Granite Construction Inc (GVA) 2010 Q1 法說會逐字稿

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter earnings 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. Miss Jacque Fourchy, ma'am, you may begin.

Thank you and good morning. Thank you for joining our first quarter conference call. I'm here today with Granite's president Bill Dorey, Jim Roberts, executive Vice President and Chief Operating Officer, and LeAnne Stewart, Senior Vice President and Chief Financial Officer.

Before we get started I would like to remind you that this conference call will contain forward-looking statements that should be considered in conjunction with the cautionary statements contained in our earnings release and in the company's most recent SEC filings. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Granite assumes no obligation to update any of these forward-looking statements or any other information.

Please see our filings with the SEC including our most recent annual report on Form 10-K for discussion of specific risk factors. With that I will turn the call over to Bill Dorey. Bill?

Thank you, Jacque and good morning, everyone. On today's call, I will provide you with a brief overview of our first-quarter financial results and an update on our current business environment. LeAnne will provide further detail on our results by operating segment, and our outlook for 2010.

As we previously announced, market conditions are very challenging. We are contending with a highly competitive bidding environment, public funding challenges and limited private development activity. All of this was exacerbated in the first quarter by extremely poor weather conditions across the country. Although the first quarter is typically our weakest due to the seasonal nature of our business, this was one of the wettest and snowiest first quarters we have experienced in quite a while.

Although we were unable to build as much work as we typically do in a first quarter, our teams were successfully winning new work and building bag lock primarily in the northeast and in the Pacific northwest. We are encouraged by the number of projects we are tracking and the number of bidding opportunities in our traditional markets as well as in some of our new markets. As we noted in our pre announcement call, we expect to hear some time this summer whether we have been short-listed by the Navy to pursue building the infrastructure to support moving much of the US military presence in Japan to Guam.

In the renewable energy markets, we are developing teaming relationships with developers, EPC providers, and manufacturers to leverage our capabilities and resources to build various solar and wind projects. With respect to some of our ongoing projects, the Queen Board Tunnel is progressing well. We expect the tunnel boring equipment to arrive on-site in late fall.

And most recently the owner, the metropolitan transportation authority, exercised its option to award a $63 million award package for construction of some additional structures, bringing the total value of that contract to approximately $722 million. As we noted in our earnings release, profit recognition is now expected next year as a result of the increased contract size.

On the Houston METRO light rail project, you may recall we executed a contract with METRO on March 2009 to build four lanes -- four lines for a total of $1.3 billion. We have been given a notice to proceed on $217 million of that contract. Earlier this year we reached an agreement with METRO on some revised terms and a fixed price of approximately $1.4 billion. The next step for METRO is to obtain a Full-Funding Grant Agreement from the Federal Transportation Agency before it can issue the final notice to proceed.

Let's talk about some political issues. The industry is currently operating under the fifth extension of the SAFETEA-LU the six-year federal transportation bill that expired last fall. In March the president signed the hire act which stabilized federal funding to pre-recession pre-recession -- rescission levels, excuse me, through the end of this year. This is good news. However, it is once again a short-term solution for a long-term problem.

While the extension has given state DOT programs a certain level of stability, further delays to enact a long-term bill make it difficult for states to plan multiyear transportation programs. While in Washington, DC last week for a construction industry conference, I had an opportunity to spend time with California Senator Barbara Boxer, who is the chair of the Senate Transportation Committee. Contrary to what I have been reading, she told me she believes there may be a window of opportunity to bring a transportation bill, presumably with valuations similar to Congressman Oberstar's bill, to the Senate floor this year. I think that's an encouraging sign. Senator boxer also told me, however, that the funding challenge has yet to be solved.

In California, the Governor signed the gas tax swap proposal, which for a third straight year ensures that state transportation funding will be protected from proposed budget cuts. This is a positive event and will likely allow some additional 1B projects to move forward in the fall. Now I will turn the call over to LeAnne who will review our first quarter results.

Thank you, Bill and good morning everyone. Beginning this quarter, we are now reporting under our four new operating segments, Construction, large project construction, construction materials and real estate. Our Form 8-K filed on April 28 provides restated financial information by segment for the past two fiscal years on an annual and quarterly basis. Our Form 10Q, which we expect to file later today, will also provide additional information by segment and geography.

Now for our financial results. Looking first at the total company for the quarter, net loss per diluted share was $1.09 compared with the prior year's net income per diluted share of $0.23. Revenues were $221 million, compared with $347 million in 2009. The gross profit margin for the quarter was 3% compared with 20% in the first quarter of last year. Construction segment revenue for the quarter decreased 52%, to 81 million from 168 million a year ago.

