UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2004

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 No. 1-12911

GRANITE CONSTRUCTION INCORPORATED

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

Corporate Administration:

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 29, 2004.

Class	Outstanding
Common Stock, $0.01 par value	41,615,957 shares

1

Index

			Page
PART I. FINANCIAL INFORMATION				3
	Item 1. Financial Statements (unaudited)			4
		Condensed Consolidated Balance Sheets as of September 30, 2004, December 31, 2003 and September 30, 2003		4
		Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2004 and 2003		5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003		6
		Notes to the Condensed Consolidated Financial Statements		7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
	Item 4. Controls and Procedures			24
PART II. OTHER INFORMATION				25
	Item 1. Legal Proceedings			26
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
	Item 3. Defaults Upon Senior Securities			27
	Item 4. Submission of Matters to a Vote of Security Holders			28
	Item 5. Other Information			28
	Item 6. Exhibits			28
SIGNATURES				29
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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)

	September 30,			December 31,			September 30,
	2004			2003			2003
Assets
Current assets
Cash and cash equivalents	$	185,276		$	69,919		$	73,383
Short-term marketable securities		46,688			90,869			96,992
Accounts receivable, net		434,390			288,210			326,757
Costs and estimated earnings in excess of billings		61,023			31,189			42,170
Inventories		33,254			29,878			31,557
Deferred income taxes		22,152			22,421			22,602
Equity in construction joint ventures		21,068			42,250			35,750
Other current assets		41,757			43,915			10,149
Total current assets		845,608			618,651			639,360
Property and equipment, net		351,847			344,734			351,447
Long-term marketable securities		27,515			41,197			43,023
Investments in affiliates		13,044			18,295			19,218
Other assets		46,529			37,533			41,746
	$	1,284,543		$	1,060,410		$	1,094,794
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities of long-term debt	$	10,287		$	8,182		$	10,161
Accounts payable		219,890			135,468			152,282
Billings in excess of costs and estimated earnings		145,159			99,337			108,670
Accrued expenses and other current liabilities		146,015			105,717			130,089
Total current liabilities		521,351			348,704			401,202
Long-term debt		125,850			126,708			127,473
Other long-term liabilities		29,745			24,938			23,217
Deferred income taxes		45,775			44,297			40,011
Commitments and contingencies
Minority interest in consolidated subsidiaries		29,632			10,872			9,867
Stockholders’ equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding		—			—			—
Common stock, $0.01 par value, authorized 100,000,000 shares; issued and outstanding 41,615,957 shares as of September 30, 2004, 41,528,317 shares as of December 31, 2003 and 41,533,436 shares as of September 30, 2003		416			415			415
Additional paid-in capital		76,106			73,651			73,673
Retained earnings		467,271			442,272			432,567
Accumulated other comprehensive income (loss)		619			76			(592	)
		544,412			516,414			506,063
Unearned compensation		(12,222	)		(11,523	)		(13,039	)
		532,190			504,891			493,024
	$	1,284,543		$	1,060,410		$	1,094,794

     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						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Revenue:
Construction	$	608,800		$	496,669		$	1,393,870		$	1,162,534
Material sales		91,025			83,531			201,727			189,231
Total revenue		699,825			580,200			1,595,597			1,351,765
Cost of revenue:
Construction		534,184			433,198			1,268,733			1,029,898
Material sales		70,293			64,943			161,088			153,608
Total cost of revenue		604,477			498,141			1,429,821			1,183,506
Gross profit		95,348			82,059			165,776			168,259
General and administrative expenses		44,007			42,533			116,465			115,478
Gain on sales of property and equipment		2,638			3,018			17,077			3,546
Operating income		53,979			42,544			66,388			56,327
Other income (expense):
Interest income		1,353			1,145			4,068			4,633
Interest expense		(1,813	)		(1,939	)		(5,412	)		(6,577	)
Equity in income (loss) of affiliates		3			(37	)		2,876			18,088
Other, net		59			86			154			2,364
		(398	)		(745	)		1,686			18,508
Income before provision for income taxes and minority interest		53,581			41,799			68,074			74,835
Provision for income taxes		16,904			15,131			21,759			27,090
Income before minority interest		36,677			26,668			46,315			47,745
Minority interest in consolidated subsidiaries		(3,892	)		(834	)		(8,833	)		(1,099	)
Net income	$	32,785		$	25,834		$	37,482		$	46,646
Net income per share
Basic	$	0.81		$	0.64		$	0.93		$	1.16
Diluted	$	0.80		$	0.63		$	0.91		$	1.14
Weighted average shares of common stock
Basic		40,433			40,217			40,372			40,160
Diluted		41,083			40,908			40,974			40,741
Dividends per share	$	0.10		$	0.10		$	0.30		$	0.30

     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)

