Granite Construction Inc (GVA) 2008 Q1 法說會逐字稿

Good morning. My name is Cynthia and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Granite Construction First Quarter 2008 Earnings Conference call. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Jackie Underdown, Director of Investor Relations. Please go ahead, ma'am.

Good morning. Today I'm joined by Bill Dorey, our President and Chief Executive Officer. I will remind you that today's call will be recorded. Please be aware that if you decide to ask a question it will always be included in our both our live transmission as well as any future uses or recordings. And, as always, shareholders, analysts and employees can listen to a live webcast of the call on our website.

We will be making statements during this call that are forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's earnings press release and the comments made during this conference call and in the management's discussion and analysis section of our Form 10-K and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements.

With that, I will now turn the call over to Bill Dorey. Bill?

Thank you, Jackie. Welcome and good morning everyone and thank you for joining us. Today I'm going to discuss our operating results for the first quarter of 2008, provide some perspective on our business outlook and briefly discuss our long-term strategic plan. After that, we'll open the call up for your questions.

Last night we released our first quarter 2008 financial results and we were very pleased with them. Earnings per diluted share increased $0.34 on revenue of $455 million from the prior's loss of $0.05 on revenue of $488 million. Gross profit, as a percent of revenue for the quarter, more than doubled to 22% and operating income increased to $38 million from a loss of $6 million in 2007.

Our Granite West first quarter performance showed mixed results. Revenue for the division decreased 19% to $240 million in part due to wet weather this year compared to an unusually dry quarter last year. However, gross profit as a percent of revenue remains strong at 17%. Division operating income was $5 million compared with $21 million a year ago.

Many of our branches are performing well and operating in relatively active markets. Other locations are feeling the effect of the housing slowdown and pricing in most of our markets is very competitive and the number of bidders remains high.

Within our construction materials business, sales to third parties decreased 22% to $52 million with a corresponding gross profit of 5%. Demand for our materials is down primarily as a result of the decline in the residential construction market. While pricing continues to be stable in most locations, materials margins have been negatively affected by lower demand in the private sector for our higher margin products such as concrete aggregates.

An important element of our construction materials business is our dedication to the environment. We are committed to developing and using products and processes that save energy, conserve natural resources and reduce the negative environmental consequences. Examples include, base rock that is produced from recycled concrete, hot mix that utilizes up to 35% recycled asphalt products and rubberized asphalt pavement that incorporates rubber from recycled tires.

In addition, we're actively promoting the benefits of warm mixed asphalt, a process whereby hot mixed asphalt concrete is produced at lower temperatures, using less energy and generating fewer emissions than conventional hot mix.

Now let's discuss Granite East. Our Granite East business performed very well this quarter with all three of our regions reporting positive operating income. Revenue for the division increased 16% to $214 million. Gross profit, as a percentage of revenue was 28% and consolidated operating income was $52 million.

We are very pleased with this performance and expect continued improvement as we complete more of our low or unprofitable backlog, resolve other outstanding project disputes and continue to win new projects.

Granite East results were positively affected by the recognition of a negotiated settlement of our outstanding issues on the SR-22 project in Southern California. This settlement was in the best interests of all parties and we are pleased to put this difficult project behind us.

I want to emphasize that the resolution of outstanding contract issues should be considered a normal part of our operating activities. We regularly recognize costs associated with our work as they occur. The associated revenue is not recognized until a written agreement is reached to guarantee payment. Admittedly, this can result in lumpy performance on a quarter-to-quarter basis but it is a normal part of our business.

Total backlog in Granite East at the end of the quarter was down $468 million relative to last year. Keep in mind that our backlog does not include the full value of our joint venture contract for the World Trade Center which is valued at over $1 billion. We continue to book additional backlog for this project as individual work packages are designed and priced.

General and administrative expenses were $61 million for the quarter or 13% of revenue. Our first quarter G&A expenses included the administrative cost associated with our new Columbia River Branch in eastern Washington which was acquired in the second quarter of 2007.

Managing our overhead expense during an economic downturn is always a challenge, especially when we are actively pursuing long-term strategic goals and adding structure to control risk associated with our business. With that being said, we are implementing a number of overhead initiatives and we are committed to improving operational efficiency and effectiveness throughout the organization. This commitment will improve our competitive position now and into the future.

We remain focused on winning work with acceptable profit margins, controlling costs and optimizing and utilizing -- the utilization of our assets. Although our visibility is limited because we have not yet bid much of the work that will be built in Granite West in 2008, we currently expect Granite West 2008 revenue to be in the range of $1.8 billion to $2 billion with a corresponding gross profit margin in the range of 15% to 17%.

