Granite Construction Inc (GVA) 2004 Q1 法說會逐字稿

Please stand by for the realtime transcript. The Granite Construction conference call will begin shortly. Please stand by. We are about to begin. Good day, everyone and welcome to the Granite Construction's first quarter 2004 earnings conference call and webcast. Today's conference is being recorded and there will be a playback of the call that can be accessed either on the company's web site, or by calling 719-457-0820, and entering pass code 660459. Again that's 719-457-0820, with a pass code 660459. It will be available beginning at 2 p.m. eastern time today, running through midnight on Friday, May 14th. At this time, all lines are in a listen-only mode. A question-and-answer session will follow the management's presentation. At this time, for opening remarks I would like to turn the conference over to Ms. Jacquie Underdown. Please go ahead ma'am.

Thank you, good morning. Thank you for joining our first quarter 2004 earnings conference call. Presenting on the call with me this morning will be Granite President and CEO, Bill Dorey, Chairman David Watts and Senior Vice President and CFO, Bill Barton. Also available with me this morning and available for questions is Senior Vice President and Manager of our Heavy Construction division, Pat Costanzo and Executive VP and Chief Operating Officer and Manager of the Branch Division, Mark Boitano. Before I turn things over to Bill Dorey, I'd like to caution all participants that it may contain forward-looking statements reflecting management's's beliefs and assumptions on future event that are 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 could differ materially from forecasts. Factors that might cause or contribute to such differences include but are not limited to the failure to complete projects in accordance with our estimates of the costs needed to complete projects, inaccurate or incomplete claims or changed order submittals, compromised settlements and/or unfavorable decisions of claims or change orders. 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 you to review. With that let me turn the call over to Bill Dorey. Bill?

Thanks, Jacquie and good morning. And thanks for joining us. Our agenda for our call this morning will include the following: I will be discussing business outlook for both divisions, and for the business as a whole. Bill Barton will be providing you with quarterly financial details, and Dave Watts will be providing you with his insights into transportation funding and what's happening or is likely to happen in that important aspect of our business. There are several important messages that we hope you took away from last week's call. The first is that forecast changes can and do occur on our work regularly. But usually, they are relatively uneventful, with some going up and some going down and we said that last week.

While we do not anticipate to be reporting any other significant negative forecasts or certainly another round of significant negative forecasts, we hope you realize that some of our work in our portfolio will deteriorate and some will improve between now and the end of the year. In some respects that's an inherent part of our business. And lastly, we hope that you understand we try very hard to be conservative in our forecasting process, and we do not anticipate revenue until we have an executed contract change order to guarantee the receivable. Because of this conservative philosophy, there are upsides to many of our forecasts. If we are successful in several important change order negotiations. Having said all that, the bottom line is that we expect both of our divisions to perform well in 2004. And let's look at our heavy construction division. We currently have a very large backlog.

Our bidding pipeline is full, and we have enough work to keep our estimating staff booked. Or enough work in the pipeline to keep our estimating staff booked. As we discussed last week, we beefed up our management structure to provide more oversight to our bidding, to our building and to our business oversight, and we expect that these moves will help us manage our $800 million HCD business better and I believe that we'll see the results of these changes right away. The bottom line in HCD is and maybe the most important message that you would take from this call relative to HCD is that we are currently forecasting our HCD business to have higher operating income in 2004, than in 2003. Let's talk about the branches. The branches have been a steady Eddy business for us for the last several years. Our private market remains relatively strong and really is providing the support for our performance over the last -- certainly the last year, and we expect them to in 2004 as well. In particular, the private market is supporting our materials business, which we think will perform well again. If there's a weakness in this business, it's in the California Public Works funding.

However, there are some glimmers of hope developing that we will see some relief in that area in the near future, and Dave Watts will talk a little bit about that in a minute. And certainly, there's been a littleflurry of public work bidding that gives us some encouragement over the last 30 days that things are improving. There's no guarantee, however that that will continue. The bottom line in our branch division is that we expect to perform similarly to how we did in 2003. Probably slightly down unless the public works strength persists. In summary, while it's very early in our year to be providing much guidance, and I want you to view any guidance with that in mind, we believe that our year will shape up to likely be similar to last year. So I'll turn this over to Bill Barton for some -- our financials.

