Granite Construction Inc (GVA) 2004 Q2 法說會逐字稿

Good day everyone, and welcome to the Granite Construction's Second Quarter 2004 conference call and webcast. Today's conference is being recorded, and at this time for opening remarks and introduction, I would like the turn the confidence over to The Director of Investor Relations, Ms. Jacque Underdown, please go ahead ma'am.

Good morning. Presenting on the call today will be our President and CEO, Bill Dorey: Chairman of the Board, Dave Watts, and CFO, Bill Barton. Also with us today is our COO, Mark Boitano; Manager of our Heavy Construction Division, Pat Costanzo; and Assistant Manager of our Heavy construction division, Mike Domino.

Before we begin we today, let me remind you that certain matters discussed in this conference call may contain forward-looking statements, reflecting management's believes and assumptions regarding future events, based on the best available information. Listeners are therefore caution not to undue reliance on forward-looking statements, since; they are not a guarantee of future performance and remain subject a number of uncertainties and other factors that could cause actual results to differ materially from forecast. A more detailed description of these uncertainties and risk factors are provided on our most recent filings with the Securities and Exchange Commission, which I encourage you to read a review. A replay of this call will be available approximately two hours after we complete the call. With that I will now turn the call over to Bill Dorey. Bill?

Thank you Jacky and welcome everyone to our second quarter 2004 earnings call. Our agenda today will be as follows. I will provide general overview of the business, Bill Barton will review the second quarter financials, and Dave Watts will provide insight into the political arena and funding of -- the area that affects our business, and we will take some questions. You may have noticed that we provided a great deal of information in our press release. We wanted to provide as much information as possible, after our first quarter earnings we wanted you to understand not only how we are doing, but what factors are contributing to our performance. So let's start with our Branches.

I think the highlight in our Branch business is our bidding success. And we are getting work, our hit-ratio seems to be up, our backlog is up, our revenues will be up for the year, and as a product of that increased revenue, our overhead as a percent of revenue has stabilized and that's a very good sign. We are getting excellent equipment utilization as a product of our increased business and we think that our materials are off to a very good start and should remain strong for the remainder of the year. Our challenge in our Branches is the same challenge that we always face and that is building our work for budget. We work diligently at this always, and generally we feel like our business is on its way back, our Branch business. Let's talk a little bit about our HCD business, and we have good news there as well. We are clearly recovering from the project margin deterioration recognized in our first quarter. And we continue to stand behind our statement and belief that our HCD business in 2004 will out perform, from an operating income standpoint, our 2003 performance despite our first quarter write-downs.

Obviously the additional $5.4m in unanticipated write-downs in the second quarter has made this prediction a closer call. So let me provide you with some insight into this project, which was written-down. It is a New York transit project, it is the very last of the inherited Halmar projects, and it is one of the two New York projects written-down in the first quarter. It is the one in which the unbonded electrical sub failed and that failure occurred right at the end of the first quarter, and we made a call regarding the impact of that failing and it wasn't enough. And we believe that we have recognized all of the down side at this point and the project is scheduled for substantial completion on October 31, and you may be asking what we are doing to ensure that there are no more surprises in New York, clearly this is a top priority and our -- the answer to that question is we continue to granatize that business, we're making great progress in my opinion, and we expect our New York business to perform going forward.

I think if we examined our HCD business as a whole looking forward, we have innumerous opportunities that we are pursuing all over the country and in Canada. We expect to bid approximately $3b in work over the next six months and we currently have approximately a $1b in current proposals outstanding, most of which we expect to here back on it in the next 30 days or so. We expect, we will be successful in getting our share of the work that we bid. Our challenge in HCD is the same challenge we faced in the balance of our business, its execution at the project level, and billing our work for budget. I expect that our HCD project performance will return to near historical levels going forward. So, let me summarize by saying that the external forces that are affecting our branch business and particularly public funding in California seem to be returning to more normal levels. We believe that our branch business is building momentum. We believe that our HCD business will demonstrate what it is capable of in the last six months of the year. Now I will turn this call over to Bill Barton.