In our Granite East business, we now expect to reach an average gross profit margin in the range of 14% to 16% on revenue in the range of $700 million to $800 million in 2008.

As a result of the forecasted improvement in our joint venture projects, we expect minority interests for the total Company to be in the range of $45 million to $50 million for the year.

I'd like to spend some time now briefly discussing our strategic plan. Many of you may not be familiar with our plan and it is something that we will review with you as our business environment evolves. Today, I'll be discussing the key components of our plan and throughout the rest of 2008 I'll update you on our execution against this plan.

Our strategic plan is based on one central idea - to build a legacy for Granite's next generation. The three strategic themes - delivering the goods, claiming new territory and honoring our people.

Delivering the goods speaks to our goal of returning strong operating results to our investors. In our business, this is a constant challenge, especially during difficult economic cycles. It requires us to manage our business diligently with a focus on short-term opportunities and challenges while constantly making progress towards our long-term vision.

Claiming new territory describes our geographic diversification strategy along with our vertically integrated approach to growth. We believe our construction and construction materials businesses are complementary and provide us with a strong competitive advantage. We're confident that if we continue to expand our business model through targeted business acquisitions and investments in construction materials, we can expand our footprint of operations and provide a strong diversified portfolio of businesses that will help to consistently deliver the goods.

Honoring our people is the final theme of our strategic plan and it is particularly important in our industry. We depend on our incredibly talented and committed workforce to design, to bid and build projects, build and operate materials production facilities as well as to administrate our complex business. We're fortunate to have terrific people at Granite who perform for us everyday. Honoring and rewarding their commitment and providing personal and professional growth opportunities are a very important part of our strategic plan.

Once again, we are very pleased with our first quarter results. We're off to our best start ever and believe our diverse business model will deliver a solid performance in 2008.

Now I'd like to turn this call back to our moderator and we would be happy to take your questions.

(OPERATOR INSTRUCTIONS) Jack Kasprzak, BB&T Capital Markets.

Congratulations on the quarter. I did want to ask with regard to Granite East and the SR-22 recovery, can you quantify that for us, Bill?

Well, here's what I'd tell you and I would direct you to our Q which will be filed this afternoon. The total amount of the settlement was $39.3 million. That's what the joint venture received from the OCTA. And as we suggested, it was a negotiated settlement that I think was in the best interests of all parties.

This, of course, is complicated by the fact that we have subcontractors that were in line to participate in part of this settlement. We have partners in this equation, as well. So I'd kind of like to leave it at that and once again emphasize that this is a normal part of our business, Jack. We've suffered through the booking of a lot of those costs over the last several years and this is an opportunity to recover some of that.

Indeed. Can you remind us your -- Granite's share of that project?

55%.

I'm sorry. 55?

Yes.

55%. Okay. I was going to ask, too, about the Oregon project. Can you give us an update there as far as the progress that you might be making on that project?

This is Jim Roberts. I'd be happy to answer that. We are continuing to negotiate with ODOT. We believe that we're making progress. We do not have any executed agreements yet. We're talking to the team up there in Oregon. We believe, hopefully in the next month or so we could very well have an executed agreement and the two of us are working diligently together, ODOT and Granite, to try to get that agreement executed and begin work this year. But we're not there yet.

Jim, is there still a date where that project would begin again or is that also up for -- is that part of this discussion too?

It is up for discussion because we need that executed agreement before we actually begin work. We do believe that if we can get an executed agreement in the next month we will begin work immediately.

And, Bill, you mention in your comments overhead, I guess, initiatives, goals that you guys have set out within the Company. Is there any way to quantify for us what, say, G&A as a percent of sales might be over some period of time as a goal? Or is that the right way to think about it?

It would be really tough for us to try to speculate on that. There's so many moving parts in that equation. Certainly, it relates to our ability to be more effective in our processes and try to capture more of the economies of scale as we grow but it also depends on our -- a big part of that equation is our revenue and what's it going to be.

And, last, I was just going to ask about California. You kind of mentioned some areas of the state are obviously slower because the housing is a competitive environment with regard to bidding but with regard to the number of projects, the size of projects coming out, are you guys still seeing the opportunities that you've been talking about over the last few months, nice size, let's say medium or large sized work that you still feel like you can go after in California?