Nine Months Ended September 30,	2004			2003
Operating Activities
Net income	$	37,482		$	46,646
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		46,709			51,371
Gain on sales of property and equipment		(17,077	)		(3,546	)
Change in deferred income taxes		1,478			—
Amortization of unearned compensation		3,671			4,496
Common stock contributed to ESOP		3,989			—
Minority interest in consolidated subsidiaries		8,833			1,099
Equity in income of affiliates		(2,876	)		(18,088	)
Gain on sale of equity investment		—			(1,853	)
Changes in assets and liabilities, net of the effects of FIN 46 consolidations:
Accounts receivable		(105,035	)		(60,861	)
Inventories		(3,376	)		(1,573	)
Equity in construction joint ventures		(381	)		(11,421	)
Other assets		3,007			3,801
Accounts payable		66,915			33,469
Billings in excess of costs and estimated earnings, net		(30,917	)		3,741
Accrued expenses and other liabilities		32,951			34,725
Net cash provided by operating activities		45,373			82,006
Investing Activities
Purchases of marketable securities		(46,247	)		(149,243	)
Maturities of marketable securities		103,242			141,153
Additions to property and equipment		(48,922	)		(54,435	)
Proceeds from sales of property and equipment		21,068			6,423
Proceeds from sale of equity investment		—			6,033
Distributions from affiliates, net		8,127			13,660
Acquisition of minority interest		(9,219	)		—
Other investing activities		—			(3,632	)
Net cash provided by (used in) investing activities		28,049			(40,041	)
Financing Activities
Additions to long-term debt		43,209			20,480
Repayments of long-term debt		(48,825	)		(28,767	)
Dividends paid		(12,474	)		(11,610	)
Repurchases of common stock		(6,331	)		(1,316	)
Contributions from minority partners		6,024			1,465
Distributions to minority partners		(9,648	)		(420	)
Other financing activities		266			(446	)
Net cash used in financing activities		(27,779	)		(20,614	)
Increase in cash and cash equivalents		45,643			21,351
Cash and cash equivalents added in FIN 46 consolidations		69,714			—
Cash and cash equivalents at beginning of period		69,919			52,032
Cash and cash equivalents at end of period	$	185,276		$	73,383
Supplementary Information
Cash paid during the period for:
Interest	$	4,962		$	7,204
Income taxes		3,204			8,819
Non-cash investing and financing activity:
Restricted stock issued for services		4,370			5,908
Dividends accrued but not paid		4,162			4,153
Financed acquisition of long-term asset		6,863			4,004
Notes received from sale of assets		8,893			—

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

6

Granite Construction Incorporated

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation:
	The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we”, “us”, “our” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003. 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 September 30, 2004 and 2003 and the results of our operations and cash flows for the periods presented. The December 31, 2003 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 nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year.
2.	Newly Effective and Recently Issued Accounting Pronouncements:
	In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” which is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and requires that a variable interest entity (“VIE”) be consolidated by a company that is considered to be the primary beneficiary of that VIE. In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46”) to address certain implementation issues.
	We were required to adopt FIN 46 no later than the end of the first interim or annual reporting period ending after March 15, 2004. As is common in the construction industry, we have entered into certain construction contracts with third parties through joint ventures and we have determined that certain of these joint ventures are VIEs. As a result of our adoption of FIN 46, we have consolidated all VIEs in which we are the primary beneficiary as of January 1, 2004 (See Note 7 to these condensed consolidated financial statements). We will continue to account for all other such joint ventures in accordance 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.”

7

Granite Construction Incorporated

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.	Change in Accounting Estimate:
	During the three months ended March 31, 2004, we recognized increased project costs of approximately $20.0 million, primarily due to changes in our estimates of the cost to complete eight projects being performed by our Heavy Construction Division. The amount attributable to any individual project ranged from approximately $0.5 million to $4.0 million. These forecast adjustments were made in response to unanticipated changes in project conditions occurring during the three months ended March 31, 2004, resulting in changes to the estimates of the cost to complete the projects. These changes to the estimates were due to a variety of factors, including recognition of costs associated with added scope changes, extended overhead due to owner and weather delays, design problems on design/build projects, subcontractor performance issues, changes in productivity expectations and higher than anticipated liquidated damages on two projects. In the quarter ended June 30, 2004, additional costs of $5.4 million related to one of these projects was recognized, primarily due to a change in the estimate of the cost to complete the work related to a key project subcontract. In the quarter ended September 30, 2004, we recognized additional costs for two of these projects of approximately $4.0 million related primarily to delays and estimated rework resulting from the unusually wet third quarter weather in Florida and New Mexico.
4.	Inventories:
	Inventories consist primarily of quarry products valued at the lower of average cost or market.
5.	Property and Equipment:

	September 30,		December 31,		September 30,
(in thousands)	2004		2003		2003
Land	$	52,825	$	53,583	$	51,183
Quarry property		73,919		75,329		75,830
Buildings and leasehold improvements		79,631		64,276		61,951
Equipment and vehicles		698,330		693,657		694,215
Office furniture and equipment		16,566		13,926		13,363
		921,271		900,771		896,542
Less: accumulated depreciation, depletion and amortization		569,424		556,037		545,095
	$	351,847	$	344,734	$	351,447

8

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.	Intangible Assets:
	The following table indicates the allocation of goodwill by reportable segment which is included in other assets on our condensed consolidated balance sheets:

	September 30,		December 31,		September 30,
(in thousands)	2004		2003		2003
Goodwill by segment:
Heavy Construction Division	$	18,011	$	18,011	$	18,011
Branch Division		4,089		1,056		1,056
Total Goodwill	$	22,100	$	19,067	$	19,067

The following intangible assets are included in other assets on our condensed consolidated balance sheets:

	September 30, 2004
	Gross		Accumulated			Net
(in thousands)	Value		Amortization			Value
Amortized intangible assets:
Covenants not to compete	$	1,124	$	(725	)	$	399
Permits		2,000		(461	)		1,539
Trade names		1,425		(310	)		1,115
Other		622		(250	)		372
Total amortized intangible assets		5,171		(1,746	)		3,425

	December 31, 2003
	Gross		Accumulated			Net
(in thousands)	Value		Amortization			Value
Amortized intangible assets:
Covenants not to compete	$	1,249	$	(674	)	$	575
Permits		2,000		(361	)		1,639
Trade names		1,602		(991	)		611
Acquired contracts		900		(900	)		—
Other		622		(188	)		434
Total amortized intangible assets		6,373		(3,114	)		3,259

	September 30, 2003
	Gross		Accumulated			Net
(in thousands)	Value		Amortization			Value
Amortized intangible assets:
Covenants not to compete	$	1,249	$	(612	)	$	637
Permits		2,000		(328	)		1,672
Trade names		1,602		(962	)		640
Acquired contracts		900		(900	)		—
Other		622		(167	)		455
Total amortized intangible assets		6,373		(2,969	)		3,404

Amortization expense related to intangible assets was approximately $161,000 and $457,000 for the three months and nine months ended September 30, 2004, respectively and approximately $181,000 and $896,000 for the three months and nine months ended September 30, 2003, respectively. Amortization expense expected to be recorded in the future is as follows: $154,000 for the balance of 2004, $646,000 in 2005, $485,000 in 2006, $391,000 in 2007, $379,000 in 2008 and $1,370,000 thereafter.