Thank you, Bill and good morning to our audience. I will be talking about a quarter comparison before -- comparing 2004 to 2003. To begin, I will leave you with a note that there has been an interruption in new accounting rule during the quarter. It is called 1046, consolidation of variable interest entities and its impact, really is that we will be consolidating 100% certain joint ventures that were previously proportionately consolidated. Net income on the other hand is not impacted but there are changes to such accounts such as revenue and backlog and some balance sheet accounts. I would urge you, when our 10-Q is filed on May 10th, Monday to look through it to get additional information. Looking, beginning with revenue, during the quarter our revenue increased to 337 million. Or a $35 million increase. But that also includes -- and I'll make references as I go through here to some of the impact of FIN 46, the 35 million increase also included a $23 million increase as a result of the new practice.

Branch revenue decreased by 5 million, and associated by Wilder to 167 million, and it came from both private and public sector. The HCD -- or HCD increased 40 million to $170 million and the FIN 46 increase is included in that $40 million increase and, again that is 23 million. Moving on to gross profit for the quarter, I'm going to break it down between the two divisions. HCD had a gross profit loss or a negative gross profit of 3 million 523, versus 14 million 846 gross profit the previous year. Branch, on the other hand, had a 14 million 157 gross profit, versus 15 million 592 a year ago. HCD reflects the write-downs that were preannounced last week. As you notice in the press release, it's 20 million versus 19 we talked about. The difference is reflecting the FIN 46 adjustment and I would urge you to look at the press release to get the attributes for that decrease. Branch division gross profit is down 9.2% or $1.4 million difference and this difference reflects added costs associated with the closing of certain ready mix concrete plants in anticipation of the subsequent sale completed during the quarter, which I'll touch base on shortly.

One thing we do is provide you some sense of that amount of revenue that is un -- where we have unrecognized earnings that are associated with jobs that are less than 25%. Looking at 2004, which does include some consolidation of the joint ventures under FIN 46 of 2.7 million, the total company is 54 million 883, compared to 40 million 962 and a difference of 13 million 921 and in essence, there's been an increase of deferred earnings and if you assume 10%, times that number, about 1.4 million -- there's been a 1.4 million increase in the amount of earnings being deferred into future periods. G&A is essentially flat, as you can see on the press release. But there are some dynamics with in it that I am going to point out. As a percent of revenue, you can see it has increased 1.3%, to 10.8% and essentially that we sold at a higher volume. If you look within the actual costs, the dollars that were expended during the period, you would have on one hand primarily salaries and wages and related benefits are up about 1.4 million. On the other hand, associated was the absence of net income during the quarter. We have reduced variable compensation, as you would expect. And the result being essentially a flat year-over-year G&A. Looking to below G&A, looking at gain on sales of property and equipment, 13 million 330, versus 296,000 a year ago. The gain is essentially is a gain that's associated with the divestiture of a non-performing asset in Utah.

Where we decided that looking into the future that it would not have the ability to achieve an appropriate return, and had decided to sell it and that transaction was completed in the first quarter. Moving down to other income, the major difference here really is one that we've been talking about over the last year. Other net, 209,000, versus 18 million 342 a year ago and essentially is the sale of the SR 91 toll road franchise in which we booked $18.4 million, in income last year. And we get down to the bottom line net income is a negative 9 million 109 and just to remind you that in essence, that is -- that includes the effect of FIN 46, which is no effect at all. And so the 9 million 109 leads down to basic or diluted earnings per share of 23 cents. As we move down to the other change that's noticeable, is the effective tax rate, and again that difference reflects the impact of FIN 46 as generally our construction joint ventures are not subject to income taxes on a stand alone basis. So to get to the appropriate net income or show the appropriate taxes it reflects a lower percentage.

Moving on to your revenue by market sector, geographic area and backlog, a couple of comments there that's worth noting. Looking at revenue by geographic area, the west, excluding California, is probably dropped the most. It reflects no particular area that has -- that has dropped significantly, but it is in general just lower. The revenue generated in the west during the quarter. The other thing, noted thing is the northeast has increased 25 million, which is offsetting -- more than offsets what happens in the west, including California so that, again, is driven by a higher backlog in the northeast. Moving down to backlog by market sector, the one thing that's noted as you -- in terms of backlog, the total public has increased 171 million or 10%. Of that increase, though, 122 million -- 123 million is the result of the consolidation with the impact of FIN 46. So just to give you a little perspective in terms of what the backlog increase is composed of.

And moving down the other comments, looking at backlog by geographic area, the northeast has a substantial increase of 286 million, far, far exceeding the other sectors or geographic areas and that had in it a smaller amount in terms of the total of 66 million 725 associated with the FIN 46 increase. With that, I'll turn this over to Dave Watts, and I will be prepared to answer any questions you have when we get to that point.

