Granite Construction Inc (GVA) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to the Granite Construction fourth-quarter 2003 earnings conference call and web cast. Today's conference is being recorded. There will be a play back of the call that can be accessed either on the company's web site or by calling 719-457-0820, and enter the pass code 709385. Again that number 719-457-0820, with the pass code 709385. It will be available beginning at 2:00 PM Eastern Time today, running through midnight on Thursday, February 26. At this time for opening remarks and introductions I would like to turn the conference over to Ms. Jacque Underdown. Please go ahead.

Thank you. Good morning. Welcome to Granite Construction's fourth-quarter and fiscal year 2003 conference call. Joining me on the call today is President and CEO, Bill Dorey; Senior Vice President and Chief Financial Officer, Bill Barton; Executive Vice President and Chief Operating Officer and Manager of our Branch Division, Mark Boitano; and Chairman of the Board, David Watts. I trust you have had the opportunity to review last night's earnings release which provides detailed information on Granite's results. This document is also available on our web site.

Before I turn things over to Bill, I would like to caution all participants that our call today may contain forward looking statements reflecting management's beliefs and assumptions regarding future events based on the best available information. Listeners are therefore cautioned not to put undue reliance on forward-looking statements as they are not a guarantee of future performance and remain subject to a number of uncertainties and other factors that could cause actual results to differ materially from forecasts.

A more detailed description of these uncertainties and risk factors are provided in our most recent filings with the Securities and Exchange Commission which I encourage each of you to review. A replay of this call will also be available approximately two hours after the call. With that, let me turn the call over to Bill Dorey.

Thanks Jacque. What we are going to do today, I'm going to start with a qualitative analysis of our 2003 performance. Bill Barton will follow with a detailed review, a financial review of 2003, and I will come back when Bill has concluded and try to provide you with a 2004 outlook along with some items of interest in the political arena, then we will take questions. So why don't we start with 2003. In many ways, certainly 2003 was a terrific year for Granite. We were certainly challenged in the West with continued erosion of our public works funding, particularly in California.

However, our people really all over the company delivered for us once again and in many ways we exceeded our expectations particularly those from the middle of the year in most areas of our business. So let's talk about some of those highlights. We did sell I think, as you know -- our partnerships sold its interest in the SR 91 Tollway down in Southern California and we were able to recognize an $18.4 million pretax income and including that sale of SR 91 and that $18.4 million, 2003 was our most profitable year ever and we were really proud of that.

Our Branch business revenue and operating income were both down from 2002, however, they were down much less than we had anticipated particularly once again in the middle of last year. Our materials business remained relatively strong. Our private market remained active and used up capacity in the marketplace which helped support our ability to reap profits out of the public marketplace. Our Wilder subsidiary had the biggest year in their history in both revenue and net income, so hats off to our friends up in Washington and Alaska. Our Halmar business turned the corner, our Granite Halmar business in New York City. It contributed nicely to our 2003 earnings, and it's poised to be a significant contributor in 2004 and we're really excited about that.

Our HCD revenue climbed to $692 million and that was up from $577 million in 2002, again up from 464 million in 2001. So that is a very nice revenue trend and while our HCD operating income was not as high as we've had expected, it was up 36 percent from 2002 and we're entering 2003 with the largest backlog in our history, in both -- certainly in HCD. Our fourth-quarter was solid in both divisions. Certainly we got a little help from the weatherman. It was relatively dry in the West at least compared to what it can be.

We did finish the year with in a spring to some degree and it drove us over the top relative to what we had expected. In both divisions, our revenue was up in the fourth quarter, our operating income was higher in both divisions in the fourth quarter, and our G&A expense in terms of as a percent of revenue was down in both divisions. So once again those are very nice statistics. I would caution you that not to consider this as particularly a trend, but it helps explain what happened in the fourth quarter and why we finished up so strongly. So Bill, do you want to provide our audience with some details?

Thank you, Bill. Good morning everybody. My focus today will be on the fourth quarter. In addition, as appropriate, I will provide some comparison to what guidance we had given you in the prior quarter in terms of earnings and to put a little bit into perspective. Starting off first was the information not provided in the press release about plan (ph). The summary is -- revenue for 2003 is going to be 53 million 514, that's versus 59 million 479 a year ago. The margin is 12 million 619 versus 8 million 983. Now, moving onto some of the attributions. As you can tell the company revenue increased 39 million, almost 40 million to 493 million compared to a year ago. HCD revenue was the largest increase, they were up 22 percent to 188 million.

