10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

OR

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

For the transition period from ___________ to ___________

Commission File Number: 1-12911

GRANITE CONSTRUCTION INCORPORATED

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

Corporate Administration:

585 W. Beach Street

Watsonville, California 95076

(831) 724-1011

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

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

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 18, 2008.

Class	Outstanding
Common Stock, $0.01 par value	38,280,565 shares

Index

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of June 30, 2008, December 31, 2007 and June 30, 2007
		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
		Notes to the Condensed Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
	Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3.	Defaults Upon Senior Securities
	Item 4.	Submission of Matters to a Vote of Security Holders
	Item 5.	Other Information
	Item 6.	Exhibits
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

2

PART I. FINANCIAL INFORMATION

3

Item 1. FINANCIAL STATEMENTS (unaudited)

GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - in thousands, except share and per share data)
	June 30, 2008			December 31, 2007		June 30, 2007
ASSETS
Current assets
Cash and cash equivalents	$	286,648		$	352,434	$	246,278
Short-term marketable securities		88,230			77,758		98,199
Accounts receivable, net		418,657			397,097		489,435
Costs and estimated earnings in excess of billings		51,047			17,957		39,710
Inventories		63,930			55,557		53,320
Real estate held for development and sale		50,308			51,688		54,722
Deferred income taxes		44,887			43,713		36,015
Equity in construction joint ventures		42,844			34,340		32,400
Other current assets		66,297			96,969		57,811
Total current assets		1,112,848			1,127,513		1,107,890
Property and equipment, net		526,383			502,901		490,328
Long-term marketable securities		29,706			55,156		61,582
Investments in affiliates		30,502			26,475		24,816
Other assets		73,455			74,373		72,490
Total assets	$	1,772,894		$	1,786,418	$	1,757,106
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt	$	35,039		$	28,696	$	35,040
Accounts payable		237,561			213,135		268,054
Billings in excess of costs and estimated earnings		226,213			275,849		242,469
Accrued expenses and other current liabilities		211,907			212,265		223,311
Total current liabilities		710,720			729,945		768,874
Long-term debt		246,493			268,417		139,715
Other long-term liabilities		46,956			46,441		67,378
Deferred income taxes		18,228			17,945		19,478
Commitments and contingencies
Minority interest in consolidated subsidiaries		61,172			23,471		30,675
Shareholders’ equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding		-			-		-
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 38,274,588 shares as of June 30, 2008, 39,450,923 shares as of December 31, 2007 and 41,947,610 as of June 30, 2007		383			395		419
Additional paid-in capital		81,358			79,007		81,293
Retained earnings		608,525			619,699		645,448
Accumulated other comprehensive (loss) income		(941	)		1,098		3,826
Total shareholders’ equity		689,325			700,199		730,986
Total liabilities and shareholders’ equity	$	1,772,894		$	1,786,418	$	1,757,106

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

4

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,
	2008			2007			2008			2007
Revenue
Construction	$	580,943		$	660,384		$	983,516		$	1,077,016
Material sales		107,289			100,091			158,843			166,202
Real estate		6,100			10,401			6,773			15,318
Total revenue		694,332			770,876			1,149,132			1,258,536
Cost of revenue
Construction		486,716			557,926			793,562			942,080
Material sales		89,835			78,878			138,891			132,986
Real estate		8,755			6,438			8,959			7,800
Total cost of revenue		585,306			643,242			941,412			1,082,866
Gross profit		109,026			127,634			207,720			175,670
General and administrative expenses		65,760			65,130			126,411			119,467
Gain on sales of property and equipment		2,155			4,346			2,556			5,059
Operating income		45,421			66,850			83,865			61,262
Other income (expense)
Interest income		3,593			6,439			9,648			13,282
Interest expense		(3,058	)		(2,028	)		(7,568	)		(3,114	)
Equity in income (loss) of affiliates		528			(29	)		(179	)		322
Other, net		184			(433	)		8,647			(666	)
Total other income		1,247			3,949			10,548			9,824
Income before provision for income taxes and minority interest		46,668			70,799			94,413			71,086
Provision for income taxes		13,081			22,154			25,208			22,243
Income before minority interest		33,587			48,645			69,205			48,843
Minority interest in consolidated subsidiaries		(7,969	)		(4,799	)		(30,464	)		(7,246	)
Net income	$	25,618		$	43,846		$	38,741		$	41,597
Net income per share
Basic	$	0.68		$	1.07		$	1.03		$	1.01
Diluted	$	0.68		$	1.05		$	1.01		$	1.00
Weighted average shares of common stock
Basic		37,426			41,096			37,782			41,044
Diluted		37,929			41,631			38,221			41,560
Dividends per share	$	0.13		$	0.10		$	0.26		$	0.20

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

5

GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - in thousands)
Six Months Ended June 30,	2008			2007
Operating Activities
Net income	$	38,741		$	41,597
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		42,428			38,825
Provision for doubtful accounts		1,383			1,156
Gain on sales of property and equipment		(2,556	)		(5,059	)
Change in deferred income taxes		419			(321	)
Stock-based compensation		3,427			3,451
Excess tax benefit on stock-based compensation		(746	)		(2,700	)
Minority interest in consolidated subsidiaries		30,464			7,246
Equity in loss (income) of affiliates		179			(322	)
Acquisition of minority interest		(16,616	)		-
Changes in assets and liabilities:
Accounts receivable		(17,021	)		11,315
Inventories		(6,671	)		(7,676	)
Real estate held for development and sale		(1,272	)		(1,619	)
Equity in construction joint ventures		(8,504	)		(488	)
Other assets		32,203			4,831
Accounts payable		25,939			10,442
Billings in excess of costs and estimated earnings, net		(82,726	)		(69,287	)
Accrued expenses and other liabilities		4,725			41,821
Net cash provided by operating activities		43,796			73,212
Investing Activities
Purchases of marketable securities		(28,620	)		(78,554	)
Maturities of marketable securities		40,250			100,225
Release of funds for acquisition of minority interest		28,332			-
Additions to property and equipment		(62,528	)		(62,265	)
Proceeds from sales of property and equipment		8,115			7,546
Acquisition of businesses		(14,022	)		(74,197	)
Contributions to affiliates		(4,420	)		(3,574	)
Collection of notes receivable		676			3,683
Net cash used in investing activities		(32,217	)		(107,136	)
Financing Activities
Proceeds from long-term debt		2,103			96,945
Repayments of long-term debt		(15,032	)		(26,641	)
Dividends paid		(10,103	)		(8,378	)
Repurchases of common stock		(45,468	)		(4,860	)
Contributions from minority partners		4,744			23,954
Distributions to minority partners		(2,639	)		(8,660	)
Acquisition of minority interest		(11,716	)		-
Excess tax benefit on stock-based compensation		746			2,700
Other		-			249
Net cash  (used in) provided by financing activities		(77,365)			75,309
(Decrease) increase in cash and cash equivalents		(65,786	)		41,385
Cash and cash equivalents at beginning of period		352,434			204,893
Cash and cash equivalents at end of period	$	286,648		$	246,278
Supplementary Information
Cash paid during the period for:
Interest	$	7,668		$	2,299
Income taxes		6,852			738
Non-cash investing and financing activity:
Restricted stock issued for services	$	6,835		$	11,870
Restricted stock units issued		3,208			-
Dividends accrued but not paid		4,976			4,195
Financed acquisition of assets		-			1,492
Debt repayments from sale of assets		2,652			4,277

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

6

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

1. Basis of Presentation:

The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we”, “us”, “our” 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, 2007. 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, 2008 and 2007 and the results of our operations and cash flows for the periods presented. The December 31, 2007 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 and six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year.

2. Recently Issued Accounting Pronouncements:

FSP 142-3

In April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 142-3, Determination of the Useful Life of Intangible Assets, (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for us in 2009. We are currently assessing the impact of FSP 142-3 on our consolidated financial statements.

SFAS 160

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). Under SFAS 160, the ownership interests in subsidiaries held by parties other than the parent must be clearly identified, labeled, and presented in the consolidated balance sheets within equity, but separate from the parent’s equity and the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. When a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary should be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment. Lastly, SFAS 160 requires entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for us in 2009. We are currently assessing the impact of SFAS 160 on our consolidated financial statements.

SFAS 141-R

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141-R, Business Combinations (“SFAS 141-R”) which revised SFAS 141, Business Combinations  (“SFAS 141”). Under SFAS 141, organizations utilized the announcement date as the measurement date for the purchase price of the acquired entity. SFAS 141-R requires measurement at the date the acquirer obtains control of the acquiree, generally referred to as the acquisition date. SFAS 141-R will have a significant impact on the accounting for transaction costs, restructuring costs and the initial recognition of contingent assets and liabilities assumed during a business combination. Under SFAS 141-R, adjustments to the acquired entity’s deferred tax assets and uncertain tax position balances occurring outside the measurement period are recorded as a component of income tax expense, rather than goodwill. This pronouncement is effective for us in 2009. As the provisions of SFAS 141-R are applied prospectively, the impact on us cannot be determined until the transactions occur.

7

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Change in Accounting Estimates:

Our gross profit in the three and six months ended June 30, 2008 and 2007 include the effects of significant changes in the estimates of the profitability of certain of our projects. 

Granite East

The impact of significant changes in the estimates of the profitability on Granite East gross profit is summarized as follows:

Granite East Change in Accounting Estimates	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2008			2007			2008			2007
Increase in gross profit	$	12.1		$	26.3		$	56.6		$	34.9
Reduction in gross profit		(3.5	)		(24.0	)		(10.0	)		(48.1	)
Net change to gross profit	$	8.6		$	2.3		$	46.6		$	(13.2	)
Number of projects with significant upward estimate changes*		4			7			5			6
Range of net increase to gross profit from each project	$	1.6 - 3.0		$	1.0 - 12.2		$	1.3 - 30.3		$	1.1 - 17.3
Number of projects with significant downward estimate changes*		2			4			3			8
Range of net reduction to gross profit from each project	$	1.2 - 1.3		$	1.2 - 15.7		$	1.4 - 2.4		$	1.0 - 25.7

* Significant is defined as a change with a net impact of $1.0 million or greater

During the three and six months ended June 30, 2008, Granite East recognized a net increase in gross profit from the net effect of changes in the estimates of project profitability of approximately $8.6 million and $46.6 million, respectively. The increases were primarily due to improved productivity estimates, settlement of outstanding revenue issues with the contract owners and the resolution of project uncertainties. The changes in estimates for the six months ended June 30, 2008 included the first quarter negotiated settlement of our claims on the SR 22 project in Southern California which increased gross profit by approximately $28.6 million. Several of the projects with improved profitability estimates had recognized significant margin deterioration in prior periods.

This compares with a net increase in gross profit of approximately $2.3 million in the three months ended June 30, 2007 and a net decrease in gross profit of approximately $13.2 million in the six months ended June 30, 2007 from changes in project profitability estimates.

Granite West

During the three and six months ended June 30, 2008, Granite West recognized an increase in gross profit from the net effects of changes in the estimates of project profitability of approximately $21.8 million and $34.5 million, respectively. This compares with an increase in gross profit of approximately $9.0 million and $13.9 million during the three and six months ended June 30, 2007, respectively. The increased Granite West profitability estimates during the three and six months ended June 30, 2008 were due primarily to the resolution of project uncertainties, higher productivity than originally estimated and the settlement of outstanding revenue and other issues with contract owners.

8

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Fair Value Measurement:

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of certain assets and liabilities. We adopted SFAS 157 as of January 1, 2008, and the impact of adoption was not significant. The FASB has deferred the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. We are currently assessing the impact on our financial statements of SFAS 157 as it pertains to non-financial assets and liabilities measured on a non-recurring basis.

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

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

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

We utilize the active market approach to measure fair value for our financial assets and liabilities.

Assets measured at fair value on a recurring basis are summarized below. We have no financial liabilities measured at fair value on a recurring basis.

June 30, 2008	Level 1		Level 2		Level 3		Total
(in thousands)
Available-for-sale securities	$	31,219	$	-	$	-	$	31,219

9

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Inventories:

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

6. Real Estate Entities and Investment in Affiliates:

We are participants in real estate entities through our Granite Land Company subsidiary (“GLC”). Generally, each entity is formed to accomplish a specific real estate development project. We have determined that certain of these entities are variable interest entities as defined by FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46”). Accordingly, we have consolidated those entities for which we have determined that we are the primary beneficiary. At June 30, 2008, the entities we have consolidated were engaged in development projects with total assets ranging from approximately $0.2 million to $26.9 million. At June 30, 2008 we had $50.3 million classified as real estate held for development and sale and an additional $15.4 million included in property and equipment on our condensed consolidated balance sheet related to GLC. Of these amounts, approximately $56.7 million was pledged as collateral for the obligations of consolidated real estate entities. Our proportionate share of the results of these entities varies depending on the ultimate profitability of the entities.

