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Operator
Good morning. My name is Julienne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Granite Construction First Quarter, 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.
(OPERATOR INSTRUCTIONS). Thank you. Ms. Underdown, you may begin your conference.
Jacque Underdown - Director of IR
Good morning and thank you for joining us today. Today, I am joined by Bill Dorey, President and Chief Executive Officer; Mark Boitano, Executive Vice President and Chief Operating Officer; David Watts, our Chairman of the Board; Bill Barton, Senior Vice President and Chief Financial Officer; Mike Donnino, Senior Vice President Granite East Manager and Jim Roberts, Senior Vice President, Granite West Manager. Today's call will be recorded. Please be aware that if you decide to ask a question, it will be included in both our "live" transmission, as well as any future uses or recordings. As always, shareholders, analysts, and employees can listen to a "live" webcast of the call on our website.
We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially, because of factors discussed in today's earnings press release and the comments made during this conference call, and in the Management's Discussion and Analysis section of our Form 10-K and other reports and filings with the SEC. We do not take any -- and we do not undertake any duty to update any forward-looking statements.
So, with that, I will now turn the call over to Bill Dorey. Bill?
Bill Dorey - President and CEO
Thanks Jacque. Welcome and good morning everyone, and thank you for interest in Granite Construction. On our call today, I will address the following topics.
First, I will review the strong first quarter financial performance of our branch business in the West. Secondly, we will discuss our recently announced acquisition of the Superior Group of Companies, a vertically integrated construction and construction materials company headquartered in Yakima, Washington.
Third, I will provide you with insight regarding the performance of our large-project HCD business. Fourth, we will discuss the progress of the Granite West, Granite East realignment, we announced during our year-end conference call on February 14th. And lastly, we will provide an update on our land development company, the Granite Land Company.
As a reminder, we are reporting our financial results as Branch Division and Heavy Construction Division this quarter, and we will be providing visibility regarding large-project performance as we transition to our Granite West, Granite East structure.
Let's talk about our branches. The branches carried their largest backlog and arguably the most profitable backlog in our history into 2007. The winter weather in the most of our markets in the West was mild and drier than usual, which helped get us off to a good start.
Our construction materials business performed better than a year ago, driven primarily by strong pricing and thanks to an outstanding backlog and excellent execution in the West, our branch construction activities are off to the best start ever as well.
The current earning momentum suggests that our branches are in a very good position to deliver another terrific year. However, new awards for the Branch Division are down substantially year-over-year, $234 million in the first quarter of 2007, compared with $400 million last year.
This is due to several factors. To begin with, we are noticing more competition in the public sector. Its capacity migrates from the housing market. Secondly, the Proposition 1B projects are not expected to hit the street until the second half of the year. And in addition, we are consciously trying to be very conscious in our bidding strategy. We do not want to book lower margin work now and commit our capacity, because we believe better opportunities are going to be available later in the year.
Clearly, our construction materials business is attracting considerable attention from investors. We agree that this important element of our business is a very dependable source of income that has been growing every year. It provides our overall business with a critical revenue and profitability stream. It is also key to our vertical integration strategy. Our construction activities and our materials business are complementary, and each works better because of the other.
Our expectation for our materials business in 2007 is optimistic, and we believe we will have another excellent year. We anticipate our construction materials business performance will likely be similar to our outstanding performance in 2006.
Our first quarter overall Branch Division results were terrific. Our backlog is very profitable, and we are off to a good start. We remain confident that our Branch Division will perform well in 2007.
Now, I would like to talk about our recently announced acquisition of the Superior Group of Companies in Eastern Washington. The Superior Group of Companies is essentially one vertically integrated construction and construction materials business located in six distinct markets, headquartered in Washington with operations that span from Portland to the Tri-Cities areas and into Eastern Washington and Eastern Oregon. We purchased this business for approximately $59 million, equating to 4.8 times 2006 EBITDA.
Superior will be called our Columbia River Branch and it will become our 13th branch. It will report into the Northwest group of our new Granite West structure. Superior's revenues have averaged approximately $95 million annually over the last three years, approximately $8 million of which is from the sale of construction materials into the retail market.