9

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.	Variable Interest Entities:
	We have determined that certain of the construction joint ventures in which we participate 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 on a prospective basis effective January 1, 2004. Generally, each construction joint venture is formed to accomplish a specific project, is jointly controlled by the joint venture partners and is dissolved upon completion of the project. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities that may result from the performance of the contract is limited to our stated percentage interest in the project. Although the venture’s contract with the project owner typically requires joint and several liability, 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 no significant commitments beyond completion of the contract.
	The joint ventures we have consolidated are engaged in construction projects with total contract values ranging from $63.6 million to $390.4 million. Our proportionate share of the consolidated joint ventures ranges from 52.0% to 69.0%. Included in our September 30, 2004 balance sheet are assets (primarily current assets) of $93.4 million and current liabilities of $76.4 million resulting from these consolidations. There was no material effect on our net income as a result of these consolidations for the three months and nine months ended September 30, 2004.
	The joint ventures in which we hold a significant interest but are not the primary beneficiary are engaged in construction projects with total contract values ranging from $90.7 million to $221.4 million. Our proportionate share of these joint ventures ranges from 25.0% to 40.0%. Circumstances that could lead to a loss under these 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 September 30, 2004, approximately $275.0 million of work representing our partners’ share of proportionately consolidated joint venture contracts in progress had yet to be completed.
8.	Earnings Per Share:
	A reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income per share in the accompanying condensed consolidated statements of income is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2004		2003		2004		2003
Weighted average shares outstanding
Weighted average common stock outstanding		41,617		41,533		41,568		41,443
Less: weighted average restricted stock outstanding		1,184		1,316		1,196		1,283
Total		40,433		40,217		40,372		40,160
Diluted weighted average shares outstanding
Basic weighted average shares outstanding		40,433		40,217		40,372		40,160
Effect of dilutive securities:
Common stock options and units		46		36		50		25
Restricted stock		604		655		552		556
Total		41,083		40,908		40,974		40,741

10

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Restricted stock representing approximately 374,000 shares and 302,000 shares for the three months ended September 30, 2004 and 2003, respectively, and approximately 339,000 shares and 394,000 shares for the nine months ended September 30, 2004 and 2003, respectively, have been excluded from the calculation of diluted net income per share because their effects are anti-dilutive.
9.	Comprehensive Income:

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2004		2003		2004		2003
Net income	$	32,785	$	25,834	$	37,482	$	46,646
Other comprehensive income:
Changes in net unrealized gains (losses) on investments		15		196		543		810
Total comprehensive income	$	32,800	$	26,030	$	38,025	$	47,456

10.	Provision for Income Taxes:
	Our effective tax rate decreased to 31.5% and 32.0% for the three and nine month periods ended September 30, 2004, respectively, from 36.2% for the corresponding periods in 2003 due primarily to the effect of consolidating our partners’ share of construction joint venture income under FIN 46 (see Note 7 to the Condensed Consolidated Financial Statements). Generally, our construction joint ventures are not subject to income taxes on a stand-alone basis.
11.	Commitments and Contingencies:
	As disclosed in the Company’ Annual Report on Form 10-K for the years ended December 31, 2002 and 2003, our wholly-owned subsidiary, Granite Construction Company (“GCCO”), as a member of a joint venture, Wasatch Constructors, is among a number of construction companies and the Utah Department of Transportation that were named in a lawsuit filed in the United States District Court for the District of Utah. The plaintiffs are two independent contractor truckers who filed the lawsuit on behalf of the United States under the federal False Claims Act seeking to recover damages and civil penalties in excess of $46.4 million.
	As disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, plaintiffs’ Fourth Amended Complaint was filed on July 12, 2004. The Company and GCCO believe that the allegations in the lawsuit are without merit and intend to defend them vigorously.
	We are a party to a number of other legal proceedings and believe that the nature and number of these proceedings are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes, after consultation with counsel, that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and/or financial position for the period in which the ruling occurs.

11

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.	Business Segment Information:
	We have two reportable segments: the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division is composed of branch offices, including our majority owned subsidiary, Wilder Construction Company (“Wilder”), that serve local markets, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in our construction joint ventures.
	The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in our 2003 Annual Report on Form 10-K. We evaluate performance based on operating profit or loss (excluding gain on sales of property and equipment) and does not include income taxes, interest income, interest expense or other income (expense). Unallocated other corporate expenses principally comprise corporate general and administrative expenses.
	Summarized Segment Information (in thousands):

	Three Months Ended September 30,
	HCD			Branch		Total
2004
Revenue from external customers	$	244,113		$	455,712	$	699,825
Inter-segment revenue transfer		(7,006	)		7,006		—
Net revenue		237,107			462,718		699,825
Depreciation, depletion and amortization		3,567			10,756		14,323
Operating profit		9,897			56,629		66,526
2003
Revenue from external customers	$	185,124		$	395,076	$	580,200
Inter-segment revenue transfer		(1,784	)		1,784		—
Net revenue		183,340			396,860		580,200
Depreciation, depletion and amortization		3,405			11,367		14,772
Operating profit		4,877			48,046		52,923