On a comparative basis, first quarter 2009 construction segment revenue was positively affected by approximately 46 million relate the to work on the border fence project in the southwest. The majority of work on the border fence was completed in 2009. The gross profit margin for the first quarter 2010 was 2%, compared with 21% last year.

For the quarter, large project construction revenues declined 29% to $106 million, compared with $149 million a year ago. Gross profit margin was 9% compared with 23% a year ago. First quarter 2009 revenue and gross profit includes the positive affect of a $17 million settlement on a project in the east. We did not benefit from any significant settlements in the first quarter of 2010. Also with the function of timing, the large construction segment is generating less revenue from projects that are nearing completion coupled with newer projects that are just getting started.

Finally, revenues for the construction materials segment declined 12% to $26 million in the first quarter of 2010, compared with $30 million in the first quarter of 2009. The gross loss in material sales was $7 million compared with $300,000 a year ago, representing fixed costs being spread over lower volumes. Selling, general and administrative expenses increased 2% to 55 million in the first quarter of 2010, compared with 54 million a year ago.

Selling general and administrative expenses increased 2% to $55 million in the fist quarter of 2010, compared with $54 million a year ago. Selling expenses, which include the cost of business development, estimating, and bidding, increased slightly to $17 million, compared with $16 million in 2009 as more resources are being allocated to estimating and bidding to build backlog for the future. We have retitled this income statement category and are providing more disclosure on this expense in our Form 10-Q.

Our goal is to provide you with more information regarding with $54 million a year ore information regarding our expense structure and enable us to better explain changes within it. We continue to work on improving our cost structure in order to improve operating results and our competitiveness in the market place. Excluding a bad didn't recovery of approximately $3 million in the first quarter of 2009, total expense in dollars decreased year-over-year.

Granite's financial position and liquidity remains strong. Our cash and short term investments were $299 million at the end of the first quarter, which includes 99 million associated with consolidated joint ventures. Long-term marketable securities increased $44 million to $90 million as part of our strategy to invest in higher interest bearing yet highly rated securities. We -- we have also begun the process of renewing our credit facilities that matures in June of next year. We expect to close by the end of the second quarter of this year.

Turning to guidance, we currently expect revenue for the construction segment to be in the range of $1.05 billion to $1.25 billion with a corresponding gross profit margin in the range of 11.5% to 13%. We expect revenues in the large project construction segment to be in the range of $725 million to $825 million, with a corresponding gross profit margin in the range of 10% to 12%. Gross margins for the large project construction segment will be lower this year, partly as a result of booking revenue equal to cost on our new projects.

Construction materials revenue is expected to be in the range of $200 million to $250 million with the corresponding gross profit margin in the range of 12% to 13%. Non-controlling interest for the total company is now expected to be approximately $20 million to $25 million for the year. I'll turn the call back to Bill for some additional comments.

Thanks, LeAnne. There are a few points I'd like to make before we go to your questions. First is our guidance reflects we expect 2010 to be a tough year. There are still too many competitors vying for too few projects. And given the fiscal challenges of many of our key states and municipalities, the near-term outlook for transportation funding remains uncertain.

Second, I'd like to talk about what we believe the key macroeconomic challenges are that will help improve our business performance. As I've said before, the ship will start to turn when the private development market resumes building. While there are some positive indicators that housing start numbers are beginning to improve, there is still an inventory of lots to work with through before there will be enough incentive for developers to improve more land, which is a very important driver of our western markets.

Until that inventory of buildable lots is consumed, we don't expect to see a material increase in demand for our services, or materials in our traditional vertically integrated businesses in the west. In addition, a commitment on the part of the state and federal politicians to address the critical funding deficit for transportation will change the supply and demand equation. We are encouraged that legislators understand this need. The challenge now is to find a way to pay for it.

Finally, I want to acknowledge our employees for the wonderful work they are doing. There is nothing easy about today's market environment. And I appreciate the work that everyone is doing to make the most of our current opportunities. Now, we'll turn the call back to the moderator and we'll take your questions.

(Operator Instructions).

Our first question comes from the line of Rich Wesolowski from Sidoti & Company.

First question, would you say the jump in your construction segment awards versus the prior year and also versus the December quarter is solely the result of a pickup in market big activity or was there also an internal decision to turn more competitive on pricing?