They operate 13 fixed asphalt plants and 3 portable asphalt plants. They produce about 1 million tons of asphalt concrete per year and they own or lease 18 aggregate properties, which contain more than 50 million tons of permitted reserves. They consume approximately 1.4 million tons of aggregates annually, for use primarily in their own asphalt plants and on their own projects.
We are very excited about this opportunity, and we believe our new Columbia River Branch is a good example of how we intend to expand our vertically integrated business into new growth areas in the West.
Congratulations to the Granite team, Jay McQuillen, [Todd Thomson], Kevin Molloy and others that worked so diligently to bring Superior into the Granite family. Now, let's discuss our large projects business and our first quarter results.
As you can see from our press release, we posted a loss in our large project business in the first quarter. This of course is very disappointing, particularly on the heels of our 2006 large project performance. However, to properly appreciate our large project situation and understand this large project -- how this large project business will affect our future 2007 and beyond, we need to provide you with more detail.
There were four projects that primarily contributed to our poor HCD first quarter. Those projects are as follows. The SR-22, which has been one of the poorest performing projects financially in our history; the U.S. 183-A Design-Build project in Austin, Texas; the Amtrak project in New York; and the Grand Avenue Design-Build bus depot in New York. The common theme with three of these projects is that they are nearly finished, and we believe that the worst is behind us on the fourth project. Let's take them one at a time.
The SR-22 is scheduled to reach its second completion milestone on April 30th. And we are on schedule to meet this milestone. All lanes to this project will be open to the public during peak travel hours on the 30th, leaving landscaping, overhead sign structures, concrete slope paving, minor bridge retrofitting, and other miscellaneous work to be completed.
This project was 89% complete on March 31st. The primary point here is that the SR-22 will be behind us soon. As we have said on prior calls, we believe we have contractual support to negotiate additional compensation on the SR-22, and those negotiations are beginning. However, no additional revenue is reflected on our current forecast, and there is no guarantee that we will be successful in these negotiations.
The 183-A project in Austin was 88% complete at the end of March. This project reached substantial completion on March 3rd and is open to the public. It is scheduled to reach completion -- final completion on July 3rd. On the 183 project, we do not have significant unresolved issues, which will deliver increased revenue and improved profitability.
In New York, through March, we were 57% complete with the Amtrak project and 88% complete with Grand Avenue, and both of these projects, we believe we will have an opportunity to engage in productive discussions regarding the resolution of outstanding revenue issues later this year. However, as we have stated repeatedly, there is never any guarantee that these discussions will result in a successful outcome.
Another project that was not written down this quarter, but has been getting a lot of attention is the U.S. 20 project in Oregon. As I think most of you are aware, we were asked by ODOT, the Oregon Department of Transportation, to develop a proposal to deal with the ancient landslide issues on this project, as well as other issues of which there are many.
In early April, we presented that proposal, which had a value of approximately $61 million. Obviously, on a project initially valued at $130 million, this is a very large number and would be a tough pill for any owner to swallow. Through our discussions with ODOT it became apparent that a termination of this contract might be in the best interest of both the state of Oregon and Granite. With ODOT's concurrence Granite has formally requested a termination of this contract.
We are currently discussing the prospects of termination and we are hopeful that we will be successful in reaching a mutually agreeable resolution to this quite unusual situation. If our negotiations breakdown, we could be forced to recognize considerable additional cost in this project with no concurrent offsetting revenue. Certainly in that instance we would pursue relief in the form of additional compensation. But we would not recognize any revenue until a change order was executed in accordance with our accounting policy. I think it's important for our stakeholders to understand that most of the projects that have plagued us are almost behind us.
Looking at the future I'm more optimistic regarding our large project business than I have been in some time. Our realignment into Granite West and Granite East that we discussed in February has been well received by our employees. There is an excitement regarding our new structure that is very reassuring and building confidence throughout the Company. We are in the process of talking with all of our people affected by the changes and we're implementing our realignment strategy in filling leadership positions as we speak. We are on schedule to have the realignment fully implemented by year-end.
