Granite Construction Incorporated (GVA) Q1 2008 Earnings Report, Transcript and Summary

Good morning. My name is Cynthia, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Granite Construction First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn today’s call over to Jacque Underdown, Director of Investor Relations. Please go ahead ma’am.

Good morning. Today I am joined by Bill Dorey, our President and Chief Executive Officer. I will remind you that today’s call will be recorded. Please be aware that if you decide to ask a question, it will be always included in both our live transmission as well as any future uses or recordings. And as always, shareholders, analysts, and employees can listen to a live webcast of the call on our website. We will be making statements during this call that are forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today’s earnings press release and the comments made during this conference call, and in the management’s discussion and analysis section of our Form 10-K and other reports and filings with the SEC. We do not take... undertake any duty to update any forward-looking statements. With that, I will now turn the call over to Bill Dorey. Bill?

Thank you, Jacque. Welcome and good morning everyone, and thank you for joining us. Today I’m going to discuss our operating results for the first quarter of 2008, provide some perspective on our business outlook, and briefly discuss our long-term strategic plan. After that, we’ll open the call up for your questions. Last night, we released our first quarter 2008 financial results and we were very pleased with them. Earnings per diluted share increased $0.34 on revenue of $455 million from the prior year’s loss of $0.05 on revenue of $488 million. Gross profit as a percent of revenue for the quarter more than doubled to 22% and operating income increased to $38 million from a loss of $6 million in 2007. Our Granite West first quarter performance showed mixed results. Revenue for the division decreased 19% to $240 million, in part due to wet weather this year compared to an unusually dry quarter last year. However, gross profit as a percent of revenue remained strong at 17%, division operating income was $5 million compared with $21 million a year ago. Many of our branches are performing well and operating in relatively active markets. Other locations are feeling the effect of the housing slowdown. And pricing in most of our markets is competitive and with... and the number bidders remains high. Within our construction materials business, sales to third parties decreased 22% to $52 million with a corresponding gross profit of 5%. Demand for our materials is down primarily as a result of the decline in the residential construction market. While pricing continues to be stable in most locations, materials margins have been negatively affected by lower demand in private sector for a higher margin products such as concrete aggregates. An important element of our construction materials business is our dedication to the environment. We are committed to developing and using products and processes that save energy and serve natural resources and reduce the negative environmental consequences. Examples include base rock that is produced from recycled concrete, hot mix that utilizes up to 35% recycled asphalt product, and rubberized asphalt pavement that incorporates rubber from recycled tires. In addition, we’re actively promoting advantage of warm mixed asphalt; a process whereby hot mixed asphalt concrete is produced at lower temperatures using less energy and generating fewer emissions in conventional hot mix. Now, let’s discuss Granite East. Our Granite East business performed very well this quarter with all three of our regions reporting positive operating income. Revenue for the division increased 16% to $214 million. Gross profit as a percentage of revenue was 28% and consolidated operating income was $52 million. We are very pleased with this performance and expect continued improvement as we complete more of our low or unprofitable backlog, resolve other outstanding project disputes, and continue to win new projects. Granite East were positively affected by the recognition of a negotiated settlement of our outstanding issues on the SR-22 project in Southern California. This settlement was in the best interest of all parties and we are pleased to put this difficult project behind us. I want to emphasize that the resolution of outstanding contract issues should be considered a normal part of our operating activities. We regularly recognize costs associated with our work as they occur. The associated revenue is not recognized until a written agreement is reached to guarantee payment. Admittedly, this can result in lumpy performance on a quarter-to-quarter basis, but it is a normal part of our business. Total backlog in Granite East at the end of the quarter was down $468 million related to last year. Keep in mind that our backlog does not include the full value of our joint venture contract for the World Trade Centre, which is valued at over $1 billion. We continue to book additional backlog for this project as individual work packages are designed and priced. General and administrative expenses were $61 million for the quarter or 13% of revenue. Our first quarter G&A expenses included the administrative costs associated with our new Columbia River branch in eastern Washington, which was acquired in the second quarter of 2007. Managing our overhead expense during an economic downturn is always a challenge, especially when we are actively pursuing long-term strategic goals and adding structure to control risk associated with our business. With that been said, we are implementing a number of overhead initiatives, and we are committed to improving operational efficiency and effectiveness throughout the organization. This commitment will improve our competitive position now and into the future. We remain focused on winning work with acceptable profit margins, controlling costs and optimizing and the utilization of our assets. Although our visibility is limited because we have not yet did much of the work and will be built in Granite West in 2008, we currently expect Granite West 2008 revenue to be in the range of 1.8 billion to $2 billion with a corresponding gross profit margin in the range of 15 to 17%. In our Granite East business, we now expect to reach an average gross profit margin in the range of 14 to 16% and revenue in the range of 700 million to $800 million in 2008. As a result of the forecasted improvement in our large and our joint venture projects, we expect minority interest for the total company to be in the range of 45 to $50 million for the year. I’d like to spend some time now briefly discussing our strategic plan. Many of you may not be familiar with our plan, and it is something that you... we will review with you as our business environment evolves. Today I’ll be discussing the key components of our plan, and throughout the rest of 2008, I’ll update you on our execution against this plan. Our strategic plan is based on one central idea to build the legacy for Granite’s next generation, the three strategic themes; delivering the goods, claiming new territory, and honoring our people. Delivering the goods speaks to our goal of returning strong operating results to our investors. In our business, this is a constant challenge, especially during difficult economic cycles. It requires us to manage our business diligently with a focus on short-term opportunities and challenges while constantly making progress towards our long-term vision. Claiming new territory describes our geographic diversification strategy along with our vertically integrated approach to growth. We believe our construction and construction materials businesses are complementary, and provide us with a strong competitive advantage. We are confident that if we continue to expand our business model through targeted business acquisitions and investments in construction materials, we can expand our footprint of operations and provide a strong diversified portfolio of businesses that will help to consistently deliver the goods. Honoring our people is the final theme of our strategic plan, and it is particularly important in our industry. We depend on our incredibly talented and committed workforce to design, to bid, and build projects, build and operate materials production facilities as well as to administrate our complex business. We are fortunate to have terrific people at Granite who perform for us everyday. Honoring and rewarding their commitment and providing personal and professional growth opportunities are very important parts of our strategic plan. Once again, we are very pleased with our first quarter results. We are off to our best start ever and believe our diverse business model will deliver a solid performance in 2008. Now, I’d like to turn this call back to our moderator, and we will be happy to take the questions. Question and Answer

