GRANITE CONSTRUCTION INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

(X)

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

For the Quarter ended June 30, 2003


( )		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ___________

Commission File No. 1-12911

GRANITE CONSTRUCTION INCORPORATED


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

Corporate Administration:

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( )

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 7, 2003.


Class		Outstanding

Common Stock, $0.01 par value		41,533,311 shares

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	Item 3. DEFAULTS UPON SENIOR SECURITIES
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Index


			Page

PART I. FINANCIAL INFORMATION				3
	Item 1.	Financial Statements (unaudited)		4
		Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		4
		Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2003 and 2002		5
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002		6
		Notes to the Condensed Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
	Item 4.	Controls and Procedures		21
PART II. OTHER INFORMATION				22
	Item 1.	Legal Proceedings		23
	Item 2.	Changes in Securities and Use of Proceeds		23
	Item 3.	Defaults Upon Senior Securities		23
	Item 4.	Submission of Matters to a Vote of Security Holders		23
	Item 5.	Other Information		23
	Item 6.	Exhibits and Reports on Form 8-K		24

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (unaudited)

Granite Construction Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)


			June 30,			December 31,
			2003			2002

			(Unaudited)
Assets
Current assets
	Cash and cash equivalents		$	77,615		$	52,032
	Short-term marketable securities			62,819			96,900
	Accounts receivable, net			295,194			265,896
	Costs and estimated earnings in excess of billings			51,734			42,966
	Inventories			32,698			29,984
	Deferred income taxes			22,714			23,056
	Equity in construction joint ventures			29,145			24,329
	Other current assets			10,159			12,732

		Total current assets		582,078			547,895

Property and equipment, net				359,550			347,963

Long-term marketable securities				37,649			33,762

Investments in affiliates				19,216			18,970

Other assets				39,572			35,229

			$	1,038,065		$	983,819

Liabilities and Stockholders’ Equity
Current liabilities
	Current maturities of long-term debt		$	10,179		$	8,640
	Accounts payable			152,554			118,813
	Billings in excess of costs and estimated earnings			97,367			105,725
	Accrued expenses and other current liabilities			105,132			94,321

		Total current liabilities		365,232			327,499

Long-term debt				131,177			132,380

Other long-term liabilities				15,918			13,742

Deferred income taxes				40,011			40,011

Commitments and contingencies

Minority interest in consolidated subsidiaries				16,072			15,318

Stockholders’ equity
	Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding			—			—
	Common stock, $0.01 par value, authorized 100,000,000 shares; issued and outstanding 41,544,417 shares in 2003 and 41,257,015 in 2002			415			413
	Additional paid-in capital			73,832			69,390
	Retained earnings			410,887			398,383
	Accumulated other comprehensive loss			(788	)		(1,402	)

				484,346			466,784
	Unearned compensation			(14,691	)		(11,915	)

				469,655			454,869

			$	1,038,065		$	983,819

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

Granite Construction Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands, except per share data)


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

				2003			2002			2003			2002

Revenue:
	Construction			$	403,399		$	397,326		$	665,865		$	635,188
	Material sales				66,006			61,684			105,700			92,967

		Total revenue			469,405			459,010			771,565			728,155

Cost of revenue:
	Construction				362,456			344,466			596,700			559,701
	Material sales				53,766			50,685			88,665			77,683

		Total cost of revenue			416,222			395,151			685,365			637,384

			Gross Profit		53,183			63,859			86,200			90,771
General and administrative expenses					36,395			35,531			72,945			65,986

			Operating income		16,788			28,328			13,255			24,785

Other income (expense):
	Interest income				2,002			1,902			3,488			3,892
	Interest expense				(2,529	)		(2,531	)		(4,638	)		(4,176	)
	Gain on sales of property and equipment				232			415			528			631
	Equity in income of affiliates				110			1,431			18,125			1,953
	Other, net				1,951			(1,826	)		2,278			(1,994	)

					1,766			(609	)		19,781			306

			Income before provision for income taxes and minority interest		18,554			27,719			33,036			25,091
Provision for income taxes					6,718			10,394			11,959			9,409

			Income before minority interest		11,836			17,325			21,077			15,682
Minority interest in consolidated subsidiaries					(1,042	)		(767	)		(265	)		(767	)

			Net income	$	10,794		$	16,558		$	20,812		$	14,915

Net income per share
	Basic			$	0.27		$	0.41		$	0.52		$	0.37
	Diluted			$	0.26		$	0.41		$	0.51		$	0.37
Weighted average shares of common stock
	Basic				40,212			40,006			40,130			39,964
	Diluted				40,802			40,818			40,657			40,726
Dividends per share				$	0.10		$	0.08		$	0.20		$	0.16

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

Granite Construction Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)


				Six Months Ended June 30,
				2003			2002

Operating Activities
	Net income			$	20,812		$	14,915
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, depletion and amortization			32,979			26,174
		Gain on sales of property and equipment			(528	)		(631	)
		Change in deferred income taxes			—			1,457
		Amortization of unearned compensation			2,997			2,912
		Common stock contributed to ESOP			—			1,989
		Minority interest in income of consolidated subsidiaries			265			767
		Equity in income of affiliates			(18,125	)		(1,953	)
		Gain on sale of equity investment			(1,853	)		—
	Changes in assets and liabilities, net of the effects of acquisitions:
		Accounts and notes receivable			(29,113	)		(37,730	)
		Inventories			(2,714	)		(2,692	)
		Equity in construction joint ventures			(4,816	)		(237	)
		Other assets			3,627			502
		Accounts payable			33,741			1,809
		Billings in excess of costs and estimated earnings, net			(17,126	)		(7,593	)
		Accrued expenses and other liabilities			8,863			11,747