Rich, this is Jim. That's a really good question and I think, interestingly enough, I had just opened up a page talking about our bid results and our awards for the first quarter, probably the most important answer to that question is that we're flat bidding more work. We've bid about 30% more work through the first quarter at this time than we did last year. And our hit ratio is better as well. So we have suggested we're going to be more competitive. But the market has allowed us to bid more work, and the combination of suggesting we're going to be more competitive has really allowed us to pick up more awards.

So it -- is it still the strategy of bidding 2X the number of jobs that you would in a normal market, having a lower hit rate, maybe not versus a year ago but versus where you were in 2006 or 2007 but perhaps holding line on margin better than you had at the also cycle when you ended up at a high single digit gross margin in the branch?

Yes, I'm not so sure. I would say that we definitely are bidding more work because the opportunities are out in front of us. I would suggest that each market is different in how we attach margins to each project. But they're still pretty much in the same level area that they were probably three months ago, Rich.

Okay. And then secondly -- I'm sorry, go ahead.

Can I add something to that? This is Bill Dorey, and I think that for all of those who are listening this is a pretty good opportunity to emphasize that if we're bidding more work, we're expending more resources to do it, and we charge those resources, are estimating talent, engineers and so forth that have been moved into our office environment to actually prepare those bids, and that is adding to our G&A expense and our selling expense, not significantly, but it is making it more difficult for us to show dramatic decreases in our G&A because to generate the business we need, we're having to expend an awful lot of effort.

That's a good point, Bill.

Okay. And then secondly would you agree that the construction margin forecast of 11.5% to 13% reflects the base margin that Granite is able to earn, and it fully reflects the competitive environment or does that, too, still include some benefit of favorable project closeouts that we saw in 2009?

No. I would say, Rich, that that's pretty much inclusive of the work that's bid and built this year. The construction work typically has not had a tremendous amount of carryover into the previous year, so that's mostly where it is at at this point.

Great, thank you.

Our next question comes from the line of Bob Labick with CJS securities.

Good morning.

Hi, Bob.

Just a few questions. One, could you talk a little bit about, particularly in West or construction, regular construction, the competitive dynamics in terms of -- is there any attrition in the market? Is there likely to be consolidation? It sounds like this could take a little while to play out. How do you expect it to impact the significant number of competitors out there?

Bob, this is Jim again. Right now we haven't seen the competitors walking away from their businesses. They're -- they're tough. I believe that they probably are financially in distress. They're trying to see how long this downturn will last. I think in the last probably couple of quarters our position has been at the end of 2010 is when we're going to really see whether or not the competitors will be able to really weather the storm. They seem to have made it through the winter of 2010. And now as they are looking into the summer months, they are trying to pick up some work to see if they can make it, you know, on a longer term basis, so I think give us two quarters and we'll have a much better feel for what is going on there.

Okay, great.

Bob, this is Bill, and just a little philosophy around these cycles. Whether or not we see businesses actually fail is always kind of a tough question to answer. But what we will see is we'll see businesses that will shrink. They'll get smaller. They'll develop less capacity. They'll lose people because they don't have work for them and those people will they find other work. And so when the market does change, it doesn't have to rebound to the pre-recession levels. It simply has to rebound to where it's greater -- it's improved so that there's more demand than there is capacity at that reduced capacity level. And I think that's equally as important, maybe more important, in whether people are actually closing their businesses.

Okay. Great. That makes sense. Thank you. And then on the municipal budget side, could you just talk a little bit about which states you may have more exposure to and how those budgets may be shaping up for the next fiscal year, and if that could cause any project delays or how you think about that?

Bob, I think that the key ingredient here is going to be California. The municipalities are struggling because a lot of their funding mechanisms are tied into state budgets as well and they are trying to figure out who has their share of the pot, however big it may be and so California will be the key ingredient. I don't see the other states being as big of an issue. And so when Bill mentioned that in the script, I would focus on California with that comment.

Okay, great.

I do think we have some other data, if you are really interested in getting down to the details, with some of the other states, I think we can help you, work with Jacque.

Okay. I'll definitely give her a call. Thanks very much.

Okay, bob.

Thanks, bob.

Our next question is from the line of John Rogers with DA Davidson.

Hi, good morning.

Hello, John.

Hi, John.

A couple of things. First of all, in terms of the large projects that you are working on this year that are zero margins that LeAnne referred to, can you give us a rough sense of what portion of the revenue is going to be at zero margin?