Good morning to all. My focus will be on the second quarter financial statement. It should supplement the information that provided in the press release. The first is just a the reminder like one gave the last quarter that we did in 2004 which is consolidation of variable entities to do accounting began first quarter of 2004 did not affect 2003. That is why this discussion makes sure that we are aware of the difference as result of that change. Any way, if the result in consolidation of third joint ventures that were previously proportionally consolidated. Net income is not impacted, but there are some changes in such accounts and revenue and some balance sheet account which I will touch on. I will urge you to look for more information in our queue, which will be coming out shortly.

Starting with revenue moving on down the financial statement real company revenue on the quarter increased to $559m or $89m including $25.6m as a result of Fin 46. Without FIN 46 it was 14% increase. Branch revenue increase by $59m, it's $339m, and it's currently not impacted by FIN 46. HCD increased $30m to $220m, which includes that $25.6m that I talked about associated with FIN 46. Gross profit, we did provide information in the press release, but I will give some of the details. The HCD gross profit for 2004 is $18.4m versus $14.6m, a $3.7m increase over last year, which equals about the same difference that we got FIN 46. Branches up $3.5m, $41.8m in 2004 versus $38.2m a year ago. As discussed in the press release, HCD reflects additional cost breakdown commented on a $5.4m on one project and it was more than offset by profit primarily from three large project that makes 25% complete. Branch position gross profit is up 9.2% as associated with higher volume. As we go on talking about the brands position and gross profit margin, it reflect primarily lower margin on construction work and an increase in revenue for jobs less 25%, which leads us to discussion that we give you each conference call on unrecognized earnings associated with revenue that less than 25%.

Overall for the quarter, it is fairly flat for 2004 versus $54.7m versus $52.7m. But, what is difference is that each division was affected differently. The branches were affected as this amount was increased by $14m while it was offset by HCD with the revenue decreasing $14m associated with the three jobs I talked about that reached 25%, and to balance . GNA is basically down about 500,000. It is more dramatic when you look at the gross comparative revenue 7.8% in 2003 and 6.4% in 2004. There are two offsetting events taking place as a percentage of revenue, we have talk about that. It has primarily increased what we saw with salaries and wages and rate of benefit, but it was off set by variable compensation associated with lower dead incomes of the quarter. So it does reflect how our available compensations can be affected dramatically by lower income or there has been some changes. Turning to operating income, we are looking at $24m, 2004 for the quarter versus $17m, or it's an $8m increase of which gain on sale of property and equipment is $1m versus $200,000 in 2003. If you wanted to again put in the effect on FIN 46, FIN 46 adjustment would be at $3.6m. Turning to other income, the major change here I would just address that you got interest income going up, going down and you will see interest expense going down as well, offsetting each other. And the other net reflects again on sales, or the increase reflects again on sale of the interest of a development project that was sold during the quarter, that's a part of our Granite Land Company's operation.

Net income, again net income is basically netted out at any in FIN 46 adjustment, so this is kind of apples-on-apples, $13.8m, an increase of $3m over 2003, which was $10.8m. The diluted earnings per share was $0.34, approximately $0.08 higher than it was 2003 for the same quarter. The effective tax rate is 34% which is down, clearly from previous years and the difference reflects an impact again of FIN 46. Generally these construction joint ventures are not subject to income, in fact it's on a standalone basis and in fact we ended up with basically lower effective tax rate. To reinforce the improvements in our marketplaces is to draw your attention to the revenue by market sector, that is in the press release as well. Our total public has gone up $52.7m or 18%, but larger increase was on our private sector, which increased 21.6% or almost 40%. So, that again highlights the improvement in the marketplaces. We see California as another indication that's gone up $37m or 24% year-over-year and again the other thing that is notable is that our Northeast continues to be a larger contributor, they have increased from 2003, where we were $42m in revenue to $80m to date, that a 19% increase year-over-year.