	Nine Months Ended September 30,
	HCD			Branch		Total
2004
Revenue from external customers	$	644,612		$	950,985	$	1,595,597
Inter-segment revenue transfer		(17,296	)		17,296		—
Net revenue		627,316			968,281		1,595,597
Depreciation, depletion and amortization		10,403			32,170		42,573
Operating profit		8,887			74,670		83,557
Property and equipment		48,013			273,469		321,482
2003
Revenue from external customers	$	510,494		$	841,271	$	1,351,765
Inter-segment revenue transfer		(7,218	)		7,218		—
Net revenue		503,276			848,489		1,351,765
Depreciation, depletion and amortization		11,293			34,837		46,130
Operating profit		18,914			64,419		83,333
Property and equipment		43,600			288,099		331,699

Included in HCD operating income for the three and nine months ended September 31, 2004 is operating income from our newly consolidated joint ventures of $2,775 and $7,614, respectively (see Note 7 to the Condensed Consolidated Financial Statements).

12

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Total operating profit for reportable segments	$	66,526		$	52,923		$	83,557		$	83,333
Gain on sales of property and equipment		2,638			3,018			17,077			3,546
Other income (expense), net		(398	)		(745	)		1,686			18,508
Unallocated other corporate income (expense), net		(15,185	)		(13,397	)		(34,246	)		(30,552	)
Income before provision for income taxes and minority interest	$	53,581		$	41,799		$	68,074		$	74,835

13.	Investments in Affiliates:
	In June 2003, T.I.C. Holdings, Inc. (“TIC”) repurchased 0.3 million  shares of the TIC shares held by us for a cash payment of $6.0 million. We account for our investment in TIC using the cost method. This transaction reduced our ownership interest from 15.5% to 10.6% and resulted in a gain of $1.9 million, which is included in other income (expense) for the nine months ended September 30, 2003.
	In January 2003, the California Private Transportation Company, LP (“CPTC”), of which we are a 22.2% limited partner, closed the sale of the State Route 91 Toll Road Franchise to the Orange County Transportation Authority for $72.5 million in cash and the assumption of $135.0 million in long-term debt. We completed construction of the $60.4 million project in 1995 and have maintained an equity interest in the partnership since its inception. Included in other income (expense) for the nine months ended September 30, 2003 is $18.4 million related to this sale by CPTC.
14.	Acquisitions:
	In April 2004, we purchased an additional 643,348 shares of Wilder common stock for a cash payment of $9.2 million. As a result of this transaction, our interest in Wilder increased from 60.3% to 75.0%. The acquisition was accounted for in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”, and the excess purchase price over fair value of the net tangible and intangible assets acquired, $3.0 million, was allocated to goodwill.
15.	Sale of Assets:
	In March 2004, we sold certain assets related to our ready-mix concrete business in Utah for cash of $10.0 million and promissory notes with an estimated fair value of $8.9 million which are payable in installments through 2010. The sale transaction resulted in the recognition of a gain of approximately $10.0 million, which is included in gain on sales of property and equipment for the nine months ended September 30, 2004.
16.	Reclassifications:
	Certain financial statement items have been reclassified to conform to the current year’s format. These reclassifications had no impact on previously reported net income, financial position or cash flows.

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

Forward-Looking Disclosure

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

General

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

Our contracts are obtained primarily through competitive bidding in response to advertisements by federal, state and local agencies and private parties and to a lesser extent through negotiation with private parties. Our bidding activity is affected by such factors as backlog, current utilization of equipment and other resources, 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.

The two primary economic drivers of our business are (1) federal, state and local public funding levels and (2) the overall health of the economy, 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 gasoline taxes, which are not necessarily 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. Conversely, higher public funding and/or a robust economy will increase demand for our services and provide opportunities for revenue growth and margin improvement.

Our general and administrative costs include salaries and related expenses, incentive compensation, discretionary profit sharing and other variable compensation, as well as other overhead costs to support our overall business. In general, these costs will increase in response to the growth and the related

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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 moving their salaries and related costs from cost of revenue to general and administrative expense. Additionally, our compensation strategy for selected management personnel is to rely heavily on a variable cash and restricted stock performance-based incentive element. The cash portion of these incentives is expensed when earned while the restricted stock portion is expensed over the vesting period of the stock (generally five years). Depending on the mix of cash and restricted stock, these incentives can have the effect of increasing general and administrative expenses in very profitable years and decreasing expenses in less profitable years.

Results of Operations

Revenue	Three Months Ended September 30,										Nine Months Ended September 30,
	2004					2003					2004					2003
(in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Revenue by Division:
Branch Division	$	462,718		66.1	%	$	396,860		68.4	%	$	968,281		60.7	%	$	848,489		62.8	%
Heavy Construction Division		237,107		33.9	%		183,340		31.6	%		627,316		39.3	%		503,276		37.2	%
	$	699,825		100.0	%	$	580,200		100.0	%	$	1,595,597		100.0	%	$	1,351,765		100.0	%
Revenue by Geographic Area:
California	$	255,906		36.6	%	$	218,247		37.6	%	$	558,960		35.0	%	$	480,951		35.6	%
West (excluding California)		239,041		34.2	%		205,412		35.4	%		487,207		30.5	%		468,067		34.6	%
Midwest		23,546		3.4	%		20,313		3.5	%		59,654		3.7	%		44,988		3.3	%
Northeast		88,362		12.6	%		38,825		6.7	%		221,920		13.9	%		109,151		8.1	%
South		92,970		13.2	%		97,403		16.8	%		267,856		16.9	%		248,608		18.4	%
	$	699,825		100.0	%	$	580,200		100.0	%	$	1,595,597		100.0	%	$	1,351,765		100.0	%
Revenue by Market Sector:
Federal Agencies	$	48,333		6.9	%	$	20,535		3.5	%	$	98,438		6.2	%	$	42,747		3.2	%
State Agencies		214,576		30.7	%		241,433		41.6	%		542,873		34.0	%		544,785		40.3	%
Local Public Agencies		246,309		35.2	%		159,976		27.6	%		526,107		33.0	%		398,924		29.5	%
Total Public Sector		509,218		72.8	%		421,944		72.7	%		1,167,418		73.2	%		986,456		73.0	%
Private Sector		99,582		14.2	%		74,725		12.9	%		226,452		14.2	%		176,078		13.0	%
Material Sales		91,025		13.0	%		83,531		14.4	%		201,727		12.6	%		189,231		14.0	%
	$	699,825		100.0	%	$	580,200		100.0	%	$	1,595,597		100.0	%	$	1,351,765		100.0	%