Well, for this -- you mean on those -- on those jobs, or all of -- in our portfolio?

Well, I'd love it all. But I guess on those jobs in --

Well, on those jobs, 100% of the revenue would be -- would be zero margin.

And how much is that?

Because they won't reach the profit recognition threshold and until they do, it's cost equal to revenue. And those two primarily jobs are the tunnel project in New York and the METRO in Houston. And I think, as we've said, we expect those projects to turn over into that profit recognition threshold in 2011 and likely in early 2011.

John, what we showed you in the cue where we showed you the revenue from projects that have not yet reached profit recognition. Large projects for three months ended is $35 million versus $5 million last year.

Okay. But of the $725 million to $825 million in large project work that you are expecting this year, how much of that revenue is zero margin?

One way, John, you may want to back into that, we'll certainly try to provide that information. We still are looking at the anticipated growth margins in the long run to be in the mid teens.

Right, that would certainly suggest half of it or more.

There's a percentage there that is pretty strong that is going to show no recognition then.

Okay. That's -- I just wanted to flush that out. Okay. That helps me out. And the second thing is just in terms of the margin ramp that you are looking at in all of your segments this year, now some of that is seasonal, I know, but should we think about it as progressing through the year, as the market gets better and these -- this work that you are looking now starts to roll in or is it a beg step all at once and then levels off? I'm just trying to get a sense of what you're seeing in the market there or what you're seeing in your backlog?

Well, let me take a shot at that while Jim's thinking. If I understand the question, most of work that we're going to burn in the early part of this year, we've already booked.

Yeah.

So that, we've bid it. We've booked it. And it -- and the guidance that we're reflecting -- or we're -- we're giving you reflects what we're going to do out of what we think -- what we think we can do out of that portfolio plus what we think we'll do on the new work that we'll bid and build through the balance of the year, which is probably -- let's just say 40 to 50% of our construction work we'll bid and build between now and the rest of the year, the rest of it is in our portfolio T is already booked. And the guidance that we're reflecting -- we're giving you reflects what we're going to do -- what we think we can do out of that portfolio plus what we think we'll do on the new work that we'll bid and build through the balance of the year, which is probably, let's just say 40% to 50% of our construction work we'll bid and build between now and the end of the year, the rest of it's in our portfolio. It's already booked. I'm not sure that answers the question, but --

No, it helps. I just want to make -- it's not something that there's a bunch of small project work, or what you call your construction group work that's showing up right at the end of the year, you're counting on. This is sort of a normal rebound in seasonally?

Yes. I think it's also fair, John, and you suggested that the market's going to get better as we go through the year and I don't think any of our scripted remarks would suggest that. We tried not to do that.

No. But your guidance for margins is quite a bit better than what you just reported.

Yes.

Yes. We're going to get work done in the second and third quarter. It's just a function of the seasonality, but as far as the macroeconomic environment, we don't think that's going to improve, right?

Yeah, John, typically and you've followed this business for a long time, you know how it works, our second half of the year we typically, I do not know if this could be considered a typical year at all, we typically book work at a little higher level of margin than in the first half of the year. And if there is a productive environment for a lot of work out to bid, that might very well happen. We're not suggesting that it is going to happen this year, because it could be unusual. But typically the work in the third quarter is typically our best quarter relative to the construction portion of our business.

Okay, I'm just looking -- I don't have all of the years in front of me but just last year, Granite West, and I know that the segments have changed, but your third quarter margins were the lowest of the year. And I'm just -- so that's why I'm just trying to understand it a little bit.

Well, we -- keep in mind, we had some pretty significant settlements in the early part of last year. And we had some pretty good border fence work that we finished up early last year as well that, from a gross margin percentage standpoint, really helped us out early in the year.

Okay. I just want to make sure there's nothing particularly unusual.

I don't think there's anything particularly unusual other than the fact that we do have a -- we are working in a tough market environment. And our guidance reflects what our best estimates are as to what we're going to be able to do. But we -- no question we've got our hands full, and we'll have to work hard to do what we've suggested in our guidance.

Okay. And then, one other question, just on the SG&A and, LeAnne, you gave us the selling expenses of $17 million and I understand that you've got people shifting over towards bidding work. But with the layoffs that you had a number of months ago, and the cutbacks that you made, are you realizing all the benefits that you expected from that now?

I think the answer is yes. Having said that, if you just try to find those dollars within the SG&A lines, you struggle a bit because there's gives and takes going on all the time.

Right.