Thank you. Good morning, everybody. Well, we have two major areas of looking at funding, revenue for transportation, one the federal side, which is the foundation block for all of the state funding, and then drilling down into our most important state, California, what's happening there. Let's take the federal side first. Where we've finally have two bills passed in both sides of the Congress, the House and the Senate, they differ dramatically in the amount of money for this new transportation authorization bill. The Senate being much higher and both being higher than what the administration has said they will sign. And that's probably the major problem in getting this bill through. There's a lot of politics going on in appointing conferees to a Senate/House conference committee to iron out the differences between the two bills and present something to the administration, and both of them are trying to work out what the administration, what the President will sign. In the meanwhile, they've been extending the old authorization, which doesn't do much, except allow for the continued cash coming from the feds but certainly doesn't allow the states to do any planning on a long-term basis. And moving to California, we are starting to get a glimmer of hope, as Bill mentioned. I think probably it stems from the fact that overall revenues to the state are starting to increase as a result of the economy improving.

Sales taxes, income taxes and so forth. Certainly, the sales tax on gasoline has been moving sharply upwards with the price of gasoline that we see here in California. But there is no agreement. The administration will be next week submitting their May budget revision, and it will be then when we'll get a little more detailed picture as to what they would like to see. In the meanwhile, the legislature has not been going along with the governor in suspending Prop 42 which is the sales tax on gasoline any longer. So there are -- there are various ways that the various forces trying to improve revenue for transportation are enlisting to get more money into highways and transit, Garvey Bonds is one, using the part of the bond refinancing to payback some of the transportation accounts is another. So we -- we are starting to get a little more spring to the step, so to speak, in dealing with this issue in California. And I hope by the time the second quarter ends, and we have our discussion again, we'll have some light at both -- in both tunnels here, federal and statewise. So I'll turn it back over to Bill Dorey now.

Thanks, Dave. And we'll turn this back to the moderator for questions.

Thank you, the question-and-answer session will be conducted electronically. If you do wish to signal to for a question, you may do so by pressing the star key followed by the digit one on your touch-tone phone. One again that's star one on your touch-tone phone to signal for questions. And if you are using a speaker phone, please make sure that your mute function is disengaged to allow your signal to reach our equipment. Once again, star one for questions and we'll pause for a moment.

Our first question will come from Arnie Ursaner with CJS Securities.

Hi, Arnie.

Can you focus a little bit on your backlog in the northeast, which I know you mentioned you had 66 million from the FIN 146 but also had a huge jump. Given the past problems with Halmar, can you give us a feel for how much of that backlog is remaining that's related to Halmar and to the extent there is pieces related to Halmar, how confident are you that you have the right reserves for those bids?

Okay. Let's -- let's take those questions one at a time. We have one job that's left, Arnie, from the acquisition. It's -- it's getting close to being finished. It's probably 90% done, something like that?

Right.

And it is one of the jobs, by the way that we did write down last week. We think that we're through writing that job down at this point. So we don't think there will be any further deterioration in any of the old Halmar work. And relative to -- I think the other question was relative to the balance of the backlog there, is that correct?

Well, to the extent, again that it's essentially one that you've written down, I assume, therefore we can assume, that the remaining backlog in the northeast is entirely ones have you influenced the bidding process.

Yes.

Which you're disciplined in.

Yes.

So hopefully going forward that should be a lot less of an issue.

We certainly think so. We're -- we're -- we are -- we are very excited, Arnie, about the contribution that we expect to get from our Grant Halmar business in New York. It is becoming a big part of our business and a very important part of our business and we expect that it will be a good part of our business.

Second question if I can, is if you could comment on aggregate or material sales. Can you give us the percent that was sold externally, please?

Bill, can we do that?

Yeah, I can, basically what I can give you is the dollar or at least the volume for the quarter, Arnie.

Okay.

The revenue, 2004, versus 2003, I'll give you both, was 39 million 666. 2003 or 39,694 the margin, 2004 is $101,000, versus $1 million 164 a year ago.

What caused the sharp drop in margin on the external sales?

Arnie, it's Mark. That reflects the costs associated with the sale of CPC in the first quarter.

Oh.

And typically our materials business in the first quarter is pretty slow as a result of the normal winter weather activities and we don't see that business to start to churn until second quarter and on.

And, again, that cost was about a million four.

And final question from me, if you don't mind. I know a lot of your contracts have automatic escalators when the prices of certain things like diesel fuel go up by more than a certain amount. What percent of your contracts these days are essentially immune or if you will, protected from sharp rises in diesel fuel costs?

I would think that almost none of them are protected from an increase in diesel. Arnie. I would -- a large percentage of our DOT work has an asphalt escalator in it.

Right.

And I think that may be what you are referring to.

Right.