As we look at the backlog, the other thing of note is looking again between HCD and Branch, HCD's backlog at 2004 is $1.4m and 2003 is $1.4m approximately the same. But if you take into account, that FIN 46 is the $105.1m adjustment, it's down actually a $122m year-over-year. Branch on the other hand is $660m versus $536.2m an increase of a $123.9m year-over-year, again reflecting the strong business in our Branch operation. The other thing just to comment, normally is half - somewhere during the conference call. Our capital budget continues to be at $58m, we anticipate that our depreciation for the year will be around $52m plus or minus.

It's probably helpful, it is part of the press release we also included a condensed balance sheet to note specifically one area that I would ask a question about and that's a significant increase in accounts receivable, net and I should point out that's again simply six years increase, that amount by $45m, as we consolidate that into our balance sheet. If you reduce the accounts receivable by that amount, you will find that it's consistent with the increase in volume and doesn't reflect a increase in the receivables for other reasons. And with that I would like to turn this over to Dave Watts who will talk about the funding and politics.

Thank you Bill. This is Dave. Of course the two big OPEX, politically, for transportation funding have been both at the federal and state level in California. At the Federal level, an unusual situation, where the Senate is trying to out spend or out authorize the House, but that is the thing going on for over a year, both of which want to authorize more funding than the administration. The conference committee between the Senate and the House failed to reach agreement on this authorization level before they went into their summer recess. It looks like they were making some ground especially in compromising with the Bush administration. It would appear that they have some ingredients there to reach a new bill agreement by the end of this year, but when you consider how many, a few days that the congress has in session before they break, before the elections it's a 50:50 proposition at best. And in that case, the re-authorization, which has been for the extension of the old authorization, which was done until the end of September, would then have to be again extended into the following year. So, that's the basis of it.

If funding continues to be available from the federal government, however the horizon of that funding is limited on these extensions and so it makes it difficult for state planners to get some of the big projects out that they would like to. Of course, the most important State still to us right now is California. That's become a little clear in that he Governor and the legislature did agree on a budget finally. In that budget, there is a substantial increase for fiscal '04, '05 and a lot of that increase is year-marked for what they call us shop account, which has a lot to do with the overlay, the repaving of existing highways as opposed to the stiff account, which are the big projects. So, it looks like there's going to be a substantial increase in the shop account, which certainly, it helps Granite over the next year and in particular the branches.

A good part of this good news with the State however is, only in California can this happen, where $1.2b of the money loaned to the general account or what we call a prop 42 fund, the sales tax on gasoline would be repaid by this Indian gaming casino compact, but as I said, only in California could transportation funding be linked to the defeat of two competing gaming initiatives in November. It's a real stretch, but that's what the facts. So, we have some work to do in this coming election to defeat these two gaming compacts, both of which the Governor is going to be actively campaigning against. So, generally speaking, it's much better news on the political scene, but there is still certainly some wait-and-see on the federal side. If I can make an observation, the fact that the branches have been doing as well as they have been doing against what has been a very uncertain public sector funding is really to me no accident. Looking from my vantage point, the branches had been making a concerted effort to get more private sector business. They've been working hard at this for several years and it couldn't have come at a better time and this is certainly showing itself in the results they are having this year, though it's -- they've been using this problem as an opportunity and doing a good job of it. With that, I will pass it back to Bill Dorey.

Dave. And we'll turn this call back to our moderator for questions.

The Q&A session will be conducted electronically. If you do wish to signal for a question, you may do so by pressing the star key followed by the digit one. Once again, that is star one on your touch-tone phone to signal for questions. And if you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We will come to you in the order that you signal and take as many questions as time permits. We will pause for a moment. And our first question will come from John Rogers with D.A. Davidson.

Good morning.

Good Morning John.