We account for our share of the operations of real estate entities in which we have determined we are not the primary beneficiary in “investments in affiliates” in our condensed consolidated balance sheets and in “other income (expense)” in our condensed consolidated statements of income. At June 30, 2008, these entities were engaged in development projects with total assets ranging from approximately $5.7 million to $50.1 million. Our proportionate share of the results of these entities varies depending on the ultimate profitability of the entities. At June 30, 2008 we had approximately $22.0 million recorded on our condensed consolidated balance sheet related to our investment in these real estate entities.

Included in the $50.3 million balance of real estate held for development and sale and the $22.0 million in investment in affiliates at June 30, 2008 is approximately $56.8 million related to residential housing projects. These projects are located in Washington, California, Texas, and Oregon. The amount in each state is summarized below:

(in millions)
Washington	$	32.0
California		12.6
Texas		7.3
Oregon		4.9
Total residential housing projects	$	56.8

Due to the downturn in the residential housing market, most notably in California, we assessed whether our investments related to these projects were impaired. The carrying amounts of such real estate development assets are evaluated for recoverability in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets  (“SFAS 144”). A real estate development asset is considered impaired when its carrying amount is greater than the undiscounted future net cash flows the asset is expected to generate. Impaired real estate development assets are written down to fair value, which is generally determined based on the sum of the discounted cash flows expected to result from the eventual disposal of the asset. Based on our evaluations, we recognized a pretax, non-cash impairment charge of $4.5 million in the three months ended June 30, 2008 on assets classified as real estate held for development and sale.  We recorded the charge in cost of revenue in our consolidated statements of income in our Granite Land Company operating segment.

Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result.

10

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Construction Joint Ventures:

We participate in various construction joint ventures. Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interest in any profits and assets, and our respective share in any losses and liabilities that may result from the performance of the contract are limited to our stated percentage interest in the project. Although each venture’s contract with the project owner typically requires joint and several liability among the joint venture partners, our agreements with our joint venture partners provide that each partner will assume and pay its full proportionate share of any losses resulting from a project.

We have determined that certain of these joint ventures are variable interest entities as defined by FIN 46. Accordingly, we have consolidated those joint ventures where we have determined that we are the primary beneficiary. At June 30, 2008, the joint ventures we have consolidated were engaged in construction projects with total contract values ranging from approximately $11.3 million to $487.6 million. Our proportionate share of the consolidated joint ventures ranges from 40% to 99%.

Consistent with Emerging Issues Task Force Issue 00-01, Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures, we account for our share of the operations of construction joint ventures in which we have determined we are not the primary beneficiary on a pro rata basis in the condensed consolidated statements of income and as a single line item in the condensed consolidated balance sheets. At June 30, 2008, the joint ventures in which we hold a significant interest but are not the primary beneficiary were engaged in construction projects with total individual contract values ranging from approximately $165.0 million to $717.2 million. Our proportionate share of these joint ventures ranges from 20% to 40%.

We also participate in various “line item” joint venture agreements under which each partner is responsible for performing certain discrete items of the total scope of contracted work. The revenue for these discrete items is defined in the contract with the project owner and each partner assumes the profitability risk associated with its own work. All partners in a line item joint venture are jointly and severally liable for completion of the total project under the terms of the contract with the project owner. There is not a single set of books and records for a line item joint venture. Each partner accounts for its items of work individually as it would for any self-performed contract. We account for our portion of these contracts as a project in our accounting system and include receivables and payables associated with our work on our condensed consolidated balance sheets.

Although our agreements with our joint venture partners for both construction joint ventures and line item joint ventures provide that each partner will assume and pay its share of any losses resulting from a project, if one of our partners is unable to make its required contribution, we would be fully liable under our contract with the project owner. Circumstances that could lead to a loss under our joint venture arrangements beyond our proportionate share include a partner’s inability to contribute additional funds to the venture in the event the project incurs a loss, or additional costs that we could incur should a partner fail to provide the services and resources toward project completion that had been committed to in the joint venture agreement. At June 30, 2008, approximately $501.1 million of work representing our partners’ share of unconsolidated and line item joint venture contracts in progress had yet to be completed.

8. Property and Equipment, Net:

(in thousands)	June 30, 2008		December 31, 2007		June 30, 2007
Equipment and vehicles	$	848,044	$	843,570	$	849,506
Quarry property		143,185		135,749		126,876
Land and land improvements		110,592		93,862		72,566
Buildings and leasehold improvements		86,151		79,663		73,597
Office furniture and equipment		32,188		28,889		29,530
Gross property and equipment		1,220,160		1,181,733		1,152,075
Less: accumulated depreciation, depletion and amortization		693,777		678,832		661,747
Net property and equipment	$	526,383	$	502,901	$	490,328

11

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Intangible Assets:

The following intangible assets from our Granite West segment are included in other assets on our condensed consolidated balance sheets at carrying value:

(in thousands)	June 30, 2008		December 31, 2007		June 30, 2007
Unamortized intangible assets:
Goodwill	$	9,900	$	9,900	$	9,900
Use rights		2,954		-		-
Total unamortized intangible assets	$	12,854	$	9,900	$	9,900

	June 30, 2008
(in thousands)	Gross Value		Accumulated Amortization				Net Value
Amortized intangible assets:
Permits	$	35,570		$	(2,807	)	$	32,763
Trade names		1,583			(1,160	)		423
Covenants not to compete		1,587			(490	)		1,097
Other		3,725			(1,220	)		2,505
Total amortized intangible assets	$	42,465		$	(5,677	)	$	36,788
	December 31, 2007
(in thousands)		Gross Value	Accumulated Amortization					Net Value
Amortized intangible assets:
Permits	$	36,362		$	(1,953	)	$	34,409
Trade names		1,425			(972	)		453
Covenants not to compete		1,661			(410	)		1,251
Other		1,712			(671	)		1,041
Total amortized intangible assets	$	41,160		$	(4,006	)	$	37,154
	June 30, 2007
(in thousands)	Gross Value		Accumulated Amortization				Net Value
Amortized intangible assets:
Permits	$	32,105		$	(1,166	)	$	30,939
Trade names		1,425			(870	)		555
Covenants not to compete		1,436			(204	)		1,232
Other		1,712			(386	)		1,326
Total amortized intangible assets	$	36,678		$	(2,626	)	$	34,052

Amortization expense related to intangible assets was approximately $1.0 million and $1.7 million for the three and six months ended June 30, 2008, respectively, and approximately $0.7 million and $0.8 million for the three and six months ended June 30, 2007, respectively. Amortization expense expected to be recorded in the future is as follows: $1.8 million for the balance of 2008, $3.0 million in 2009, $2.5 million in 2010, $2.3 million in 2011, $2.2 million in 2012 and $25.0 million thereafter.   

12

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. Weighted Average Shares Outstanding:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2008		2007		2008		2007
Weighted average shares outstanding:
Weighted average common stock outstanding		38,276		41,938		38,594		41,890
Less: weighted average non-vested restricted stock outstanding		850		842		812		846
Total basic weighted average shares outstanding		37,426		41,096		37,782		41,044
Diluted weighted average shares outstanding:
Basic weighted average shares outstanding		37,426		41,096		37,782		41,044
Effect of dilutive securities:
Common stock options and units		126		45		80		45
Restricted stock		377		490		359		471
Total weighted average shares outstanding assuming dilution		37,929		41,631		38,221		41,560

Restricted stock representing approximately 215,000 and 88,000 shares for the six months ended June 30, 2008 and June 30, 2007, respectively, has been excluded from the calculation of diluted shares because their impact would be anti-dilutive.

11. Comprehensive Income:

The components of comprehensive income in our condensed consolidated statements of income are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Net income	$	25,618		$	43,846		$	38,741		$	41,597
Other comprehensive (loss) income:
Changes in unrealized gain (loss) on investments		(407	)		1,382			(3,349	)		1,955
Tax benefit (provision) on unrealized (loss) gain		159			(537	)		1,310			(760	)
Total comprehensive income	$	25,370		$	44,691		$	36,702		$	42,792

12. Legal Proceedings

Silica Litigation

Our wholly owned subsidiary Granite Construction Company (“GCCO”) is one of approximately 100 to 300 defendants in eight active California Superior Court lawsuits. Of the eight lawsuits, five were filed against GCCO in 2005 and three were filed against GCCO in 2006, in Alameda County ( Molina vs. A-1 Aggregates, et al.; Dominguez vs. A-1 Aggregates, et al.; Cleveland vs. A. Teichert & Son.; Guido vs. A. Teichert & Son, Inc.; Williams vs. A. Teichert & Son, Inc.; Horne vs. Teichert & Son, Inc.; Kammer vs.A-1 Aggregates, et al.; and Solis vs. The 3M Company et al.). Each lawsuit was brought by a single plaintiff who is seeking money damages by way of various causes of action, including strict product and market share liability, and alleges personal injuries caused by exposure to silica products and related materials during the plaintiffs’ use or association with sand blasting or grinding concrete. The plaintiff in each lawsuit has categorized the defendants as equipment defendants, respirator defendants, premises defendants and sand defendants. We have been identified as a sand defendant, meaning a party that manufactured, supplied or distributed silica-containing products. Our preliminary investigation revealed that we have not knowingly sold or distributed abrasive silica sand for sandblasting, and therefore, we believe the probability of these lawsuits resulting in an incurrence of a material liability is remote. We have been dismissed from sixteen other similar lawsuits.

13

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Hiawatha Project DBE Issues

The Hiawatha Light Rail Transit (“HLRT”) project was performed by Minnesota Transit Constructors (“MnTC”), a joint venture (“JV”), that consisted of GCCO and other unrelated companies. GCCO was the managing partner of the JV, with a 56.5% interest. The Minnesota Department of Transportation (“MnDOT”) is the contracting agency for this federally funded project. MnDOT and the U.S. Department of Transportation Office of Inspector General (“OIG”) each conducted a review of the Disadvantaged Business Enterprise (“DBE”) program maintained by MnTC for the HLRT project. In addition, the U.S. Department of Justice (“USDOJ”) is conducting an investigation into compliance issues with respect to MnTC’s DBE Program for the HLRT project. MnDOT and the OIG (collectively, the “Agencies”) have initially identified certain compliance issues in connection with MnTC’s DBE Program and, as a result, have determined that MnTC failed to meet the DBE utilization criteria as represented by MnTC. Although there has been no formal administrative subpoena issued, nor has a civil complaint been filed in connection with the administrative reviews or the investigation, MnDOT has proposed a monetary sanction of $4.3 million against MnTC and specified DBE training for personnel from the members of the MnTC JV as a condition of awarding future projects to JV members of MnTC on MnDOT and Metropolitan Council work. The Metropolitan Council was the local agency conduit for providing federal funds to MnDOT for this HLRT project. MnTC is fully cooperating with the Agencies and the USDOJ and, on July 2, 2007, presented its detailed written response to the initial determinations of the Agencies as well as the investigation by the USDOJ. We have yet to receive a formal reply from the Agencies or the USDOJ, although informal discussions have been continuing. We have been informed by the USDOJ that the focus of its investigation is currently civil. However, we cannot rule out the possibility of a civil or criminal action being brought against MnTC or one or more of its members which could result in civil and/or criminal penalties.

I-494 Project DBE Issues

The I-494 project was performed by a JV that consisted of GCCO and another unrelated party.  GCCO was the managing partner of the JV, with a 60% interest. MnDOT is the contracting agency for this federally funded project. MnDOT conducted a review of the DBE program maintained by the JV for the I-494 project. MnDOT has initially identified certain compliance issues in connection with the JV’s DBE program, and as a result, has determined that the JV failed to meet the DBE utilization criteria as represented by the JV. Although there has been no formal administrative subpoena, nor has a civil complaint been filed in connection with the administrative reviews, MnDOT has proposed a monetary sanction of $200,000 against the JV and specified DBE training for personnel from the members of the JV as a condition of future bidding on MnDOT work by members of the JV. The JV is fully cooperating with MnDOT and has the opportunity to present its response to MnDOT’s initial determinations. The JV is investigating MnDOT’s initial determinations. The JV and MnDOT have begun informal settlement negotiations in an attempt to resolve this matter. However, at this time, we cannot reasonably estimate the amount of any monetary sanction or what, if any, other sanction conditions might ultimately be imposed.