Not all of them, but certainly the larger paving projects do, in certain states. I'm not sure I can give you an exact percentage, but, you know, we're pretty tuned in to trying to anticipate where that asphalt marketplace is going. And from time to time, we get it wrong, but generally it's not a big issue.

And on the diesel side, we do have -- there are one or two states that do have adjustments in their contracts regarding diesel, but those are few and far between. But we try to anticipate our diesel costs, as one of the contingencies that we put in our work. So typically what happens is we may be a little on the low side when these things start ratcheting up, but then we have the ability, typically, to be on the higher side when the things start turning in the other direction. So I don't think we have a feel for how we're set, but that's the best I think we can give you this morning.

Okay. Thank you.

And our next question will come from Jon Rogers with D.A. Davidson.

Good morning.

Good morning, Jon.

Good morning, Jon.

Just a couple of things and I apologize, because I think, Bill, you mentioned this. The backlog increase. How much of that was due to the change in accounting?

Yeah, the backlog change is about 122 million.

Okay. And then with the tax rate, do you -- going forward, I guess I'm not quite sure I understand it, but going forward, do you expect it to stay at this low level or does it come back up?

No, it will -- this is a standard at the present time. It may change but it will be changed because of other factors, but we anticipate that 34.6 it will be the rate for the year.

Okay. And then the last thing is, do you have operating income for the branch and HCD business?

I do.

Can you share it? [ LAUGHTER ]

Yes. Okay. Breaking it out between the two divisions...

Mm-hmm.

For HCD, the operating loss for the quarter is 11,339,000. Versus 600,000,864 a year ago. The operating loss for the branch is 5,000,626 in 2004. 3,000,259 in 2003.

A loss there?

Yes. Operating loss as well.

Okay. And then one last question, if I could. In terms of -- and I'm talking about the HCD operations here, do you have any thoughts regionally in terms of bidding activity? You know, what you are seeing going forward this year?

Well, this is Pat Costanzo. We have a good workload in all the regions, there's enough to bid for each region. So, you know, I think we have a steady workload ahead of us.

Okay. I mean I think it was one of the last calls you had mentioned, you had seen more activity in the southeast, and Florida and I'm just trying to get a sense of it's still -- it's more spread out now? Or good everywhere?

Yes.

Is my understanding.

Yes. All the regions are pretty healthy that way.

Okay. Okay. Great. Thank you.

You're welcome.

Thank you.

And our next question question will come from Trip Rodgers with UBS.

Hey, good morning.

Good morning, Trip.

Just one thing I'm a little surprised about. Your comment last week when you said that, you know, you had the eight projects that have underperformed but you don't have projects that are better than expectation to offset those. But I guess that you still expect HCD to be equal or better to last year. It seems like you are having some projects that would be better than you expected. Can you kind of just talk about that and maybe, I guess it kind of implies that your expectations before this date, you know, were quite high.

Well, yeah. I think that's really it. To begin with, our revenues are going up in HCD over what we were able to do last year. I said in my opening remarks, referred to it, $800 million business and we expect that we'll do that, at least at this point in 2004. So certainly we have some additional revenue working for us. And, yeah, we did expect that our performance in HCD was going to be very good. And clearly the events that we reported last week impacted that, but we continue to believe that even -- even with those write-downs, Trip, that our performance will be better than it was in 2003.

And then kind of a follow-up to Arnie's question, on escalators but more regarding steel. Again, that would seem to be an area that costs are down dramatically. Do you have any steel escalators out there? And can that be a potential risk, as far as going forward?

You know, we have some open projects yet to purchase steel, and here in the last couple of weeks, we've tied up the steel, and we really came within our budget that we had allotted for. So prices have come down and stabilized somewhat, and it has hit its peak and going to be going down, of course. We are still putting escalators in the jobs we are bidding today, though, to cover ourselves just in case.

But that wasn't a major factor for the eight, I guess?

No. It was not.

Okay. Great. Thanks a lot.

Just as a little follow-on to that, to the steel question is that availability, you know, still tends to be a problem, so we're contending with how that impact will result in our jobs progressing. So while prices look like they may have reached a peak and are stabilized, the availability issue still remains to be a bit of a wild card at this point.

Oh, okay. Thanks.

And our next question will come from Richard Rossi with Morgan Joseph.

Good morning, everybody.

Hi, Rich.

Hi, Rich.

Just a couple of numbers first. Backlog in HCD?

Backlog in HCD. Hang on a second. Heavy construction division, the backlog -- the backlog for heavy construction division is 1 billion 567 750 versus 1 billion 529 a year ago and the difference is the branch division.

Right. All right. The other is just checking. What was the asset sales gain tax at this year?