So it's not as if we turn around and hire all of those folks back. But there's constant reassessing and new things that we encounter that causes the various expenses within that line to change.

Okay. Okay. And just, sorry, and last question, tax rate for the year, LeAnne?

We're showing it about, you saw it today, around 16%. I don't think that's going to change materially throughout the rest of the year. So, that's probably a fair estimate for now.

Okay. Thank you very much.

Thanks, John.

Thanks, John.

Our next question is from the line of Alex Rygiel with FBR Capital Markets.

Thank you, good morning, gentlemen.

Good morning.

You commented earlier with regards to inventory of lots, could you expand upon that a little bit more and possibly try to quantify at the current pace of construction activity out there, how many more quarters do you think it is going to take to build out the inventory of lots that's out there? And at what point do you anticipate an upturn? Is that later in 2010 or 2011?

Okay. So let me -- let me give you a -- what I can -- what I -- what I know about this subject. And you all follow these statistics probably closer than we do. But there has been an uptick in the housing starts, and we consider that to be a very good sign. I'm not sure that I can precisely tell you what part of the country is driving that. But it's the first time in some time that we've seen that. And so I'm encouraged by the fact that there seems to be -- the builders seem to be active in the marketplace. They seem to be out looking at land acquisitions for the first time in a couple of years, I do not know how much of that is actually occurring, but our belief is that they are out looking, and I'm talking about the major builders in the country, those are all good signs.

But we also know that when the recession started, it started quickly and it left lots, unbuilt lots in the market that will have to be acquired and built on and houses sold in order to develop a demand for new lots. And that's really what drives our private construction development. Now, having said that, when the housing starts, even if it is on an older lot, it will create demand for our construction materials, concrete, the various things that go into new housing. So, those are all good signs.

With regard to when precisely the developers are going to need new lots, I don't know. I wish I knew that. We don't expect -- I think our scripted remarks would suggest that we don't expect an uptick of any significance in 2010. And I think we'll stick with that.

As it relates to other opportunities you identified, you just referenced again solar and wind. Have you quantified any of that or included any solar opportunity in your 2010 guidance and, if so, could you quantify that?

We have some, what we consider to be some pretty exciting solar opportunities. But none of those, certainly none that would materially impact our business are in our 2010 guidance.

And lastly, your 2010 guidance as it relates to materials suggests an up year in both revenue and margins, could you expand upon that a little bit given your performance in the most recent quarter being below what you did last year?

Alex, this is Jim. Our anticipation is that we're going to see a slight uptick, both in revenue and in margin. Last year we struggled. It was a tough year. All of our businesses have booked some pretty reasonable backlog on their materials business. So they are a little more bullish on it than they were in previous -- than they were last year, but with that said, it's still going to be a tough year. Last year was a very poor year in our materials business, so we're seeing a slight uptick, but certainly it's far less than we'd hope in that line of our business.

Perfect, thank you.

Our next question comes from the line of Kathryn Thompson from Thompson research group.

Hi, thank you so much for taking our questions. First, focusing on the material margins, tagging on the previous question, and I apologize for -- I got on the call a little bit later, but could you clarify a little bit more about the sharp drop-off in your material segment margins in the quarter?

Well, Kathryn, just --

What was the primary driver for that? Is it higher fuel? Is it depreciation?

Kathryn, this is Jim. I would really suggest that the key ingredient there is just the lack of volume. And with that lack of volume for several reasons, and I would put it on weather line to begin with. We have our certain fixed costs that we amortize on a static basis each month and each quarter and certainly weren't able to overcome that in the first quarter with the lack of volume. So, that's the main reason for the drop in gross margin in the first quarter. I would not suggest that it was due to diesel or natural gas or those other products for us at this time.

And do you have an estimation of the overall impact of that fixed cost absorption? Is that something that I can follow up later if you don't have that on hand?

I don't have it on the top of my head. I certainly will be able to help you, Kathryn, after the call.

Okay. Understanding that there are a few lower margin projects still in the construction segment backlogs, how long does it take to work these off and how should we think about 2010 as it progresses, understanding your current backlog makeup for your construction segment only?

Kathryn, the construction segment is really our smaller work.

Correct.

And that usually turns itself no more than two years. Usually, the majority of that will probably turn itself maybe even in the same year. So, very little of that would be stuff that I would characterize as carried forward with poor margins. I would say, probably for the last six months in the work in that segment of our business is consistent margins coming on the carry forward, as well as overbidding on the day so it's very consistent.