Revenue: Revenue from our Branch Division for the three and nine month periods ended September 30, 2004 increased over the corresponding 2003 periods by $65.9 million, or 16.6%, and $119.8 million, or 14.1%, respectively. The growth in revenue reflects increases in both public and private sector revenue and the sale of materials. The increase in private sector revenue and sale of materials reflects the increase in demand created by the continuing strong housing market in California and other Branch Division locations. The increase in Branch Division public sector revenue during the quarter was primarily due to greater revenue from local government agency work, partially offset by the decrease in state government agency work, particularly in California. We continue to experience reduced awards from the California State Department of Transportation due to the continuing budgetary uncertainty in the state (see “Outlook”).

Revenue from our Heavy Construction Division for the three and nine month periods ended September 30, 2004 increased over the corresponding 2003 periods by $53.8 million, or 29.3%, and $124.0 million,

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or 24.6%, respectively. Included in HCD revenue during the three and nine month periods ended September 30, 2004 is $30.2 million and $78.9 million, respectively, resulting from the consolidation of our partners’ share of construction joint venture revenue under FIN 46, “Consolidation of Variable Interest Entities” (“FIN 46”) (see Note 7 to the Condensed Consolidated Financial Statements). The remaining increase was due primarily to the increase in volume from a higher backlog at the beginning of the respective periods in the Northeast.

	September 30,					June 30,					September 30,
Backlog	2004					2004					2003
(in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Backlog by Division:
Heavy Construction Division	$	1,711,224		73.8	%	$	1,378,110		67.6	%	$	1,417,794		74.6	%
Branch Division		606,750		26.2	%		660,059		32.4	%		482,321		25.4	%
	$	2,317,974		100.0	%	$	2,038,169		100.0	%	$	1,900,115		100.0	%
Backlog by Geographic Area:
California	$	674,622		29.1	%	$	322,591		15.8	%	$	311,264		16.4	%
West (excluding California)		377,770		16.3	%		442,695		21.7	%		310,053		16.3	%
Midwest		144,973		6.3	%		32,507		1.6	%		44,703		2.4	%
Northeast		599,593		25.9	%		683,054		33.5	%		561,494		29.6	%
South		521,016		22.4	%		557,322		27.4	%		672,601		35.3	%
	$	2,317,974		100.0	%	$	2,038,169		100.0	%	$	1,900,115		100.0	%
Backlog by Market Sector:
Federal agencies	$	76,581		3.2	%	$	113,384		5.5	%	$	81,616		4.3	%
State agencies		773,633		33.4	%		711,242		34.9	%		790,556		41.6	%
Local public agencies		1,236,939		53.4	%		1,002,397		49.2	%		850,163		44.7	%
Total public sector		2,087,153		90.0	%		1,827,023		89.6	%		1,722,335		90.6	%
Private sector		230,821		10.0	%		211,146		10.4	%		177,780		9.4	%
	$	2,317,974		100.0	%	$	2,038,169		100.0	%	$	1,900,115		100.0	%

Backlog: Heavy Construction Division backlog of $1.7 billion at September 30, 2004 was $333.1 million, or 24.2%, higher than the HCD backlog at June 30, 2004 and $293.4 million, or 20.7%, higher than the HCD backlog at September 30, 2003. Included in the HCD backlog at September 30, 2004 and June 30, 2004 was $305.1 million and $105.1 million, respectively, resulting from the consolidation of our partners’ share of construction joint venture backlog under FIN 46 (see Note 7 to the Condensed Consolidated Financial Statements). Additions to HCD backlog in the current quarter included a $390.4 million joint venture design-build freeway improvement project in California; a $135.6 million joint venture design-build highway reconstruction project in Minnesota; and a $58.9 million interchange reconstruction project in Florida. As described in Note 7 to the Condensed Consolidated Financial Statements, we began consolidating certain of our joint ventures under the requirements of FIN 46 in 2004. As a result, 100% of the backlog of consolidated joint ventures is included in our backlog, including the two joint venture awards mentioned above.

Branch Division backlog of $606.8 million at September 30, 2004 was $53.3 million, or 8.1%, lower than Branch Division backlog at June 30, 2004 and $124.4 million, or 25.8%, higher than Branch Division backlog at September 30, 2003. The decrease in backlog compared to June 30, 2004 reflects normal seasonal variation in the timing of awards and construction activity. The increase in backlog compared to September 30, 2003 reflects an increase in both private and public sector awards, primarily in western states other than California. The increase in public sector backlog at September 30, 2004 compared with September 30, 2003 reflects an increase in backlog from local government agency projects, partially

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offset by the decrease in backlog from state government agency projects. A sizeable percentage of Branch Division anticipated contract revenue in any year is not reflected in our backlog due to the short duration of smaller Branch Division projects that are initiated and completed during each year.