US  Highway 20 Project

GCCO and our wholly-owned subsidiary, Granite Northwest, Inc., are the members of a JV known as Yaquina River Constructors (“YRC”) which is currently constructing a new road alignment of US Highway 20 near Eddyville, Oregon under contract with the Oregon Department of Transportation (“ODOT”). The project involves constructing seven miles of new road through steep and forested terrain in the Coast Range Mountains. During the fall and winter of 2006, extraordinary rain events produced runoff that overwhelmed erosion control measures installed at the project and resulted in discharges to surface water in alleged violations of the stormwater permit. The Oregon Department of Environmental Quality (“DEQ”) has issued notices of violation and fine of $240,000 to YRC for these alleged violations which have been settled by entering into a mutual agreement and final order. The Oregon Department of Justice is conducting a criminal investigation in connection with stormwater runoff from the project. YRC and its members are fully cooperating in the investigation, but YRC does not know whether criminal charges or civil lawsuit, if any, will be brought or against whom. Therefore, we cannot estimate what, if any, criminal or civil penalty or conditional assessment will result from this investigation.

14

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Legal Proceedings

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

13. Business Segment Information:

We have three reportable segments: Granite West, Granite East and Granite Land Company.

Granite West is comprised of decentralized branch offices in the western United States that perform various heavy civil construction projects with a large portion of the work focused on new construction and improvement of streets, roads, highways and bridges as well as site preparation for residential and commercial development and sales of construction materials. Each branch reports under one of three operating groups: Northwest, Northern California and Southwest. Because the operating groups have similar economic characteristics as defined in Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”), we have aggregated them into the Granite West reportable segment.  Although most Granite West projects are started and completed within a year, the division also has the capability of constructing larger projects and at June 30, 2008 had seven such active large projects, each with total contract revenue greater than $50.0 million. All of our revenue from the sale of construction materials is generated by Granite West which mines aggregates and operates plants that process aggregates into construction materials for internal use and for sale to others. These activities are vertically integrated into the Granite West business, providing both a source of profits and a competitive advantage to our construction business.

Granite East operates in the eastern portion of the United States with a focus on large, complex infrastructure projects, primarily east of the Rocky Mountains. With its division office in Lewisville, Texas, Granite East operates out of three regional offices: the Central Region, based in Lewisville, Texas; the Southeast Region, based in Tampa, Florida; and the Northeast Region, based in Tarrytown, New York. Because the regions have similar economic characteristics as defined in SFAS 131, we have aggregated them into the Granite East reportable segment. Granite East construction contracts are typically greater than two years in duration.

Additionally, we purchase, develop, operate, sell and otherwise invest in real estate through GLC, which also provides real estate services for other Granite operations. GLC’s portfolio of projects includes both commercial and residential development and is geographically diversified throughout the West and Texas.

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies contained in our 2007 Annual Report on Form 10-K. We evaluate performance based on operating profit or loss (excluding gain on sales of property and equipment), and do not include income taxes, interest income, interest expense or other income (expense). Unallocated other corporate expenses principally comprise corporate general and administrative expenses. 

15

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Summarized segment information is as follows:

	Three Months Ended June 30,
(in thousands)	Granite West		Granite East			Granite Land Company			Total
2008
Revenue from external customers	$	517,160	$	171,072		$	6,100		$	694,332
Intersegment revenue transfer		303		(303	)		-			-
Net revenue		517,463		170,769			6,100			694,332
Depreciation, depletion and amortization		18,039		2,005			7			20,051
Operating income (loss)		57,117		12,006			(3,154	)		65,969
2007
Revenue from external customers	$	540,533	$	219,942		$	10,401		$	770,876
Intersegment revenue transfer		1,914		(1,914	)		-			-
Net revenue		542,447		218,028			10,401			770,876
Depreciation, depletion and amortization		17,780		1,902			36			19,718
Operating income		75,747		7,072			2,978			85,797

		Six Months Ended June 30,
(in thousands)	Granite West		Granite East			Granite Land Company			Total
2008
Revenue from external customers	$	755,130	$	387,229		$	6,773		$	1,149,132
Intersegment revenue transfer		2,335		(2,335	)		-			-
Net revenue		757,465		384,894			6,773			1,149,132
Depreciation, depletion and amortization		35,836		4,176			18			40,030
Operating income (loss)		61,880		64,142			(3,604	)		122,418
Segment assets		462,825		22,467			65,664			550,956
2007
Revenue from external customers	$	836,844	$	406,374		$	15,318		$	1,258,536
Intersegment revenue transfer		3,697		(3,697	)		-			-
Net revenue		840,541		402,677			15,318			1,258,536
Depreciation, depletion and amortization		32,028		4,768			45			36,841
Operating income (loss)		96,721		(10,185	)		5,879			92,415
Segment assets		427,105		30,388			59,205			516,698

A reconciliation of segment operating income to consolidated totals is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Total operating income for reportable segments	$	65,969		$	85,797		$	122,418		$	92,415
Other income, net		1,247			3,949			10,548			9,824
Gain on sales of property and equipment		2,155			4,346			2,556			5,059
Unallocated other corporate expense		(22,703	)		(23,293	)		(41,110	)		(36,212	)
Income before provision for income taxes and minority interest	$	46,668		$	70,799		$	94,413		$	71,086

16

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. Acquisition:

In January 2008, we purchased certain assets and assumed certain liabilities of a construction materials supplier in Nevada for cash consideration of approximately $14.0 million. The results of the acquired business’s operations are included in our condensed consolidated statements of income and cash flows from the date of acquisition and were not material. The estimated fair value of the assets acquired approximated the purchase price; therefore, no goodwill was recorded.

15. Common Stock Repurchase:

In 2007, our Board of Directors authorized us to repurchase, at management’s discretion, up to $200.0 million of our common stock. During the six months ended June 30, 2008, we repurchased 1.4 million shares for a total of $43.2 million under this repurchase program. From the inception of this program through June 30, 2008, we have repurchased a total of 3.8 million shares for an aggregate cost of $135.9 million. All shares were retired upon acquisition. At June 30, 2008, $64.1 million of the $200.0 million authorization was available for future share repurchases.

17

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

 Forward-Looking Disclosure

From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors that are not based on historical facts and which may be forward-looking in nature. Under the Private Securities Litigation Reform Act of 1995, a “safe harbor” may be provided to us for certain of these forward-looking statements. 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. In addition, other written or oral statements which constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and are based on our current expectations and projections concerning future events, many of which are outside of our control, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.” Granite undertakes no obligation to publicly revise or update any forward-looking statements for any reason. As a result, the reader is cautioned not to rely on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

Overview

We are one of the largest heavy civil contractors in the United States and are engaged in the construction and improvement of streets, roads, highways and bridges as well as dams, airport infrastructure, mass transit facilities and other infrastructure-related projects.  We have offices in Alaska, Arizona, California, Florida, Nevada, New York, Oregon, Texas, Utah and Washington.

Our construction 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, available personnel, current utilization of equipment and other resources, our 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. We have three reportable business segments: Granite West, Granite East and Granite Land Company (see Note 13 to the condensed consolidated financial statements).

The two primary economic drivers of our business are (1) the overall health of the economy and (2) federal, state and local public funding levels, both nationally and locally. The level of demand for our services will have a direct correlation to these drivers. For example, a weak economy will generally result in a reduced demand for construction in the private sector. This reduced demand increases competition for fewer private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector. Greater competition can reduce revenue growth and/or increase pressure on gross profit margins. A weak economy also tends to produce less tax revenue, thereby decreasing the funds available for spending on public infrastructure improvements. There are funding sources that have been specifically earmarked for infrastructure spending, such as diesel and gasoline taxes, which are not as directly impacted by a weak economy. However, even these funds can be temporarily at risk as state and local governments struggle to balance their budgets. Additionally, high fuel prices can have the effect of reducing consumption, resulting in lower tax revenue. Conversely, higher public funding and/or a robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement.

18

Our general and administrative costs include salaries and related expenses, incentive compensation, discretionary profit sharing and other variable compensation, as well as other costs to support our 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 project employees to estimating and bidding activities until another project gets underway, temporarily allocating 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. Depending on the mix of cash and restricted stock, these incentives can have the effect of increasing general and administrative expenses in very profitable years and decreasing expenses in less profitable years.

Results of Operations

Comparative Financial Summary	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Revenue	$	694,332		$	770,876		$	1,149,132		$	1,258,536
Gross profit		109,026			127,634			207,720			175,670
General and administrative expenses		65,760			65,130			126,411			119,467
Operating income		45,421			66,850			83,865			61,262
Other income, net		1,247			3,949			10,548			9,824
Minority interest		(7,969	)		(4,799	)		(30,464	)		(7,246	)
Net income		25,618			43,846			38,741			41,597

Our results of operations for the three and six months ended June 30, 2008 reflect the impact of a difficult economic environment on several of our Granite West locations and a continuation of profitability improvement in Granite East, which also had the effect of increasing minority interest for our partners' share of more profitable project work. Additionally, our gross profit for the three months ended June 30, 2008 included a $4.5 million impairment charge related to our Granite Land Company business segment.

Total Revenue	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	2008				2007				2008				2007
Revenue by Division:
Granite West	$	517,463	74.5	%	$	542,447	70.4	%	$	757,465	65.9	%	$	840,541	66.8	%
Granite East		170,769	24.6			218,028	28.3			384,894	33.5			402,677	32.0
Granite Land Company		6,100	0.9			10,401	1.3			6,773	0.6			15,318	1.2
Total	$	694,332	100.0	%	$	770,876	100.0	%	$	1,149,132	100.0	%	$	1,258,536	100.0	%

19

Granite West Revenue	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	2008				2007				2008				2007
California:
Public sector	$	159,208	61.4	%	$	181,884	61.1	%	$	231,878	58.3	%	$	275,545	57.6	%
Private sector		29,153	11.2			54,483	18.3			59,117	14.9			96,240	20.1
Material sales		71,149	27.4			61,134	20.6			106,588	26.8			106,275	22.3
Total	$	259,510	100.0	%	$	297,501	100.0	%	$	397,583	100.0	%	$	478,060	100.0	%
West (excluding California):
Public sector	$	190,086	73.7	%	$	148,789	60.7	%	$	261,256	72.6	%	$	212,890	58.7	%
Private sector		31,727	12.3			57,200	23.4			46,371	12.9			89,664	24.7
Material sales		36,140	14.0			38,957	15.9			52,255	14.5			59,927	16.6
Total	$	257,953	100.0	%	$	244,946	100.0	%	$	359,882	100.0	%	$	362,481	100.0	%
Total Granite West Revenue:
Public sector	$	349,294	67.5	%	$	330,673	61.0	%	$	493,134	65.1	%	$	488,435	58.1	%
Private sector		60,880	11.8			111,683	20.6			105,488	13.9			185,904	22.1
Material sales		107,289	20.7			100,091	18.4			158,843	21.0			166,202	19.8
Total	$	517,463	100.0	%	$	542,447	100.0	%	$	757,465	100.0	%	$	840,541	100.0	%

Granite West Revenue: Revenue from Granite West for the three and six months ended June 30, 2008 decreased by $25.0 million, or 4.6%, and $83.1 million, or 9.9%, respectively, over the corresponding 2007 periods. The decreases were primarily attributable to the ongoing contraction of residential construction and tighter credit markets which is driving a decline in our private sector revenue. Additionally, there was an indirect impact on public sector revenue, as many competitors have migrated from the increasingly scarce private sector work. These economic factors have had a larger impact on our revenue in California, which has generally been the most negatively impacted by the decline in the residential and credit markets. Granite West revenue outside of California increased by $13.0 million, or 5.3%, for the three months ended June 30, 2008 over the corresponding 2007 period, driven by a $41.3 million increase in public sector revenue, partially offset by lower private sector revenue. Granite West revenue included amounts from projects with a contract value greater than $50.0 million of approximately $69.1 million and $50.0 million in the three months ended June 30, 2008 and 2007, respectively, and $99.3 million and $80.8 million in the six months ended June 30, 2008 and 2007, respectively.