Bill Dorey, you made the comment about the HCD operating profits being higher than '04 expected to be. I am curious so, in terms of revenue, will that be higher or is it just better margins on the business? And I guess what I am trying to ask you is in terms of the projects that you are looking at, it looks like you've got a lot potentially out there. Is this work that will have any impact in '04, or is this really setting up for '05?

Okay, let me kind of respond to those questions in reverse. The work that we are bidding today will not affect our 2004 performance in HCD. It is not the same situation we have in our branches, although as we get closer to the end of the year, even in the branches, the work that we acquire towards the end of the year, all falls into 2005. Part of the reason that we are anticipating higher operating income in HCD in 2004 relative to 2003 is because of increased volume. Going forward, however, we expect that our performance will be directly related to an increase in gross margins on the projects going forward.

Okay. But that is more of an impact in '05?

Well, I mean, we need to sustain that -- those higher gross margins going forward to sustain improved performance, and we expect that will occur.

And then one other question if I could. In terms of the lower selling and administrative costs, and Bill Barton, I think you made the comment about lower variable compensation expense.

Correct.

But if your absolute operating profits are higher, why is there lower variable comp?

It is, actually it is matching the net income as it is earned during the year and at the present time comparatively to last year, we are not at the same level.

Okay, so it is driven off in net income?

Correct.

Okay.

In assets.

Okay, great. Thank you.

And our next question will come from Michael Dudas with Bear Stearns.

Good morning gentlemen, and Jackie.

Good morning.

First question, regarding Design/Build. Bill, could you give a sense of what percent of your public backlog is in that delivery mode? How much, you do cite in your press release a good amount is going to be in that delivery mode, and how can that impact HCD margins and so where we can see some either slighter significant improvement as those projects run through the P&L?

Bill, do we have Design/Build broken out in our, in this information?

Yes, we do. Just, it is not complete. The analysis is complete for the full year, I think we should provide that.

Okay, should we provide that after the call?

That is fine.

Yes, we can do that.

But little more speak to the whole --.

Let me give you a sort of sense for the balance of the audience. Design/Build has been historically, over the last year or so, in the 40% range in our HCD backlog, in our HCD business. So that is a sort of a range that I would direct you to. As it relates to our overall business and our overall performance, we clearly believe that this is an area of our business that holds great promise for us. Having said that, there is risk associated with this work and managing that risk and getting it right on bid day, is a very important element in being successful in the Design/Build area.

Is there a region of the country that is more prevalent in that mode?

More prevalent from?

Your bidding opportunity, like is the Northeast a lot of this business that you are going into yield, how much Design/Build or is it more?

Now I would, I would not say that. I wouldn't want to identify a particular region. Certainly the country itself over the last several years has been moving towards that delivery method for the large projects and we continue to see that evolution. We believe that we are on the cutting edge of contractors that pursue this kind of work, and we believe that over -- currently and over time it will be a big part of our business, and we are very encouraged by where we are in this evolution ourselves and in the marketplace

My second question is maybe for Bill. Looking at your cash in short-term marketable accounts at June 30, can you give a sense of how much the cash is needed for your bonding purposes or how you feel comfortable relative to bidding for projects having a stronger balance sheet, and maybe from the sense of allocating free cash flow, and where you guys thinking about for utilizing some of this cash as you go forward, once again we get through your business base-line?

That's a good question, There's no question that cash and working capital is very significant component of our ability to sustain the assurity, or bonding levels that we need for the work of almost $2b today, and we expect that we are going to continue to grow -- grow that area going forward. And to give you a sense of it, there are levels of cash that we are given as guidelines not specifically, but in general though. It's kind of -- one way of measuring it is, it's about $125m. It's one level, certainly we are looking at strong working capital overall, and once we provide for that in terms of where -- what our priorities reduce of our cash, it begins with CapEx. We talked about that we have a CapEx $58m at this stage of the game. Certainly following that are equal -- is look at acquisitions, certainly where our emphasis is on purchases, which are expenses and time consuming. We are certainly looking for our dealing for green fielding as well another way to , and that resources to -- once you get down below that we certainly have a policy that's been established by our Board, that we want us gaining dividends, that increases with earnings, and following by that we have a priority of making to buy or purchase shares out of the marketplace. But our emphasis generally has been to potentially buy sufficient amount, which is about $2m a year to be dividend to our E-Soft, and then we do have an authorization for repurchase of one that we have used . So there's kind of the listed priorities. We do review that with our Board from time to time, but we think that we have plenty of opportunity to reinvest back into the business, and that's .