This is Jim again. Yes, we do. Actually, in the last couple of months I think we've seen quite a bit of the work hit the street. We're fairly happy within the last several months of what's going on in California. We do project out for several more months out in front of us and very nice bids. So, although it is a competitive bidding environment, the opportunities are there and it's just our job to be able to capture those opportunities.

Great. Thanks a lot.

Bob Labick, CJS Securities.

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

This is Jim. I'll try to answer that for you. The first quarter, I think, one of the things that we did notice in the first quarter was that wet weather and that certainly had a negative impact on the materials business. We have a lot of fixed costs there and a lot of maintenance that we do in the first quarter. Our revenue was down and that certainly was offset with fixed costs and so that's why we struggled in the first quarter.

We are seeing pricing stability so pricing probably is not the biggest issue. I think going forward and noting that Granite West certainly builds a lot of the work in the same timeframe in which we bid it, we're comfortable we're going to have a fairly reasonable materials business but a lot of it's going to determine on the bidding in the next several months.

And then you just described some of the California work, the CalTrans work. It appears that (inaudible) are up, I think, 7% or more in the first quarter year-over-year and you guys have grown your awards materially. You gave us a range of projections for gross margin for West of 15% to 17%. Is it safe to say that you're bidding the new current projects in that range or how should we interpret that? And how is the bidding environment in general?

Well, I would interpret it as, that is our expectation of a combination of the current backlog and the forward looking jobs that we're bidding. So -- and combination, also, of our materials business. So that's a complete combination for the entire Granite West business.

Some jobs we're seeing some very nice margin opportunities. Other jobs are reduced depending on the individual market that we're in and that's kind of the nice part about having our businesses located in 15 different areas. So it's a very diverse group of businesses. And I'll tell you, even in California, certain markets are pretty good still and then other markets aren't. So you could go two or three hours down the road and have a completely different market.

Thanks very much.

(OPERATOR INSTRUCTIONS) Rich Wesolowski, Sidoti & Company.

Jim, you mentioned some of the larger, and I assume that's proposition 1B, related work hitting the street. Is the competitive landscape for those larger projects indeed a little more lenient than what you're seeing in smaller work?

Yes. It is, Rich. But it's still fairly competitive. The smaller work you're looking at a tremendous number of bidders. The larger work, it's pretty competitive still but certainly substantially less than the million dollar and less projects.

A couple of calls ago you had kind of flushed out the overarching expectation for a lot of that money in that you thought it was going to be pretty hot in 2008 through just about 2010 and then dropping off substantially from there. Is that still the grand view or is it a bit up in the air at this point.

I think the update that we've got, Rich, from CalTrans recently suggests that it still is going to be through 2011, a very nice bidding environment. They are moving the money around a little bit. I think timing is certainly going to be an issue but all those, the next four years, is still very, very strong. And what happens after that is yet to be determined.

Switching gears a little bit, how much of the $1.1 billion or so in East backlog was characterized as breakeven?

It will take me a second to find that.

And during the meantime --

And while he's looking that up, Rich, it continues to drop. I think we've tried to provide you with that trend over the last several calls. We've got that here. We're just looking for it precisely. But it continues to drop and it's a really good trend and it's contributing to our ability to provide better results at this point.

And while you're kind of flipping through, finally, you attempted to take a longer view on the minority interest category. Is this an appropriate ratio of minority interest to the expected East operating profit that we can expect to roughly hold in future years?

I don't know that we can say that. It is a product, Rich, of the percentage that our partners hold in our ventures and the success of those ventures. I will say it's a good sign that we have a minority interest.

Right.

It's an equation that's dependant a large degree on the percent of share that our partners have.

Thanks a lot.

John Rogers, D.A. Davidson & Company.

Couple of things, first of all, just on the Granite West business. The Superior operations, did they dilute the quarter or add to the quarter? Because this is the first quarter they would have been in -- or the first --

Yes, John, this is Jim. I'd prefer not to dive into the individual business units on their individual financials.

Okay, but I mean in terms of -- we'll see that in the Q, won't we, whether it's additive or whether it was accretive or not?

I don't think from an individual business unit you will see that, John.

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

You mean going forward? Is that what you are suggesting?

Yes. Is that what you're saying?

You can do the arithmetic and it's going to lead you to that general area.

We're just providing guidance for Granite East in its totality.

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

Richard Paget, Morgan Joseph & Company.

It seems like we're going through another round of cost inflation, whether it's diesel or oil that goes into asphalt, the [steel's up]. Have you seen impact on any of the projects that you are bidding?