The asset sale would have been taxed at the same rate.

The same rate. Okay.

Yeah.

Okay.

For both purposes.

All right. The other is, could you give us a sense of how much of this what is revenues were associated with those eight projects that you identified that needed to be, that the write-down was taken on?

Revenue for the quarter?

For the quarter, yeah.

I don't have it off the top of my head. Pat?

A general -- I mean, obviously I don't need an exact number.

You know what, what I would like to do on that is just give you a call.

Okay.

We could guess. We think we know but I would rather give you a more accurate number.

Okay. And when you talked about your guidance for the year, your preliminary guidance for the year, did that include the asset sales gains?

Yes.

Yes.

Okay. All right. And one final thing, just to try to give me a little more insight to what's going on in Congress, my understanding is that the House version of the replacement bill takes money out of the general tax revenues to make up the difference between what is forecasted to be generated from the gas tax and user fees and what they are proposing. Is that correct?

I think there is some, Rich, of some amount coming out of the general fund which is opposed by the administration, in principle. I think it probably tells you how much pressure there is on the whole general fund.

Yeah.

But the Senate version is even more expensive and I guess would have even more money coming out of the general fund.

Or does that Senate version propose an add-on to the gas tax?

I don't think any one of them has --

Okay. Okay that was probably an even higher number then.

Yes, that was. That was definitely opposed and while this -- this whole thing has strong bipartisan support, being an election year, it is really any -- anything can go on here over the next few months.

Yeah, and I mean -- yeah, it could take a thousand different directions at this point, certainly.

Yeah.

Could we just pursue one or two of those just for the moment? I mean can we keep on extending this every two months until the election? I mean is that --

That's quite possible.

Okay. They think that's a real possibility?

That's our -- our analysis by folks is that there's about a 50/50 chance that there will be a long-term bill this year, and failing that, it would have to -- we would just have to have extensions of the old authorization throughout the year until after the election.

Okay. If we move, can I just -- if we move that way, does that mean states essentially just kind of hang out and don't propose any brand new work that wasn't sort of on the boards before this all started? Is that going to really inhibit the flow of new project development?

Well that's what we hear. We hear that these extensions --

Were you the state essentially.

From the state view point, but the federal extensions are just not the way to go, because it doesn't allow them to plan anything. I suspect, though that they've got some projects in the pipeline that they could use the cash on, or perhaps fund them with 100% state money now. It's pretty complex formula, and I -- I can't speak to it accurately.

Okay. Thanks very much.

Mm-hmm.

And our next question question will come from Fritz Von Carp with Sage Asset Management.

Yes, good morning, gentlemen. On the -- back to the HCD losses on your prior conference call you stressed that these were one-time type events. I mean, I guess -- I guess in one sense every construction project is a one-time event. You know, in itself, but, you know we have been hearing for you for several years now that you were going to, you know, be more aggressive about growing, that you were going to -- you know, you grew -- we saw SG&A growing and it was that you were hiring more estimators and more young people into -- bringing them into the business and ramped up acquisition and you became more aggressive about the acquisition activity with Halmar and I mean with bidding in general, and then sort of you know, now we've seen closely subsequent to that, that change in strategy, we've seen now, you know at kind of eight quarters where many of them were impacted by, you know, to one degree or another, disappointing margins, you know in the growing part of the business, in the heavy civil business.

I mean, is it -- are we sure there's nothing, you know, systemic to the problems, now recurring problems we are seeing in the project performance in heavy civil?

Well, the word "systemic" is an interesting -- is interesting choice of words. I think we have provided ourselves with an opportunity to deliver significantly increasing operating income out of our HCD business. If we are to get to the goal line, as an overall business, we need, you know, within five years, a billion dollar HCD business that will deliver consistently 12% gross margins. That's our goal. We have -- we're hopeful and, in fact, confident that we will be able to build that business, and this is part of our process to get there. Certainly, if you grow as fast as we have, there's going to be some bumps in the road along the way and what we have seen in the last, really probably couple of years, is just that process unfolding. You know, we wish it were a little better, and had gone a little better from the standpoint of operating income and gross margins out of that additional work, but we're clearly not discouraged. We know we're on the right track. And we're going to get there.

And so, I mean, how do we know that these are the -- that the bumps in the future -- that there won't be bumps in the future or they won't be worse than what we've seen to date?