			Net cash provided by operating activities		29,009			11,436

Investing Activities
	Purchases of marketable securities				(80,289	)		(281,112	)
	Maturities of marketable securities				111,439			300,899
	Additions to property and equipment				(42,597	)		(35,072	)
	Proceeds from sales of property and equipment				2,060			1,413
	Proceeds from sale of equity investment				6,033			13,051
	Distributions from affiliates, net				13,699			(636	)
	Acquisitions of businesses, net of cash received				—			(22,100	)
	Other investing activities				(1,628	)		(12	)

			Net cash provided by (used in) investing activities		8,717			(23,596	)

Financing Activities
	Additions of long-term debt				18,890			14,975
	Repayments of long-term debt				(23,455	)		(26,358	)
	Dividends paid				(7,455	)		(6,593	)
	Repurchase of common stock and other				(1,679	)		(4,347	)
	Sale of subsidiary common stock				1,556			433

			Net cash used in financing activities		(12,143	)		(21,890	)

Increase (decrease) in cash and cash equivalents					25,583			(34,023	)
Cash and cash equivalents at beginning of period					52,032			125,174

Cash and cash equivalents at end of period				$	77,615		$	91,151

Supplementary Information
	Cash paid during the period for:
		Interest		$	4,590		$	4,347
		Income taxes			5,317			1,016
	Non-cash investing and financing activity:
		Restricted stock issued for services		$	5,908		$	7,041
		Dividends accrued but not paid			4,154			3,304
		Financed acquisition of long-term asset			4,004			—
		Subsidiary preferred stock exchanged for subsidiary common stock			—			3,299

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

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation:

The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“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 June 30, 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 June 30, 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 January 2003, the Financial Accounting Standards Board (“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. 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. As more fully described in our Annual Report of Form 10-K under the section entitled “Critical Accounting Policies,” we participate in various construction joint ventures in order to share expertise, risk and resources for certain highly complex projects. We are currently evaluating whether certain of these jointly controlled entities meet the definition of a variable interest entity in FIN 46. If all of the entities being evaluated met the definition and we were required to consolidate them, the result to our financial position would be an increase in assets (primarily current assets) of approximately $108.0 million and an increase in current liabilities of approximately $100.0 million. Additionally, consolidation of these entities would increase our revenue and cost of revenue, but there would be no impact on operating profit or net income.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). It is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Our majority owned subsidiary, Wilder Construction Company, has certain redemption features covering substantially all of its non-Granite common shareholders and we are currently assessing the applicability of SFAS 150 to these instruments. If it is determined that all of these instruments meet the requirements described in SFAS 150 we could record a long-term liability of approximately $22.0 million and a cumulative effect of a change in an accounting principle of approximately $10.0 million in our financial statements for the third quarter ended September 30, 2003.

3. Inventories:

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

4. Property and Equipment:


	June 30, 2003
In thousands	(Unaudited)		December 31, 2002

Land	$	51,394	$	50,697
Quarry property		77,370		75,459
Buildings and leasehold improvements		61,522		59,229
Equipment and vehicles		689,769		656,857
Office furniture and equipment		13,110		11,782

		893,165		854,024
Less accumulated depreciation, depletion and amortization		533,615		506,061

	$	359,550	$	347,963

5. Earnings Per Share:


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

In thousands, except per share data					2003		2002		2003		2002

Numerator – basic and diluted earnings per share
	Net income				$	10,794	$	16,558	$	20,812	$	14,915

Denominator – basic earnings per share
	Weighted average common stock outstanding					41,537		41,289		41,395		41,221
	Less weighted average restricted stock outstanding					1,325		1,283		1,265		1,257

			Total			40,212		40,006		40,130		39,964

Basic earnings per share					$	0.27	$	0.41	$	0.52	$	0.37

Denominator – diluted earnings per share
	Denominator – basic earnings per share					40,212		40,006		40,130		39,964
	Effect of dilutive securities:
		Common stock options				23		21		19		20
		Warrants				—		202		—		199
		Restricted stock				567		589		508		543

				Total		40,802		40,818		40,657		40,726

Diluted earnings per share					$	0.26	$	0.41	$	0.51	$	0.37

Common stock options, warrants and common stock equivalents representing 57 shares for the three months ended June 30, 2003 and 86 shares and 357 shares for the six months ended June 30, 2003 and 2002, respectively, have been excluded from the calculation of diluted earnings per share because their effects are anti-dilutive.

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Comprehensive Income:

The components of comprehensive income, net of tax, are as follows:


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

In thousands		2003		2002			2003		2002

Net income		$	10,794	$	16,558		$	20,812	$	14,915
Other comprehensive income (loss):
	Changes in net unrealized losses on investments		781		(420	)		614		(400	)

Total comprehensive income		$	11,575	$	16,138		$	21,426	$	14,515

7. Commitments and Contingencies:

We are a party to a number of 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, including our majority owned subsidiary, Wilder Construction Company, that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in 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).