Looking forward and to try to provide you with insight which will help guide your thinking about our large project business for the balance of 2007, 2008 and beyond, let's talk about a few of the newer longer term projects in our backlog. These are projects which will play an important role in turning around our large project performance.
Through March our I-15 Design-Build project in Utah was 37% complete. It is progressing well and is expected to be built per budget. Through March our US 90 Design-Build project in Mississippi was 60% complete and is expected to be very close to meeting the Phase-1 completion date of March 16th to complete one of the twin spans across the St. Louis bay.
If we make the May 16th date the joint venture will be awarded a $5 million completion bonus. All indications are that this project will contribute nicely to our 2007 HCD results, whether or not we're awarded the bonus. The I-64 Design-Build project in St. Louis is only 4% complete and we're still in the design phase.
However, our relationship with the Missouri DOT is excellent and we believe we are off to a very good start. We expect this project to be a significant contributor to our large project business in 2008, and 2009. The World Trade Center is a project, which could serve as the anchor tenant for our northeast region and Granite East over a number of years. We have high hopes for this project.
The Houston Metro could serve the same anchor tenant purpose for our central region in Granite East. Like the World Trade Center, we have not completed pricing of the Houston Metro yet. We expect to negotiate a fair price on both projects that will deliver consistent profitability to our Granite East business over the next several years.
And lastly I would like to mention the Intercounty Connector project in Maryland that we were recently awarded. This project consists of 7 miles of new highway and 23 bridges in Montgomery County, Maryland. It is a $464 million Design-Build project that we're a 55% sponsoring partner. It will be managed out of our northeast regional office.
We are very excited about this project and believe we have priced the lessons learned over the last few years into our proposal. We expect this project to contribute nicely to our bottom-line from 2008 through 2010. The message I am trying to convey is that our large project backlog is improving and our large project financial results will improve as we began working off our newer backlog.
Before I offer my closing remarks I would like to take a few moments to discuss our Granite Land Company. The Granite Land Company is our real estate development company which is charged with managing the Company's real estate assets and investing a defined amount of the Company's capital into real estate development ventures. This business currently has $40 million of equity invested into 18 real estate partnerships.
Our Granite Land Company is a sophisticated real estate investor and land development company and our management team in process is very professional. Our business plan is conservative, and our growth in earnings suggest we are doing a lot of the right things at the Granite Land Company. Our 2006 operating income for the Granite Land Company, not including minority interest, was $10.2 million and we expect the land company to perform better in 2007.
In summary we are very pleased with the progress we're making in our Granite West and Granite East realignment.
We expect our traditional branch business to have another excellent year, and as I noted we're optimistic about the opportunities Proposition 1B will provide in California. However, we don't expect Proposition 1B to significantly impact our branch division bottom-line results until 2008.
Our 2007 outlook for our HCD business remains guarded, particularly in light of the losses we incurred in this quarter as well as the uncertainties surrounding the negotiations on our US 20 project. There is still the potential that our operating income in HCD could breakeven in 2007 and our expectation is that our large project business will post increasingly positive returns in 2008 and beyond.
Before I turn this call back to our moderator, I want to thank all of our employees but, particularly our HCD people, for your support for our realignment in the Granite West and Granite East. Change is never easy and this is significant change. You've all rallied behind our plan and because of that I know it will be successful.
And speaking for Mark Boitano, Bill Barton, Jim Roberts, Mike Donnino Dave Watts and myself, we very much appreciate your support. And now I would be glad to take your questions and we'll turn this call back to the moderator.
Mark Boitano - EVP and COO
Before we turn back to the moderator let me add one thing just in the clarification on Phase-1 completion date in Mississippi is May the 16th, I think we said March in our comments. I wanted to make sure they understand that it is May the 16th.
Bill Dorey - President and CEO
Thank you, Mark.
Operator
(OPERATOR INSTRUCTIONS) Your first question is from the line of Bob Labick with CJS Securities.
Bob Labick - Analyst
Good morning. Congratulations on a strong quarter and start to '07.
Mark Boitano - EVP and COO
Thank you Bob.
Bob Labick - Analyst
I have a couple of questions. First I wanted to ask; in the release you discussed an investment in G&A towards future growth, could you elaborate on, you know, the opportunity there, and how you're building infrastructure and what future growth you're expecting from that?