Well, I can almost assure you that there will be bumps in the future there's bumps in this business all the time. What we're -- what we believe is that as we get -- as we become -- as we become a larger business, and we -- and the growth is not -- you know, and the growth is not quite as fast -- and frankly, we've -- we have, I think, consciously slowed our growth effort down a little bit in HCD because we realized that -- that our first priority was to extract out of our new revenues higher gross margins, higher operating income. And so we've made a conscious effort to try to make sure that before we start to grow again, in any great pace, at least, that we've got our arms around the business that we're operating. We believe that we do, and that's why, you know, we continue to believe that our operating incomes will continue to improve.

Okay. That makes sense. Thank you.

And we'll take our next question from Walter Lynn Dawer with Lynn Dawer Capital Management.

Yes, I have two questions. One is could you give us the sense or color on whether your -- how the backlog that is on the books now compares with the backlog that you had earlier from this point of view. Is the backlog more long-term intensive, or is the backlog that's remaining on the books less long-term intensive than it was a year ago?

It's pretty much the same. We do have some jobs that are out there for, like, four years.

Mm-hmm.

But that's not unusual in our past backlog. I would say it's about the same.

I see. Mm-hmm. And a related question. What -- I don't know the concept of capacity utilization is very applicable to your -- to your business. If it is, could you give us some feel what the capacity utilization is now, versus a year ago?

Do you want to answer that question?

Well, I think Walter, if I understand what you are saying -- are you talking about utilization we get out of our capital side of our business, mainly our rolling stock and construction equipment and plants?

Yes, mm-hmm.

I would say it's probably very similar to what it was this time a year ago. Our capital budget over the last several years has been to the point where we've replaced that which we're wearing out and maybe added those tools that we need for differing and/or projects that we've added to our backlog, but other than that, you know, we can't go into any detail as to the utilization we're getting off of each type of equipment or from each plan. But comparing year over year I'd say it's pretty similar.

Mm-hmm. And could you give us a feel as to what that capacity utilization is with respect to capital equipment now. Is it about 70%? Or 50% or?

I can't really comment on that. We don't track the hour utilization of each piece to be able to give you a number like that.

I see. Mm-hmm. Is there any prospect that -- by -- in tough times like this you would expect there might be available some opportunity for acquisition, that might affect favorably the longer term outlook for your business?

Let me -- let me comment on that. I'm not sure I characterize these times as tough. We've seen better times. We've seen worse times. And I'm not -- I don't think the economic climate that we're working in is one that's going to drive people to the point where they're selling and selling for bargains and that sort of thing.

No.

So I'm not sure we have reached that point. Hopefully we never do.

Mm-hmm.

Clearly, we are in the acquisition game. We're trying to -- and we look at a lot of different things, believe me. We've tried -- we try to make sensible deals and those are hard deals to make, and that's part of the reason that we haven't done a lot of them.

Mm-hmm.

But our goal is to stay in that game, and to continue to do acquisitions primarily that would replicate our branch-like businesses that we have in the west -- in the west or other geographies around the country. And we're going to try to do that. We're going to try to do sensible deals if we can and we'll try to grow that business.

And the next question will come from Tom Butler with Butler Inc.

Hi, fellows.

Good morning.

Yeah, I was kind of curious, on the funding at the state level. I guess I have an explanation for it, but it doesn't completely satisfy me. When they put the funding out, the bill out many, many years ago, two, three years ago, I forget what the years were, you know at that time everybody agreed it was a great amount of enthusiasm and a certain amount of growth in it, I can't remember what exactly the number was but it would seem to me that if they are continuing to extend that bill, that is roughly on the same terms of, you know what it was before, that you're still talking about a decent level and rate of funding, perhaps even growth in the funding, which doesn't jive with the uncertainty that could be created that would cause the states to not put out any programs. I just don't understand, you know, based upon the certainty of a steady level of funding why they would cease to put out new business, so to speak.

Well, the transportation bill is an authorization bill, Tom.

Mm-hmm.

The money actually is appropriated in each yearly appropriation bill.

Mm-hmm.

The authorization is extended, in this case on a monthly or bi-monthly basis, just to allow the appropriated money to continue to flow. It gives the authorization for that to happen.

Yeah.

It doesn't promise any money in the future.

The appropriated number or the authorized number? The authorized number?

The only amount of money that can flow is the appropriated number.

Yeah.

But it needs the gate open allowed by the authorization bill, or extension thereof.

Okay.

To be in place.

Okay.

And if that authorization bill is only there for, say, two months hence, then there is no promise of either amount to be authorized or that there is any authorization beyond that, and so the states really have trouble planning. I see. Any long-term flow of federal funds to match the state dollars.

So if political -- and it sounds like it's sort of politically in -- not a very good situation because of the three different numbers from the three different, you know, entities here. If we don't end up with a bill, before the election, and certainly we won't get one until January, I guess, if that doesn't happen, you know, we could be nine months here, potentially without a bill. Is that kind of what you are looking at as a possibility?