[Operator Instructions]. Your first question comes from Jack Kasprzak with BB&T Capital Markets. John Kasprzak - BB&T Capital Markets: Thanks. Good morning everyone.

Good morning, Jack. John Kasprzak - BB&T Capital Markets: Congratulations on the quarter. I did want to ask the... with regard to Granite East and the SR-22 recovery, can you quantify that for us, Bill?

Well, here is what I am telling you. I would direct you to our Q, which will be filed this afternoon. The total amount of the settlement was $39.3 million. That’s what the joint venture received from the OCTA. And as we suggested, it was a negotiated settlement that I think was in the best interest of all parties. This, of course, is complicated by the fact that we have subcontractors that were in line to participate in part of this settlement. We have partners in this equation as well. So, I’d kind of like to leave it at that, and once again emphasize that this is a normal part of our business, Jack. We have suffered through the booking of a lot of other costs over the last several years and this is an opportunity to recover some of that. John Kasprzak - BB&T Capital Markets: Indeed. Indeed. Can you remind us your Granite share of that project? What was your...

55%. John Kasprzak - BB&T Capital Markets: I am sorry, 55?

Yes. John Kasprzak - BB&T Capital Markets: 55%. Okay. I was going to ask you about the Oregon project. Can you give us an update there as far as the progress that you might be making on that project?

Jack, this is Jim Roberts. I’ll be happy to answer that. We continue to negotiate with ODOT. We believe that we are making progress. We do not have any executed agreements yet. We are talking to the team up there in Oregon, and we believe hopefully the next month or so, we could very well have an executed agreement. And we... the two of us are working diligently to get there, ODOT and Granite, to try to get that agreement executed and begin work this year, but we are not there yet. John Kasprzak - BB&T Capital Markets: Jim, is there still a date where that project will begin again, or is that also up for... is that part of this discussion too.

It is up for discussion because we need to execute agreement before we actually begin the work. We do believe that if we can get an executed agreement in the next month, we will begin work immediately. John Kasprzak - BB&T Capital Markets: Okay. And, Bill, you mentioned in your comment some overhead, I guess, initiatives, goals that you guys have set up within a company. Is there any way to quantify for us what say G&A as a percent of sales might be over some period of time as a goal, or is that the right way to think about it?