The branches that were slightly increased by 6 million to 304. As to prior quarter's expectations, revenue was higher than anticipated and that drove the operating income. In general, as Bill has said, not only was weather favorable, but the market itself sustained a strong fourth quarter. Moving down to the gross profit for the quarter, although gross profit (technical difficulty) 12.5 percent between the two quarters, gross profit dollars is up 2.8 percent or 1.6 million. Again it is related to the increased revenue.

I will talk a little bit more about this as I discuss operating income in terms of attributions. The next item of discussion we typically share with you, unrecognized earnings due to 25 percent completion method. I'm going to provide you two sets of numbers for the quarter as well as the year-to-date because I think it is important to keep it in perspective in terms of how it affects 2004. For the quarter, the jobs less than 25 percent where no profit was recognized was 54 million versus 2002 of 57.4 million which is a difference of 3.4.

If you look at the year-to-date, year-to-date there is revenue less than 25 percent of the 107.9 versus 99 million or 99.1 million in the prior year. So it is slightly up, but both periods are essentially comparable with the similar periods of the prior year. I think the message here is that we would expect that the impact, since there is slightly a little overhang, the impact of the jobs hitting 25 percent next year is going to be relatively small compared to the earnings itself. In other words, we would anticipate that the earnings of 2004 are going to come directly from the execution of work during that year.

If there is any differences that is being impacted by the 25 percent accounting rule, it will come on a quarter-to-quarter basis. For instance it's anticipated that the Reno ReTRAC (ph) which we have discussed before, will hit 25 percent in the second quarter. The value of that contract is 170 million. If you look at what the 25 percent completion, it would be about 43 million, and if you assign a 10 percent gross profit, that particular quarter will be impacted by 4.3 million approximately in terms of the quarter.

So the impact of 25 percent into next year on an annual basis will be relatively small, but on a quarter to quarter basis you could have a significant change. Moving onto G&A, G&A for the quarter was lower by 3.9 million principally associated with lower salary burden expense and lower period expense associated with prebid cost which can vary from quarter-to-quarter and other fees and services. Turning to operating income for the quarter, starting with HCD, these are the numbers that I will provide you. 2003 operating income was 7 million 332 versus 2 million 810 a year ago. The operating income as a percentage in 3.9 percent in 2003 versus 1.8 percent.

And as you can see, HCD's operating income is up substantially from a year ago, or 4.5 million to 7.3 million as I said and in line with expectations in terms of comparing it to the guidance that we provided earlier. Operating income for the Branch is 27 million 441 versus 22 million 751, and that is operating income as a percent, 9 percent in 2003, versus 7.6 percent. And the comment here is not only did branches improve over last year but exceeded what was expected in our prior guidance, both in operating income and margins.

Dropping down to other income, the one item on interest income that is significant is actually interest income. That is a combination of lower interest rates, which have been extremely low for the entire year, and a one time accrued interest that we had done in the fourth quarter associated with our investment in CPTC, or SR 91. And the results for the year, talking about dilutive earnings per share with 34 cents versus 28 cents a year ago, a really outstanding year in relation to prior year certainly is the best that we have seen and still as Bill has said.

The other comment I will say on having to do with the effective tax rates, it continues to be at 36.2 percent. For future purposes that rate will be continuing into 2004. I will now turn to revenue and backlog analysis by market sector and geographic area. I do have just a couple of comments, really just focused on geographic area. My observation would be as the California revenue dropped 8 percent to 680 million and that represents (indiscernible) percent of the total revenue. That is compared to 42 percent in 2002.

I think although we continue to expand our operations outside of California, it is another indication of the continuing challenge in the California marketplace. Following up with just talking about backlog by geographic area, the observation would be that while California and the rest of the West are lower, 4 percent and 30 percent respectively, the South and Northeast, and Northeast again is the Granite Halmar Division, are up significantly, a total of 31 percent. As a result, there is an increase in overall backlog of about 7 percent or 229 million.

Last piece of information I would like to provide you, it's actually two things. One is to give you a sense of what the backlog by division, 2003 versus 2002. The Branch backlog at the end of 2003 of 456 million 390 versus 490,756,000 a year ago. HCD is at 1,529,328,000 for 2003 versus 1,365,695,000 a year ago. Lastly, just an -- to add to our press release and package, we did add our balance sheet for the first time. It certainly is available for you to review and ask questions later, but I suffice it to say for the present, what stands out and continues to stand out from prior years is the strong working capital and the low leverage financial position that we have and again to remind you that this strong working capital low leverage that provides support needed to obtain our (indiscernible) for existing backlog and it provides us the ability to grow our backlog in the future. With that Bill, I will turn it back to you.