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information about Profit and Assets (in thousands):


		Three Months Ended June 30,
		HCD			Branch		Total

2003
	Revenue from external customers	$	192,825		$	276,580	$	469,405
	Inter-segment revenue transfer		(2,974	)		2,974		—

	Net revenue		189,851			279,554		469,405
	Depreciation, depletion and amortization		3,588			10,748		14,336
	Operating profit		7,173			19,632		26,805

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

	Net revenue		151,252			307,758		459,010
	Depreciation, depletion and amortization		2,823			9,213		12,036
	Operating profit		10,635			28,568		39,203


		Six Months Ended June 30,
		HCD			Branch		Total

2003
	Revenue from external customers	$	325,370		$	446,195	$	771,565
	Inter-segment revenue transfer		(5,434	)		5,434		—

	Net revenue		319,936			451,629		771,565
	Depreciation, depletion and amortization		6,737			22,679		29,416
	Operating profit		14,037			16,373		30,410
	Property and equipment		43,037			297,830		340,867

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

	Net revenue		269,367			458,788		728,155
	Depreciation, depletion and amortization		5,755			17,642		23,397
	Operating profit		9,765			34,636		44,401
	Property and equipment		41,519			267,294		308,813

Reconciliation of Segment Profit to Consolidated Totals (in thousands):


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

	2003			2002			2003			2002

Profit:
Total profit for reportable segments	$	26,805		$	39,203		$	30,410		$	44,401
Other income (expense)		1,766			(609	)		19,781			306
Unallocated other corporate expenses		(10,017	)		(10,875	)		(17,155	)		(19,616	)

Income before provision for income taxes and minority interest	$	18,554		$	27,719		$	33,036		$	25,091

9. Investments in Affiliates:

On January 3, 2003, the California Private Transportation Company, LP (“CPTC”), of which we are a 22.2% 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 six months ended June 30, 2003 is $18.4 million related to this sale by CPTC.

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In June 2003, T.I.C. Holdings, Inc. (“TIC”) repurchased 0.3 million shares of the TIC shares held by us for a cash payment of $6.0 million. We account for our investment in TIC using the cost method. This transaction reduced our ownership interest from 15.5% to 10.6% and resulted in a gain of $1.9 million, which is included in other income, net.

10. Line of Credit:

On June 27, 2003, we entered into an agreement for a $100.0 million bank revolving line of credit, which allows for unsecured borrowings for up to three years through June 27, 2006, with interest rate options. Outstanding borrowings under the revolving line of credit are at LIBOR plus margin (1.20% and 1.38% at June 30, 2003). This line of credit replaces a $60.0 million line of credit we entered into in June of 2001. Additionally, we have standby letters of credit totaling $1.5 million, of which $1.3 million reduces the amount available under the line of credit. The unused and available portion of the line of credit at June 30, 2003 was $98.7 million. Restrictive covenants under the terms of this line of credit include the maintenance of certain financial ratios and tangible net worth (as defined) of approximately $377.0 million. We are in compliance with these covenants and the covenants of our other debt agreements at June 30, 2003.

11. Acquisitions:

During the three-month period ended June 30, 2002 we completed the following acquisitions:

We purchased an additional 698,483 shares of Wilder common stock for total consideration of $7.9 million (excluding $9.1 million of cash applied in consolidation). As a result of this transaction our interest in Wilder increased to above 50% and we discontinued application of the equity method of accounting and fully consolidated Wilder in our financial statements.

We purchased certain assets and assumed certain contracts and liabilities of two northern California construction contractors and materials suppliers for cash consideration of approximately $23.3 million. The purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values at the date of acquisition

12. 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.

13. Subsequent Event:

On July 28, 2003 we announced a quarterly cash dividend of $0.10 per common share. The dividend is payable October 15, 2003 to stockholders of record on September 30, 2003.

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.

General:

We are one of the largest heavy civil contractors in the United States and are engaged in the construction of highways, dams, airports, mass transit facilities and other infrastructure-related projects. We have offices in California, Nevada, Arizona, Utah, Washington, Oregon, Alaska, Texas, Georgia, Florida and New York. Our business involves two operating segments: the Branch Division and the Heavy Construction Division.

Our 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. Our 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 may vary significantly from period to period.

Our general and administrative costs include salaries and related expenses, incentive compensation, discretionary profit sharing and other variable compensation, as well as other overhead costs to support our overall business. In general, these costs will increase in response to the growth and the related increased complexity of our business. These costs may also vary depending on the number of projects in process in a particular area and the corresponding level of estimating activity. For example, as large projects are completed or if the level of work slows down in a particular area, we will often re-assign employees from those projects to estimating and bidding activities until another project assignment becomes available, temporarily moving their salaries and related costs from cost of revenue to general and administrative expense. Additionally, our compensation strategy for selected management personnel is to rely heavily on a variable cash and restricted stock performance-based incentive element. The cash portion of these incentives is expensed when earned while the restricted stock portion is expensed over the vesting period of the stock (generally five years). Depending on the mix of cash and restricted stock, these incentives can have the effect of increasing general and administrative expenses in a very profitable year and decreasing expenses in less profitable years.