Jim Roberts - SVP, Granite West Manager
Bob, this is Jim Roberts of Granite West. We have over the last, probably 12 months and significantly in the last three or four months built a team of people that has been analyzing markets and opportunities and really originating and cultivating targets in the west for our growth and expansion and we have a considerable amount of people on staff not doing that and that certainly was one of the reasons why we were able to close the Superior deal in early April. And so that's really what we're talking about with the growth and the opportunity for expansion in our overhead there.
Bob Labick - Analyst
Right, and so it's looking for acquisitions, or new projects or both?
Jim Roberts - SVP, Granite West Manager
Well, to begin with the first part of our expansion is the actual geographic growth. The other part of our G&A increase is to build our organic, construction and materials business and the larger businesses in the geographic regions that we already exist, and that's part of a transition into Granite West with our large project support group as well.
So, really it's a combination of both. Primarily, number one, the geographic expansion and number two, the internal organic growth getting larger with some of the opportunities we have in our current regions as well.
Bob Labick - Analyst
Great. And then sticking with the acquisition you just made, could you give us a little -- just some additional background, how long were you looking at it, what was the process; was there a formal bidding. It seems like a terrific fit for you and wondered if there's more opportunities like this out there.
Jim Roberts - SVP, Granite West Manager
Well, Bob, let me tell you. First of all, this is a very interesting acquisition. The gentleman that owned this company up in the Northwest, we knew that the business was for sale. There was somewhat of a formal bidding process early in 2006. We were not the successful bidder at that time.
And then what happened during the 2006-year, the owner actually came back to us through his agent and we started renegotiations again about in October or early November on a fairly fast tracked environment as an exclusive dealing arrangement with the owner for about 4 or 5 months before the closing.
And that's really not atypical of the way these deals work. We have several more opportunities in the pipeline as well. Some of them we deal exclusively with an owner one-on-one, other times we deal with a broker of that owner who wants to sell a company, and we are on a competitive environment. It does change; every one of them is a little bit different.
Operator
Your next question is from the line of Richard Rossi with Ferris, Baker Watts.
Richard Rossi - Analyst
Good morning everybody.
Bill Dorey - President and CEO
Good morning.
Mark Boitano - EVP and COO
Good morning.
David Watts - Chairman of the Board
Good morning.
Bill Barton - SVP and CFO
Good morning.
Mike Donnino - SVP, Granite East Manager
Good morning.
Jim Roberts - SVP, Granite West Manager
Good morning.
Richard Rossi - Analyst
A couple of things. First, I missed the price you paid for Superior, was that 4.8 times EBITDA?
Jim Roberts - SVP, Granite West Manager
Yeah, that's correct.
Richard Rossi - Analyst
Okay, I just wanted to make sure of that. And on this Oregon Project, they came to you and asked for you to develop a design to handle these ancient landslides, but -- and obviously everybody's got to be reasonable with this contract, but what is your obligation under your original contract?
Mark Boitano - EVP and COO
Well, Richard, this is Mark Boitano. Our obligation is to build this project as defined in the RFP, and we have looked at these ancient landslides as being outside as really the parameters of that RFP. And as a result the State then has asked us to define what the fixes will be, and I think you probably have read some of the information that went out in that regard.
So, as Bill mentioned in the opening dialogue, if our negotiations around termination do not progress, we'll be obligated to complete the project, and in that process we have certain defined methods that will allow us to recoup what we feel are issues that are not provided for in the original RFP and we have to go down that particular path.
Richard Rossi - Analyst
Thanks, all right. And finally with this Huston Metro project, given the manpower capabilities in the Gulf Coast area generally, do you have the capacity in-hand right now to construct that or are you looking to sub it or is there going to be a combination of the two?
Mike Donnino - SVP, Granite East Manager
This is Mike Donnino. This is a CM/GC type project similar in the World Trade Center.
Richard Rossi - Analyst
Okay.