Thanks Bill. I am going to try to provide you with some insight into our business looking forward into 2004 and let's start with our Heavy Construction Division. As I had said, we're entering the year with a very large backlog. We believe this backlog is very high-quality and provided we can build our work for budget, our expectation is that our gross margin percentage relative to what you have seen and what we have seen over the last couple of years will improve. Our business does continue to grow, and we do expect to do more volume in 2004 than we did in 2003 in our Heavy Construction Division.

So, our expectation is that we will do more revenue, we will have a higher gross margin, and a lower G&A expense as a percent of revenue as a product of the higher revenues. So, this is a very very nice picture. We're very excited about this. I will tell you that there has been a lot of people over the last several years in our Heavy Construction business that have worked very hard to get us in this position, and we believe that we're ready to harvest the crop frankly of a lot of work that has been done over the last several years. We look at our bid schedule going forward, and we talked a little bit about this yesterday internally, and while our bid schedule remains very full, what we're seeing and we believe this is probably a product of the fact that we don't have a highway bill passed at this point, but we have seen over the last several months projects being pushed out some.

We haven't seen projects cancel particularly but we have seen projects getting pushed out. I don't think this is an alarming trend and will likely be rectified here shortly. But just to give you an idea in a short run, just looking at our March -- for example our March bid schedule in HCD. We do have ten projects that we will bid in March totaling between $1.5 billion and $2 billion of business. So certainly there is work to bid in the short run and we are hopeful that when we get a highway bill that some of this larger work will get back on track from bid big schedule standpoint. Let's talk a little bit about our branches.

It is much more difficult as I think you all realize to try to predict our Branch business because backlog doesn't tell the whole story. We have in our Branch business about a third of the backlog currently that we will actually do over the worst of the year. So, we need to rely on economic trends, some market research in the various markets that we're working in relative to what might be available to bid, and we do that. The other -- I think the other fact is that over 50 percent of our business in our branches is in California, and the majority of that work is funded by public works funding of some kind, and the California budget crisis is not expected to go away in 2004.

So, it does loom over business to some degree. We are a little reluctant to get too excited about what we can do because of that. If there is a silver lining to what is happening in our Branch business, it is that the private marketplace continues to be quite active, and we are making efforts in those businesses to position ourselves to be more aggressive in pursuing this work and we're doing that. Also the private business does drive, continue to drive our materials business which has been as I think you know, remains pretty strong. So, if there is a silver lining in what is happening in those marketplaces, it is really a product of what is happening in the private marketplace.

Having said all that, I think what it boils down do is that we believe our Branch business in 2004 will be challenged to perform at the same level that it did in 2003. I wish we could provide you with more definitive guidance. It is just really early in the game to try to forecast that business anymore definitively than that. I think before I move into the political arena, this might be a good time to highlight what we think is something unique in our business. We do think of our business model is unique relative to most of the other players certainly public players.

We have a vast array of customers, from private homeowners to counties, cities, federal, agencies, transit authorities, DOTs. We are spread all over the country so we're very diverse geographically. The size of projects varies from very small to very large length of projects from very short to very long and we do have this investment now, a large investment in construction materials. So we do have a very diverse business model that allows us to really be successful in a lot of different economic environments, and I think that 2003 really was an illustration of that.

Let's talk a little bit about what we see politically in the federal arena. I think you are probably as -- probably as tuned into this as we are. But, certainly the T-21 bill expires on February 29. It is being hotly debated. The extension is being hotly debated in the Congress now. The administration has proposed a $256 billion secure extension and that is a 21 percent increase over the prior bill which would certainly support I think the level of activity that we have seen over the last six years.

The Senate, just this week, passed a $318 billion bill, which would certainly, if that could be agreed to or if the Congress could agree to a bill at that level would boost, would be a nice boost to our business I think over the next six years. The house is (indiscernible) at 375 is the one we are rooting for of course. But really I think in reality we're just hoping for a bill that is 300 billion or above and I think that would be a nice boost to our business. But we are, to a large degree, we're just like you. We're sitting on the sidelines watching what happens and hoping for the best.

In California, it is not quite as clear, and the picture of course isn't as good. Governor Schwarzenegger's budget that has yet to be approved is proposing $1 billion being moved from the transportation funds into the general fund. In addition, they are proposing that an outright suspension of Proposition 42 be enacted without a repayment of those funds going forward. This by the way is not new. The suspension of Prop 42 funds into the transportation budget has been ongoing for the last couple years and over $2 billion has already been diverted.