Results of Operations


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

			2003					2002					2003					2002

(in thousands)			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent

Revenue by Division:
	Branch Division		$	279,554		59.6	%	$	307,758		67.0	%	$	451,629		58.5	%	$	458,788		63.0	%
	Heavy Construction Division			189,851		40.4	%		151,252		33.0	%		319,936		41.5	%		269,367		37.0	%

			$	469,405		100.0	%	$	459,010		100.0	%	$	771,565		100.0	%	$	728,155		100.0	%

Revenue by Geographic Area:
	California		$	151,702		32.3	%	$	190,140		41.4	%	$	262,704		34.1	%	$	293,199		40.2	%
	West (excluding California)			166,621		35.5	%		157,940		34.4	%		262,655		34.0	%		229,749		31.6	%
	Midwest			14,830		3.2	%		18,831		4.1	%		24,675		3.2	%		35,434		4.9	%
	Northeast			42,139		9.0	%		26,439		5.8	%		70,326		9.1	%		46,493		6.4	%
	South			94,113		20.0	%		65,660		14.3	%		151,205		19.6	%		123,280		16.9	%

			$	469,405		100.0	%	$	459,010		100.0	%	$	771,565		100.0	%	$	728,155		100.0	%

Revenue by Market Sector:
	Federal Agencies		$	12,882		2.7	%	$	14,182		3.1	%	$	22,212		2.9	%	$	25,466		3.5	%
	State Agencies			193,043		41.1	%		181,126		39.5	%		303,352		39.3	%		302,343		41.5	%
	Local Public Agencies			142,557		30.4	%		126,673		27.6	%		238,948		31.0	%		183,984		25.3	%

		Total Public Sector		348,482		74.2	%		321,981		70.2	%		564,512		73.2	%		511,793		70.3	%

	Private Sector			54,917		11.7	%		75,345		16.4	%		101,353		13.1	%		123,395		16.9	%
	Material Sales			66,006		14.1	%		61,684		13.4	%		105,700		13.7	%		92,967		12.8	%

			$	469,405		100.0	%	$	459,010		100.0	%	$	771,565		100.0	%	$	728,155		100.0	%

Revenue: Total revenue for the three and six month periods ended June 30, 2003 increased over the corresponding 2002 periods by $10.4 million and $43.4 million, respectively. Branch Division revenue for the three and six month periods in 2003 includes $55.8 million and $73.5 million, respectively, from our majority owned Wilder Construction Company (“Wilder”) subsidiary, which was consolidated in our financial statements beginning in May of 2002, versus $35.9 million in the three and six month periods in 2002. Excluding the Wilder revenue, Branch Division revenue for the three and six month periods ended June 30, 2003 decreased over the corresponding 2002 periods by $48.1 million and $44.7 million, respectively, due primarily to higher than normal rainfall during the first part of the second quarter in many of the areas the Branch Division works and the effects of a weaker general economy and uncertainty surrounding public funding, particularly in California (see “Outlook”). Revenue from our Heavy Construction Division increased 25.5% and 18.8% in the three and six months ended June 30, 2003 over the corresponding periods in 2002 due primarily to larger volume from a higher backlog at the beginning of 2003.


Backlog			June 30,					March 31,					June 30,

			2003					2003					2002

(in thousands)			Amount		Percent			Amount		Percent			Amount		Percent

Backlog by Division:
	Branch Division		$	536,209		27.8	%	$	527,147		28.2	%	$	570,859		35.9	%
	Heavy Construction Division			1,395,185		72.2	%		1,343,681		71.8	%		1,017,108		64.1	%

			$	1,931,394		100.0	%	$	1,870,828		100.0	%	$	1,587,967		100.0	%

Backlog by Geographic Area:
	California		$	296,469		15.4	%	$	264,106		14.1	%	$	373,402		23.5	%
	West (excluding California)			401,387		20.8	%		463,986		24.8	%		338,254		21.3	%
	Midwest			65,186		3.3	%		78,356		4.2	%		126,326		8.0	%
	Northeast			426,987		22.1	%		469,449		25.1	%		243,302		15.3	%
	South			741,365		38.4	%		594,931		31.8	%		506,683		31.9	%

			$	1,931,394		100.0	%	$	1,870,828		100.0	%	$	1,587,967		100.0	%

Backlog by Market Sector:
	Federal agencies		$	88,997		4.6	%	$	87,386		4.7	%	$	41,095		2.6	%
	State agencies			847,726		43.9	%		798,061		42.7	%		783,030		49.3	%
	Local public agencies			817,399		42.3	%		823,067		43.9	%		649,104		40.9	%

		Total public sector		1,754,122		90.8	%		1,708,514		91.3	%		1,473,229		92.8	%

	Private sector			177,272		9.2	%		162,314		8.7	%		114,738		7.2	%

			$	1,931,394		100.0	%	$	1,870,828		100.0	%	$	1,587,967		100.0	%

Backlog: Our backlog at June 30, 2003 of $1,931.4 million was $343.4 million, or 21.6%, higher than the backlog at June 30, 2002. Branch Division backlog decreased by $34.7 million, or 6.1%, from June 30, 2002 to June 30, 2003, reflecting decreases in most of the areas the Branch Division works. The decreased Branch Division backlog reflects decreases in both public sector and private sector backlog which we believe is the result of a continued weak economy in most of the Branch Division locations and uncertainty surrounding public funding, particularly in California (see “Outlook”).

Heavy Construction Division backlog at June 30, 2003 of $1,395.2 million represents an increase of $378.1 million, or 37.2%, from its backlog at June 30, 2002 and $51.5 million, or 3.8%, from its backlog at March 31, 2003. HCD’s awards for the second quarter of 2003 included a $66.6 million highway contract in North Carolina, a $53.4 million dam project in Arkansas and a $91.2 million share of a highway bridge joint venture contract in Virginia.