Well, it's a possibility.

Mm-hmm. The other possibility is that they will just acquiesce to the lower number. The Congress number? Or the administration number, yeah.

The Congress will acquiesce to that but include stronger language for opening the bill back up next year.

Uh huh, and what would happen if they acquiesced to that lower number from the administration.

It represents an increase over the prior authorization bill.

It does?

It does. Yeah. I've forgotten what percent.

So that wouldn't be such a bad deal either.

It's not a bad deal, either no.

Is it a better deal then having to deal with, you know, potentially going to January on a -- what effectively is a continuing resolution?

Yeah, it probably is. Probably some bill, even if it's at the lower number is preferable to then this waffling back and forth.

Now how is it that you've begun to experience better results in California if that is the overall federal, you know, general scenario or is that California on the branch side that's doing better?

Let me respond to that.

Thanks, Bill.

Yeah, California is the branch business. And as we said in our opener, our branch business is really being supported to a large degree by a very strong housing market.

Yep.

And having said that, we are continuing to do actually a large majority of our business is still public works.

Mm-hmm.

So the wheels haven't come completely off the truck in the public works arena and quite honestly in the last 30 days we've seen a flurry of public work bidding that's a little surprising and we're hopeful that it continues.

Mm-hmm.

But they are smaller jobs and so the smaller jobs and shorter time frames don't take the same type of planning as the long-term larger projects as the type of projects that our HCD business would attract. So they are two different kinds of budget issues with the longer term higher dollar projects as opposed to the shorter term, you know overlays and rehab type projects.

Maybe to put a little perspective on the dollar amounts in the proposed highway bills that are working their way through Congress...

Mm-hmm.

If the lower $275 million -- billion dollar bill is enacted --

The lower number. Okay.

Yeah that would be about a 20% increase over the -- Jacquie's doing the arithmetic here for me, over the prior bill, which is a six-year bill which would probably equal about inflation. So it would be relatively flat compared to the -- to the XT bill.

All right, Bill, thank you, Bill, and thank you, Bill.

We'll take our next question from David Weaver with Legg Mason.

Good morning.

Morning.

Can you give us an idea what your new awards were in the quarter and also could you address if you have seen any cancellation activity that's maybe different from normal?

Bill, do you want to handle the awards and maybe Pat can address the cancellations.

Sure. Looking at the awards for 2004, breaking it between HCD and branch, HCD had 208 million 432; branch, 189 million 165 for a total of 398 million.

We didn't bid any jobs, and we were low bidder on the canceled.

And in the branch side of the business, I think we're seeing the normal activity. There are jobs that may be over budget that don't get awarded but nothing that's out of the ordinary. So I think to answer your question there, I think it's business as usual in that regard.

Let me ask: Was the question whether or not we're low bidder on work that got canceled or whether jobs that were scheduled to be advertised got canceled?

Jobs that you were low bidder on that ultimately didn't happen.

I don't think there's any.

Okay.

Unless -- unless we were over budget, which is a sort of normal occurrence. Sometimes we're low bidder and we're over the allotted budget and the agency will pull a job back and rebid it or try to refinance it or make changes or something.

Okay. Any update on -- I think you are waiting for financing on the -- is it Las Vegas monorail, before that can go into backlog; is that correct?

Phase II.

Yes, we are still waiting and we have to get the Phase I going and start to receive revenue before we'll proceed with Phase II.

Okay. And last question. Can you give us an update on how Wilder specifically has been doing?

You know the Wilder business last year had one of their best years ever and coming off that year, we're seeing some decreases in their backlog in this current year, so while they are still going to have a good year, it will -- it does not appear that we'll be quite at the level that it was in '03.

Okay. Thank you very much.

And we'll go next to Allen Mitroni with Cooper Beach Capital.

Hi, thank you. You were talking about cap ex and you said that cap ex would probably be similar range where it was the last couple of years, about 55, 60 million, is that what heard.

Yes the expectation is 58 this year.

My understanding is also did you not have a certain amount of money that you have to spend in the next year or two on aggregate facilities? Is that in addition to the 60 million you're expecting or do you think that's going to hit next year.

Well, it's a little bit of a blurred line. When we're out, Allen, making improvements to existing facilities, that comes out of that 58 million. If we -- however that 58 million does not anticipate a new greenfield facility, that might be quite expensive, by the way, or a large aggregate reserve purchase. It's more normal cap ex. Does that make sense?

Okay. So when you're talking about normal cap ex, you're talking roughly steady state cap ex is probably somewhere in the mid-50s to low 60s, right.