I don’t think that would be... it would be really tough for us to try and speculate on that. I mean there are so many moving parts in that equation. Certainly, it relates to our ability to be more effective in our processes and try to capture more of the economies of scale as we grow. But it also depends on our... a big part of that equation is our revenue and what’s it going to be. John Kasprzak - BB&T Capital Markets: And lastly, I was just going to ask about California. I mean you kind of mentioned that some areas of the state are obviously slower because the housing is competitive environment with regard to bidding. But with regard to the number or projects, the size of projects coming out, I mean are you guys still seeing the opportunities that you’ve been talking about over the last few months? Nice size, let’s say medium or large size work that you still feel like you can go after in California?

Jack, this is Jim again. Yeah, we do. Actually in the last couple of months, I think we’ve seen quite a bit of the work at the street. We’re fairly happy within the last several months of what’s going on in California. We do project out for several more months out in front of us some very nice bids. So although it is a competitive bidding environment, where the opportunities are there and it’s just our job to be able to capture those opportunities. John Kasprzak - BB&T Capital Markets: Okay. Great. Thanks a lot.

Your next question comes from Bob Labick with CJS Securities.

Good morning.

Good morning, Bob.

Good morning, Bob.

First question I wanted to ask, could you elaborate a little more on the materials section of Granite West? You mentioned obviously that sales were down and that margin was impacted. What are you looking for, for the balance of the year? And where there any one-time expenses there or... as margin was the lowest I’ve seen last five years or more, I didn’t go back any further, on a quarterly basis, is that what you expect for the balance of the year? Or how should we think about materials?

Bob, this is Jim. I’ll try to answer that for you. First quarter, I think the one of the things that we did notice in the first quarter was that wet weather, and that certainly had a negative impact on the materials business. We have a lot of fixed cost there and lot of maintenance that we do in the first quarter. Our revenue was down and that certainly was offset with fixed cost. And so, that’s why we struggled in the first quarter. We are seeing pricings stability, so pricing probably is not the biggest issue. I think going forward and noting that Granite West certainly builds a lot of the work in the same timeframe in which we bid it that we’re comfortable we’re going to have a fairly reasonable materials business. But a lot of it is going to depend on the bidding in the next several months.

Okay. And then, you just discussed some of the California work, the Caltrans work. It appears that revenues were up, I think, 7% or more in the first quarter year-over-year and you guys have grown your awards materially. You gave us a range of projections for gross margins for West of 15 to 17%. Is it safe to say that you’re bidding the new projects in that range or how should we interpret that? And how is the bidding environment in general?

Well, I would interpret it as, that is our expectation of a combination of the current backlog and the forward looking jobs that we’re bidding. So... and the combination also of our materials business. So that’s a complete combination for the entire Granite West business. Some jobs, we’re seeing some very nice margin opportunities, other jobs are reduced depending on the individual market we’re in, and that’s kind of a nice part of having our businesses located in 15 different areas. So it’s a very diverse group of businesses and I will tell you even in the California, Bob, certain markets are pretty good still and then other markets aren’t. So you could go two or three hours down the road and have a completely different market.

Okay. Great. Thanks very much.

Sure.

[Operator Instructions]. Your next question comes from Rich Wesolowski with Sidoti & Company. Richard Wesolowski - Sidoti & Company: Good morning.

Hi, Rich.

Good morning, Rich. Richard Wesolowski - Sidoti & Company: Jim, you mentioned some of the larger... and I assume that proposition won’t be related work hitting the street, is the competitive landscape for those larger projects indeed a litter more lenient than what you seeing in smaller work?

Yeah, it is Rich, but it’s still fairly competitive. The smaller work, you are looking at a tremendous number of bidders. The larger work, there are... it’s pretty competitive still, but certainly substantially less than the $1 million and less projects. Richard Wesolowski - Sidoti & Company: Okay. A couple of calls ago, you had kind of fleshed out the overarching expectation for a lot of that money in that you thought it was going to be pretty hot in 2008 through just about 2010 and then they are dropping substantially from there, is that still the grand view? Or is it a bit up in the air at this point?

I think the update that we have gotten, Rich, from Caltrans recently suggests that it still is going to be through 2011 a very nice bidding environment. There are moving the money around a little bit. I think timing is certainly going to be an issue. But all of those for the next four years is still very, very strong, and what happens after that I think is yet to be determined. Richard Wesolowski - Sidoti & Company: Okay. Switching gears little bit, how much of the 1.1 billion or so in East backlog was categorized as breakeven?