The net result of this is that Caltran's (ph) contracting has been reduced over the last couple of years from about 2.5 billion two years ago to around half of that today and going forward, and it probably won't change anytime soon. So it is a concern, it's a problem. It is affecting our business, and we're making adjustments to try to pursue the work that is out there, most of that, and a lot of that is in the private marketplace.

As a first step to try to deal with California's problems, Governor Schwarzenegger has proposed a $15 billion bond initiative which is on our -- which would be on our ballot here shortly, it's Proposition 57. And there is some talk that if Proposition 57 passes, that transportation could get $1 billion out of that proposition, out of that initiative back into transportation to help replace some of the money that has been taken. So, I think that is in a nutshell what we see politically. Dave, is there anything there that I failed to mention that I should have?

No, I think you got Bill. Again, we are certainly doing our part participating with different associations and in particular transportation in California to lobby hard for the restoration of some of these cuts. We think that transportation funding has already taken way too big a haircut in past years, and that they ought to look at other areas of the state government to find an answer for their out of whack fiscal situation. It remains to be seen how successful it will be. Certainly it was very encouraging to hear the article from Elizabeth Hill, the legislative analyst, warning against more cuts to transportation, and advocating that they be restored. So I think that is about it. We're participating in a lobbying effort, but time will tell.

Okay. Before we go to questions, I would like to take this opportunity to thank our employees, all over the country for a terrific job that you all did in 2003. What we do is not easy and it takes enormous hours and commitment and we get it from you year after year after year and it really is appreciated and is that effort that allows us to really come on a call like this and have the kind of results that we are able to report today. So, I would like to turn this back to our moderator for questions.

(OPERATOR INSTRUCTIONS). Bob Labick with CJS Securities.

Good morning. In the last -- in Q2 and Q3, HCD some cost overruns which caused margins to be lower than expected. It looked like you had a descent rebound this quarter and margins were up pretty nicely year over year. Where do we stand with those cost overruns and how -- where do you think margins could go or what is your goal for next year for HCD?

In our system when we recognize that a project is going is not going to perform as well as we had anticipated that it would, particularly if a project is going to go down to zero or go below zero, we recognize that the entire amount of that loss right away. So the minute that occurs, we take the majority of that, if not all of it in some instances, of that change right away. And so once we have done that, we corrected for it at that point. And going forward, we are looking at the backlog that we have, as I said, we believe that backlog is doing pretty good.

We have a couple of jobs that we have already forecast down to sort of a zero margin, and yes we have some work yet to do on those projects but not very much. And so we will do a little of that next year, but there won't be any further deterioration as a result of that work. So, most of the work if not all of it frankly at this point, we think is going to be pretty good and we think that our margins will improve relative to what we have posted over the last couple of years. Without telling you precisely what we think, as I think that would be not -- I don't think we have to do that. I am not sure we're that smart frankly. We think it is going to be better.

Okay, great. Thanks.

Michael Dudas with Bear Stearns.

Gentlemen, Jacque. Relative to your private business, maybe you can give an indication on how the competitive nature looks early on so far in 2004 given all of the cautionary issues relative to the budget in California? And even though the private sector is starting to perk up for you guys could you give a little flavor on how that is shaping up relative say to what you thought a year ago?

In comparison to what we thought a year ago, I think that we are seeing the markets more steady than maybe we had anticipated. The private market had some legs to it that a year ago we were quite sure if that was going to be the case. That being said, we haven't seen a lot of change over the last say six to eight months in that regard. I think a lot of it is hinging on of course the federal funding issues that Bill talked about earlier, in addition to how California continues to try to bail themselves out of the situation that they are in. But barring any big spike in interest rates, I think we see the private sector continuing to progress in the same passion that we saw in '03.

A follow-up, if I may. As you look at -- maybe if you focusing your worst-case scenario for California budget issues, maybe because of the discretionary nature of the federal allocation, maybe it's closer to the Bush administration number than say the Senate or House, would this be an opportunity for Granite? I would assume some of the competitors will be in real serious difficulties and would this be an opportunity you would take upon to add to the asset-base? Would the expectations of sellers become a lot lower because of some of the budgetary issues we may see over the next few years?

If the situation prolongs itself for some time, you may see that. But we have found in the past that it takes a period of time for some of the competition to shake itself out under these sorts of situations. While that is possible, I wouldn't want to say today that we are seeing a lot of that taking place. Bill, do you have any other opinions in that regard?