Granite East Revenue	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	2008				2007				2008				2007
Revenue by Geographic Area:
Midwest	$	43,457	25.4	%	$	26,594	12.2	%	$	83,814	21.7	%	$	42,753	10.6	%
Northeast		35,624	20.9			57,270	26.3			72,043	18.7			98,252	24.4
South		34,510	20.2			36,448	16.7			64,095	16.7			72,265	17.9
Southeast		52,443	30.7			79,688	36.5			123,452	32.1			158,357	39.3
West		4,735	2.8			18,028	8.3			41,490	10.8			31,050	7.8
Total	$	170,769	100.0	%	$	218,028	100.0	%	$	384,894	100.0	%	$	402,677	100.0	%
Revenue by Contract Type:
Fixed unit price	$	15,567	9.1	%	$	39,365	18.1	%	$	34,469	9.0	%	$	72,732	18.1	%
Fixed price, including design/build		155,202	90.9			178,663	81.9			350,425	91.0			329,945	81.9
Total	$	170,769	100.0	%	$	218,028	100.0	%	$	384,894	100.0	%	$	402,677	100.0	%

Granite East Revenue: Revenue from Granite East for the three and six months ended June 30, 2008 decreased by $47.3 million, or 21.7%, and $17.8 million, or 4.4%, respectively, over the corresponding 2007 periods. Decreases in the Northeast, South and Southeast were due to lower backlog at the beginning of the 2008 periods and were partially offset by increases in the Midwest and West. The increase in the Midwest was attributable to revenue from a large design/build joint venture project which was added to backlog in 2007. The increase in the West for the six months was primarily due to the settlement of an outstanding revenue issue on the SR22 project in California which is now substantially complete.

20

Granite Land Company Revenue: Revenue from GLC for the three and six months ended June 30, 2008 decreased by $4.3 million, or 41.4%, and $8.5 million, or 55.8%, respectively, over the corresponding 2007 periods.GLC’s revenue is primarily dependent on the timing of real estate sales transactions, which are relatively few in number and can cause variability in the timing of revenue and profit recognition.

Total Backlog
(in thousands)	June 30, 2008				March 31, 2008				June 30, 2007
Backlog by Division:
Granite West	$	1,188,948	55.5	%	$	868,530	44.7	%	$	986,316	39.4	%
Granite East		952,700	44.5			1,074,659	55.3			1,516,785	60.6
Total	$	2,141,648	100.0	%	$	1,943,189	100.0	%	$	2,503,101	100.0	%

Granite West Backlog
(in thousands)	June 30, 2008				March 31, 2008				June 30, 2007
California:
Public sector	$	597,257	93.5	%	$	380,358	87.6	%	$	301,159	74.2	%
Private sector		41,548	6.5			53,957	12.4			104,888	25.8
Total	$	638,805	100.0	%	$	434,315	100.0	%	$	406,047	100.0	%
West (excluding California):
Public sector	$	523,629	95.2	%	$	398,542	91.8	%	$	526,786	90.8	%
Private sector		26,514	4.8			35,673	8.2			53,483	9.2
Total	$	550,143	100.0	%	$	434,215	100.0	%	$	580,269	100.0	%
Total Granite West backlog:
Public sector	$	1,120,886	94.3	%	$	778,900	89.7	%	$	827,945	83.9	%
Private sector		68,062	5.7			89,630	10.3			158,371	16.1
Total	$	1,188,948	100.0	%	$	868,530	100.0	%	$	986,316	100.0	%

Granite West Backlog: Granite West backlog of $1.2 billion at June 30, 2008 was $0.3 billion, or 36.9%, higher than at March 31, 2008 and $0.2 billion, or 20.5%, higher than at June 30, 2007. The increase from June 30, 2007 was primarily driven by significant public sector awards for federally funded national security projects in Arizona and California, a $48.1 million award for additional work on an airport terminal project in California and a $39.2 million award for a highway widening and rehabilitation project in California. Additionally, we added $47.0 million to backlog in the quarter related to our agreement to resume work on the US 20 Pioneer Mountain to Eddyville design/build project in Oregon. Work on that project had been suspended pending resolution of issues associated with numerous deep-seated landslides discovered on the construction site. In May 2008 we agreed upon and executed a change order with the contract owner that allowed us to resume work activities on the site. Granite West private sector backlog continues to be negatively impacted by the weak demand for residential construction, particularly in certain California and Nevada markets. Granite West backlog included approximately $369.7 million, $236.5 million and $240.7 million from projects with a total contract value greater than $50.0 million at June 30, 2008, March 31, 2008 and June 30, 2007, respectively.

Granite East Backlog
(in thousands)	June 30, 2008				March 31, 2008				June 30, 2007
Backlog by Geographic Area:
Midwest	$	248,888	26.1	%	$	287,488	26.7	%	$	380,190	25.1	%
Northeast		88,686	9.3			104,896	9.8			173,562	11.4
South		114,365	12.0			126,593	11.8			188,681	12.4
Southeast		495,007	52.0			544,595	50.7			743,054	49.0
West		5,754	0.6			11,087	1.0			31,298	2.1
Total	$	952,700	100.0	%	$	1,074,659	100.0	%	$	1,516,785	100.0	%

Granite East Backlog: Granite East backlog of $1.0 billion at June 30, 2008 was $0.1 billion, or 11.3%, lower than at March 31, 2008, and $0.6 billion, or 37.2%, lower than at June 30, 2007. The decrease reflects progress on construction projects during the quarter. Granite East did not receive any significant new awards during the six months ended June 30, 2008.

21

Gross Profit	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Granite West	$	93,240		$	109,409		$	133,319		$	161,738
Percent of division revenue		18.0	%		20.2	%		17.6	%		19.2	%
Granite East		19,072			14,411			78,118			6,403
Percent of division revenue		11.2	%		6.6	%		20.3	%		1.6	%
Granite Land Company		(2,655	)		3,964			(2,186	)		7,519
Percent of division revenue		-43.5	%		38.1	%		-32.3	%		49.1	%
Other		(631	)		(150	)		(1,531	)		10
Total gross profit	$	109,026		$	127,634		$	207,720		$	175,670
Percent of total revenue		15.7	%		16.6	%		18.1	%		14.0	%

Gross Profit: We defer recognition of construction project profit until a project reaches 25% completion. In the case of large, complex design/build projects, we may continue to defer profit recognition beyond the point of 25% completion until such time as we believe we have enough information to make a reasonably dependable estimate of contract revenue and cost. This policy can have a significant impact on gross profit, particularly in periods where one or several very large projects reach the point of profit recognition and the deferred profit is recognized or, conversely, in periods where backlog related to larger projects is growing rapidly and a higher percentage of projects are in their early stages with no associated gross margin recognition. Revenue from jobs with deferred contract profit was as follows:

Revenue from Contracts with Deferred Profit	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2008		2007		2008		2007
Granite West	$	55,938	$	19,988	$	60,672	$	22,723
Granite East		26,667		36,179		49,861		55,193
Total revenue from contracts with deferred profit	$	82,605	$	56,167	$	110,533	$	77,916

Additionally, we do not recognize revenue from contract claims until we have a signed settlement agreement and payment is assured, and we do not recognize revenue from contract change orders until the contract owner has agreed to the change order in writing. However, we do recognize the costs related to any contract claims or pending change orders in our forecasts when we are contractually obligated to incur them. As a result, our gross profit as a percent of revenue can vary during periods when a large volume of contract claims or change orders are pending resolution (reducing gross profit) or, conversely, during periods where large contract claims or change orders are agreed to or settled (increasing gross profit). Although this variability can occur in both Granite West and Granite East, it is more pronounced in Granite East because of the larger size and complexity of its projects.

Granite West gross profit as a percent of revenue for the three and six months ended June 30, 2008 decreased to 18.0% and 17.6%, respectively, from 20.2% and 19.2% for the three and six months ended June 30, 2007, respectively. This decrease was largely due to higher revenue with deferred profit margin for projects that had not yet reached the threshold for profit recognition as well as lower gross profit margin on the sale of construction materials. Profit margins on our construction materials sales have been negatively impacted by lower sales volume in certain locations, which provided less coverage of maintenance and other fixed costs, lower demand from the private sector for our higher margin products, and higher costs of certain raw materials such as diesel fuel and asphalt. These decreases were partially offset by the positive effect of project forecast changes during the three and six months ended June 30, 2008 which increased our gross profit by approximately $21.8 million and $34.5 million, respectively. This compares with an increase in gross profit from such forecast changes of approximately $9.0 million and $13.9 million during the three and six months ended June 30, 2007, respectively. See Note 3 to the condensed consolidated financial statements.

Granite East gross profit as a percent of revenue for the three and six months ended June 30, 2008 increased to 11.2% and 20.3%, respectively, from 6.6% and 1.6% for the three and six months ended June 30, 2007, respectively. Gross profit in the 2008 periods was positively impacted by changes in profitability estimates which added approximately $8.6 million to gross profit in the quarter and $46.6 million in the six month period. In 2007, project estimate changes increased gross profit by $2.3 million in the second quarter and decreased gross profit by $13.2 million in the six month period. See Note 3 to the condensed consolidated financial statements.

Granite Land Company gross profit for the three months ended June 30, 2008 includes an impairment charge of $4.5 million related to certain residential real estate development assets.  See Note 6 to the condensed consolidated financial statements.

22

General and Administrative Expenses	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Salaries and related expenses	$	35,171		$	32,208		$	70,594		$	66,366
Incentive compensation, discretionary profit sharing and other variable compensation		10,435			12,644			15,810			16,690
Other general and administrative expenses		20,154			20,278			40,007			36,411
Total	$	65,760		$	65,130		$	126,411		$	119,467
Percent of revenue		9.5	%		8.4	%		11.0	%		9.5	%

General and Administrative Expenses: Our general and administrative expenses for the three and six months ended June 30, 2008 increased $0.6 million, or 1.0%, and $6.9 million, or 5.8%, over the comparable periods in 2007. The increase for the six months ended June 30, 2008 was largely due to costs associated with integrating our former Wilder Construction Company (“Wilder”) business unit following our purchase of the remaining Wilder minority shares in January, costs associated with our new business in the state of Washington, which was acquired in April 2007, and higher personnel related costs, primarily related to normal salary increases and headcount growth.

Other Income (Expense)	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Interest income	$	3,593		$	6,439		$	9,648		$	13,282
Interest expense		(3,058	)		(2,028	)		(7,568	)		(3,114	)
Equity in income (loss) of affiliates		528			(29	)		(179	)		322
Other, net		184			(433	)		8,647			(666	)
Total	$	1,247		$	3,949		$	10,548		$	9,824

Other Income (Expense):Interest income decreased in the three and six months ended June 30, 2008, compared with the corresponding periods in 2007 due to the decline in short term interest rates resulting in lower yields on our invested cash balances. Interest expense increased in both the three and six month ended June 30, 2008, compared with the corresponding periods in 2007 due to an increase in average debt outstanding during the period. The increase in other, net during the six months ended June 30, 2008 is primarily due to a gain of approximately $9.3 million recognized on the sale of gold during the first quarter. Gold is produced as a by-product of one of our aggregate excavation operations.

Provision for Income Taxes	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Provision for income taxes	$	13,081		$	22,154		$	25,208		$	22,243
Effective tax rate		28.0	%		31.3	%		26.7	%		31.3	%

Provision for Income Taxes: Our effective tax rate decreased to 26.7% for the six months ended June 30, 2008 from 31.3% for the corresponding period in 2007. The decreased effective tax rate was due primarily to the estimated income attributed to minority partners’ share in our consolidated construction joint ventures and other entities which are not subject to income taxes on a separate entity basis.

Minority Interest in Consolidated Subsidiaries	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2007			2008			2007
Minority interest in consolidated subsidiaries	$	(7,969	)	$	(4,799	)	$	(30,464	)	$	(7,246	)

Minority Interest in Consolidated Subsidiaries: Our minority interest in consolidated subsidiaries represents the minority owners’ share of the income of our consolidated subsidiaries - primarily consolidated construction joint ventures and certain real estate development entities. The increase in 2008 was largely attributable to our partners’ share of the improved performance related to our Granite East consolidated joint venture projects. Minority interest in the six month period for 2008 included approximately $18.4 million related to the resolution of our revenue issues on the SR 22 project in Southern California which was partially offset by the reversal of approximately $9.8 million in previously recognized reserves that were created in prior periods due to doubts about one of our partner’s ability to ultimately fund its share of project losses.

23

Outlook

Our Granite West business continues to focus on building backlog and maximizing the profit potential in a difficult market. We are experiencing increased competition in most of our Granite West locations as competitors  migrate from the scarce private sector work to the public sector and certain public sector competitors expand outside of their traditional markets. We have been able to capitalize on certain local markets that remain active and several  large project opportunities to partially mitigate the effects of the general economic climate on our Granite West business.