It’ll take me a second to find out. Richard Wesolowski - Sidoti & Company: Okay. And during the meantime...

He is looking it up, Rich. It continues to drop. I think we have tried to provide you with that trend over the last several calls. We’ve got that here; we are just looking for it precisely. But it continues to drop and it’s a really good trend, and it is contributing to our ability to provide better results at this point. Richard Wesolowski - Sidoti & Company: Okay. And then while you kind of flip in through, finally in an attempt to take a longer view on the minority interest category, is this an appropriate ratio of minority interest to be expected East operating profit that we can expect to roughly hold in future years?

I don’t know that we can say that. It is a product, Rich, the percentage that our partners hold in our ventures and in success of those ventures. I mean, I will say it’s a good sign that we have minority interest... Richard Wesolowski - Sidoti & Company: Right.

... and also, it’s an equation that’s dependent to a large degree on the percent of share that our partners have. Richard Wesolowski - Sidoti & Company: Okay. Thanks a lot.

Your next question comes from John Rogers of D.A. Davidson.

Good morning.

Good morning.

Couple of things, first of all just on the Granite West business, the superior operations, did they dilute the quarter or add to the quarter to this first quarter that would have been in for the first...

Yeah, John, this is Jim, I’d prefer not to dive into the individual business unit on their individual financials.

Okay. But... okay. But I mean in terms of... we’ll see that in the Q when we... I mean whether it’s additive or whether it was accretive or not?

I don’t think but in individual business unit you will see that, John.

Okay. All right fair enough. And then secondly if, I could on, the Granite East, if I look at the settlement that Bill you referred to the $39 million and just looking at the midpoint of what you’ve said in terms of guidance, are you expecting margins then for Granite East if you back out all settlements to be somewhere around 10%?

You mean going forward, is that what you are suggesting?

Yeah. Is that what you were saying?

Yeah, you can do the arithmetic and it’s going to lead you to that general area, yeah.

We are just providing guidance for Granite East in its totality.

Okay. I just wanted to be clear on that. Okay. Thank you.

Your next question comes from Richard Paget with Morgan Joseph.

It seems like we are going through another round of cost inflation whether it’s diesel or oil like it was in the asphalt; steel is up. Have you seen that impact any of the projects that you are bidding?

Well, the answer is, yes. I mean, we... particularly the projects that we are bidding, we have an opportunity to price the higher products into our bid, and in some instances, to provide some protection. So every opportunity we get, we try to do that.

But in more of a macro sense, have you seen some of the DOT saying, okay, this project costs 1.2 X now, maybe we’ll scale it back or perhaps delay it?

I am not sure I am seeing that, but there’s no question that there is some inflation that’s impacting the cost to the owners.

Okay. Thanks. I’ll get back in queue.

Thanks.

Your next question comes from Todd Vencil with Davenport.

Thanks a lot. Good morning.

Good morning.

Circling back around on the question of SR-22 settlement, obviously, that was an impact, which is why we’re all trying to get our arms around it. You talked about gross margin run rate of 14 to 16 for the year, and then you just sort of affirmed the arithmetic to get to like a 10% number for the rest of the year. Is it fair to say that excluding that settlement, we would have been in around that 10% range in the first quarter materially?

We are not going to divide up the quarter and the impact of certain jobs and certain settlements. We are speaking of Granite East this segment in its totality.

Okay. That’s fair. I would suggest that it makes very hard for people to figure out what the sort of run rate of the business was, and I don’t really understand it, but I’ll leave that at that.

Well, it’s important to remember that the settlement of SR-22 is business as usual here. Just as we take the increasing cost over a period of time and we don’t capital it out when we provide those results, we don’t want to separate settlements from ordinary business because it’s business as usual. Now having said that, when we file the 10-Q later today, you’ll be able to see some of the pieces that hit the financial statements and where they hit the financial statements, because it’s hit in a bunch of different places.

That’s fair. And I wasn’t inclined to break that to back that out and not give you credit for it, I’m just trying to understand it. I guess my follow-up question then, if you look at the G&A, it appears to me that it has been running about 35 to 40 million a quarter in the West, maybe 7 to 9 in the East. I mean is that a good range or is that just impossible to say?

We are not providing guidance on G&A expenses at this stage.

Okay. Thanks a lot.