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

(in thousands)	2003			2002			2003			2002

Total gross profit	$	53,183		$	63,859		$	86,200		$	90,771
Percent of revenue		11.3	%		13.9	%		11.2	%		12.5	%

Gross Profit: Gross profit as a percent of revenue decreased to 11.3% in the second quarter of 2003 from 13.9% in the second quarter of 2002 and to 11.2% in the six months ended June 30, 2003 from 12.5% in the corresponding 2002 period. Gross profit in the quarter and six months ended June 30, 2003 was negatively impacted by a higher volume of revenue from projects less than 25% complete. We recognize revenue only to the extent of cost, deferring profit recognition, until a project reaches 25% complete. The amount of revenue generated from projects below the 25% completion threshold was approximately $53.0

million and $35.0 million for the three months ended June 30, 2003 and 2002, respectively, and $63.0 million and $48.0 million for the six months ended June 30, 2003 and 2002, respectively. Gross margins in the Branch Division were also negatively impacted by reductions in various state and local transportation funding programs, resulting in fewer projects being bid with increasing pressure on margins. Additionally, HCD gross margins were lower than expected during the 2003 quarter due to revised profit forecasts on several projects.

Cost of revenue consists of direct costs on contracts, including labor and materials, subcontractor costs, direct overhead costs and equipment expense (primarily depreciation, maintenance and repairs and fuel). Although the composition of costs varies with each contract, our gross profit margins were not significantly impacted by changes in any one of these costs during the first six months of 2003.


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

(in thousands)		2003			2002			2003			2002

Salaries and related expenses		$	19,768		$	17,893		$	41,414		$	34,733
Incentive compensation, discretionary profit sharing and other variable compensation			4,604			5,372			9,036			7,894
Other general and administrative expenses			12,023			12,266			22,495			23,359

	Total	$	36,395		$	35,531		$	72,945		$	65,986

Percent of revenue			7.8	%		7.7	%		9.5	%		9.1	%

General and Administrative Expenses: General and administrative expenses increased by $7.0 million in the six months ended June 30, 2003 from the comparable 2002 period and by $0.9 million in the quarter ended June 30, 2003 compared with the June 2002 quarter. Included in these increases were costs of approximately $6.3 million and $1.2 million for the six months and three months ended June 30, 2003, respectively, associated with our Wilder subsidiary and our expansion into Northern California, both of which were first reflected in our costs in May, 2002. Variable compensation decreased in the second quarter 2003 due to lower income than in the comparable 2002 quarter and increased in the six-month period ended June 30, 2003 due primarily to higher variable compensation associated with the CPTC investment income recognition (see “Other Income/Expense”). Other general and administrative costs include information technology, occupancy, office equipment and supplies, depreciation, travel and entertainment, outside services, advertising and marketing, training and other miscellaneous expenses, none of which individually exceeded 10% of total general and administrative expense.


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

(in thousands)	2003			2002			2003			2002

Branch Division	$	19,632		$	28,568		$	16,373		$	34,636
Heavy Construction Division		7,173			10,635			14,037			9,765
Unallocated other corporate expenses		(10,017	)		(10,875	)		(17,155	)		(19,616	)

Total	$	16,788		$	28,328		$	13,255		$	24,785

Operating Income: Our Heavy Construction Division’s contribution to operating income decreased in the second quarter of 2003 compared with the second quarter of 2002 primarily due to the effects of lowered profit forecasts on several projects that were partially offset by the positive contribution from higher revenue during the 2003 period. For the six months ended June 30, 2003, HCD’s contribution to operating income increased due to the margin generated from higher 2003 revenue. Our Branch Division’s contribution to operating income decreased in both the quarter and six months ended June 30, 2003 compared with the same periods in 2002 due to the factors described in “Revenue”, “Gross Profit”,

and “General and Administrative Expenses”, above. Unallocated other corporate expenses principally comprise corporate general and administrative expenses.


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

(in thousands)		2003			2002			2003			2002

Interest income		$	2,002		$	1,902		$	3,488		$	3,892
Interest expense			(2,529	)		(2,531	)		(4,638	)		(4,176	)
Gain on sales of property and equipment			232			415			528			631
Equity in income of affiliates			110			1,431			18,125			1,953
Other, net			1,951			(1,826	)		2,278			(1,994	)

	Total	$	1,766		$	(609	)	$	19,781		$	306

Other Income (Expense): Included in other income (expense) in the six months ended June 30, 2003 is $18.4 million recognized in the first quarter of 2003 related to the sale of the State Route 91 Tollroad Franchise by the California Private Transportation Corporation, of which we are a 22.2% limited partner. Additionally, included in other, net in the three and six months ended June 30, 2003 is approximately $1.9 million in gain recognized on the sale of a portion of our investment in T.I.C. Holdings, Inc. (“TIC”) back to TIC for a cash payment of approximately $6.0 million.


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

(in thousands)	2003			2002			2003			2002

Provision for income taxes	$	6,718		$	10,394		$	11,959		$	9,409

Effective tax rate		36.2	%		37.5	%		36.2	%		37.5	%

Provision for Income Taxes: Our effective tax rate decreased to 36.2% in the three and six month periods ended June 30, 2003 from 37.5% in the comparable periods in 2002 due to the combined factors of higher percentage depletion deductions related to quarry properties and higher tax credits.