Mike Donnino - SVP, Granite East Manager
And the -- there will be considerable subcontract involved for much of the work is significant utility relocation. The work is not technically difficult as it pretty much goes down the streets--
Richard Rossi - Analyst
Right.
Mike Donnino - SVP, Granite East Manager
-- of Houston and there is some bridge-work and stuff like that, but there is a significant amount of subcontract work that has to do with the systems and the track work and things like that of the project. It is a fairly long-term project as well depending on what the owner decides the final build-out would be.
Richard Rossi - Analyst
Right, great. And then finally on World Trade Center, where is that job at this juncture, I mean --
Mike Donnino - SVP, Granite East Manager
We are proceeding with pricing and negotiating work packages for the owner. We are in the process of repricing the -- with the project on 50% drawings that we've been -- that we've received and that process will be ongoing until a -- the owner decides exactly what the scope will be and we give them a price to do that.
In the meantime, of course to keep the project going, we will be negotiating work packages. For example, the excavation, the underpinning of some of the existing subway, some early foundation type of work, those things will be ongoing and we book those as those work packages are assigned.
Operator
Your next question is from the line of Richard Paget with Morgan Joseph.
Richard Paget - Analyst
Good morning.
Bill Dorey - President and CEO
Good morning.
Mark Boitano - EVP and COO
Good morning.
David Watts - Chairman of the Board
Good morning.
Bill Barton - SVP and CFO
Good morning.
Mike Donnino - SVP, Granite East Manager
Good morning.
Jim Roberts - SVP, Granite West Manager
Good morning, Richard.
Richard Paget - Analyst
In the comments you mentioned that you have some residential construction players encroaching in on the market. Could you give us a little more detail what types of jobs that they're now competing for and potentially what percentage of your Branch Division are they really crossing over into?
Jim Roberts - SVP, Granite West Manager
This is Jim Roberts, and I'll answer that for you. Typically this time of the year there is quite a bit of public works starting to come out to bid. What we've seen is the smaller public works projects, some of the residential competitors of ours are capable of building a very simple-type smaller work and they will typically work their way into that arena for a while. They don't have a great deal of capacity, but they are very competitive and they do like to keep their people busy.
So, it's really that smaller public sector work, and this is not atypical in our really our annual business cycle where some of the residential builders will move over into the public sector in the short-run, but they do not have the capacity to build the larger work the more complex work, and that work is the type of work that we see coming out with the Prop. 1B work later on in the year.
So there's again, in the early parts of the year, it tends to be very competitive and I would not suggest that it's really that out of ordinary, except for the fact that the residential market is a little slower than they've seen in the past and they will go wherever they need to go to get the work for their people.
Richard Paget - Analyst
Okay. I mean, just given the backlog trends in California in the west in the first quarter, both year-over-year and sequentially and plus given the weakness, I mean, is it a little stronger or more competitive than usual, and could this trend kind of continue more than the regular, seasonality?
Jim Roberts - SVP, Granite West Manager
I think that from where we're coming today, that it's not necessarily more than usual; might be more than last year, but overall this is a pretty typical environment. And the builders, to clarify, the builders that we're competing with, from the home building side, are the infrastructure builders, not homebuilders themselves. They are not performing the same type of work we are; it's the people that have been doing their infrastructure improvements.
I'm not suggesting -- I would not suggest that this is something that is necessarily alarming. We anticipated this. We pretty much knew this was going to happen in the first and probably even the second quarter, and again, I think it's just part of what the cycles of the industry go through.
Richard Paget - Analyst
Okay. And then with materials business, and I know you guys have been going at a pretty good pace over the last several quarters, but it's -- the growth has definitely slowed. How much is that as volume; how much of that is pricing and is this just kind of temporary or is this the kind of growth-rates we should be expecting the rest of the year?
Jim Roberts - SVP, Granite West Manager
Our materials business performed very well in the first quarter and really what it came down to from a volume standpoint, it was somewhat similar in terms of units of material being moved from Q1 '06 to Q1 '07. But we have seen an increase in pricing, and I think that it will really depend on the public sector work.