And one final question Bill, as you look at your CapEx on the equipment side, you seeing some longer lead times, higher prices, and on a net basis from your new purchase versus your scrap, is that going to be an impact to the budgets going forward?

This is Bill Dorey. I don't think that's going to be a significant impact on our CapEx budget. You are correct that lead-time on certain equipment has grown. We have very strong relationships with most of our suppliers, and typically we are able to get what we need when we need it. But, certainly we have to plan a little better in this environment than we have in the past.

Certainly, thank you.

Yes, before we go to another question. Replying to -- amazing it is sitting here people are listening to this conversation, and they broadly want their information at the side bill. Though to give you a sense of the -- preliminary it's still under review. It looks like the design backlog as of June 30 is $460m -- approximately $460m, and if you want to look at the percent of HDC backlog, it's about 30%, and kind of total company backlog is about 23%. That will give you some numbers to deal with that.

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

Good morning everybody.

Good morning Rich.

Couple of things, could you give us what aggregate profits were for the quarter?

I will. I will give you a summary. The revenue for the quarter was $71.0m for 2004 versus $66.0m. The margins on 2004 at $15.1m, 2003 $12.2m. The gross profit margin percentage 21.3% in 2004, 18.5% in 2003.

How -- in the aggregates, how is pricing holding up?

Mark, you want to respond to that?

Yes, I think -- this is Mark Boitano. What we have seen in most our marketplaces to date is barely stable pricing in this arena, with a slight pressure upward. We see quite -- still see quite a demand in the private sector, both in the concrete aggregate, mainly in the concrete aggregate marketplace. So looking forward as we can, we see it to be holding up

Okay. Switching over, the three projects that hit 24, exceeded 25% completion in the quarter. What projects were those and how big were they?

Okay. .

Sure.

Yes, It may take few moments that I have here. Can we go to the next question?

Sure, let me just give one other and then I'll move on. If I'm not mistaken, in your last conference call, you talked about branch results, operating earnings results being flattish. Are you still holding with that or -?

I'm sorry. I was trying to research the first question Richard, what was that again.

In the last conference call, unless I'm mistaken, I certainly don't mean to put words in your mouth, but I think you said in the last conference call that you thought branch operating results would be flattish-to-down slightly.

Yes, we did.

Does that guidance still hold?

Yes.

Okay. Alright I'll move on, and when you get the three contracts - give it to us.

Okay, Rich, I may have to do it off line.

Okay, fine.

And our next question will come from Bob Labick with CJS Securities.

Thank you, Mike Roesler for Bob. In terms of the larger HCD projects, I mean those greater than $15m. Can you give us a sense of how many or what percentage are passed 25% hurdle at this point?

Most of them. I mean I'm not quite sure if we have that. I don't think we have that right for you, but I would say that well over half, probably closer to 70% are over 25% threshold.

Okay. And could you comment a little bit on the pricing environment that you are seeing particularly in HCD that would give you confidence in terms of your margin expectations for the next several quarters?

I didn't understand, the first part of that was?

What you're seeing in the pricing environment?

We maintain our pricing regardless of what the market is doing. We keep our prices well up and in our work, what we think we do to cover contingency as well as the legitimate margin, and we are getting work. So, I think it's holding, and we are seeing fewer better sort of jobs. It's very promising, heavy construction arena for us is promising.