Our Granite East business is concentrating on effectively executing at the project level. We are pursuing a number of bidding opportunities and are maintaining our disciplined approach to help ensure that new work will deliver appropriate profit margins.

Many states are currently facing difficult budget decisions. California, our largest revenue producing state, is facing a significant budget deficit. However, we are encouraged that the Governor has resisted cuts to transportation funding and clearly believes construction will be an important stimulant to the state’s economy. The United States Congress is also facing some difficult decisions regarding a projected shortfall in the Highway Trust Fund, which is funded by the federal gas tax. The projected shortfall is being exacerbated by a reduction in gas consumption as drivers cut back in response to high prices. Congress is currently evaluating options for restoring solvency to the trust fund, including a recent proposal to transfer $8.0 billion from the General Fund to ensure fiscal 2009 funding levels are at least flat with 2008. Despite these funding issues, we have not experienced a significant change in bidding opportunities or project delays.

We are exposed to the escalating price of diesel fuel, natural gas, propane, liquid asphalt and steel. While some of our construction contracts include relief from price escalation for these commodities, we also manage this exposure by closely monitoring our costs and pricing escalation into our bids and proposals accordingly. A unique benefit of our portfolio of smaller, shorter duration projects in the West is that we are able to re-price our portfolio regularly. On our fixed price contracts, it is our practice to solicit firm quotes from our suppliers and subcontractors during the bidding process to mitigate our exposure.

As in prior economic downturns, the current economic environment is presenting us with a number of challenges. Strategically, we have consistently focused on increasing the diversity and flexibility of our business model and believe this will prove valuable in helping to mitigate the impact of this downturn on current profitability.

24

Liquidity and Capital Resources

	Six Months Ended June 30,
(in thousands)	2008			2007
Cash and cash equivalents excluding consolidated joint ventures	$	82,911		$	119,218
Consolidated joint venture cash and cash equivalents		203,737			127,060
Total consolidated cash and cash equivalents	$	286,648		$	246,278
Short-term and long-term marketable securities		117,936			159,781
Total cash, cash equivalents and marketable securities		404,584			406,059
Net cash provided by (used in):
Operating activities	$	43,796		$	73,212
Investing activities		(32,217	)		(107,136	)
Financing activities		(77,365	)		75,309
Capital expenditures		62,528			62,265
Working capital		402,128			339,016

Our cash and cash equivalents and short-term and long-term marketable securities totaled $404.6 million at June 30, 2008 and included $203.7 million of cash from our consolidated joint ventures. This joint venture cash is for the working capital needs of each joint venture’s project. The decision to distribute cash must generally be made jointly by all of the partners.

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. We have budgeted approximately $180.0 million for capital expenditures in 2008, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of real estate and aggregate reserves. The timing and amount of such expenditures can vary based on the progress of planned capital projects, changes in business outlook and other factors. We currently do not expect the full amount of the 2008 budget will be spent.

We believe our current cash and cash equivalents, short-term investments, cash generated from operations and amounts available under our existing credit facilities will be sufficient to meet our expected working capital needs, cash dividend payments, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations through the next twelve months and beyond. If we experience a significant change in our business operating results or make a significant acquisition, we would likely need to acquire additional sources of financing, which may be limited by the terms of our existing debt covenants, or may require the amendment of our existing debt agreements.

In December 2007, we deposited $28.3 million with an exchange agent in connection with our purchase of the remaining minority shares of  Wilder. In January 2008, the amount was paid to the Wilder minority shareholders and was reflected as an increase in cash from investing activities and a corresponding $16.6 million decrease in cash from operating activities and a $11.7 million decrease in cash from financing activities for the estimated amounts attributable to return on investment and return of investment, respectively.

Cash provided by operating activities of $43.8 million for the six months ended June 30, 2008 represents a $29.4 million decline from the amount provided by operating activities during the same period in 2007. In addition to the operating cash flow effect of the Wilder minority share purchase, operating cash flow was negatively impacted by a decrease in the net billings in excess of cost and estimated earnings. This balance decreased primarily due to progress on projects that had received large mobilization payments in the prior year. Additionally, operating cash flow was affected by growth in accounts receivable during the 2008 period compared with a decline in accounts receivable in 2007.

Cash used in investing activities of $32.2 million for the six months ended June 30, 2008 represents a $74.9 million reduction from the amount used in the same period in 2007. The change was due primarily to the effect of the Wilder minority share purchase and a lower amount attributable to business acquisitions in the 2008 period.

Cash used in financing activities was $77.4 million for the six months ended June 30, 2008, representing a $152.7 million change from the same 2007 period. This change was largely attributable to lower proceeds from long-term borrowings and significantly higher repurchases of common stock in the 2008 period. The remainder of the change was primarily due to the cash flow effect of the Wilder minority share purchase and a decrease in contributions from our minority partners.

25

In 2007, our Board of Directors authorized us to repurchase, at management’s discretion, up to $200.0 million of our common stock. During the six months ended June 30, 2008, we repurchased 1.4 million shares for a total of $43.2 million under the repurchase plan. From the inception of this program through June 30, 2008, we have repurchased a total of 3.8 million shares for an aggregate cost of $135.9 million. All shares were retired upon acquisition.  At June 30, 2008, $64.1 million of the $200.0 million authorization was available for repurchases.

We had standby letters of credit totaling approximately $4.4 million outstanding at June 30, 2008, which will expire between October 2008 and March 2009. We are generally required by the beneficiaries of these letters of credit to replace them upon expiration. Additionally, we generally are required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At June 30, 2008, approximately $2.1 billion of our backlog was bonded and performance bonds totaling approximately $10.8 billion were outstanding. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds when each contract is accepted by the owner. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.

We have a $150 million bank revolving line of credit, which allows for unsecured borrowings through June 24, 2011, with interest rate options. Borrowings under the line of credit bear interest at LIBOR plus an applicable margin based upon certain financial ratios. The margin was 0.70% at June 30, 2008. The unused and available portion of this line of credit was $145.6 million at June 30, 2008.

Restrictive covenants under the terms of our debt agreements require the maintenance of certain financial ratios and the maintenance of tangible net worth (as defined). We were in compliance with these covenants at June 30, 2008. Failure to comply with these covenants could cause the amounts due under the debt agreements to become currently payable.

Recent Accounting Pronouncements

See Note 2 of the “Notes to the Condensed Consolidated Financial Statements” for a description of recent accounting pronouncements, including the expected dates of adoption and effects on our condensed consolidated financial position, results of operations and cash flows.

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. These reports, and any amendments to them, are also available at the website of the Securities and Exchange Commission, www.sec.gov.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There was no significant change in our exposure to market risk or in our investment controls and procedures during the three months ended June 30, 2008.

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 effectiveness 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). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2008, our disclosure controls and procedures were effective.

During the second quarter of 2008, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26

PART II. OTHER INFORMATION

27

Item 1. LEGAL PROCEEDINGS

See Part I, Item 1. Financial Statements, Note 12 - Legal Proceedings.

Item 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for fiscal year ended December 31, 2007. 

Item 2. UNREGISTERED SALES OF EQUITY 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 our annual meeting of shareholders on May 19, 2008, the following members were elected to three-year terms on our Board of Directors:

	Votes
	Affirmative	Withhold
David H. Watts	32,151,961	1,168,367
J. Fernando Niebla	32,526,144	794,184
Gary M. Cusumano	32,739,278	581,050

The following proposals were approved at the annual meeting of shareholders:

	Votes
	Affirmative	Against	Abstain
Proposal to amend the Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan.	30,250,889	2,739,362	330,077
Proposal to ratify the appointment by the Audit/Compliance Committee of PricewaterhouseCoopers LLP as Granite’s independent registered public accounting firm for the fiscal year ending December 31, 2008.	32,174,287	1,109,358	36,683

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

10.1	†	Amendment Number One to the Granite Construction IncorporatedAmended and Restated 1999 Equity Incentive Plan, as amended effective January 1, 2008, effective May 19, 2008
10.2	†	Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan as amended effective May 19, 2008
31.1	†	Certification of Principal Executive Officer
31.2	†	Certification of Principal Financial Officer
32	††	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	†	Filed herewith
	††	Furnished herewith

28

SIGNATURES

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

			GRANITE CONSTRUCTION INCORPORATED
Date:	July 30, 2008	By:	/s/ LeAnne M. Stewart
			LeAnne M. Stewart
			Senior Vice President and Chief Financial Officer

EX-10.1

Exhibit 10.1

AMENDMENT NUMBER ONE TO THE

GRANITE CONSTRUCTION INCORPORATED

AMENDED AND RESTATED

1999 EQUITY INCENTIVE PLAN

The Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan (the “Plan”) is hereby amended as follows:

1.           Section 3.3(d) of the Plan is hereby replaced in its entirety as follows:

(d)           Performance Shares and Performance Units.  Subject to adjustment as provided in Section 5.3, no Employee may be granted (i) Performance Shares which could result in such Employee receiving more than one hundred thousand (100,000) shares of Stock for each full fiscal year of the Company contained in the Performance Period for such Award, or (ii) Performance Units which could result in such Employee receiving more than one million five hundred thousand dollars ($1,500,000) in cash and more than one hundred thousand (100,000) shares of stock, for each full fiscal year of the Company contained in the Performance Period for such Award.

2.           Section 9.4 of the Plan is hereby replaced in its entirety as follows:

9.4           Measurement of Performance Goals.  Performance Goals shall be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect one or more measures of business or financial performance (each, a “Performance Measure”).  Performance Measures shall have the same meanings as used in the Company’s financial statements, or if such terms are not used in the Company’s financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company’s industry.  Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the ultimate value of a Performance Share or Performance Unit Award determined by the level attained during the applicable Performance Period.  A Performance Target may be stated as an absolute value or as a value determined relative to a standard selected by the Committee.  Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit thereof as may be selected by the Committee.  For purposes of the Plan, the Performance Measures applicable to an Award shall be calculated in accordance with generally accepted accounting principles, but prior to the accrual or payment of any Performance Share or Performance Unit Award for the same Performance Period and excluding the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Award.  Performance Measures may be one or more of the following as determined by the Committee: (a) revenue, (b) operating income, (c) pre-tax profit, (d) net income, (e) gross margin, (f) operating margin, (g) earnings per share, (h) return on stockholder equity, (i) return on capital, (j) return on net assets, (k) economic value added, (l) cash flow and operating cash flow, (m) net operating profits after taxes, (n) net asset value, (o) cost of capital and weighted average cost of capita, (p) economic profit, (q) return on assets, (r) earnings before income tax and depreciation (EBITDA), (s) earnings before income tax (EBIT), (t) return on equity, (u) operating income and adjusted operating income, (v) gross income, (w) return on invested capital, (x) overhead, (y) net operating assets, and (z) safety incident rate (including total injury incident rate, OSHA recordable injury rate and lost time injury rate).

3.           All other provisions of the Plan shall remain in full force and effect.

To record the adoption of this Amendment Number One, Granite Construction Incorporated has caused the execution of the same by its duly authorized officer.

Dated:  May 19, 2008                                                                          GRANITE CONSTRUCTION INCORPORATED

 /s/ William G. Dorey                                                                                                                 

William G. Dorey

President & CEO

EX-10.2

Exhibit 10.2

GRANITE CONSTRUCTION INCORPORATED

AMENDED AND RESTATED

1999 EQUITY INCENTIVE PLAN

(As Adopted Effective May 24, 2004)

(As Amended Effective January 1, 2005)

(As Amended Effective January 1, 2008)

(As Amended Effective May 19, 2008)

SECTION 1. ESTABLISHMENT, PURPOSE, AND TERM OF PLAN

1.1Establishment.  The Granite Construction Incorporated 1999 Equity Incentive Plan was initially established effective May 24, 1999 (the “Initial Plan”).  The Initial Plan was amended and restated in its entirety as the Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan (the “Plan”) effective as of May 24, 2004, the date of its approval by the stockholders of the Company (the “Effective Date”).  The Plan was amended effective January 1, 2005 to incorporate the requirements of Section 409A of the Code and further amended effective January 1, 2008 to reflect changes in Nonemployee Director compensation.

1.2Purpose.  The purpose of the Plan is to advance the interests of the Company, by encouraging and providing for the acquisition of an equity interest in the success of the Company by Employees and Directors, by providing additional incentives and motivation toward superior performance of the Company, and by enabling the Company to attract and retain the services of Employees and Directors upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent.  The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units and by providing for payments in the form of shares of Stock or cash.