But I think you might be making a mistake if you anticipate that the balance of 2010 is somehow going to -- the market's going to improve to where we're going to have better margin opportunities in that construction work. I don't think we're suggesting that.

No. Our guidance doesn't suggest that. Our guidance is pretty much static with where it's been and where it's going. So, we don't see a big change there.

It will turn. I do not want to sound like Mr. gloom and doom, here. It will turn. And when it does turn it will be quick, at least that has been my experience in my life in this business. I don't think we're anticipating that event in 2010.

Okay. And that's really kind of what I was -- the crux of it, that that turn won't happen in the current fiscal year.

We don't think so.

We don't think so.

Okay. And also, could you clarify your large project bid pipeline? I know that you have several sort of larger projects in the back -- in your pipeline, but if you could maybe clarify what some of these projects may be and potential timing for some of your more significant projects?

You want to know what we're bidding, Kathryn? Is that what you are asking?

Yeah. The type of large projects. The geographic focus has been primarily out east, but I know that you've been focusing also on your western group, and if you could talk a little bit about the types of projects that you've been bidding and your best estimate of anticipation of some of these projects actually being one of the next two quarters.

Well, maybe just -- I won't dive into any individual projects, but I'll take the type of projects that are out there and then on a later call we're happy to give you details on individual projects, but we are focusing on quite a few rail projects out in the west and in the east and in the Pacific northwest specifically. And in -- we are looking at quite a few large bridge structures, a couple in the east and a couple in the west and we even have some dams that we're bidding on, two dams, which is kind of nice to see coming back, two retrofits and additions to size of dams in the west. And we are looking at some highway expansion projects throughout the country. So there's kind of a wide array of projects. And we also, as Bill mentioned, Kathryn, have a couple of large opportunities in the renewable energy business that we're working on with some private developers as well. And so it is kind of a cross-section of all parts of our business. And that's really one of the nice, when you look on the horizon, one of the nice parts of our business is the large project pipeline is very, very full. We have as much work as we can possibly bid on the large project side of our business.

And is it a correct assumption just to think that the mix is a little bit broader now than it has been in previous years?

I would say that's a fair statement, when you add the renewable energy market into it, we have really stepped up our efforts in the rail market. We are looking at the government contracting market, we've mentioned that in the past. We are bidding some very large government contracts in addition to the MAC Guam job that Bill had mentioned previously. So, we have broadened our horizons.

Okay, great. Thank you so much for answering our questions.

Thank you, Kathryn.

Thank you, Kathryn.

Our next question is from the line of Avram Fisher with BMO capital markets.

First question, you guys sort of alluded to this, is in terms of the SG&A. Is segment EBIT still something you are going to be reporting going forward or does everything roll up to the cooperate level now?

On a segment basis Avi, we're only going to go down as far as gross profit.

And then, you said the 10-Q will have some more disclosure on SG&A, I guess you are going to break out S and G and A in that or --

Correct. And there are more lines of information within it than you've seen in the past.

Okay.

As well as by geography.

I'm sorry?

As well as by geography.

As well as by geography. Does that change at all anything in terms of your transfer pricing and when you're using materials internally?

No.

No.

Okay.

No. It's just trying to provide more disclosure and hopefully more helpful disclosure to the investors.

Okay. In terms of, some people have talked about it, in terms of your small project guidance, I'm just surprised, given the backlog you're talking about, almost doubling your burn rate on versus last year and the last two years, in fact, I wonder if you could comment on that at all or give a little color on that, also wondering if there's, is there any change in the geographies of your smaller project works, are you going to be doing smaller projects out of your traditionally east geographies? Just trying to get some color on that, get my arms around that.

Avi, I think our guidance on -- you are focusing on revenue there, is almost very similar to where it was last year on the construction side and, yes, we had a slow first quarter. The backlog for the term work is there, we're ready to start as soon as mother nature allows us. So, we think we'll pick it up and get back to a very similar revenue level to last year.

I think it's also fair to say that we've been getting work and we're ahead of our pace from a year ago in the first quarter, booking work. So, we're encouraged by that. I think one of the earlier callers asked, well, what are you having to do to get that work? And the fact is we're bidding the work more aggressively. But we are, in fact, booking the work and that's an encouraging sign.

Is there any change in the, quote, traditional geographies for that small project? Is it still, you know, typically at this point still the west coast?

Yes, it's in the west. And I think, from the standpoint of geography, it's probably moved some out of what I would characterize as the San Joaquin Valley in California, which, traditionally has been a very sizable market for us, but that's really tough out there and there's not a lot going on there, the competition level's very tough, so we're seeing some of our markets there, out of California, picking up some of the slack and that is how it is supposed to work.