Yes, I think it you look at the results for Branch division you'd be hard pressed to say that -- if our performance is representative of what our competition is doing, our competition is probably doing all right frankly. I don't think it has gotten all that bad yet, it's just not as good as it was a couple of years ago. We continually -- we tell you as an investment community that we are not performing as well as we had a couple of years ago, and that is true but we are still performing very well.

So, I think you would be hard pressed to say that it has gotten bad enough in the West or in California where we're going to see a disproportionate amount of deals appearing, but if it did certainly we would try to take advantage of it.

Thanks.

Todd Vencil with BB&T Capital Markets.

Good morning. You didn't really talk about the Midwest. You mentioned that the backlogs were down in the West and up in the Northeast and South. You didn't talk about the Midwest where backlogs I guess have been down as of revenues, but can you talk just a little bit about what the environment is like there?

Our Midwest business is what we do out of Texas. Probably the closest thing that we campaign in the Midwest is Texas and then we are doing some work up in Missouri and Arkansas as well.

Texas is really in our South. That is how we characterize it.

I understand that. We campaign that market out of Texas. It is not a huge focus for us at this point. It's a part of the country that we pursue if there is a job there that we are actively, we think we can be competitive on. I wouldn't read anything into the statistic frankly.

Okay. Thanks.

Rich Wesolowski with Sidoti & Co.

Good morning, everybody. What are the specific aspects of the construction side of the bridge business that are performing or have performed better than you expected in the second half. I'm looking for maybe the specific geographic region or a type of project and maybe a type of customer? What is really coming forward for you guys there?

Let me see if I got the question right Rich. You're wanting to know if there were any particular drivers that impacted the performance in our Branch Division this year, sort of drill into that a little bit?

That is correct.

I think one of the more important things that we saw was the size of the projects maybe were a bit smaller. Of course the way we're set up in our Branch Division, we are able to take advantage of most any size project in the particular geographic areas in which we work. The states have been unable to plan longer-term so they're doing more maintenance types project which we find ourselves to be more competitive in or as competitive as we are in any area.

But, that mix along with our material sales and the private work that was available to us during the year, all of those were driving the business throughout the year. And frankly we are in a position right now where we are in the mode of evaluating our business for '04, we are in the middle of that right now. We're seeing a lot same lot of the same kinds of situations being available to us although the big wild-card is the amount of DOT work as well as city and county work that will find its way to the marketplace.

That private work, is this -- it looks like in the fourth quarter that it kind of bounced back from a pretty significant negative trend in the first three quarters. It is that something you guys expect to really continue or is that more of a temporary phenomenon?

I'm not sure. I think it is important maybe for you and the rest of the audience to understand that this private work for the most part is subdivisions, shopping centers, that kind of stuff, that is being built and a lot of it, by the way, is being built up and down the San Joaquin Valley. So those areas of the state remain a little stronger than along the coast. Certainly it is happening in Nevada and Utah and some of the other places we work.

But what happens is that this private work is -- there is a certain capacity in the marketplace. We are part of that capacity along with our competitors and that private work when it is strong soaks up some of that capacity and allows what is left in the public marketplace, as well as that in private marketplace to remain relatively okay. It isn't so much whether we are doing that private work or not, it is the fact that it is there that may be more important. Do you follow me?

Yes, I do.

I think if you go back in time to the last recession when there was -- the private work was really on its ear, what happened was a lot of those people that competed in that market came into the public work sector and put a lot of pressure in that market at that time back in the early '90s. So we saw somewhat of a reverse kind of situation that took place then.

I also think that there is no question that our materials business and I suspect the material business of all of our competitors, Vulcan and others, is being supported today by what is happening in this private marketplace. So we are certainly the beneficiary of that in our materials business as well.

Okay. Thanks a lot.

Brian Raison (ph) with Morgan Stanley Capital Markets.

Caller: Superb job guys. Question for you. You guys have talked strategically on bench strength and I want to get a sense as the heavy civil areas is on kind of a robust pace, what do you guys see as far as hiring needs, maybe retention turnover, wage and salary growth? And then if you could just talk to some of the cost inflation in '03 for fuel and diesel and asphalt?

Okay. Let me take the bench strength and we'll let Mark take the fuel and asphalt part of the question. Certainly as we grow our heavy construction business, we have had to, I don't mean that this is our second choice or anything, but certainly we could not have supported that growth by just promoting from within. This has been growing at such a pace that we have gone beyond Granite to hire people to manage some of that work, project managers, engineers. When you travel around the HCD organization today there is a lot of new faces and so certainly that has been part of our strategy. It is working.