1.3Term of Plan.  The Plan shall remain in effect until the earlier of (a) its termination by the Committee pursuant to Section 14 or (b) the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted under the Plan have lapsed.  However, all Awards shall be granted, if at all, within ten (10) years from the Effective Date.

SECTION 2. DEFINITIONS AND CONSTRUCTION

2.1Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:

(a)“Award” means any Option, Restricted Stock, Restricted Stock Unit, Performance Share, or Performance Unit granted under the Plan.

(b)“Award Agreement” means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant.  An Award Agreement may be an “Option Agreement,” a “Restricted Stock Agreement,” a “Restricted Stock Units Agreement,” a “Performance Share Agreement,” or a “Performance Unit Agreement.”

(c)“Board” means the Board of Directors of the Company.

(d)“Cause” means, unless otherwise defined by the Participant’s Award Agreement or contract of employment or service, any of the following: (i) the Participant’s theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Participant’s repeated failure to report to work during normal hours, other than for customarily excused absences for personal illness or other reasonable cause; (iii) the Participant’s conviction (including any plea of guilty or nolo contendere) of theft or felony; (iv) the Participant’s wrongful disclosure of a Participating Company’s trade secrets or other proprietary information; (v) any other dishonest or intentional action by the Participant which has a detrimental effect on a Participating Company; or (vi) the Participant’s habitual and repeated nonperformance of the Participant’s duties.

(e)“Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

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(f)“Committee” means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board.  If no committee of the Board has been appointed to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.

(g)“Company” means Granite Construction Incorporated, a Delaware corporation, or any successor corporation thereto.

(h)“Director” means a member of the Board.

(i)“Disability” means a permanent and total disability as defined under the Company’s Long Term Disability Plan or any successor plan, regardless of whether the Participant is covered by such Long Term Disability Plan.

(j)“Dividend Equivalent” means a credit, made at the discretion of the Committee or as otherwise provided by the Plan, to the account of a Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.

(k)“Employee” means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.  The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be.  For purposes of an individual’s rights, if any, under the Plan as of the time of the Company’s determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination.

(l)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(m)“Fair Market Value” means, as of any relevant date, the closing sale price of a share of Stock (or the mean of the closing bid and asked prices if the Stock is so quoted instead) on the relevant date on the New York Stock Exchange or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable.  If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion.  If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Committee.

(n)“Incentive Stock Option” means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.

(o)“Insider” means an officer, a Director or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.

(p)“Nonemployee Director” means a Director who is not an Employee.

(q)“Nonstatutory Stock Option” means an Option not intended to be (as set forth in the Award Agreement) or which does not qualify as an Incentive Stock Option.

(r)“Option” means the right to purchase Stock at a stated price for a specified period of time pursuant to the terms and conditions of the Plan.  An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.

(s)“Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

(t)“Participant” means any eligible person who has been granted one or more Awards.

(u)“Participating Company” means the Company or any Parent Corporation or Subsidiary Corporation.

(v)“Participating Company Group” means, at any point in time, all corporations collectively which are then Participating Companies.

(w)“Performance Goal” means a performance goal established by the Committee pursuant to Section 9.3.

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(x)“Performance Period” means a period established by the Committee pursuant to Section 9.3 at the end of which one or more Performance Goals are to be measured.

(y)“Performance Share” means a bookkeeping entry representing a right granted to a Participant pursuant to the terms and conditions of Section 9 to receive a payment equal to the value of a Performance Share, as determined by the Committee, based on performance.

(z)“Performance Unit” means a bookkeeping entry representing a right granted to a Participant pursuant to the terms and conditions of Section 9 to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon performance.

(aa)“Restricted Stock” means Stock granted to a Participant pursuant to the terms and conditions of Section 7.

(bb)“Restricted Stock Unit” means a bookkeeping entry representing a right granted to a Participant pursuant to Section 8 to receive a share of Stock on a date determined in accordance with the provisions of Section 8 and the Participant’s Award Agreement.

(cc)“Restriction Period” means the period established in accordance with Section 7.3 of the Plan during which shares subject to a Restricted Stock Award are subject to Vesting Conditions.

(dd)“Retirement” means (i) with respect to an Employee, termination of employment for retirement under the terms of the Company’s defined contribution plans, and (ii) with respect to a Nonemployee Director, resignation from Service on the Board after attaining the age of 55 and after at least ten years of Service on the Board.

(ee)“Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.

(ff)“Section 162(m)” means Section 162(m) of the Code.

(gg)“Securities Act” means the Securities Act of 1933, as amended.

(hh)“Service” means a Participant’s employment or service with the Participating Company Group, whether in the capacity of an Employee or a Director.  A Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders such Service or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant’s Service.  Furthermore, a Participant’s Service shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds three (3) months, on the first day immediately following such three-month period any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Participant’s right to return to Service with the Participating Company Group is guaranteed by statute or contract.  Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement.  A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company.  Subject to the foregoing, the Company, in its discretion, shall determine whether a Participant’s Service has terminated and the effective date of such termination.

(ii)“Stock” means the Common Stock of the Company, as adjusted from time to time in accordance with Section 5.3.

(jj)“Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

(kk)“Ten Percent Owner” means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code.

(ll)“Vesting Conditions” mean those conditions established in accordance with Section 7.3, Section 8.3 or Section 10.4(a) of the Plan prior to the satisfaction of which shares or share equivalents subject to a Restricted Stock Award or Restricted Stock Unit Award, respectively, remain subject to forfeiture or a repurchase option in favor of the Company upon the Participant’s termination of Service.

2.2Construction.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan.  Except when otherwise indicated by the context, words in the masculine gender, when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

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SECTION 3. ELIGIBILITY AND AWARD LIMITATIONS

3.1Persons Eligible for Incentive Stock Options.  Incentive Stock Options may be granted only to Employees.  For purposes of the foregoing sentence, the term “Employees” shall include prospective Employees to whom Options are granted in connection with written offers of employment with the Participating Company Group, provided that any such Option shall be deemed granted effective on the date that the Participant commences Service as an Employee, with an exercise price determined as of such date in accordance with Section 6.2.

3.2Persons Eligible for Other Awards.  Awards other than Incentive Stock Options may be granted only to Employees and Directors.  For purposes of the foregoing sentence, the terms “Employees” and “Directors” shall include prospective Employees and prospective Directors to whom Awards are granted in connection with written offers of employment or service as a Director with the Participating Company Group, provided that no Stock subject to any such Award shall vest, become exercisable or be issued prior to the date on which the Participant commences Service.  Eligible persons may be granted more than one (1) Award.

3.3Section 162(m) Award Limits.  The following limitations shall apply to the grant of any Award if, at the time of grant, the Company is a “publicly held corporation” within the meaning of Section 162(m).

(a)Stock Options. Subject to adjustment as provided in Section 5.3, no Employee shall be granted one or more Options within any fiscal year of the Company which in the aggregate are for the purchase of more than one hundred thousand (100,000) shares; provided, however, that the Company may make an additional one-time grant to any newly-hired Employee of an Option for the purchase of up to two hundred fifty thousand (250,000) shares.  An Option which is canceled in the same fiscal year of the Company in which it was granted shall continue to be counted against the limits described in this subsection for such period.

(b)Restricted Stock.  Subject to adjustment as provided in Section 5.3, no Employee may be granted within any fiscal year of the Company more than one hundred thousand (100,000) shares of Restricted Stock, provided that such limit shall apply only to Awards of Restricted Stock which are granted or subject to Vesting Conditions based upon the attainment of Performance Goals.

(c)Restricted Stock Units.  Subject to adjustment as provided in Section 5.3, no Employee shall be granted within any fiscal year of the Company more than one hundred thousand (100,000) Restricted Stock Units, provided that such limit shall apply only to Awards of Restricted Stock Units which are granted or subject to Vesting Conditions based upon the attainment of Performance Goals.

(d)Performance Shares and Performance Units.  Subject to adjustment as provided in Section 5.3, no Employee may be granted (i) Performance Shares which could result in such Employee receiving more than one hundred thousand (100,000) shares of Stock for each full fiscal year of the Company contained in the Performance Period for such Award, or (ii) Performance Units which could result in such Employee receiving more than two million five hundred thousand dollars ($2,500,000) in cash and more than one hundred thousand (100,000) shares of stock, for each full fiscal year of the Company contained in the Performance Period for such Award.

3.4Maximum Number of Shares Issuable Pursuant to Incentive Stock Options.  Subject to adjustment as provided in Section 5.3, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of incentive Stock Options shall not exceed four million two hundred fifty thousand (4,250,000) shares.  The maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to all Awards other than Incentive Stock Options shall be the number of shares determined in accordance with Section 5.1, subject to adjustment as provided in Section 5.2 and Section 5.3.

3.5Aggregate Limit on Restricted Stock, Restricted Stock Unit, Performance Share and Performance Unit Awards Not Providing for Certain Minimum Vesting.  Notwithstanding any provision of the Plan to the contrary, no more than five percent (5%) of the maximum aggregate number of shares of Stock that may be issued under the Plan, determined in accordance with Section 5.1 (as adjusted from time to time pursuant to Sections 5.2 and 5.3), shall be issued pursuant to the following Awards granted on or after the Effective Date: (a) Restricted Stock or Restricted Stock Unit Awards having Vesting Conditions which (i) if based upon a Service requirement, provide for vesting more rapid than annual pro rata vesting over a period of three (3) years or (ii) if based upon the attainment of one or more Performance Goals, provide for a Performance Period of less than twelve (12) months, or (b) Performance Share or Performance Unit Awards having a Performance Period of less than twelve (12) months.

SECTION 4. ADMINISTRATION

4.1Administration by the Committee.  The Plan shall be administered by the Committee.  All questions of interpretation of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive for all purposes and upon all persons whomsoever.

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4.2Authority of Officers.  Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election.

4.3Administration with Respect to Insiders.  With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.

4.4Committee Complying with Section 162(m).  If the Company is a “publicly held corporation” within the meaning of Section 162(m), the Board may establish a Committee of “outside directors” within the meaning of Section 162(m) to approve the grant of any Award which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m).

4.5Powers of the Committee.  In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:

(a)   to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock or units to be subject to each Award and the value of a unit;

(b)   to determine the type of Award granted and to designate Options as Incentive Stock Options or Nonstatutory Stock Options;

(c)   to determine the Fair Market Value of shares of Stock or other property;

(d)   to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise price of any Option, (ii) the method of payment for shares purchased upon the exercise of any Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with any Award, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to the Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;

(e)   to determine whether an Award of Performance Shares or Performance Units will be settled in shares of Stock, cash, or in any combination thereof;

(f)   to approve one or more forms of Award Agreement;

(g)   to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;

(h)   to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participant’s termination of Service;

(i)   to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of  the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of, or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards; and

(j)   to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.

4.6Option Repricing.  Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Board shall not approve a program providing for either (a) the cancellation of outstanding Options and the grant in substitution therefor of new Options having a lower exercise price or (b) the amendment of outstanding Options to reduce the exercise price thereof.  This paragraph shall not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.

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SECTION 5. STOCK SUBJECT TO PLAN

5.1Maximum Number of Shares Issuable.  Subject to adjustment as provided in Section 5.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be four million two hundred fifty thousand (4,250,000) and shall consist of authorized but unissued or reacquired shares of Stock not reserved for any other purpose, or any combination thereof.

5.2Share Accounting.  If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company at the Participant’s purchase price, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan.  Shares of Stock shall not be deemed to have been issued pursuant to the Plan (a) with respect to any portion of an Award that is settled in cash or (b) to the extent such shares are withheld in satisfaction of tax withholding obligations pursuant to Section 13.2.  If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, the number of shares available for issuance under the Plan shall be reduced by the net number of shares for which the Option is exercised.

5.3Adjustment in Capitalization.  In the event of any stock dividend, stock split, reverse stock split, recapitalization, merger, combination, exchange of shares, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, in the Award limits set forth in Sections 3.3, 3.4 and 3.5, and in the exercise price per share of any outstanding Options.  If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to a Change in Control, as defined in Section 11.3) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares.  In the event of any such amendment, the number of shares subject to outstanding Awards and the exercise price per share of outstanding Options shall be adjusted in a fair and equitable manner as determined by the Committee, in its discretion.  Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 5.3 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option.  The adjustments determined by the Committee pursuant to this Section 5.3 shall be final, binding and conclusive.