Is that going to change over time, you think? That will you build smaller projects in what was a traditionally east segment?

Well, I think if you look far enough out possibly, but I wouldn't plan on that.

Anything's possible if you look far enough out, I guess.

Yes, Avi, the way that we're set up today in our eastern markets, we're not set up to bid the smaller work. I think, to follow on Bill's comments, some day, strategically, that might be the right thing to do, but with the people we have and the setups we have today, that's not our plan.

I got you. And also, Bill, you mentioned something having to do with the California legislator and the changes to the gas tax, my understanding was that under the ABX8 6 and ABX8 9, that the sales tax could now be used for the general fund, the gas tax could be used for the general fund and I thought of that as a negative for California infrastructure spending, it sounded like you were talking about, I don't know if it was the same bill, something else, as a positive for infrastructure spending? So, I'm just trying to understand.

Yes, okay. Let me try to explain it as best I can.

Appreciate it.

And this all occurred in the last three weeks or so. And what Governor Schwarzenegger did is he proposed to kill proposition 42. Proposition 42 was the sales tax on gasoline.

Right.

Proposition 42, for transportation purposes, raised about $1.5 billion per year, which was used to fund Caltrans and transportation in California.

Right.

The problem, as he saw it, and the motivation to kill proposition 42 and trade that for an increase in the gasoline excise tax was that the gasoline tax excise tax could be then used, a certain portion of it, could be used to pay interest on the prop 1B transportation bonds.

Okay.

And absent a revenue source to cover the interest on the proposition 1B bonds, there was no way to sell those bonds and service that obligation. So, they killed proposition 42, traded it for an excise tax of equivalent revenue, and then diverted some of that revenue into the proposition 1B interest obligation, freeing up 1B money to fund that -- to allow that program to go forward. This is a very good thing in the short run.

Right.

And it's probably not a bad thing in the long run either. Because when you think about it, once the 1B bonds are sold and that interest obligation is satisfied, then all of that money will come back to transportation. And prop 42, which was very restrictive, was mostly for mass transit, prop 1B is for everything, corridor transit, right? Highways? I don't know that I would agree with you that 42 was necessarily transit but -- Okay. Yes. There's no restrictions as far as I know on what they can do with this money. It's just like the normal gasoline tax.

I got you. And also, you mentioned -- just two quick follow-up questions, you mentioned dams. Are those for the SFPUC or are there other clients for the dam work that you're working on?

There is one there, yes, and other one is for the corps of engineers and actually we bid a previous one in the San Diego market as well this year. There's a myriad of owners but those are two separate owners, those two dams I discussed, Avi.

I got you. Any update on what's going on the Oregon highway project?

Sure, we're back full bore working on it. You'll see that we did write it down a little bit this last quarter. We had a little -- we had an issue relative to some columns and piers that had moved from a geological formation and so we're reengineering those and putting those back up, we're really going to be going full bore on that project this year and we're hoping to have the majority of it completed by the end of this year. There will be some work to do next year as well. We are on track to complete the job on schedule with the owner.

I got you. And, LeAnne, you mentioned the 10-Q will be filed today, do you have any idea when that will be coming out?

As soon as we can get it done.

All right. Thanks a lot.

Thank you, Avi.

Our next question is from from the line of Brian Rafn with Morgan Dempsey.

Good morning, everyone.

Good morning.

Give me a sense, from the standpoint of the competitive nature, the old branch turn division, turn business versus the -- what you guys call design build. You've said in a number of cases that it's very, very competitive out there. Could you delineate between how competitive it is on bid day between your design build side, your large construction side, versus kind of the old legacy turn business?

Well, Brian, there's --

I'm looking at you, Jim, for that one.

That's fine. Well, Brian, they're both competitive, but definitely different markets. Let's talk about the turn business first. The turn business is what we consider the smaller work and typically it's $20 million and less. And when we look at competitiveness, we'll probably focus on the number of bidders. We're still seeing the ten bidders on the smaller work. So that really hasn't changed.

What we have been able to do on the smaller work, on the turn work, is understand where the market is. And we have reengineered our aggressiveness to the point where, if we think that we can be in the market on certain jobs, we will aggressively go after them. And we weren't at that position last year at this time. On the larger design build work, there is certainly less number of competitors. When you get to a job of $500 million or more design build, we're seeing three to four bidders. It doesn't necessarily mean the level of competitiveness is lower. They are very aggressively pursuing these jobs today on the large projects as well, there just aren't as many bidders. But I would say that both markets are equally competitive today.