I think it's important to maybe point this out, if I understand your question correctly. Relative to the next couple of quarters, if that's what you are asking about, the work that we get today in HCD will not affect earnings over the next couple of quarters, because typically that work is large enough that it takes at least two quarters and sometimes as much as a year before those projects begin to reach the 25% threshold. Do you understand?

Sure.

Okay.

Bill, if I could interrupt at this point, as it turns out I do have the information on me for those jobs that went over 25%, and the three of them is the Concourse Line, that's a New York job, the Virginia job, obviously in Virginia; and the Idesfield , which I think is Florida.

No, no that's in North Carolina.

That's in North Carolina.

And our next question will come from Richard Wesolowski with Sidoti & Company.

Good morning everybody.

Hi Rich.

I'm a little confused with the HCD volume and gross margin going forward. I was under the impression that one of the very few risks to overall profit growth in '05, was the volume of work you were going bid -- win in the HCD, but now it seems that the margin is equally or more important than that. Is it possible that we will see a short drop-off in the volume of work versus last year, and still see profit growth in the segment in '05?

And let me see if I understand the question. You are asking about '05's performance in HCD relative to revenue and operating income. Is that correct?

Correct.

Okay.

I am wondering if we could still see a strong showing for this segment next year with a apparently not that strong showing for the new work in the second half of the year.

Let me respond this way. The first half of '05 is always out for us.

Yes.

And '05 is dependent on several things, two primary things, one is the carryover work that we carry into that year from work that we've already booked and to some degree, the work that we will get between now and the end of the year and it will be very speculative for us to try that to give you guidance in '05 relative to what we expect to get over the next six months. Certainly, we've said that we expect to get some work, how large that work is and how much of it will find its way into our 2005 business, we prefer not to speculate.

Okay.

At this time.

Fair enough. Thanks.

And we will take our next question from Brian with Morgan Stanley.

Good morning guys.

Good morning.

Question for you on the design/build content in the $3b project going forward. You guys are bidding on about $3b, I think you said in the press release. Is there a material difference in the content of the design/built in those projects versus what you have already in the backlog?

No. Materially, but the same type of work.

Okay. Relative to, I think Bill you mentioned, cutting edge design builders or you can say contractor. If you were to look nationally in the different areas that you guys are operating, how many cutting edge design/build road contractors similar to granite construction, would you guys be going after? Would it be a half a dozen, a dozen, twenty?

Okay.

Can you give us an idea maybe the last three or four years, how that -- are you incrementally adding more contractors or kind of where that's at?

Yes. I mean, certainly there are more regional contractors that are developing this capability as time goes on. The market place just requires that or will build that capability over time. But if the question is on a national level, I would guess in the four to six range, depending on who you ask, you would probably get it, maybe a slightly different list but we are certainly in a -- I think in a select sort of elite group of contractors on a national level.

And that should be for the next two to three or three to five years of fairly select group or the regionals combining enough to bring their capacity and capabilities up fairly fast?

Typically, the regionals stay regional.

Okay.

And I don't think that's going to change dramatically over time, at least in the near term. It takes enormous financial strength to participate in some of these larger projects and that element in itself is a limiting factor.

Okay. Relative to your comments on the reauthorization of Tier 21, you talked about some of the state project planners as being fairly disruptive with these continual authorization extensions. Is the environment more funny? If you are looking at $3b progress going out, would you guys rather have the authorization extensions with the possibility of having a larger second generation Tier 21 or would you just assume getting more modest second generation Tier 21 and get it in the books?

That's a very good question.

That is a good question. I think probably we would favor getting a bill signed, bird in the hand is certainly a good -- actually if you get a bill and authorization signed, hopefully one that may have reopeners so that after the election, Congress could look at actually increasing the gas tax because it needs to be increased. It's not keeping up with inflation. It is not a percentage. If there had been a percentage of fuel, that would have gone up of course with the price of gasoline going up but it is not, it's just a so many cents per gallon and so it needs to be increased but that's not going to happen. So, after the elections. I guess, yes we would like to have one signed and then have it reopened sometime in the near future for gas tax increase on the federal level.