The public sector work tends to utilize more of our materials per revenue dollar than the private sector work does. So, if we can see the public sector work gear-up in the second half of the year, it will have a real positive effect on our materials business. If it does not come into play until '08, then you can see the materials business maybe even have a slowdown. But right now we're seeing a very steady environment in the materials business and we're anticipating similar type results to what we had last year.
Operator
Your next question is from the line of Jack Kasprzak with BB&T.
Paul Betz - Analyst
Hello everybody, actually it's Paul Betz for Jack. I know during the quarter you usually give a break down of the write downs per segment, particularly the HCD loss of 15.7. Was that all write downs or did the other projects contribute some income?
Mike Donnino - SVP, Granite East Manager
This is Mike Donnino; I can kind of, break that out for you. As we said in the release and in Bill's comments there are four projects that had losses greater than a million and as we mentioned them, the 183 in Texas, SR-22 in California and then Grand Avenue and Amtrak in New York. We had one project with a significant gain over $1 million and that was in the -- now, the central region. The -- another breakdown I guess, that we have been providing for you is, Amtrak and Grand Avenue, both bid in -- oh, I am sorry, one was bid in 2002; one in 2003 and the other two jobs were bid in 2004.
Paul Betz - Analyst
Could you quantify the net or the total effect for the quarter?
Mike Donnino - SVP, Granite East Manager
On those five projects, it was about a $23 million in losses and $8 million in gain. So whatever that nets out to.
Paul Betz - Analyst
Okay, thank you. And in your last quarter, you had a settlement of $7 million in the branch division. Was the $19 million in profit all pure profit, or was there another settlement there?
Jim Roberts - SVP, Granite West Manager
We continually Paul, have settlements. I mean, there is nothing significant in the $19 million margin for the branches that would be out of the ordinary. So I would say it's very common.
Paul Betz - Analyst
Okay, thank you very much, and again, congratulations on the quarter.
Mike Donnino - SVP, Granite East Manager
Thank you.
Operator
Your next question is from the line of Rich Wesolowski with Sidoti & Company.
Rich Wesolowski - Analyst
Thanks, good morning.
Jim Roberts - SVP, Granite West Manager
Good morning, Rich.
Rich Wesolowski - Analyst
You also mentioned in the past the division -- HCD, excuse me, ultimately reaching a 4% to 5% operating margin. Are the new jobs that you're talking about, are they expected to get this type of level?
Jim Roberts - SVP, Granite West Manager
I mean, we don't have any further deterioration, Rich. We have high hopes for this new work we have in our backlog, and Mike can speak to this. A lot of the work that I talked about is in Granite East. We think these are pretty darned good jobs frankly, and you know, we're early into some of them, so it may be wishful thinking.
But I think, generally speaking, we think we're off to a pretty good start on a lot of this stuff. And we're hopeful that that pattern that we've witnessed in the last couple or three years is behind us, and if that's the case, our expectations that our Granite East business and our large projects in the West will contribute quite nicely to our overall performance.
Rich Wesolowski - Analyst
Okay. And secondly, I don't think the official CapEx forecast of around $100 million include some of the larger investments in quarries and material production equipment and what not. What do you think your total CapEx numbers are going to look like for '07 or '08?
Jim Roberts - SVP, Granite West Manager
Well, the CapEx budget including, Rich, what we call tentative or extraordinary items, which includes some things in the budget that may actually not get built; a new office for example or aggregate processing facility that may slip into the following year -- was $129 million. An awful lot of that stuff is one-time only, growth-oriented investments into new plants and that sort of thing.
But the board did approve $129 million CapEx budget for 2007, including what we characterized as extraordinary and tentative items, which -- some of which needs further analysis to actually move forward.
Bill Barton - SVP and CFO
And just to provide the details, if you back out what is still yet to be finally approved by management, we have about $110 that's been approved and in our capital budget.
Rich Wesolowski - Analyst
Okay, great, thank you.
Operator
Your next question is from the line of Tom Brinkmann with Davenport.
Tom Brinkmann - Analyst
Good morning, guys.
Bill Dorey - President and CEO
Good morning, Tom.
Jim Roberts - SVP, Granite West Manager
Good morning, Tom.