Outlook

Our outlook for the remainder of 2003 and into 2004 includes both challenges and opportunities. The short-term challenges are primarily caused by reduced transportation budgets and economic conditions we are experiencing in the West – particularly in California. On the positive side, we have a strong Heavy Construction Division (HCD) backlog and see continued demand for our services.

California Budget Overview

On the political front in California, after a 43-day stalemate, Governor Gray Davis signed the much anticipated fiscal year 2003-2004 budget. The California budget includes significant reductions to the state’s transportation budget using transportation funds to aid the General Fund. With California being the largest market for the Branch Division, this is a concern for us going forward and has created uncertainty in our Branch business, which will likely persist through 2004.

To date in 2003, the California Transportation Commission (“CTC”) has allocated $1.0 billion to new projects and suggested that an additional $800 million will be allocated over the fiscal year ended June 2004. This works out to $1.8 billion over an 18-month period, which annualizes to $1.2 billion. With new contracting from the California Department of Transportation (“Caltrans”) averaging around $2.4 billion annually over the past several years, the current construction contracting level amounts equate to a 50% reduction from the historic contracting level. It also remains questionable how much the program can, or will be, ramped up during the next fiscal year. In addition to the state budget, the amount that the CTC is able to allocate depends on the level of federal funding, state fuel tax revenues and truck weight fees. The State Highway Account has lost more than $150.0 million annually as a result of a 2000 state law restructuring the fees. Corrective legislation to prospectively restore these lost fees is pending in Sacramento.

Under Proposition 42, approved by voters in March 2002, revenue from the sales tax on gasoline that previously went to the General Fund was to be transferred into the Transportation Investment Fund (“TIF”) for transportation purposes, beginning in 2003-2004. However, the current budget requires that the Proposition 42 transfer be partially suspended with a total of $289.0 million being transferred to the TIF with the balance of $856.0 million remaining in the General Fund, which is to be repaid with interest by 2009. Of the $289.0 million portion transferred to the TIF, $189.0 million will be available for projects and the remaining $100.0 million allocated to the State Highway Account to repay prior loans to the Transportation Highway Congestion Relief Program.

Branch Division Outlook

As the volume of public sector work being put out to bid in California decreases, and areas of the private sector economy remain weak, we are seeing an increase in the number of bidders for the available work, which is creating pressure on project margins. We do not expect this pressure to let up in the foreseeable future. On the positive side, our Branch Division aggregate sales are holding up well compared to last year’s record levels. Although we are experiencing some softening of material prices, we continue to have success in selling our materials, in some cases, to those construction jobs on which we were the unsuccessful bidder. We feel that our quality control program and the ability to understand the issues from the contractor’s viewpoint gives us a unique advantage over some of the pure-materials suppliers. However, there is no reason to believe that the aggregate business will escape the same pricing pressure that we are experiencing in our Branch Division construction business.

While it is still too early to precisely predict what the specific impact of state and local funding reductions will have on our Branch business, we anticipate 2003 operating income for the Branch Division to be down approximately 20% from its 2002 level. However, some of the indicators discussed above suggest that even that level of performance will be a challenge.

Federal Highway Bill Reauthorization

At the federal level, the House and Senate Committees are still working toward a six-year reauthorization bill to replace the current legislation, the Transportation Equity Act of the 21st Century (“TEA-21”), which expires September 30, 2003. Industry analysts are indicating that the reality of a six-year bill is increasingly unlikely. Expedient alternatives would be either a two-year or six-month extension, with the former being favored by the industry. There appears to be considerable sentiment in both houses and on both sides of the aisle to bring funding levels for transportation significantly higher than the levels being proposed by the Bush Administration. According to the American Road and Transportation Builders Association, the likely annual average funding levels could be in the range of $39.0 billion to $50.0 billion. The average annual funding level under TEA-21 was $28.8 billion.

Heavy Construction Division Outlook

HCD continues to participate in a very strong bidding environment across the country and has seen a significant increase in awards of large projects, including transit and rail projects over the past few years. HCD is taking aim at these new opportunities and pursuing new markets in Minnesota, Oregon, Washington and Virginia, while also actively bidding in its core geographic marketplaces, such as Texas, Florida and New York. As these projects are quite large and have been in the development pipeline for a longer period, they are not as influenced by current states’ budget problems.

In addition, HCD is targeting bidding opportunities from coast to coast, totaling more than $12.0 billion over the next twelve to eighteen months – excluding the approximately $2.0 billion in projects that our Granite Halmar office in New York is targeting throughout their area. The division is currently pursuing approximately 18 design-build projects, to which we feel our experience in the design-build area provides us with a competitive advantage. Through June 30, 2003, design-build projects made up approximately 28.0% of HCD’s backlog.

Going forward, we are focused on the relentless execution of our work in order to capture the operating income that our stakeholders deserve. We believe that our employees, diverse structure and financial strength will enable us to successfully navigate through these uncertain times and position our business to take advantage of the upturn when it does occur. We remain very encouraged about the short and long-term prospects for HCD and our Branches, despite the current difficult environment in California. We remain confident that the on-going need to maintain and replace our nation’s infrastructure will provide us with the opportunities to grow our business.