Your next question comes from Michael Corelli with Barry Vogel & Associates. Michael Corelli - Barry Vogel & Associates: Good morning.

Good morning, Michael. Michael Corelli - Barry Vogel & Associates: Just staying on the G&A for a minute, could you provide us some detail as far as what the magnitude of the higher accrued variable compensation might have been in the quarter as far as what that might have been up versus a year ago?

I am trying to remember if that’s in our 10-Q; I don’t remember. But we talked about the pieces of the increasing D&A in the 10-Q. So I’ll refer you to that when we... so you can see it when we file later today. Michael Corelli - Barry Vogel & Associates: Okay. Then if I look at the G&A, obviously, it was up relatively substantially, but if I look at the Granite West G&A, your revenues were down 19.5%, and your backlog is down 12.5% there, but your G&A was up 12.5% in the quarter. So I mean, I know you’ve now made comments about trying to become more efficient. I mean did you get caught somewhat here that you were planning for more substantial growths that is not happening at this point due to the economy? And if that is the case, are you now going to try to be taking some of that overhead out to better match what’s happening in the business, taking into consideration, I know that you are trying to grow the company?

Michael, this is Jim. Let me see if I can put a little light on that subject. First of all, in Granite West, a lot of our businesses are very seasonal. And we certainly haven’t added to the size of our business with the growth of our businesses in the Northwest. So you are probably seeing some skewing of that overall G&A, but due to the fact that we’ve added businesses in the Northwest. And in the winter or in the first quarter, you probably aren’t seeing a great deal of revenue from those businesses. So, that might skew it a little bit. And I don’t know how much additional information that you’d like, but that’s really the key to the program is that our business is seasonal, our overhead is somewhat different from quarter-to-quarter. And we have a lot of businesses that we’ve added on in the last year. Michael Corelli - Barry Vogel & Associates: Okay. Thank you.

Your next question comes from Brian Rafn with Morgan Dempsey.

Good morning, everybody.

Good morning.

Question for you on Granite East; When, you talked about certainly in the backlog as you’ve been working on some of those breakeven projects, but as you look going forward, is your sense that profitability returns from your ability to deal with and mitigate the problems that you’ve had certainly in the past? Will it be excavation of rock formations or soils or dealing with owners that are tough to deal with or failure with the sub-contractors? Or is it that your bidding process just has eliminated some of those issues that you had in the past?

This is Mike Donnino; I’ll try to answer that. I think it’s a combination of what you’ve said, but in large part, it’s the work that we’ve picked up over the last year to 18 months has gone through a more rigorous process, risk analysis, what it takes to run these complicated larger projects. And so we are starting to see the benefit of that process in the project as their profits come on line.

Okay. So, Mike, you would say it’s fair to say that you’ve screened off and look for some of those issues that are flagged early on the net bidding process that you are just going to avoid and walk away from, you are not going to bid on those jobs?

That’s correct and/or we have ways to mitigate [inaudible] before we may not have seen.

Okay. Okay.

And by the way, that earlier question about our zero margin backlog, I don’t have exact numbers, but I believe it’s somewhere around 10% right now.

Can you give us a sense, Mike, going forward the design-build projects that are kind of being put off for bidding, give us a sense your transparency going forward for ‘08 here, what you see geographically?

Well, the Northeast is still very busy. There is lots of projects on the boards to be bid. Not as much design build in the New York area as we see some other places, but certainly plenty of different types of procurements. The Central region, particularly, in the Texas, Dallas area, there is lots of toll road work with the new George Bush Extension and the State Highway 121. There’s multiple large projects coming out. Most of those are bid build jobs that we are interested in. The Southeast is still a little bit slow, but we are finding some larger opportunities that we are looking at in the design build area as well as the bid build area. So in general, we have two or three regions are still pretty robust as far as bidding. And it’s going to be getting busy this summer. And the Southeast, it’s still little slow, but there are several jobs on books to bid in the next few months.

How would you kind of classify or quote the volume of business in the design build going forward in ‘08 and ‘09 versus say the last few years? Would it be about the same or would it be less robust, more robust?

That’s really hard to answer, because the jobs are so varied in size. But in general, I’d say there is probably less of them, but there is certainly some big ones out there. And the privatization market that hit the Texas area has kind of slowed down while they try to figure out exactly how they want to procure those. But again, big projects are jumping up virtually every month.

Okay. And then on the Granite Land side, can you tell us how many kind of real estate projects are in the pipeline? And then give us a sense of where your greenfielding on new aggregate quarries is going?