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

But in more of a macro sense, have you seen some of the DOT saying, "Okay, this project costs $1.2-x now. Maybe we'll scale it back or perhaps delay it?"

I'm not sure I'm seeing that but there's no question that there's some inflation that's impacting the cost to the owners.

Thanks. I'll get back in queue.

Todd Vencil, Davenport & Company.

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

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

That's fair. I would suggest that -- it makes it very hard for people to figure out what the runrate of the business was and I don't really understand it but I'll leave that at that.

Well, it's important to remember that the settlement of SR-22 is business as usual here. Just as we take the increasing costs over a period of time and we don't back those out when we provide those results, we don't want to separate settlements from ordinary business because it's business as usual.

Now having said that, when we file the 10-Q later today you'll be able to see some of the pieces that hit the financial statements and where they hit the financial statements because it hits in a bunch of different places.

That's fair and I wasn't inclined to back that out and I give you credit for it. I'm just trying to understand it.

I guess my follow-up question, then, if you look at the G&A it appears to me that it's been running at about $35 million to $40 million a quarter in the West, maybe 7 to 9 in the East. Is that a good range or is that just impossible to say?

We're not providing guidance on G&A expenses at this date.

Okay. Thanks a lot.

Michael Corelli, Barry Vogel & Associates.

Just staying on the G&A for a minute, could you provide us in detail as far as what the magnitude of the higher accrued variable compensation might have been in the quarter as far as what that might have been up versus a year ago?

I'm trying to remember if that's in our 10-Q. I don't remember. But we talk about the pieces of the increasing G&A in the 10-Q so I'll refer you to that so you can see it when we file later today.

When I look at the G&A, obviously, it was up relatively substantially. But if I look at the Granite West G&A, your revenues were down 19.5% and your backlog is down 12.5% there. But yet your G&A was up 12.5% in the quarter. So I know you made a comment about trying to become more efficient. Did you get caught somewhat here that you were planning for more substantial growth that is not happening at this point due to the economy? And if that is the case, are you now going to try to be taking some of that overhead out to better match what's happening in the business, taking into consideration I know that you're trying to grow the Company?

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

Thank you.

Brian Rafn, Morgan Dempsey Capital Management.

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

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

So, Mike, you would say it's fair to say that you've screened out and looked for some of those issues that are flagged early on in that bidding process that you're just going to avoid and walk away from? You're not going to bid on those jobs?

That's correct. And/or we have ways of mitigate -- erase that before we may not have seen. And by the way, that earlier question about our zero margin backlog, I don't have exact numbers but I believe it's somewhere around 10% right now.

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

Well, the Northeast is still very busy. There's lots of projects on the boards to be bid, not as much design build in the New York area as we see some other places but certainly plenty of different types of procurements.

The Central region, particular in the Texas/Dallas area, there's lots of toll road work with the new George Bush extension and State Highway 121. There's multiple large projects coming out and most of those are bid/build jobs that we're interested in.

The Southeast is still a little bit slow but we are finding some larger opportunities that we're looking at in the design/build area as well as the bid/build area.

So in general we have two of our three regions are still pretty robust as far as bidding and it's going to be getting busy this summer. On the Southeast it's still a little slow but there are several jobs on books to bid in the next few months.

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

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

And on the Granite Land site can you tell us how many real estate projects are in the pipeline and then give us a sense of where you're green fielding on new aggregate quarries is going?

Let me take this, it's Bill. I'll take the land company question. The land company continues to be active in looking for investments. Interestingly enough, we view this environment as an opportunity for us to invest in potentially some pretty opportunistic investments. I think that our primary locations are places where we think we make good deal and we think that there's going to be a future market for our product.

With regard to greenfield operations, we have numerous greenfield operations around our system. I don't think it would be appropriate to try to begin to point out the various locations that we are operating. Some of those are somewhat under the radar screen at this point so that wouldn't be appropriate but we do have, without trying to tell you how many, I'd say more than five pretty active greenfield operations under consideration.

One more for you guys. There's been this huge, certainly, burst talking about green and echo and the issues you talked about costs energy savings and recycling, are those things that you are highlighting that you have continually done or are these initiatives where you sat back and say, "Okay, we've got to posture ourselves and we've got to focus on some tings we can do better in that area?"

Brian, this is Jim. And kind of follow-up on Bill's comments in his opening script. Those are things that we are continuing to upgrade and new things that we are doing. The one thing is the recycling of some of the base rock out of concrete, we've done that for years but we're doing that more prevalent in most of our locations today.