Yes. I guess maybe the best way to distinguish between -- it's something we would characterize as new, is if it's going to generate new cash flow, we don't probably consider it as part of our cap ex budget, but if it's -- if it's there to replace equipment that we wear out, or to make small improvements, small additions to an operating region, it falls in our cap ex budget. But if it's truly a sort of new acquisition or a new business that we would be funding that we view that differently.

Okay. Have you guys thought of -- I mean I realize you've had some challenges in HCD, but you said -- you said something before that I want to explore. You said you're still committed to acquisitions. Do you think looking back in the -- in the ten years you really have been doing acquisitions or large-scale acquisitions, that you have been successful, that it's been a good use of capital versus growing your business and trying to maybe open up another branch somewhere or buying back stock? Because I'm not sure of that answer. And I wanted to hear your --

That's a good question. The answer to that question is yes, we've been successful. The -- when you characterize opening a new branch, with the exception of -- I'm trying to think now but I think with the exception of our business in San Jose, every branch expansion, every primary branch expansion has been through an acquisition. And I would acknowledge that not every one of them has gone as well as we had hoped to begin with, but I would also suggest that there isn't a single one of them that we're disappointed that we did. Looking back on them.

Now that you are where you are, I mean, ahead of -- you're sort of in limbo land ahead of the highway bill coming out and sort of in -- you have a couple of issues you are dealing with, can you talk about capital allocation? Are you thinking about -- the stock is relatively cheap by -- if I take a longer term view. Is that something that you are interested in, in many repurchasing stock? Your balance sheet seems to be in a good situation, versus where it has been a few years ago.

Certainly it's something we look at very closely. We also try to keep in mind that we continue to have what I consider or reconsider an illiquid stock and the more stock we take out of the marketplace does not necessarily benefit the company overall. We are also looking to deploy our capital where we would like to, which is to continue to build the business, looking at going back to the information that Bill talked about, finding additional aggregate resources and expanding our branch business, and increase our ability to get a return on that type of investment. Certainly repurchase of stock is, I have an authorization of support on that. We will do it selectively, but it's not a primary focus of our repurchase program.

Okay. Thank you.

And our final question will come from Steven Devlin with Bear Stearns.

Hi, everybody. Looking at the gain on property during the quarter and then I have a couple more questions after that. It looked like it was 13.3. What's that other 3.3 in there?

Really represents the sale of equipment. And that we didn't see in the first quarter of last year and that's why it's an increase over the prior year.

Okay. And going back to the EPS question for the year, you say it's going to be similar to last year. Last year if looks like it was 148 on a GAAP basis. Are you speaking of that on a GAAP basis at 148?

We're -- we're -- the 148, does include a gain on our SR 91 franchise agreement that was valued at 18.4 million.

Yes.

And so that certainly would need to be taken out of that calculation.

So we're looking more like 120 something?

You're probably looking at that range.

Yeah.

Subtracting that from from last year.

Okay. And then maybe this is an easier way to look at it. Last year EBIT, which I consider a little more comparable, was about 75 million. Are we looking for the EBIT this year to be down or up? Is there some sort of guidance you can give on that.

No. I think what we do at this point in is time, as Bill has expressed earlier that this would be similar to last year but not looking in terms of -- we're looking at qualitatively as opposed to quantitatively.

Okay. Final question. Any more property sales this year?

It is an ongoing part of our business. There no doubt will be. When we have either equipment, property that is surplus, we certainly would do that. Certainly we have grant and land company, they have had a -- a sale that took place here in the second quarter and that's subsequent to the end of the -- end of the first. That will be coming out here shortly but it's -- in its' own right, it's not material but it is part of our ongoing business.

Okay. Thank you.

And that will conclude our question-and-answer session. I would like to remind our audience that there will be a playback of today's call that can be accessed either on the company's web site or by calling 719-457-0820 and entering the pass code 660459. Again that number 719-457-0820, with a pass code 660459. It will be available beginning today at 2 p.m. eastern time, running through midnight on Friday, May 14th. At this time I would like to turn the conference over to our speakers for any additional or closing comments.

Okay, Bill you had some --

Yes, as it turns out, I have a correction to make to a question that Arnie Ursaner made earlier. I had picked up the wrong line, apparently, on the gross profit on the materials. The revenue numbers are true, but the actual gross profit would be 4 million 802 for 2004, versus 2003 which was 4 million 795. And that brings you up to speed as to what the real numbers are.

Okay. Thanks, Bill. All right, everyone we really appreciate you being part of our call this morning. We will be around all day to respond to other questions that you may have. And we appreciate once again your interest in Granite Construction company. Thank you very much.

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