These people are terrific, great new additions with lots of new talent, lots of, in some cases, new capabilities that we didn't have before. Particularly in New York City, we're doing work there that is very transit oriented. Some work there that is not -- wouldn't be characterized as traditional granite work. So we're building a lot of capability at the same time.

From a salary structure standpoint, it depends where you go in the country. It varies from place to place. I don't think that it is -- I am not seeing huge escalations and a lot of pressure in that area at all. We are able to get people at what we think fair value, and we try to be a good employer, pay a fair salary of wage when we bring people into the organization. So I am not seeing anything in particular there. Mark?

I think the rest of your question dealt with what the trends were or what we thought -- you thought we were looking at in terms of asphalt and (multiple speakers)?

Maybe what you are seeing in '04? Is there a delta change?

Well crude no doubt it up right now, but because the demand is not what it has been in the past, we are not seeing the same kind of upward movement in the asphalt energy side of our business that we might have seen several years ago. Crude prices were up and the demand was at the level as it was going back in time. So, we are not seeing those same kinds of increases. Currently we're looking at the normal kind of escalations in our longer-term jobs for our fuel asphalt sides of our business. So, that is what I think I can tell you in that regard.

Could you give us a magnitude of level of say '03 over '02 in fuel side asphalt?

We priced these escalations into our work, so --.

I am not sure I can give you a definitive number as I sit here today because I have to go back and look and see where we were a year ago and I just don't have that information available.

Maybe from the standpoint of just kind of overall, there was nothing that wasn't priced into the contracts that was over and above what you guys had to absorb?

Yes, I think that is a fair assessment. You have to keep in mind that a lot of our asphalt business is protected by escalation clauses with the local DOT's. So there is not a lot of exposure with the DOT side of our business when it comes to asphalt. Now we don't have that same escalation coverage with our private side work and some of the other agencies we might do business with. But we don't see any big issues in that regard right now.

Thanks guys. Superb job again.

Let me go back to this bench question because the question was directed at our HCD business and I tried to respond to that, but I think this is probably, might be of interest to the audience. In our Branch business certainly we have seen our revenues decline over the last couple of years, and as a result, some of our overhead in our Branch business as a percent of revenue has gone up. I think we could safely say that we have capacity, we would characterize it as bench capacity or however you want to characterize it. We do have capacity in our Branch business to do more business than we are currently doing, and I think it is also fair to maybe characterize our Branch overhead maybe a little differently than you might imagine.

Our Branch overhead is largely estimating capacity and engineers to support the building of our work. It is not -- certainly we have the traditional overhead in these businesses as well, but a lot of that overhead is directly related to our ability to bid and bill work. So while we think this is a cycle that we are going through, we have been evaluating these local businesses to see if there has been a fundamental change in the market or it is not going to come back and we try to make the adjustments necessary there. But, as we go through this cycle, and we do think most of it is just a cycle. As we go through this cycle our overheads have gone up. We do have bench strength in our Branch business at this point. Probably the next question you might ask is are you able to move that over and to transfer it?

To transfer it, yes.

The answer is yes, although it is not as easy as you might imagine because people come to us to work in our Branch system because they don't want to move. They have families and spouses that are working. And yes, we do transfer people around, but it is not as easy as you might imagine.

Okay, good answer. Thanks guys.

Richard Rossi with Morgan Joseph.

Good morning everybody. Looking at HCD again, backlog is up -- I don't have a calculator in front of me, but it looks like about 15 percent. How much of that backlog gets done this year? How much of that backlog do you work over, work through in '04?

I'm going to take a guess at this. It is roughly probably 40 to 50 percent.

I know you said during the conference call that the impact on jobs reaching the 25 percent would not be that great in '04, although on an individual quarter it could be. How much of the work that you're going to be proceeding on that is new that you're working on in HCD, of that 40 or 50 percent, how much of it will not fit the 25 percent level this year? Will it be much different than last year?

Somewhat speculative as well, but the anticipation is that a lot of the stuff that has been booked in 2003 will hit 25 percent during the year. There's maybe one of two exceptions to that.

I think the big wild-card is, rich, of the work we get in 2004 --.

How much get through.

Yes, will it be real large or a whole series of small jobs that will click in next year or not click in? That is the wild card.