The recycling of asphalt product is a huge issue today and we're working with the states and most of our agencies to try to get more and more of that approved.

The lowering of emissions with lower mix asphalt, this is something we're going to see throughout the entire U.S. in the next probably five to ten years. We are taking a lead on that in several locations in the West and we're proud of that. So our materials group has certainly stepped up to the plate there and taken a lead on that.

So several of these issues that we're working on today, we're the leader in the industry on and we have an environmental group led by a really sharp team that's starting to really gel for the entire Company, as well. And we think it's kind of the way of the future and we look at it as a business opportunity, not a compliance issue anymore. And that's an exciting part of our business.

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

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

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

Yes. They would be a very small percentage.

Very small percent. Thank you, guys.

But overall it ends up adding up very rapidly.

Super job, guys. Thanks.

John Emerich, Iron Works Capital.

Kind of a random question, could you just speak to the tax rate for the quarter and then what you're thinking for the year and is there a meaningful difference between the bulk and the cash rate?

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

25%?

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

Order of magnitude is helpful. And the difference between booking and cash if there is any?

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

Thank you.

Rich Wesolowski, Sidoti & Company.

I read a couple articles about the border fence work going on in the Southwest. It seems like a lot bigger deal than I first anticipated. Is that something you're bidding a lot on or has the potential to kind of you're your West backlog a shot in the arm?

Yes, Rich, this is Jim. We certainly are bidding on the work. We have been short-listed as one of the contractors to perform the work. We are performing on one contract today and recently submitted about three or four more bids. So it's something that we are targeting and hopefully we'll get our share of the work.

How many contractors are on that short list?

Well, they do it by segment. I believe they have three different segments from California to Texas and I think in each individual segment they've got four bidders that are pre-qualified in each individual segment so it could be up to 12 bidders or it could be some of them overlapped and it could be down to three or four bidders in each individual location.

Thank you.

John Rogers, D.A. Davidson & Company.

Just a follow-up. Can you give us a sense of what you have out there in terms of claims that may get resolved this year and then also a sense on scheduling of projects that are going to hit that 25% threshold, kind of when they fall in through the year?

John, we purposely, I think, you know, try to avoid that question for a very good reason. I think as (inaudible) suggested, this is a normal part of our business which would suggest that we have other outstanding issues that we are pursuing. I would tell you that that is true. I cannot give you an order of magnitude that would set up. I'm certain it would set up an expectation that we probably shouldn't do. I'd kind of like to leave it at that.

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

I think that's probably, generally, a fair statement although there may be some smaller things in that guidance that we're anticipating.

And in terms of the 25% threshold?

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

Okay. Thank you.

Richard Paget, Morgan Joseph & Company.

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

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

Thanks.

Brian Rafn, Morgan Dempsey Capital Management.

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

That's a good question, Brian. When we reorganized our business last year we actually broke our business into three different operating groups in the West and one of the key ingredients in that and the reasoning behind it was to be able to share resources in those individual operating groups and geographic locations.

So, for example, in Northern California today our six business units were sharing people and equipment continually from location to location and the same thing in the Southwest. Not as much in the Northwest today but we're trying because we're a little more geographically diversified there but we have an opportunity and when we are probably within a three or four hour drive, we are definitely sharing resources as much as possible to kind of optimize our utilization of those resources and really create an opportunity for our employees as well.

Are you actually staging or [bid-whacking] guys? They are not driving three or four hour a day commutes?

No. Some of them will just go the entire week and come home on the weekends. But certainly they are happy to do that when there's a little bit of a downturn in the economy.

Is there any, I'm going to ask, overtime paid for that or bonuses based upon that relocation or is it just -- I'm getting a sense --

Most of them -- again, every situation is a little different but typically they are happy to go to work and we're happy to have them relocate.

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

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

Thanks, guys.

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

Thank you. We appreciate you all being here. I'd like to maybe acknowledge to the employees that might be listening the terrific work that we've done in the Company, particularly in the East, to get our eastern business turned around and expect it to be a sizeable and important contributor to our business as we go forward. And, clearly, our folks in the West dealing with an altogether different environment making the most out of it as we fully expected that they would.

So, once again, thanks to all the people in Granite that are out there doing our work for us and making it easy for all of us here in Watsonville to respond to questions about the Company.

So thank you all very much. We'll be around this afternoon and this morning if you all have other questions. Thank you.

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