Tom Brinkmann - Analyst
Just to follow up on an earlier question; people were -- somebody was asking about the residential contractors moving into your space, have you seen any regional contractors from other parts of the country starting to set up shop in California in anticipation of this Prop.1B work?
Jim Roberts - SVP, Granite West Manager
Beautiful question Tom, this is Jim. I haven't really seen any additional regional players. There are regional players here already that we compete with and I know there has been somewhat of a request from the DOT to actually ask contractors to move into California.
Up to-date, I really haven't seen anybody significant from out-of-state move into California, except for maybe a few players in Arizona that creep up every once in a while. But I don't think the level of competition or the players is going to change at least in the next 12 months from what I can see.
Tom Brinkmann - Analyst
Okay. And another thing, just from your press release, just glancing at it, I didn't see a line item for taxes. It seems as though you didn't really have to pay this quarter, or at least not a net tax amount. I'm just curious how that's worked. In the last year, even some quarters when you had losses, there were taxes paid. So I'm curious how to understand the tax situation going forward.
Bill Barton - SVP and CFO
And certainly, this is Bill Barton; and certainly it's becoming more challenging as you now have to measure discreet changes in a particular quarter, so there is great variability as you've seen this last year.
To give you a sense, we have sat down and kind of looked at this year, and we think it's going to average at a rate of 31%, plus or minus -- if that will help you give you some guidance there.
Tom Brinkmann - Analyst
Definitely, okay. And just another follow-up question, the material sales. Now I know that you guys have had -- in 2006 you produced 25 million tons of aggregates, 8 million tons of asphalt concrete, 450,000 cubic yards of ready-mix. How much of that was used internally, versus sold externally for that $410 million worth of sales in materials?
Jim Roberts - SVP, Granite West Manager
Tom, this is Jim again. It's typically today, it's really been changing over the last 10 years, but it's about a 60/40 or a 50/50 relationship, depending on type of work we're doing. 60/40 is probably more accurate. And as we go forward, and we start seeing some more of these large projects, what you could see is us drifting a little bit higher on the use side but the sold side the retail sales has really been taking a major role in our business over the last three or four years, and we've been working very hard to become a retail materials producer. So that's the majority of our product today.
Tom Brinkmann - Analyst
Okay, so 60% external, 40% internal?
Jim Roberts - SVP, Granite West Manager
Yes.
Tom Brinkmann - Analyst
Okay, got you. And of the, I guess, of the corporate-wide depletion to amortization, how much of that is really for the materials segment? Do you have that broken out at all, the BDA?
Unidentified Company Representative
I really don't at this time have it with me. I'm just looking at depreciation overall, which includes amortization. So I can't help you, but I can get the information.
Tom Brinkmann - Analyst
Okay. And also I just wondered about the -- some of the initiatives you have to sort of develop new lands and expand quarries. I've been hearing things in the news just with alerts in the news about various community activities and sort of proposals within community activists talking about your expansion of lands. Can you comment on that at all, especially in California?
Jim Roberts - SVP, Granite West Manager
And this is Jim again. There is never a shortage of input from communities and individuals every time we try to permit a facility. Nothing unusual, maybe a little more vocal than we've seen in the past. But the type of opposition we have to these permits is the same. And it's -- always been our job is to stay very focused, do a first class job, understand the needs of the communities, the neighbors, the needs of the public sector, as well as trying to get materials to literally to the projects themselves. And I don't see this being any different than what it is in the past. We're working very hard to address all the concerns, especially in some of the larger metropolitan areas where we are attempting to permit long-term reserves.
Tom Brinkmann - Analyst
Okay. And finally, I know you said in the past, I believe it was last quarter, you had said that 90% of HCD's losses were caused by $390 million out of the backlog of those projects. Can you give us a little bit of sense of where the backlog stands now of this -- you talked about the projects that are difficult for you and when they're going to conclude, but how much of the dollar amount of backlog did they consist of?
Bill Dorey - President and CEO
We're [burning] off $80 million to $100 million of that quarter, and we're down around $300 million to $310 million now at the end of the first quarter.
Tom Brinkmann - Analyst
Okay.
Bill Dorey - President and CEO
Of the added 1.7 or whatever our backlog.