Liquidity and Capital Resources


		Six Months Ended June 30,

(in thousands)		2003			2002

Cash and cash equivalents		$	77,615		$	91,151
Net cash provided (used) by:
	Operating activities		29,009			11,436
	Investing activities		8,717			(23,569	)
	Financing activities		(12,143	)		(21,890	)
Capital expenditures			(42,597	)		(35,072	)

Cash provided by operating activities of $29.0 million for the six months ended June 30, 2003 represents a $17.6 million increase from the amount provided by operating activities in the same period in 2002. This increase was primarily attributable to a larger growth in accounts payable in the first six months of 2003 due to costs associated with higher revenue, partially offset by a lower increase in accounts receivable in the same period due primarily to a change in the mix between billed receivables and unbilled revenue (costs and estimated earnings in excess of billings). Changes in cash from operating activities primarily reflect seasonal variations based on the amount and progress of work being performed.

Cash provided by investing activities of $8.7 million for the six months ended June 30, 2003 represents a $32.3 million increase from the amount used in investing activities in the same period in 2002. The increase was largely due to cash received from the sale of the State Route 91 Tollroad Franchise by the California Private Transportation Corporation, of which we are a 22.2% limited partner and higher net maturities of marketable securities. We have budgeted approximately $59.0 million for capital expenditures in 2003, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of aggregate reserves.

Cash used by financing activities was $12.1 million for the six months ended June 30, 2003, a decrease of $9.7 million from the same period in 2002. The decrease was mainly due to lower net repayments of long-term debt by our Wilder subsidiary.

On June 27, 2003, we entered into an agreement for a $100.0 million bank revolving line of credit, which allows for unsecured borrowings for up to three years through June 27, 2006, with interest rate options. Outstanding borrowings under the revolving line of credit are at LIBOR plus margin (1.20% and 1.38% at June 30, 2003). This line of credit replaces a $60.0 million line of credit we entered into in June of 2001. Additionally, we have standby letters of credit totaling $1.5 million, of which $1.3 million reduces the amount available under the line of credit. The unused and available portion of the line of credit at June 30, 2003 was $98.7 million. Restrictive covenants under the terms of this line of credit include the maintenance of certain financial ratios and tangible net worth (as defined) of approximately $377.0 million. We are in compliance with these covenants and the covenants of our other debt agreements at June 30, 2003.

Additionally, our Wilder subsidiary has a bank revolving line of credit of $10.0 million that expires in June 2005, of which $6.5 million was available at June 30, 2003.

On July 28, 2003 we announced a quarterly cash dividend of $0.10 per common share. The dividend is payable October 15, 2003 to stockholders of record on September 30, 2003.

Our cash and cash equivalents and short-term and long-term marketable securities totaled $178.1 million at June 30, 2003. We believe that our current cash and cash equivalents, short-term marketable securities,

cash generated from operations and amounts available under our existing credit facilities will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations through at least the next twelve months.

Recent Accounting Pronouncements: In January 2003, the Financial Accounting Standards Board (“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. 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. As more fully described in our Annual Report of Form 10-K under the section entitled “Critical Accounting Policies,” we participate in various construction joint ventures in order to share expertise, risk and resources for certain highly complex projects. We are currently evaluating whether certain of these jointly controlled entities meet the definition of a variable interest entity in FIN 46. If all of the entities being evaluated met the definition and we were required to consolidate them, the result to our financial position would be an increase in assets (primarily current assets) of approximately $108.0 million and an increase in current liabilities of approximately $100.0 million. Additionally, consolidation of these entities would increase our revenue and cost of revenue, but there would be no impact on operating profit or net income.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). It is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Our majority owned subsidiary, Wilder, has certain redemption features covering substantially all of its non-Granite common shareholders and we are currently assessing the applicability of SFAS 150 to these instruments. If it is determined that all of these instruments meet the requirements described in SFAS 150 we could record a long-term liability of approximately $22.0 million and a cumulative effect of a change in an accounting principle of approximately $10.0 million in our financial statements for the third quarter ended September 30, 2003.

Website Access

Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The information on our website is not incorporated into, and is not part of, this report.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In February 2003, we entered into two interest rate swap agreements in order to gain access to the lower borrowing rates normally available on floating-rate debt, while avoiding the prepayment and other costs that would be associated with refinancing our long-term fixed-rate debt. The swaps purchased have a combined notional amount of $50.0 million, a thirty-month term with six-month settlement periods and provide for us to pay variable interest at LIBOR plus a set rate spread and receive fixed interest of between 6.54% and 6.96%. The notional amount does not quantify risk or represent assets or liabilities, but rather, is used in the determination of cash settlement under the swap agreement. As a result of purchasing these swaps, we will be exposed to credit losses from counter-party non-performance; however, we do not anticipate any such losses from these agreements, which are with a major financial institution. The agreements will also expose us to interest rate risk should LIBOR rise during the term of the agreements. These swap agreements are accounted for under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). Under the provisions of SFAS 133, we initially recorded the interest rate swaps at fair value, and subsequently recorded any changes in fair value in other income, net. Fair value is determined based on quoted market prices, which reflect the difference between estimated future variable-rate payments and future fixed-rate receipts.

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2003, our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in the reports we file under the Exchange Act, within the time periods specified in the SEC’s rules and forms.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

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

At the Company’s Annual Meeting of Shareholders held on May 19, 2003, the following members were elected to three-year terms to the Board of Directors:


	Affirmative
	Votes		Withhold

Richard M. Brooks		37,008,467		278,141
Linda Griego		37,170,092		196,516
Raymond E. Miles		37,169,630		196,978
David H. Kelsey		37,180,481		186,127

Directors continuing in office are Joseph J. Barclay, Brian C. Kelly, Rebecca A. McDonald, J. Fernando Niebla, George B. Searle and David H. Watts.