Okay. Then just a couple of housekeeping. You guys have always talked in the last few years about maintaining your bench strength, has the reflation in the general economy cause a less of retention of your labor forces, is it tougher for you guys to go out and find labor guys in the trades or has it been about the same?

This is Mark Boitano. I think what we're seeing today is what we have seen over the last several years. We haven't noticed any trend one direction or the other so I would say that side of our business is probably as it has been. Watt, do you have any thoughts on your side.

No, I don't see any difference really, we picked up a lot of work and we have it all in the hand .

Okay. Just one final, you guys have had and have selected we'll selectively look Tuck-In acquisitions on the aggregate side gravel pits and sand pits. What do you seeing there pricing wise, just not the right proper locations or the mix of assets or price is too high or, can you kind of give me a sense there where the M&A strategy is standing?

We're not seeing a lot of bargains out there. I guess be the best way to characterize that. There's clearly a lot of competition for these assets when do they come on to market and that's the struggle I think that we face and frankly our competitors as well.

Okay, sounds good. Keep up the good work. Good quarter, guys. Thank you.

Thank you.

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

Good morning, gentlemen. I just want to some, I was a little confused on the guidance comment that you made in your press release; I apologize if you've already clarified this on the call. As I glanced at the first, you said that you would be at the high end of the range on the First Call, which is including the gain you had in the first quarter, quarter up $0.25 or whatever it was. As I looked, just help me understand what you meant by that, the high end of the range is it $1.20, so you're saying if I looked at it, so you're saying that's the high end you are referring to, you're saying with this, including the gain you'd be at about $1.23 for the year, is that what you are trying to communicate to us?

I think, this is Bill Barton and what we're trying to clarify because it seems to be a certain widespread and people's understanding what the expectations were for the year and certainly based on what we have seen happen here and what we expect to go forward, we needed to guide the market up as to a range that was more appropriate, and apparently First Call does include the $0.15 gain that we had in the first quarter with our sale of our PCC operation in Florida.

Close as the ready mix component

Yes, the ready mix component of it. And so we thought it was appropriate to get the guidance online with where the directions going and provide a range that was close to $1.20 would be more appropriate.

So, I'm still confused. You're saying the number that you have in your mind when you give us that, that you are referring to is $1.20 including the gain? That's the high end that you're referring to?

We are talking about that it would -- the $1.20 is the high end, we are not trying to guide people with to $1.20, we are trying to guide them towards it.

Yes, okay. I just wanted to see that was the number you're talking about so you got a people towards in the direction of this kind of range that is numerically $1.20 including the first quarter gain, okay.

Correct.

Thank you very much. Appreciate it, thank you.

And our next question comes from Jack Kasprzak with BB&T.

Thanks. Good morning, everyone.

Good Morning, Jack.

My first question, its a small item but the gain on sale the 1.1m in the quarter, from what of division was that?

Really, it was the primarily equipment sales and that's really run by our equipment department and I can't say I could identify for any specifics.

It's surplus equipment, its lived out its useful life that we typically find a home for us at our business throughout the year.

Okay, fair enough. My second question I guess is to be for Bill Dorey, Bill over time has the amount of work that you guys or maybe for Pat, because its related to HCD specifically. Has the amount of work in HCD that you guys self-performed the percentage did that changed very much over time as you have expanded into a variety of new markets?

I'd say particularly in New York has changed. It's got a lot of volumes there, large part of our total volumes in New York and we are seeing the sub a lot more work in New York, electrical work in the same component. So, the type of work we are doing. So, there is I think, we are stopping towards a -- before our acquisition of Halmar.

And do you think I am sorry.