One final thought on that point. Given the delay in getting a new bill in place, if that continues and obviously we all hope it doesn't, but if it should continue to just get another extension and it carries out maybe into the June period, is it more and more likely that the HCD work booked in '04 is going to be smaller, choppier and that '05 becomes the much better year?

I don't know if I would jump to the conclusion that that would make our '05 year any better, but I do think that if we don't get a bill, that it will have a tendency to push work back in the bid schedule in both divisions.

Alright. Thanks a lot.

Todd Vencil with BB&T Capital Markets.

I just wanted to get back into the queue to get some financial information. Can you give me for '03 and then what you have budgeted for '04, your DD&A capital expenditures and then what the goodwill was at the end of the year?

Goodwill is fairly nominal at this point. I don't have it on hand, but going back.

I think it was 19.2 a year ago.

It relatively hasn't changed. The depreciation -- well if the capital budget for 2004 is going to be at 58 million in Wilder and that was essentially the budget for last year including Wilder. If you want to look at the amortization depreciation for last year, it was around 56 million and we anticipate that the depreciation will be about the same level for '04.

In terms of the capitalization, let me find the number here. Although the budget was 58 million, we ended up capitalizing about 55 million in 2003, and the difference generally is kind of a variable that depends on when the actual purchase was made. Sometimes they make early purchases on 2004 budget in 2003, so it gets capitalized in 2003. Some of this is plants that get assembled and don't get capitalized until future years. So there is some variation in it, but the budget in 2003 was 58 and was capitalized at 65.

65?

65.

Thank you.

Bob Labick with CJS Securities.

Given the importance of the timing of the reauthorization bill, this is kind of a big picture question, but what would you prefer? Would you prefer a $256 billion Bush proposal bill being signed on the 29th and done? Or would you prefer the alternative, which seems likely to be waiting for an extension and possibly past the election in hopes of something closer to 300? What would be better for Granite?

I'm not sure. I guess it is a short-term, long-term question. Obviously in the short run, we would like to see a bill. In the long run, we would like to see a large bill. I am not sure.

The extensions really don't do much for the transportation community. It certainly allows funding to go forward but it doesn't allow the states to plan anything on a longer-term basis, and it's really pie in the sky as far as state transportation agencies that have to match these federal dollars with their own state dollars. So it's a debate, whether we would prefer a smaller bill right now, or waiting it out for a larger bill perhaps after an election year, which may be possible. The really bad scenario would be we get an extension and then we get a small bill after the election. We are in the same position you are. We are watching and hoping and trying to advocate for as large a bill as we can, and we are very hopeful we will get it.

Thanks very much.

Fritz von Carp with Sage Asset Management.

Good morning, gentlemen. Could you give us the annual numbers for revenues and operating profit for the two segments, would you mind?

Just a second here as I shuffle my papers. For the year, the revenue -- this is in plant summary, revenue is two fifty-two, seven forty-five for 2003; two twenty seven, seven thirty-three in the prior year. Margins forty-eight, two forty-two; thirty-nine, one forty-five for 2002.

Thanks. If I could ask one other question. It seems like the second half of the year you guys had a very good performance, much better than originally expected. It was to some extent aided as you said, call it aided by the weather, a lot of work that maybe had been backed up earlier in the year or late last year by bad weather that had been sort of floating out there, hit the road in the second half. If we think -- so in other words there was sort of a backlog of work in the industry, not in your backlog per se, but out in the industry waiting to get done for the good weather.

How would that backlog if you know what I mean, so to speak, not your backlog but in the industry the stuff that is sort funded and out there, has that been depleted by the work, the rapid amount of stuff that got done in the good weather in the second half? How does that compare qualitatively to what we saw this time a year ago?

That is a very interesting question. I am not sure I know the answer to that question, but I can speak to the concept philosophically a little bit. It has always been my belief that one of the good things for our marketplace, and I speak I think primarily for I think really our Branch Division which has short-term projects, and competing with primarily companies with similar kinds of projects in their backlog. But what happens in the wintertime, if you don't get a winter is that people do continue to work their backlog off and you enter the spring needing work.

Well the winter, and the winter generally is from let's say December through March. If we get a wet winter and those competitors, along with ourselves, are able to build a little backlog through that period, then the market gets pretty good in the spring (technical difficulty). I don't know that we can speculate on what our winter is going to be like at this point because we are right in the middle of it. Frankly it has been raining like crazy the last day or two out in the West. But, the winter is not bad thing, I guess philosophically. I'm not sure if that really addresses the question, but --.