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

Affirmative

Votes

Against

Abstain

To ratify the appointment of PricewaterhouseCoopers LLP as the independent accountants of the Company for the fiscal year ending December 31, 2003

36,120,436

1,182,440

63,732

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits


Exhibit
No.		Exhibit Description

10.1		Credit Agreement dated and effective June 27, 2003

10.2		Continuing Guaranty Agreement from the Subsidiaries of Granite Construction Incorporated as Guarantors of financial accommodations pursuant to the terms of the Credit Agreement dated June 27, 2003

10.3		First Amendment to Amended and Restated Note Purchase Agreement between Granite Construction Incorporated and certain purchasers dated June 15, 2003

10.4		First Amendment to Note Purchase Agreement between Granite Construction Incorporated and certain purchasers dated June 15, 2003

10.5		International Swap Dealers Association, Inc. Master Agreement between BNP Paribas and Granite Construction Incorporated dated as of February 10, 2003

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b) Reports on Form 8-K

On May 7, 2003 we filed a report on Form 8-K containing the press release announcing our first quarter 2003 financial results.

SIGNATURES

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


	GRANITE CONSTRUCTION INCORPORATED

August 12, 2003

/s/ William E. Barton

William E. Barton

Senior Vice President and Chief Financial Officer

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 June 30, 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 June 30, 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 January 2003, the Financial Accounting Standards Board (“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. 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. As more fully described in our Annual Report of Form 10-K under the section entitled “Critical Accounting Policies,” we participate in various construction joint ventures in order to share expertise, risk and resources for certain highly complex projects. We are currently evaluating whether certain of these jointly controlled entities meet the definition of a variable interest entity in FIN 46. If all of the entities being evaluated met the definition and we were required to consolidate them, the result to our financial position would be an increase in assets (primarily current assets) of approximately $108.0 million and an increase in current liabilities of approximately $100.0 million. Additionally, consolidation of these entities would increase our revenue and cost of revenue, but there would be no impact on operating profit or net income.

		In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). It is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle

		for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Our majority owned subsidiary, Wilder Construction Company, has certain redemption features covering substantially all of its non-Granite common shareholders and we are currently assessing the applicability of SFAS 150 to these instruments. If it is determined that all of these instruments meet the requirements described in SFAS 150 we could record a long-term liability of approximately $22.0 million and a cumulative effect of a change in an accounting principle of approximately $10.0 million in our financial statements for the third quarter ended September 30, 2003.

3.		Inventories:

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

4.		Property and Equipment:


6.		Comprehensive Income:

		The components of comprehensive income, net of tax, are as follows:

7.		Commitments and Contingencies:

		We are a party to a number of 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, including our majority owned subsidiary, Wilder Construction Company, that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in 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).

9.		Investments in Affiliates:

		On January 3, 2003, the California Private Transportation Company, LP (“CPTC”), of which we are a 22.2% 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 six months ended June 30, 2003 is $18.4 million related to this sale by CPTC.

		In June 2003, T.I.C. Holdings, Inc. (“TIC”) repurchased 0.3 million shares of the TIC shares held by us for a cash payment of $6.0 million. We account for our investment in TIC using the cost method. This transaction reduced our ownership interest from 15.5% to 10.6% and resulted in a gain of $1.9 million, which is included in other income, net.

10.		Line of Credit:

		On June 27, 2003, we entered into an agreement for a $100.0 million bank revolving line of credit, which allows for unsecured borrowings for up to three years through June 27, 2006, with interest rate options. Outstanding borrowings under the revolving line of credit are at LIBOR plus margin (1.20% and 1.38% at June 30, 2003). This line of credit replaces a $60.0 million line of credit we entered into in June of 2001. Additionally, we have standby letters of credit totaling $1.5 million, of which $1.3 million reduces the amount available under the line of credit. The unused and available portion of the line of credit at June 30, 2003 was $98.7 million. Restrictive covenants under the terms of this line of credit include the maintenance of certain financial ratios and tangible net worth (as defined) of approximately $377.0 million. We are in compliance with these covenants and the covenants of our other debt agreements at June 30, 2003.

11.		Acquisitions:

		During the three-month period ended June 30, 2002 we completed the following acquisitions:

		We purchased an additional 698,483 shares of Wilder common stock for total consideration of $7.9 million (excluding $9.1 million of cash applied in consolidation). As a result of this transaction our interest in Wilder increased to above 50% and we discontinued application of the equity method of accounting and fully consolidated Wilder in our financial statements.

		We purchased certain assets and assumed certain contracts and liabilities of two northern California construction contractors and materials suppliers for cash consideration of approximately $23.3 million. The purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values at the date of acquisition

12.		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.

13.		Subsequent Event:

		On July 28, 2003 we announced a quarterly cash dividend of $0.10 per common share. The dividend is payable October 15, 2003 to stockholders of record on September 30, 2003.

			Directors continuing in office are Joseph J. Barclay, Brian C. Kelly, Rebecca A. McDonald, J. Fernando Niebla, George B. Searle and David H. Watts.

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

	b)		Reports on Form 8-K

			On May 7, 2003 we filed a report on Form 8-K containing the press release announcing our first quarter 2003 financial results.