Okay. So let me take... this is Bill. I’ll take the Land Company question. The Land Company continues to be active in looking for investments; interestingly enough, we view this environment as an opportunity for us to invest in essentially some... make some pretty opportunistic investments. I think that our primary locations are places, where we think we make good deal, and we think that there is going to be a future, obviously future market for our product. With regard to greenfield operations, we have numerous greenfield operations around our system. I don’t think it would be appropriate to try to begin to point out the various locations that we are operating. Some of those are somewhat under the radar screen at this point, so that wouldn’t be appropriate. But we do have... and I am trying to tell you how many, I’d say more than five active greenfield operations under consideration.

Okay. One more for you guys. There has been this huge, certainly burst talking about green and eco. And the issues you talked about costs there or energy savings and recycling, are those things that you are highlighting that you have continually done or are these initiatives where you said, like, so okay, we’ve got to posture ourselves and we’ve got to focus on some things we can do better in that area?

Hey, Brian, this is Jim. And kind of follow up on Bill’s comments in his opening script. Those are things that we are continuing to upgrade and new things that we’re doing. The one thing is the recycling some of the base rock kind of concrete. We’ve done that for years. But we are doing it more prevalent in most of our locations today. The recycling of asphalt product is a huge issue today, and we’re working with the states and most of our agencies to try to get more and more of that approved. The lowering of emissions of warm-mix asphalt this is something we are going to see throughout the entire U.S. in the next probably five to ten years. We are taking a lead on that in several locations in the West, and we’re proud of that. So, our Materials Group have certainly stepped up in the plate there and taken a lead on that. So, several of these issues that we are working on today we are a leader in the industry on. And we have an Environmental Group led by really sharp team that’s starting to really gel the entire company as well. And we think it’s kind of a way in the future and when we look at it as a business opportunity, not a compliance issue anymore, and that’s an exciting part of our business.

Okay. On that thought, Jim, are there bids being put out where like you see in cardboard, you talk about post consumer recycle waste content. Are there bids being out that mandate that type of thing maybe in California?

Sure. There... one of the things that Bill mentioned and in his lead in was the recycled tires, and they recycle into chrome, rubber. And then they literally have projects in the State of California. They have some other states that mandate that the product being utilized on the surface course of the roadway utilizes those recycle tire. So, certainly the state, the agencies and actually the Federal government as well are certainly putting those into the specifications today.

Okay. And as a percentage of that asphalt mix, the tires would be what? 5%, 10% or...

Yeah. It will be a very small percentage.

Very small percentage. Okay. Thank you.

But overall, it ends up adding up very rapidly.

Okay. Super job guys. Thanks.

Thank you.

Your next question comes from [inaudible].

Hi. Thanks. Kind of a random question; could you just speak to the tax rate for the quarter and what you are thinking for the year? And is there a meaningful difference between the bulk and the cash rate?

I can speak to that. Our effective tax rate for the quarter was about 25%. And as you probably know, our effective tax rate is most effective probably by our minority interest level. Having said that, I don’t think based on what we know today that we expect the effective tax rate to change material from where it is now through the rest of the year.

25%?

Give or take. I mean, yeah, I’m sure it won’t be exactly that, but hopefully we believe it won’t be materially different from that.

Order of magnitude is helpful. And the... give us any booking in cash if there is any?

You’ll be able to see that in the 10-Q that we file today; I don’t have those numbers available at my fingertips.

Thank you.

Your next question comes from Rich Wesolowski with Sidoti & Company. Richard Wesolowski - Sidoti & Company: Thanks. I read a couple of articles about the border fence work going on in the Southwest, and it seems like a lot bigger deal than I first anticipated. Is that something you are bidding a lot or is that potential to kind of give your West backlog a short in the arm.

Yeah. Rich, this is Jim. We certainly are bidding on the work. We have been short listed as one of the contractors to perform the work. We are performing our one contract a day and recently submitted about three or four more bids. So, it’s certainly something that we are targeting and hopefully we’ll get our share of the work. Richard Wesolowski - Sidoti & Company: How many contracts was there on that short list?

If you do it by segment, I believe they have three different segments from California to Texas. And I think in each individual segment they’ve got four bidders that are pre-qualified in each individual segment. So it could be up to 12 bidders or it could be some of them overlapped and it could be down to three or four bidders in each individual locations. Richard Wesolowski - Sidoti & Company: Okay. Thank you.

