
		The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in our 2002 Annual Report on Form 10-K. We evaluate performance based on operating profit or loss, which does not include income taxes, interest income, interest expense or other income (expense).
		Information about Profit and Assets:

Reconciliation of Segment Profit to Consolidated Totals:

9.		Investments in Affiliates:
		On January 3, 2003, the California Private Transportation Company, LP (“CPTC”), of which we are a 22.22% limited partner, closed the sale of the State Route 91 Toll Road Franchise to the Orange County Transportation Authority for $72.5 million in cash and the assumption of $135.0 million in long-term debt. We completed construction of the $60.4 million project in 1995 and have maintained an equity interest in the partnership since its inception. Included in other income for the quarter ended March 31, 2003 is $18.4 million related to this sale by CPTC.

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

Forward-Looking Disclosure:

This Quarterly Report on Form 10-Q contains “ forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995 regarding future events and the future results of Granite that are based on current expectations, estimates, forecasts, and projects as well as the beliefs and assumptions of Granite’s management. Words such as “outlook”, “believes”, “expects”, “appears”, “may”, “will”, “should”, “anticipates” or the negative thereof or comparable terminology, are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K under the section entitled “Risk Factors”. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Report. Granite undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Results of Operations

Revenue: Revenue for the three months ended March 31, 2003 increased over the three months ended March 31, 2002 by $33.0 million or 12.3%. Branch Division revenue in 2003 included $17.7 million of revenue from our majority owned Wilder Construction Company (“Wilder”) subsidiary, which was consolidated in our financial statements beginning in the second quarter of 2002 and $6.9 million of revenue from the businesses acquired from Robinson Construction Company and Parnum Paving, Inc. in the second quarter of 2002 (“Northern California Businesses”). Excluding the Wilder and Northern

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California Businesses’ revenue, Branch Division revenue for the first quarter of 2003 decreased compared with the 2002 first quarter by $3.6 million or 2.4%. This $3.6 million decrease is attributable to a $9.6 million, or 21.3% decrease in Branch Division private sector revenue, partially offset by a $4.5 million, or 14.4% increase in revenue from the sale of materials and a $1.5 million, or 1.9% increase in public sector revenue. We believe the decreased private sector revenue was primarily due to a general slowdown in private development projects due to a weaker economic climate. The increased revenue from the sale of materials was due primarily to higher volume in many of our locations.

Revenue from our Heavy Construction Division increased $12.0 million, or 10.1%, in the quarter ended March 31, 2003 compared with the quarter ended March 31, 2002, due primarily to larger volume from higher backlog at the beginning of the 2003 quarter.