It might be appropriate to add to that comment just a little. Our policy as a company is to -- on our subcontract is to bond them, to get bonded subs on all our work and that policy has not changed and when I talked earlier about prospective granitizing our business in New York that's one of the elements that has changed since we have been in there and so yes we are and Pat is absolutely correct, we are subcontracting more of our work particularly in the New York area but the work that we are subcontracting today were subcontracting for the most part to bonded subcontracts.

So, then can I assume that that would be, material I guess improvement in terms of security on your margins rather than trying to self-perform more of the work in these various places like New York or would you try to self-perform more work going forward?

This is basically special type work.

So, you wouldn't do it to begin with.

Yes.

Okay, thanks guys.

And will take a follow up from Richard Rossi with Morgan Joseph.

Just one of the thing, I am sorry, but I missed when you were talking about what you are bidding on over the next 30 days. I didn't catch that number?

It was the next six months, Rich.

I know the six-month is $3b, but I thought you --

What I said was that I am sorry if I didn't make this clear.

No probably it was me.

We have approximately $1b worth of proposals that we have out in the marketplace at this point, number of large projects that are being considered by our clients the owners and we expect to hear back on a number of those in the next 30 days. So, this could be an interesting next couple of months for us.

Okay and one other thing, fuel costs, how are they affecting your energy cost generally? I mean obviously it's a negative.

I think as we mentioned in last quarter's conference call, we are trying to keep tabs on what's happening to the fuel cost. We adjust our equipment rate accordingly which is the -- one of the biggest impact is obviously is in our equipment and we try to keep appropriate escalators in contingencies in our jobs that are going forward. So, while we are seeing some upward pressure in fuel, we are hopefully taking care of that in the way, which we would be in the works.

Is there any chance of a positive windfall if fuel cost comes down fairly dramatically in a short period of time?

Well, yes sure if we got that contingency built into our work that's covering that exposure and the fuel prices drop we are going to -- that component will fall to our bottom line.

There is no give back to the clients on any kind of a index base.

Typically not. There are few, we do have some indexes on select contracts, but generally across the Board that would be something that risk is taken by the contractor, so if in fact there is a one fall it would come back to the contractor.

Okay, thank you.

Steven Zeflin with Bear Stearns.

Yes, hi good morning guys.

Good morning.

A quick question on the new awards during the quarter. I have about $550m is that correct?

I filed about right, let me just check my numbers. The awards yes, $551m.

Okay. And then backlog for HCD at the end of the quarter, 1.37 or something like that.

Yes. 1.395, no its 1.378.

Okay. And the final question, the $5.4m that was taken for the profit cost over run, if you would have, can that be added directly to operating income to sort of get what your run rate would have been for the quarter, is that for HCD?

With out that event?

Yes.

Yes.

So, 15.7 during the quarter in operating income.

Yes. We are driving that fast.

Okay.

If we had not had that experience or that event, yes that would have dropped, it would have changed operating income by that amount directly.

So that was like 7.6% margin. Is that sort of a good run rate going forward in the rest of the year? Is that high?

I am lost with 7.6. Tell me where is that coming from?

I am saying, I am saying that if you would have added the 5.4 to the 10.3 in operating income for HCD.

Right.

You get like 7.6% operating margin.

Yes. Is that a, if the question is just that all we can expect going forward?

Yes.

I rather not speculate there. What I have said is that, and I think what I would direct to you to do would be to go back and look at the historical performance of our HCD business at a gross margin level recognizing that it bounces up and down, but try to do some averaging and I think that will help direct you to the right, in the right area going forward.

Okay thanks.

Yes I think it's important also to appreciate that we do get these bumps going back and this 25% element in our accounting process does provide us or provide low volatility in that history. So, I would once again encourage you to do some averaging.

And it appears we have no further questions on our question roster. I would like to turn the conference back to our speakers for any additional or closing comments.

Well, if you have no further questions, we do appreciate you all joining us this morning and we will be available the rest of the day for questions -- further questions if you have them, and we appreciate you all joining us this morning. Thank you very much.

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