SECTION 6. STOCK OPTIONS

6.1Grant of Options.  Subject to the provisions of Sections 1.3, 3 and 5, Options may be granted to Participants at any time and from time to time as shall be determined by the Committee.  Each Option shall be evidenced by an Award Agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, and such other provisions as the Committee shall determine.  No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions set forth in Sections 6.2 through 6.6 below.

6.2Exercise Price.  The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option.  Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 409A of the Code and Section 424(a) of the Code.

6.3Exercise Period.  Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee or prospective Director may become exercisable prior to the date on which such person commences Service.  Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.

6.4Payment of Exercise Price.  The purchase price of Stock upon exercise of any Option shall be paid in full by such methods as shall be permitted by the Committee or as provided in a Participant’s Award Agreement, which need not be the same for all Participants, and subject to the following:

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(a)Forms of Consideration Authorized.  Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a “Cashless Exercise”), (iv) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (v) by any combination thereof.  The Committee may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.  The proceeds from payment of the Option exercise prices shall be added to the general funds of the Company and shall be used for general corporate purposes.

(b)Limitations on Forms of Consideration.

(i)Tender of Stock.  Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  Unless otherwise provided by the Committee, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months (and not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.

(ii)Cashless Exercise.  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.

6.5Effect of Termination of Service.

(a)Option Exercisability.  Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee in the grant of an Option and set forth in the Award Agreement, an Option shall be exercisable after a Participant’s termination of Service only during the applicable time period determined in accordance with this Section and thereafter shall terminate:

(i)Death or Disability.  If the Participant’s Service is terminated by reason of the death or Disability of the Participant, the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death) at any time prior to the expiration of six (6) months (or such longer period of time as determined by the Committee, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such Option (the “Option Expiration Date”).  If an Option intended to be an Incentive Stock Option is exercised by a Participant more than three (3) months following the Participant’s termination of Service by reason of a Disability which is not a “permanent and total disability” as defined in Section 22(e)(3) of the Code, such exercise will be treated as the exercise of a Nonstatutory Stock Option to the extent required by Section 422 of the Code.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.

(ii)Retirement.  If the Participant’s Service is terminated by reason of the Retirement of the Participant, the Option may be exercised at such time (but in any event no later than the Option Expiration Date) and in such amounts as shall be determined by the Committee at the time of grant of the Option and set forth in the Award Agreement.

(iii)Termination for Cause.  Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service.

(iv)Other Termination of Service.  If the Participant’s Service terminates for any reason, except death, Disability, Retirement or Cause, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant within thirty (30) days (or such longer period of time as determined by the Committee, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.

(b)Extension if Exercise Prevented by Law.  Notwithstanding the foregoing, other than termination of Service for Cause, if the exercise of an Option within the applicable time periods set forth in Section 6.5(a) is prevented by the provisions of Section 12.1 below regarding compliance with securities laws, the Option shall remain exercisable until thirty (30) days after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.

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(c)           Extension if Participant Subject to Section 16(b).  Notwithstanding the foregoing, other than termination of Service for Cause, if a sale within the applicable time periods set forth in Section 6.5(a) of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.

6.6Transferability of Options.  During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative.  No Option shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution.  Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, a Nonstatutory Stock Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 Registration Statement under the Securities Act.

SECTION 7. RESTRICTED STOCK

7.1Grant of Restricted Stock.  Subject to the provisions of Sections 1.3, 3, 5 and 10, Awards of Restricted Stock may be granted to Participants at any time and from time to time as shall be determined by the Committee, including, without limitation, upon the attainment of one or more Performance Goals as described in Section 9.4.  If either the grant of Restricted Stock or the lapsing of the Restriction Period is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.5.  Each grant of Restricted Stock shall be evidenced by an Award Agreement that shall specify the number of shares of Stock subject to and the other terms, conditions and restrictions of such Award as the Committee shall determine.  No Restricted Stock Award or purported Restricted Stock Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and, except as otherwise set forth in Section 10 with respect to a Nonemployee Director Restricted Stock Award, shall comply with and be subject to the terms and conditions set forth in Sections 7.2 through 7.6 below.

7.2Purchase Price.  No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares of Restricted Stock, the consideration for which shall be services actually rendered to a Participating Company or for its benefit.  Notwithstanding the foregoing, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to such Restricted Stock Award.

7.3Vesting and Restrictions on Transfer.  Shares issued pursuant to any Restricted Stock Award may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award.  During any Restriction Period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise alienated or hypothecated, other than pursuant to an Ownership Change Event, as defined in Section 14.1.  Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.  All rights with respect to Restricted Stock granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant.

7.4Other Restrictions.  The Committee may impose such other restrictions on any shares of Restricted Stock granted hereunder as it may deem advisable, including, without limitation, restrictions under applicable Federal securities law and under any blue sky or state securities laws applicable to such shares, and may legend the certificates representing the Restricted Stock to give appropriate notice of such restrictions.

7.5Voting Rights; Dividends and Distributions.  Except as provided in this Section, Section 7.4 and any Award Agreement, during the Restriction Period applicable to shares subject to a Restricted Stock Award, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares.  However, in the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 5.3, then any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.

7.6Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Restricted Stock Award and set forth in the Award Agreement, the effect of a Participant’s termination of Service on his or her Restricted Stock Award shall be as follows:

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(a)Death or Disability.  If the Participant’s Service is terminated by reason of the death or Disability of the Participant during the Restriction Period, the restrictions applicable to the shares of Restricted Stock pursuant to Section 7.3 shall terminate automatically with respect to all such shares.

(b)Other Termination of Service.  If the Participant’s Service terminates during the Restriction Period for any reason except death or Disability, any shares of Restricted Stock still subject to restrictions pursuant to Section 7.3 at the date of such termination shall be forfeited and automatically reacquired by the Company; provided, however, that, in the event of an involuntary termination of the Participant’s Service, the Committee, in its sole discretion, may waive the automatic forfeiture of any or all such shares and/or add such new restrictions to such shares of Restricted Stock as it deems appropriate.

SECTION 8. RESTRICTED STOCK UNITS

8.1Grant of Restricted Stock Units.  Subject to the provisions of Sections 1.3, 3 and 5, Awards of Restricted Stock Units may be granted to Participants at any time and from time to time as shall be determined by the Committee, including, without limitation, upon the attainment of one or more Performance Goals as described in Section 9.4.  If either the grant of a Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.5.  Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award, in such form as the Committee shall from time to time establish.  No Restricted Stock Unit Award or purported Restricted Stock Unit Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions set forth in Sections 8.2 through 8.7 below.

8.2Purchase Price.  No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit.

8.3Vesting.  Restricted Stock Units may or may not be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award.

8.4Voting, Dividend Equivalent Rights and Distributions.  Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  However, the Committee, in its discretion, may provide in a Participant’s Award Agreement that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to date on which Restricted Stock Units held by such Participants are settled.  Such Dividend Equivalents, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock.  The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date.  Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or within forty-five (45) days thereafter) as the Restricted Stock Units originally subject to the Restricted Stock Unit Award.  In the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 5.3, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.

8.5Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Restricted Stock Unit Award and set forth in the Award Agreement, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service.

8.6Settlement of Awards.  The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 8.4) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes.  Notwithstanding the foregoing, if permitted by the Committee and set forth in the Award Agreement, the Participant may elect in accordance with terms specified in the Award Agreement to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.  Any deferral election made pursuant to the terms of this Section 8.6 shall be made by giving notice in a manner and within the time prescribed by the Company and in compliance with Section 409A of the Code.

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8.7Nontransferability of Restricted Stock Unit Awards.  Prior to the issuance of shares of Stock in settlement of a Restricted Stock Unit Award, the Award shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.

SECTION 9. PERFORMANCE SHARES AND PERFORMANCE UNITS

9.1Grant of Performance Shares or Performance Units.  Subject to the provisions of Sections 1.3, 3 and 5, the Committee, at any time and from time to time, may grant Awards of Performance Shares or Performance Units to such Participants and in such amounts as it shall determine.  Each grant of a Performance Share or Performance Unit Award shall be evidenced by an Award Agreement that shall specify the number of Performance Shares or Performance Units subject thereto, the value of each Performance Share or Performance Unit, the Performance Goals and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award as the Committee shall determine.  No Performance Share or Performance Unit Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Performance Share or Performance Unit Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the terms and conditions set forth in Sections 9.2 through 9.10 below.

9.2Value of Performance Shares and Performance Units.  Unless otherwise provided by the Committee in granting an Award, each Performance Share shall have an initial value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as provided in Section 5.3, on the effective date of grant of the Performance Share, and each Performance Unit shall have an initial value of one hundred dollars ($100).  The final payable to the Participant in settlement of a Performance Share or Performance Unit will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.

9.3Establishment of Performance Goals and Performance Period.  The Committee, in its discretion, shall establish in writing the Performance Period and Performance Goal(s) applicable to each Performance Share or Performance Unit Award.  Unless otherwise permitted in compliance with the requirements under Section 162(m) with respect to “performance-based compensation,” the Committee shall establish the Performance Goal(s) applicable to each Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain.  Such Performance Goal(s), when measured at the end of the Performance Period, shall determine the ultimate value of the Award to be paid to the Participant.  Once established, the Performance Goals shall not be changed during the Performance Period.  The Company shall notify each Participant granted a Performance Share or Performance Unit Award of the terms of such Award, including the Performance Period and applicable Performance Goal(s).

9.4Measurement of Performance Goals.  Performance Goals shall be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect one or more measures of business or financial performance (each, a “Performance Measure”).  Performance Measures shall have the same meanings as used in the Company’s financial statements, or if such terms are not used in the Company’s financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company’s industry.  Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the ultimate value of a Performance Share or Performance Unit Award determined by the level attained during the applicable Performance Period.  A Performance Target may be stated as an absolute value or as a value determined relative to a standard selected by the Committee.  Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit thereof as may be selected by the Committee.  For purposes of the Plan, the Performance Measures applicable to an Award shall be calculated in accordance with generally accepted accounting principles, but prior to the accrual or payment of any Performance Share or Performance Unit Award for the same Performance Period and excluding the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Award.  Performance Measures may be one or more of the following as determined by the Committee: (a) revenue, (b) operating income, (c) pre-tax profit, (d) net income, (e) gross margin, (f) operating margin, (g) earnings per share, (h) return on stockholder equity, (i) return on capital, (j) return on net assets, (k) economic value added, (l) cash flow and operating cash flow, (m) net operating profits after taxes, (n) net asset value, (o) cost of capital and weighted average cost of capital, (p) economic profit, (q) return on assets, (r) earnings before income tax and depreciation (EBITDA), (s) earnings before income tax (EBIT), (t) return on equity, (u) operating income and adjusted operating income, (v) gross income, (w) return on invested capital, (x) overhead, (y) net operating assets, and (z) safety incident rate (including total injury incident rate, OSHA recordable injury rate and lost time injury rate).

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9.5Determination of Value of Performance Shares and Performance Units.  As soon as practicable following the completion of the Performance Period for each Performance Share and Performance Unit Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the terms of the Award Agreement.  The Committee shall have no discretion to increase the value of an Award payable upon its settlement in excess of the amount called for by the terms of the Award Agreement on the basis of the degree of attainment of the Performance Goals as certified by the Committee.  However, notwithstanding the attainment of any Performance Goal, if permitted under a Participant’s Award Agreement evidencing a Performance Share or Performance Unit Award, the Committee shall have the discretion, on the basis of such criteria as may be established by the Committee, to reduce some or all of the value of an Award that would otherwise be paid upon its settlement.  No such reduction may result in an increase in the amount payable upon settlement of another Participant’s Award.  As soon as practicable following the Committee’s certification, the Company shall notify the Participant of the determination of the Committee.

9.6Dividend Equivalents.  The Committee may, in its discretion, provide that any Performance Share shall include a right to Dividend Equivalents with respect to cash dividends paid on Stock for which the record date is prior to the date on which the Performance Share is settled or forfeited.  Dividend Equivalents may be paid currently or may be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee and set forth in the Award Agreement.  Settlement of Dividend Equivalents may be in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 9.7.  Dividend Equivalents shall not be paid with respect to Performance Units.

9.7Form and Timing of Payment.  Payment of the ultimate value of a Performance Share or Performance Unit Award earned by a Participant as determined following the completion of the applicable Performance Period pursuant to Sections 9.5 and 9.6 may be made in cash, shares of Stock, or a combination thereof as determined by the Committee.  Payments in shares of Stock shall be determined by the Fair Market Value of a share of Stock on the last day of such Performance Period.  Payment may be made in a lump sum or installments as prescribed by the Committee and set forth in the Award Agreement.  If any payment is to be made on a deferred basis, the Committee may, but shall not be obligated to, provide for the payment of Dividend Equivalents or interest during the deferral period.  Any payment made on a deferred basis shall be made in a manner and within the time prescribed by the Committee and in compliance with Section 409A of the Code.