You bet.

Your next question comes from John Rogers with D. A. Davidson.

Hi. Just follow up, could you give us a sense of what you have out there in terms of claims that may get resolved this year? And then also a sense on scheduling of projects that are... well, if that 25% threshold kind of when they fall in through the year?

Yeah. John, we purposely, I think, you know try to avoid that question for --

Yes.

-- a I think very good reason. I think as [inaudible] suggested, this is a normal part of our business, which suggest that we have other outstanding issues that we are pursuing. I would tell you that is true. I cannot give you an order of magnitude that would set up... I’m certain would set up an expectation that we probably shouldn’t do.

Okay. But build those --

I kind of leave it... I kind of like to leave it at that.

That’s fair. But your existing guidance excludes any of that I assume that’s still true.

I think that’s probably, generally, a fair statement although there maybe some smaller things in that guidance that we are anticipating.

Okay. And in terms of the 25% threshold?

What we had... what I will tell you is what we had reiterated what we had said on the prior calls is that we are anticipating that the one big project, the ICC project in Maryland will reach recognition threshold in 2008.

Okay. Okay. All right. Thank you.

Your next question comes from Richard Paget with Morgan Joseph.

Just a quick follow-up on the real estate. S, it sounds like it’s more of a investment part of the cycle, so we shouldn’t really expect that much in revenue. Is that fair to say?

We’re not providing guidance with regard to Granite Land Company at this stage. As you know, it’s a pretty small part of our business.

Okay. Thanks.

Your final question comes from Brian Rafn with Morgan Dempsey.

Yeah. A question for you, Jim. You talked in the past about the different... I think in Granite West about the scope of business and the cost pressures and certainly the gross profit potential just going down the street, I think was your comment. Are you able to... in the turn business side, are you able to shift the mobility of labor between branches? Obviously, you’re not moving gravel pits, but how fluid can you move labor and expeditors and masons and that welders or whatever and machinery to a different area within the state?

That’s a good question, Brian. But that’s... when we reorganized our business last year, we actually broke our business into three different operating groups in the West. And one of the key ingredients to that and the reasoning behind it was to be able to share resources in those individual operating groups and geographic locations. So, for example, in Northern California today with our six business units, we are sharing people and equipments continually from location to location, and the same thing in the Southwest. Not as much in the Northwest today, but we’re trying, because we’re little more geographically diversified there. But we have an opportunity and we’re probably within a three or four-hour drive. We are definitely sharing resources as much as possible to kind of optimize our utilization of those resources, and really create opportunities for our employees as well.

Yeah. Are you actually staging or bid working guys? You’re not driving three or four day... or four-hour day commutes?

No. Some of them will just go the entire week and come home on the weekends.

Okay.

But certainly they’re happy to do that when there is a little bit of a downturn in the economy.

Okay. Okay. Okay. Is there any... let me ask, overtime paid for their or bonuses based upon that relocation, or is it just in are getting it exempt.

Most of them... again every situations are different. Typically they’re happy to go and work and we’re happy to have them relocate.

Okay. Can you talk little a bit about the content of the turn business? Everyone knows certainly about the mortgage real estate situation. Are there any spots in that quick turn business be it state or local highways or industrial parks? Or is there anything that’s better resurfacing versus new greenfield roads? Is there any areas that are better than say the hall or the darkness that we see on the residential side?

Well, certainly we’ve been talking about for the last year. We knew that the residential downturn was going to hit us. And so the governmental... the public works contracts are what we are looking at. Our typical public work contracts are large hassles or delays highway widening, new alignments, city, county, regional transportation work. That’s really the focus on the public works, and that’s the core of our business today in the West.

okay. Thanks, guys.

Thank you.

At this time, there are no further questions. I would like to turn the call back over to Bill Dorey for closing remark.

Thank you. I appreciate you all being here. I’d like to maybe just acknowledge to the employees that might be listening, the terrific work that we’ve done in the company, particularly in the East to get our Eastern business turned around and expect it to be a sizable and important contributor to our business as we go forward. And clearly, our folks in the West dealing with an altogether different environment, making the most out of it as we fully expected that they would. So, once again, thanks to all the people in Granite that are out there, doing our work for us and making it easy for all of us here and watch them build to responsive questions about the company. So thank you all very much. We’ll be around this afternoon, and if any of you’ll have different other questions. Thank you.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.