Gross Profit	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2004			2003			2004			2003
Branch Division	$	77,064		$	68,364		$	132,995		$	122,204
Percent of division revenue		16.7	%		17.2	%		13.7	%		14.4	%
Heavy Construction Division	$	18,691		$	13,366		$	33,522		$	42,818
Percent of division revenue		7.9	%		7.3	%		5.3	%		8.5	%
Other gross profit (loss)	$	(407	)	$	329		$	(741	)	$	3,237
Total gross profit	$	95,348		$	82,059		$	165,776		$	168,259
Percent of total revenue		13.6	%		14.1	%		10.4	%		12.4	%

Gross Profit: We recognize revenue only equal to cost, deferring profit recognition, until a project reaches 25% completion. Because we have a large number of projects at various stages of completion in our Branch Division, this policy generally has little impact on the Branch Division’s gross profit on a quarterly or annual basis. However, HCD has fewer projects in process at any given time and those projects tend to be much larger than Branch Division projects. As a result, HCD gross profit as a percent of revenue can vary significantly in periods where one or several very large projects reach 25% completion and the deferred profit is recognized or conversely, in periods where backlog is growing rapidly and a higher percentage of projects are in their early stages with no associated gross margin recognition.

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. However, we do recognize the costs related to any contract claims or pending change orders when they are incurred. As a result, our gross profit as a percent of revenue can vary during periods when a large volume of change orders or contract claims are pending resolution (reducing gross profit percent) or, conversely, during periods where large change orders or contract claims are agreed to or settled (increasing gross profit percent). Although this variability can occur in both our Branch Division and HCD, it is more pronounced in HCD because of the larger size and complexity of its projects.

Gross profit as a percent of revenue in the Branch Division was negatively impacted by the larger volume of work performed on jobs less than 25% complete which grew from $12.3 million to $27.3 million for the three months ended September 30, 2003 and 2004, respectively, and from $13.0 million to $28.9 million for the nine months ended September 30, 2003 and 2004, respectively. Additionally, the Branch Division incurred costs in the first quarter of 2004 of approximately $1.4 million associated with the closing of certain ready-mix concrete plants in preparation for their subsequent sale during the quarter (see Note 15 to the Condensed Consolidated Financial Statements).

HCD gross profit as a percent of revenue for the three months ended September 30, 2004 and 2003 reflect increased cost forecasts for several HCD projects, including approximately $4.0 million recognized in connection with two projects in the third quarter 2004 primarily due to delays and estimated rework

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resulting from the unusually wet third quarter weather in Florida and New Mexico (see Note 3 to the Condensed Consolidated Financial Statements). Additionally, the HCD gross profit margin in the third quarter 2004 was slightly negatively impacted by the increase in volume of work performed on jobs less than 25% complete, which grew from $32.8 million to $44.1 million for the three months ended September 30, 2003 and 2004, respectively. On a year to date basis, HCD gross profit as a percent of revenue fell to 5.3% in 2004 from 8.5% in 2003 due largely to the recognition of higher costs related to changes in estimated cost to complete eight large projects (see Note 3 to the Condensed Consolidated Financial Statements).

Cost of revenue consists of direct costs on contracts, including labor and materials, subcontractor costs, direct overhead costs and equipment expense (primarily depreciation, maintenance and repairs and fuel).

General and Administrative Expenses	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2004			2003			2004			2003
Salaries and related expenses	$	20,080		$	19,311		$	63,540		$	60,725
Incentive compensation, discretionary profit sharing and other variable compensation		11,841			11,927			17,711			20,962
Other general and administrative expenses		12,086			11,295			35,214			33,791
Total	$	44,007		$	42,533		$	116,465		$	115,478
Percent of revenue		6.3	%		7.3	%		7.3	%		8.5	%

General and Administrative Expenses: Salaries and related expenses in the three months and nine months ended September 30, 2004 increased $0.8 million, or 4.0%, and $2.8 million, or 4.6%, respectively over the comparable periods in 2003 due primarily to a combination of higher payroll related benefits and normal salary increases. Incentive compensation, discretionary profit sharing and other variable compensation decreased in the nine months ended September 30, 2004 compared with the corresponding period in 2003 due primarily to lower Heavy Construction Division profitability in the 2004 period. Other general and administrative costs include information technology, occupancy, office equipment and supplies, depreciation, travel and entertainment, outside services, advertising and marketing, training and other miscellaneous expenses, none of which individually exceeded 10% of total general and administrative expenses.

Gain on Sales of Property and
Equipment	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2004		2003		2004		2003
Gain on sales of property and equipment	$	2,638	$	3,018	$	17,077	$	3,546

Gain on Sales of Property and Equipment: The increase in gain on sales of property and equipment in the nine months ended September 30, 2004 as compared with the same period in 2003 was primarily due to a gain of approximately $10.0 million recognized on the sale of certain assets related to our ready-mix concrete business in Utah in the first quarter of 2004.

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Other Income (Expense)	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2004			2003			2004			2003
Interest income	$	1,353		$	1,145		$	4,068		$	4,633
Interest expense		(1,813	)		(1,939	)		(5,412	)		(6,577	)
Equity in income (loss) of affiliates		3			(37	)		2,876			18,088
Other, net		59			86			154			2,364
Total	$	(398	)	$	(745	)	$	1,686		$	18,508

Other Income (Expense): The decrease in equity in income of affiliates in the nine months ended September 30, 2004, compared with the corresponding period in 2003 was due to $18.4 million in income recorded in the first quarter of 2003 related to the sale of the State Route 91 Toll Road Franchise by the California Private Transportation Corporation, of which we are a 22.2% limited partner.