Well even besides just sort of this quarter to next quarter, really in the second half of the year there was a lot of work. We have been hearing all year there was a lot of work at APAC (ph) and some of the pavers that had big backlogs of stuff even from '02 that didn't get done, aside from just a little bit from the winter into the spring, is there --?

You could make the argument that there was a surge of work that got billed in the second half of the year as a result of what your assessment as to what was happening in the first half. I think your question was, do we see any of that continuing? Was that just kind of a blip up in the screen? I am not sure we are able to tell you at this point. Our backlog, for example in our Branch business is very similar to what it was a year ago. So it leads you to believe that we're entering the year in the same sort of situation that we were in in the prior year. So it is really just hard to say at this point.

Okay. Thank you.

Alan Mitrani with Copper Beech Capital.

Good job this past year. Question for you, a little more strategic and big picture. The numbers the last few years even though I guess it's been a battle, for the most part have been somewhat flattish if you take out the SR toll road, $1.25, $1.21, $1.16 -- it's been that type of environment. As a result, your stock has been in sort of a range the last few years even though it seems to me that you have a good job diversifying, your backlog is stronger, your Branch business seems to be stronger, your balance sheet certainly is stronger and your dividends are higher.

And you guys trade at almost the lowest multiple out of any construction company or aggregate company I could find. Can you talk a bit about what you can do over a couple year period maybe, or to consider doing something for shareholder value, whether it's -- the interest rates are low, whether it is either levering up a little bit to raise a dividend, do a special dividend, think about acquisitions or recapping or something? Could you talk about how you look at it that way? It seems to me that your business has strengthened yet the market is still valuing you at a discount to almost everybody?

That is a big question frankly.

That is why Dave is on the phone too, right?

I'm not quite sure of the comparables, certainly the aggregate companies do trade at a higher multiple than Granite has traditionally.

And every construction company, excluding Washington Group, which is a little special situation.

It's a special situation. There is really nothing that is comparable to us in the marketplace and I am sure that we have been discounted because of these fiscal difficulties within the state that is our biggest state market, and then the federal dollars which are up for this reauthorization. That has cast a cloud is somewhat over, not only our growth, but the prospects for growth as perceived by the investing public. The special dividends, while we have used them in the past, do nothing for multiples. We have increased the regular dividend probably every year for the last -- Bill Barton you can correct me -- three, four or five years.

Not every year but it's been almost every other year. It's been consistent over the last five.

I think operationally what we are attempting to do is to get out of our nearly $2 billion a year business today everything we can in the way of earnings, and I think Dave is right. I think we have been discounted from a stock standpoint because of the uncertainty in the West and particular in California. That is sort of beyond our control. We are doing the best we can with it. Frankly I think we're doing an excellent job dealing with that. We have been growing the heck out of our Heavy Construction Division business, and that sort of has been a good news, bad news scenario.

The good news is we have grown the business to now we are in a position to, as we have said earlier today, really harvest some increased and improved margins out of that business. It's a larger business that has the potential to produce a lot more than it did just a few years ago, and it will. So that business has been -- we said a year ago that we were going to get improved margins out of that business and we did.

We didn't get quite as much as we had hoped for, but I think we were maybe a year too soon in anticipating that we would get out of that business what I think we all believe we will now. So, that is going to help. We continue to invest or look for and pursue investments into our materials business, particularly in the West. We will continue to do that, try to build the size of that business because we think that that certainly is a great strategy and we are going to continue that.

So operationally, those are the things that we're doing to try to build shareholder value and as Dave said, there is always other more sophisticated financial plays that we can talk about, but I am not sure we are prepared to do anything real fancy at this point.

I appreciate that color, but on that topic would you consider a share buyback?

We have an ongoing -- kind of one of these dilemmas that we face, being a small cap, mid cap type company and we still consider ourselves to be somewhat illiquid when it comes to our stock trading. So the more we purchase back the more illiquid it makes it, so we try to find the right balance between the two and typically in the past, and I think currently our thoughts are that we will repurchase when we feel there is an opportunity because the price is lower than we believe it should be. So, it is more opportunistically driven on a repurchase type of program. In terms of using dividends, our philosophy is essentially to, as we grow earnings to increase our sustainable dividends on a regular basis.

Thank you.

This would conclude our question-and-answer session. I would like to turn the conference back to our speakers for any additional or closing comments.

We appreciate you all tuning in. Once again, we are really pleased with the results of 2003 and hopefully we have been able to give you a little insight into what we can expect, what we're expecting in 2004. So, thank you all for calling in. This concludes our call.

Thank you for your participation on today's conference call. You may disconnect at this time.