9.8Restrictions Applicable to Payment in Shares.  Shares of Stock issued in payment of any Performance Share or Performance Unit Award may be fully vested and freely transferable shares or may be shares of Restricted Stock subject to Vesting Conditions as provided in Section 7.3.  Any such shares of Restricted Stock shall be evidenced by an Award Agreement and shall be subject to the terms and conditions set forth in Sections 7.3 through 7.6 above.

9.9Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Performance Share or Performance Unit Award and set forth in the Award Agreement, the effect of a Participant’s termination of Service on his or her Performance Share or Performance Unit Award shall be as follows:

(a)Death, Disability or Retirement.  If the Participant’s Service is terminated by reason of the death, Disability or Retirement of the Participant while he or she is the holder of a Performance Share or Performance Unit Award but before the completion of the applicable Performance Period, the value of the Participant’s Award shall be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and shall be prorated based on the number of months of the Participant’s Service during the Performance Period.  Payment shall be made following the end of the Performance Period in any manner permitted by Section 9.7.

(b)Other Termination of Service.  If the Participant’s Service terminates for any reason except death, Disability or Retirement before the completion of the Performance Period applicable to a Performance Share or Performance Unit Award held by such Participant, such Award shall be forfeited in its entirety; provided, however, that in the event of an involuntary termination of the Participant’s Service, the Committee, in its sole discretion, may waive the automatic forfeiture of all or any portion of any such Award and provide for payment of such Award or portion thereof on the same basis as if the Participant’s Service had terminated by reason of Retirement.

9.10Nontransferability.  Prior to settlement in accordance with the provisions of the Plan, no Performance Share or Performance Unit may be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.  All rights with respect to a Performance Share or Performance Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.

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SECTION 10. NONEMPLOYEE DIRECTOR RESTRICTED STOCK AWARDS

10.1Effective Date and Duration of this Section.

(a)Effective Date.  This Section 10 shall become effective on January 1, 2008 (the “Section 10 Effective Date”).  Grants of Restricted Stock Awards to Nonemployee Directors pursuant to this Section 10 will be automatic and will be made in accordance with the provisions of this Section 10.

(b)Duration.  This Section 10 shall continue in effect for the remainder of the calendar year commencing on the Section 10 Effective Date and for each subsequent calendar year commencing during the term (as provided in Section 1.3) of the Plan.  Subject to compliance with applicable law as provided in Section 12, all Nonemployee Director Restricted Stock Awards granted prior to termination of the Plan shall continue to be governed by the terms of the Plan and the Award Agreement evidencing such Nonemployee Director Restricted Stock Award.

10.2Initial Restricted Stock Award.  Each person who first becomes a Nonemployee Director on or after the Section 10 Effective Date automatically will be granted, on the date he or she is first appointed or elected to the Board, 1,000 shares of Restricted Stock multiplied by a fraction the numerator of which is the number of months (including partial months) that the Nonemployee Director serves as a Director during the period beginning on July 1 preceding the date the Nonemployee Director first becomes a Nonemployee Director and ending on the next June 30, and the denominator of which is 12.  Notwithstanding the foregoing, if the person who first becomes a Nonemployee Director becomes the “presiding director” of the Board, then the Nonemployee Director will granted 1,150 shares of Restricted Stock multiplied by the fraction described in the foregoing sentence.

10.3Subsequent Restricted Stock Award.  Each Nonemployee Director, who is not the “presiding director” of the Board, automatically will be granted 1,000 shares of Restricted Stock on each July 1.  The “presiding director” of the Board automatically will be granted 1, 500 shares of Restricted on each July 1.

10.4Terms of Nonemployee Director Restricted Stock Awards.  Except as set forth below, the terms of each Nonemployee Director Restricted Stock granted pursuant to this Section 10 will be as set forth in Section 7.

(a)Vesting and Restrictions on Transfer.  Shares issued pursuant to any Nonemployee Director Restricted Stock Award shall vest in full at the end of the Director’s term in which the Award is granted as set forth in the Award Agreement evidencing such Award.  During any Restriction Period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise alienated or hypothecated, other than pursuant to an Ownership Change Event, as defined in Section 14.1.  Upon request by the Company, each Nonemployee Director shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.  All rights with respect to Restricted Stock granted to a Nonemployee Director hereunder shall be exercisable during his or her lifetime only by such Nonemployee Director.

(b)Voting Rights; Dividends and Distributions.  Except as provided in this Section, during the Restriction Period applicable to shares subject to a Restricted Stock Award, the Nonemployee Director shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares.  However, in the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 5.3, then any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Nonemployee Director is entitled by reason of the Nonemployee Director’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Nonemployee Director Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.

(c)Effect of Termination of Service.  The effect of a Nonemployee Director’s termination of Service on his or her Restricted Stock Award shall be as follows:

(i)Retirement, Death or Disability.  If the Nonemployee Director’s Service is terminated by reason of the Retirement, death or Disability of the Nonemployee Director’s during the Restriction Period, the restrictions applicable to the shares of Restricted Stock pursuant to Section 10.4(a) shall terminate automatically with respect to all such shares and such shares shall be 100% vested.

(ii)Other Termination of Service.  If the Nonemployee Director’s Service terminates during the Restriction Period for any reason except Retirement, death or Disability, any shares of Restricted Stock still subject to restrictions pursuant to Section 10.4(a) at the date of such termination shall be forfeited and automatically reacquired by the Company; provided, however, that, in the event of an involuntary termination of the Nonemployee Director’s Service, the Board, in its sole discretion, may waive the automatic forfeiture of any or all such shares and/or add such new restrictions to such shares of Restricted Stock as it deems appropriate.

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SECTION 11. CHANGE IN CONTROL

11.1Effect of Change in Control.  In the event of a Change in Control of the Company as defined in Section 11.3 below, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the “Acquiring Corporation”), shall either assume all outstanding Awards or substitute new Awards having an equivalent value for such outstanding Awards.  In the event the Acquiring Corporation elects not to assume or substitute for such outstanding Awards, and provided that the Participant’s Service has not terminated prior to the effective date of the Change in Control (unless, the Participant’s Service terminated within three (3) months prior to the effective date of the Change in Control or, with respect to Performance Shares or Performance Units, the Participant’s Service terminated by reason of the death, Disability or Retirement of the Participant), all unexercisable, unvested or unpaid portions of such outstanding Awards shall become, in accordance with this Section 11.1 and Section 11.2 below,  immediately exercisable and vested in full immediately prior to the effective date of the Change in Control and immediately payable, as applicable, within ten (10) days following the effective date of the Change in Control.  For purposes of the preceding sentence, the value of Performance Shares and Performance Units shall be determined and paid based upon the greater of (i) the extent to which the applicable Performance Goals have been attained during the Performance Period up to the effective date of the Change in Control or (ii) the pre-established 100% of target level with respect to each Performance Target comprising the applicable Performance Goals.

Any Options which are neither assumed or substituted for by the Acquiring Corporation nor exercised as of the date of the Change in Control shall terminate as of the effective date of the Change in Control.

11.2Acceleration of Vesting upon a Change in Control.  Notwithstanding the provisions of Section 11.1 above, and provided that the Participant’s Service has not terminated prior to the effective date of the Change in Control (unless, the Participant’s Service terminated within three (3) months prior to the effective date of the Change in Control or, with respect to Performance Shares or Performance Units, the Participant’s Service terminated by reason of the death, Disability or Retirement of the Participant), the exercisability, vesting and payment of any outstanding Award shallbe accelerated effective as of the effective date of a Change in Control, and any outstanding Option, to the extent unexercised and exercisable on the date of a Participant’s termination of Continuous Service following the Change in Control, shall remain exercisable by the Participant (or the Participant’s guardian or legal representative) for at least six (6) months (or such longer period of time as specified in the Award Agreement) after the date of the Participant’s termination of Continuous Service, but in any event no later than the Option Expiration Date.

11.3Definition.  A “Change in Control” means the effective date of any one of the following events but only to the extent that such change in control transaction is a change in the ownership or effective control the Company or a change in the ownership of a substantial portion of the assets of the Company as defined in the regulations promulgated under Section 409A of the Code:

(a)           an acquisition, consolidation, or merger of the Company with or into any other corporation or corporations, unless the stockholders of the Company retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the surviving or acquiring corporation or corporations; or

(b)           the sale, exchange, or transfer of all or substantially all of the assets of the Company to a transferee other than a corporation or partnership controlled by the Company or the stockholders of the Company; or

(c)           a transaction or series of related transactions in which stock of the Company representing more than thirty percent (30%) of the outstanding voting power of the Company is sold, exchanged, or transferred to any single person or affiliated persons leading to a change of a majority of the members of the Board.

The Board shall have final authority to determine, in accordance with Section 409A of the Code, whether multiple transactions are related and the exact date on which a Change in Control has been deemed to have occurred under subsections (a), (b), and (c) above.

SECTION 12. REQUIREMENTS OF LAW

12.1Compliance with Securities Law.  The granting of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable laws, rules, and regulations, and to such approvals by any governmental agencies, securities exchanges or market systems as may be required.  In addition, no Option may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

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12.2Governing Law.  The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of California.

SECTION 13. TAX WITHHOLDING

13.1Tax Withholding In General.  The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy the Federal, state, local and foreign tax withholding obligations, if any, of any Participating Company with respect to any Award.  The Company shall have no obligation to deliver shares of Stock or make any payment of cash under the Plan until such tax withholding obligations have been satisfied.

13.2Withholding of Shares.  The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group.  The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.

SECTION 14. AMENDMENT AND TERMINATION OF PLAN

14.1Amendment and Termination of Plan.  The Committee at any time may terminate, and from time to time, may amend, the Plan; provided, however, that no such amendment may be made without approval of the stockholders of the Company to the extent that the Committee deems such stockholder approval to be necessary or advisable for compliance with applicable tax and securities laws or other regulatory requirements, including the requirements of any stock exchange or market system on which the Stock is then listed.

14.2Effect of Amendment or Termination.  No termination or amendment of the Plan shall affect any then outstanding Award unless expressly provided by the Committee.  In any event, no termination or amendment of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the consent of the Participant, unless such termination or amendment is necessary to comply with any applicable law, regulation or rule.

SECTION 15. MISCELLANEOUS PROVISIONS

15.1Beneficiary Designation.  Each Participant may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of such Participant’s death before he or she receives any or all of such benefit.  Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.  In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to his or her spouse, or if none, the Participant’s children in equal shares, or if none, the Participant’s estate.

15.2Rights as an Employee or Director.  No individual, even though eligible pursuant to Section 3, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.  Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee or Director, or interfere with or limit in any way the right of a Participating Company to terminate the Participant’s Service at any time.

15.3Rights as a Stockholder.  A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of a certificate for such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 5.3 or another provision of the Plan.

15.4Provision of Information.  Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common stockholders.

14

15.5Unfunded Obligation.  Any amounts payable to Participants pursuant to the Plan shall be unfunded obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974.  No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company.  The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.

15.6Indemnification.  In addition to such other rights of indemnification as they may have as members of the Committee or officers or employees of the Participating Company Group, members of the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.

IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the Granite Construction Incorporated Amended and Restated 1999 Equity Incentive Plan as duly adopted by the Board on May 19, 2008.

GRANITE CONSTRUCTION INCORPORATED

 /s/ William G. Dorey                                                                                                                                

By:           William G. Dorey

Title:         President & CEO

 /s/ Michael Futch                                                                                                                                     

By:           Michael Futch

Title:         Vice President, General Counsel & Secretary

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, William G. Dorey, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Granite Construction Incorporated;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 30, 2008	/s/ William G. Dorey
	William G. Dorey
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, LeAnne M. Stewart, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Granite Construction Incorporated;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

	c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 30, 2008	/s/ LeAnne M. Stewart
	LeAnne M. Stewart
	Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officers of Granite Construction Incorporated (the “Company”) do hereby certify to such officers’ knowledge that:

(i) The report on Form 10-Q for the quarter ended June 30, 2008 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

Dated: July 30, 2008 Dated: July 30, 2008	/s/ William G. Dorey
	William G. Dorey President and Chief Executive Officer /s/ LeAnne M. Stewart
	LeAnne M. Stewart Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Granite Construction Incorporated and will be retained by Granite Construction Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.