Provision for Income Taxes	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2004			2003			2004			2003
Provision for income taxes	$	16,904		$	15,131		$	21,759		$	27,090
Effective tax rate		31.5	%		36.2	%		32.0	%		36.2	%

Provision for Income Taxes: Our effective tax rate decreased to 31.5% and 32.0% for the three and nine month periods ended September 30, 2004, respectively, from 36.2% for the corresponding periods in 2003 due primarily to the effect of consolidating our partners’ share of construction joint venture income under FIN 46 (see Note 7 to the Condensed Consolidated Financial Statements). Generally, our construction joint ventures are not subject to income taxes on a stand-alone basis. On October 22, 2004, Congress passed the American Jobs Creation Act of 2004 (the “Act”). The Act includes a deduction based on income from qualified domestic production activities which will be phased in from 2005 through 2010. We are currently evaluating the provisions of the Act and are investigating the impact of this new deduction on our future effective tax rate.

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Outlook

The economy in the western United States, where 70.7% of our third quarter 2004 revenues were generated, is steady. The Branch Division continues to experience continuing demand for private sector work in the residential, commercial and industrial markets. Our business is also benefiting from a strong public sector bidding environment in Arizona, Utah and Nevada. The state of California, however, continues to struggle, spending more than it is collecting in tax revenues. While Governor Schwarzenegger has pledged his support to increase transportation funding, the California Department of Transportation (“Caltrans”) has yet to increase the amount of traditional road construction work being bid. We remain hopeful, however, that funds budgeted for California transportation improvements will be converted into transportation projects in 2005. In 2004, local governments, such as cities and counties, provided unexpectedly strong funding, which drove much of our Branch business, and we expect that strength to continue next year.

Going forward, the strength of the private sector, as well as the local agency work and construction materials business will all play a key role in the Branch Division’s ability to maintain its current performance. In particular, there continues to be a healthy demand for its services and construction materials related to the residential, commercial and industrial markets in the West. The amount of Caltrans work available will depend in large part on several state and federal transportation funding issues that may or may not be resolved in 2005.

Many states continue to invest in large transportation projects (typically valued at over $100.0 million), which our Heavy Construction Division is well positioned to pursue. HCD recently opened an estimating office in Minneapolis where it is currently completing work on the $329.6 million Hiawatha Light Rail Design-Build project. In addition, the division is pursuing two projects in Canada. Although the division’s margin performance has, in part, been impacted by its rapid growth, we are taking steps to build the infrastructure to support our growth and return to traditional margins. All of our HCD regions: National, Texas, Southeast, Granite Halmar and Western are focused on improving project execution and performance. The Company’s outlook for an improved performance from HCD is contingent on an increase in gross margins on its projects going forward.

In an unusual twist of good news, the defeat of two gambling initiatives, Proposition 68 and 70, on the November 2nd ballot in California will help reinvigorate the state’s transportation accounts by as much as $1.2 billion. As part of the agreements made in June of this year between Governor Schwarzenegger and five Indian gaming tribes, the tribes will finance a $1.2 billion bond that will be used to accelerate repayment of Proposition 42 revenues previously borrowed from transportation accounts to close the budget deficit. The defeat of these propositions protects these gaming compacts and paves the way for this one-time early repayment to transportation. These funds could be available during the first half of 2005, provided litigation is resolved and the bonds are let.

From a federal perspective, the House and Senate approved legislation on September 30, 2004 to extend the federal highway, transit and safety programs through May 31, 2005. The sixth extension passed the House and was approved unanimously by the Senate and signed into law by the President. While the extension provides for another eight months of spending, the annual appropriations process is ongoing. Although many are interpreting the eight-month extension as the end of the Transportation Act for the 21st Century (“TEA-21”) reauthorization efforts for the year, that may not be the case. There also remains the possibility that other legislation, including TEA-21 reauthorization, could be brought up during the “lame duck” session after the November election.

After a lengthy debate, a permanent “fix” for the ethanol tax treatment problem as it relates to highway funding was adopted as part of the recent corporate tax bill. In the future, the 2.5 cents excise tax on ethanol will go to the Highway Trust Fund and the cost of the 5.2 cents per gallon differential treatment of

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ethanol will no longer negatively impact the Highway Trust Fund. The Associated General Contractors of America estimates that these changes will generate an additional $3.0 billion a year for transportation.

Looking at guidance for the current year, we expect the Branch Division operating income to be in line with its 2003 performance. In addition, we are no longer forecasting a large HCD project to reach 25% complete this year and now expect to recognize the associated profit for that project when it reaches 25% complete in 2005. Our fiscal year 2004 earnings guidance is in the range of $1.15 to $1.20 per diluted share. It is important to note that the amount of work we are able to complete in the fourth quarter can vary significantly due to weather.

In summary, although the outcome of the state and federal funding issues remain uncertain, we are confident that the on-going need to maintain and expand the capacity of our nation’s infrastructure will provide us with ample opportunity to continue to grow our business.

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Liquidity and Capital Resources

	Nine Months Ended September 30,
(in thousands)	2004			2003
Cash and cash equivalents	$	185,276		$	73,383
Net cash provided by (used in):
Operating activities		45,373			82,006
Investing activities		28,049			(40,041	)
Financing activities		(27,779	)		(20,614	)
Capital expenditures		(48,922	)		(54,435	)

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. We expect the principal use of funds for the foreseeable future will be for capital expenditures, working capital, debt service, acquisitions and other investments. We have budgeted $58.0 million for capital expenditures in 2004, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of land and aggregate reserves.

Our cash and cash equivalents and short-term and long-term marketable securities totaled $259.5 million at September 30, 2004, and includes $68.3 million of cash from our newly consolidated joint ventures (see Note 7 to the Condensed Consolidated Financial Statements). 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. We believe that 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, 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 such as the execution of a significant acquisition, we would likely need to acquire additional sources of financing.