Tom Brinkmann - Analyst
Okay, so the projects you mentioned are $310 million of the existing backlogs still?
Bill Dorey - President and CEO
Well, the project that has zero margins in them, but there maybe some other small ones in there. But it's primarily those four plus some other --
Tom Brinkmann - Analyst
I see, okay. Congratulations on a good quarter, thanks guys.
Unidentified Company Representative
Thank you.
Jim Roberts - SVP, Granite West Manager
Thank you, Tom.
Operator
(OPERATOR INSTRUCTIONS). Your next question is from the line of John Rogers with D.A. Davidson.
John Rogers - Analyst
Hi, good morning.
Bill Dorey - President and CEO
Hi, John.
Jim Roberts - SVP, Granite West Manager
Hi, John.
John Rogers - Analyst
Most of my questions have been answered, but just to touch on some of the HCD projects again. The losses most recently, is it continuing to be just project execution as opposed to higher material costs or -- relative to your estimates?
Bill Dorey - President and CEO
John, it's a mixture of things. The ones in New York, for example, are changes in scope. The Grand Avenue for example, we've got a large change that's going to extend the project just a couple of months. So that's something that we just didn't know about, and now we -- in also the Design-Builds where you have to get it going and price it and get it into our cost, and then we're proceeding with the process for getting a change order, written for it.
Amtrak is similar type stuff. Changes in the bottom of the shaft that we're encountering and some delays that are [expanding] things a little bit. The case of the SR-22, it's a matter of just cost estimates for the completion of the work in this last quarter, and going forward are just higher than what we thought.
John Rogers - Analyst
Okay. And on --
Bill Dorey - President and CEO
And that's probably the same case with the job in Texas as well.
Jim Roberts - SVP, Granite West Manager
I think, John, and I hope we made this -- made every effort to try to really convey this message, that there are a limited number of these projects that have plagued us. It contributed pretty dramatically to our poor performance over the last year or two. And we think we're getting near the end of those projects. We've tried to explain that in some detail this morning in an effort to, I think, communicate to our investors and our employees as well.
This has been a long road for us. It's been difficult; no doubt, difficult for you all as well. But we think we're getting near the end, and one of the things that is just -- just seems like its always the case is when a job starts to go bad, it just continually gets worse until we're done. And that's what we've experienced with some of this work. Having said that, when we get off to a good start and this work gets off to a right kind of start, it has a tendency to get better. And we have high hopes for some of the newer work in our backlog and we're hopeful that we'll see a different trend going forward.
John Rogers - Analyst
And I understand and I appreciate it, Bill, but I guess I just want to understand. I mean, have you changed the terms in the way that you agree to these projects now, at all -- or is it just you think you've got a better handle on the inputs required?
In other words, if we get a lot of change orders on some of this newer work, which ultimately may be good for you or, is there a risk that we have to go through additional costs as you start these up or?
Jim Roberts - SVP, Granite West Manager
I think there's always that risk. One of the things we've said on calls, and I think we talked about this at the end of the year, maybe at the end of the third quarter last year, is that we've learned a lot in the last couple of years about Design-Build in particular and the risks associated with this work. And I don't think we're the only ones in the industry that have been learning some of these lessons. And we are trying to price the lessons that we've learned and paid for, frankly, into our proposals.
And we've been doing that over the last -- certainly a year or longer, and we are hopeful that those lessons will be part of our proposal and we will have protected ourselves from the standpoint of contingency and risk analysis in this newer work, so that the events that occur on this work won't be quite as dramatic.
John Rogers - Analyst
Thank you.
Operator
There are no further questions at this time.
Bill Dorey - President and CEO
All right. We once again, really appreciate the interest that you all have in our company. And once again I want to really thank all the employees for their support on our realignment. And it is an important change in the Company, maybe one of the largest changes that we've experienced in maybe 40 years or so from a structural standpoint.
And as I said in our opening remarks, we've had enormous support within the Company for this. We really appreciate it. And we -- because of that, I just know it will be successful. So thank you all for your support, and we'll turn this call back to the moderator.
Operator
Thank you. That concludes today's conference call. You may now disconnect.