Cash provided by operating activities of $45.4 million for the nine months ended September 30, 2004 represents a $36.6 million decrease from the amount provided by operating activities during the same period in 2003. The decrease was primarily due to lower net income in the first nine months of 2004 compared to the same period in 2003, cash of approximately $10.0 million used to purchase and develop properties held for sale, a decrease in cash flow from billings in excess of cost, net in the first nine months of 2004 and higher accounts receivable balances. Our costs and estimated earnings in excess of billings have increased from $42.2 million at September 30, 2003 to $61.0 million at September 30, 2004, due primarily to the growth in revenue from the 2003 to the 2004 period as well as an increase in the number of projects with billing provisions that require completion of discrete components of work rather than the more typical monthly unit price billing terms. Such billing provisions result in delays in our ability to bill and receive payment from the project owner. Our accounts receivable have increased from $326.8 million at September 30, 2003 to $434.4 million at September 30, 2004 due to the combined factors of the inclusion of approximately $41.0 million of accounts receivable from our newly consolidated joint ventures under FIN 46, higher revenue in the 2004 quarter and higher accounts receivable from retention provisions in our contracts, which are generally due upon completion of the projects and acceptance by the contract owner. The growth in retention receivables is largely due to an increase in the number of large HCD projects that are nearing completion at September 30, 2004 compared with September 30, 2003.

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Cash provided by investing activities of $28.0 million for the nine months ended September 30, 2004 represents a $68.1 million increase from the amount used by investing activities during the same period in 2003. The increase was primarily due to an increase in net maturities of marketable securities in the 2004 period which were reinvested in shorter-term cash equivalent investments to take advantage of recent changes in interest rates.

Cash used by financing activities was $27.8 million for the nine months ended September 30, 2004, an increase of $7.2 million from the same period in 2003. The increase was mainly due to $4.0 million used to purchase our common stock for contribution to the ESOP in 2004, and net distributions to minority partners in our consolidated construction joint ventures in 2004.

We had standby letters of credit totaling approximately $1.4 million outstanding at September 30, 2004, which will expire between February and April 2005.

In addition to our working capital and cash generated from operations, we currently have access to funds under a $100.0 million bank revolving line of credit, which allows for unsecured borrowings through June 2006. Outstanding borrowings under the revolving line of credit are at our choice of selected LIBOR rates plus a margin that is recalculated quarterly. The margin was 1.25% at September 30, 2004. The unused and available portion of this line of credit was $98.8 million at September 30, 2004. Additionally, our Wilder subsidiary has a bank revolving line of credit of $10.0 million that expires in June 2006. There were no amounts outstanding under the Wilder line of credit at September 30, 2004.

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) of approximately $411.5 million. We were in compliance with these covenants at September 30, 2004. Additionally, our Wilder subsidiary has restrictive covenants (on a Wilder stand-alone basis) under the terms of its debt agreements that include the maintenance of certain ratios of working capital, liabilities to net worth and tangible net worth and restrict Wilder capital expenditures in excess of specified limits. Wilder was in compliance with these covenants at September 30, 2004. Failure to comply with these covenants could cause the amounts due under the debt agreements to become currently payable.

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.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There was no significant change in our exposure to market risk during the nine months ended September 30, 2004.

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended as of September 30, 2004. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There was no change in our internal control over financial reporting during the quarter ended September 30, 2004 that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

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Item 1. LEGAL PROCEEDINGS

As disclosed in the Company’ Annual Report on Form 10-K for the years ended December 31, 2002 and 2003, our wholly-owned subsidiary, Granite Construction Company (“GCCO”), as a member of a joint venture, Wasatch Constructors, is among a number of construction companies and the Utah Department of Transportation that were named in a lawsuit filed in the United States District Court for the District of Utah. The plaintiffs are two independent contractor truckers who filed the lawsuit on behalf of the United States under the federal False Claims Act seeking to recover damages and civil penalties in excess of $46.4 million.

As disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, plaintiffs’ Fourth Amended Complaint was filed on July 12, 2004. The Company and GCCO believe that the allegations in the lawsuit are without merit and intend to defend them vigorously.

We are a party to a number of other legal proceedings and believe that the nature and number of these proceedings are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes, after consultation with counsel, that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and/or financial position for the period in which the ruling occurs.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2004, we did not sell any of our equity securities that were not registered under the Securities Act of 1933, as amended. The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended September 30, 2004:

Issuer Purchases of Equity Securities

					Total number of		Approximate dollar
					shares purchased		value of shares that
					as part of publicly		may yet be
	Total number of		Average price		announced plans		purchased under the
Period	shares purchased1		paid per share		or programs2		plans or programs2
July 1, 2004 through July 31, 2004		—		—		—		$	22,787,537
August 1, 2004 through August 31, 2004		—		—		—		$	22,787,537
September 1, 2004 through September 30, 2004		3,144	$	22.80		—		$	22,787,537
		3,144	$	22.80		—

1	The total number of shares purchased includes: (i) shares purchased for contribution to our Employee Stock Ownership Plan; and (ii) shares purchased in connection with employee tax withholding for shares granted under our 1990 Equity Incentive Plan and our 1999 Equity Incentive Plan.
2	On October 16, 2002, we publicly announced that our Board of Directors had authorized us to repurchase up to $25.0 million worth of shares of our Company’s common stock at management’s discretion.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

10.1	First Amendment Agreement to the June 27, 2003 Credit Agreement, dated as of September 15, 2004 among Granite Construction Incorporated and six enumerated financial institutions, and Bank of America, N.A., as Administrative Agent
10.2	Consent and Agreement of Guarantors from the Subsidiaries of Granite Construction Incorporated as Guarantors of financial accommodations pursuant to the terms of the First Amendment Agreement dated as of September 15, 2004
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-15(e)
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-15(e)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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: November 4, 2004	By:	/s/ William E. Barton
		William E. Barton
		Senior Vice President and Chief Financial Officer

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