Okay. You talked in the past about being somewhat more mobile with your crews when you guys went to the Granite East, Granite West divisions and I'm wondering if you look at the P&L going forward the next few years, as we get some reflation in construction and the markets come back, does the shift of crews in market or intermarket, does that add at all to your SG&A costs of being more mobile?

I'm not sure I understand the question. I will tell you this, Brian, we are moving people around. We are successfully moving people around. I'm happy to suggest that all that work we have in New York, some of the people up in California are now on their way to New York. That mobile workforce will create value not only for Granite, for those individuals as well. I think it actually lowers the SG&A by putting a lot of people that we may want to keep on our payroll and actually putting them out on projects, so that's where we're headed and that's what we're trying to accomplish.

Okay. So there --

The thing that's going to help SG&A more than anything else is more revenue.

Yes, yes, okay. Give me a sense on the materials, the Quarry side, the asphalt one, what range, where would your capacity utilization be?

Well, I mean, we've been up in the range of, oh, 25, 30 million units a year. And we have, that isn't even at capacity. So the capacity discussion isn't even part of our discussion today.

Right, right.

And then, We're not anywhere near, anywhere close to even 25% of our capacity today, Brian.

Okay. You would not be, because of the permitting, that you would not be shutting down any of those on a permanent basis from the standpoint of, just running it at such low capacities?

Well, I would suggest to you this. I think the only thing that I would change there is permanently.

Yes.

I think we would look at shutting down facilities if it was more economically viable to shut them down temporarily until the market came back.

Right.

Shutting them down permanently probably doesn't create a whole lot of value unless you were willing to sell them or do something else with them that had more value. But certainly we look at all of our assets, Brian, and try to optimize the value for Granite, and I think we probably have shut a few of them down or will continue to do that if it's the right thing for the company.

Yes, yes, sure, certainly. Any prognosis going forward, again, a long-term strategic question about vertically integrating with those types of quarries and gravel pits and that type of thing in the the east?

Well, we've had it on our horizon probably in excess of five years. I don't think that the timing in the short term is appropriate to look into that today. It is still part of our long-term strategic plan and I think that time will tell there. We certainly have, the businesses in the east that we have are positioned well. The question earlier, would we look into small projects there, I think down the road we would, but it's not something we're looking at immediately.

Yes, yes, sure. Are you seeing any differences, certainly everything's been jammed up with a fifth extension on safety (inaudible. Is there any differences at the state DOT level relative to being able to fund projects at the state level with states that have surpluses, like in Indiana, or North and South Dakota, that have not been -- had the huge budget deficits like, say, an Illinois has? Are you seeing any distinguishment between states?

Yes. There's certainly states that are in better shape than others. California is the posterchild for problems. I think there's no doubt -- any state -- I would suggest that most states that have relied on big population growths to drive their economy are probably struggling more than others.

Nevada, Arizona.

Yes, Nevada, Arizona, states like that. We're seeing budget problems. And that's impacting our business. I don't know if that answers the question.

No. That sounds good. Thanks, guys. Appreciate it. Take care.

All right. Thanks, Brian.

Thanks, Brian.

Our next question is from the line of Jack Kasprzak with BB&T Capital Markets

Good morning, everyone.

Good morning, Jack.

After this issue of competition, which has been coming up for several quarters now, what role does bonding capacity play in this? If -- maybe companies are going out of business, maybe they are not. But if they've bid work at low or no margin and soaked up bonding capacity, could that be a limiting factor that you might be seeing at some point?

Yes, absolutely. I mean bonding companies traditionally offer bonding capacity to their clients based on the financial strength of that client.

Right.

And if any business, including Granite for that matter, lets their balance sheet become impaired or weak, cash flow considerations are certainly included in that analysis. But if that happens, bonding companies' risk associated with that company goes up. And they, in turn, take a different viewpoint of that particular company. One of the things, however, having said that, that seems to be included in that equation is that smaller contractors with smaller portfolios don't offer as much downside risk as a big company that has a lot to lose, if it fails. So, there's just an awful lot of small companies that continue to get bonding in this environment that we shake our heads at, but that's the way it is.

Okay. Thanks, Bill. On the tax rate, it was asked before, but I just wanted to make sure I'm not missing it. It was 16%, 17% in the first quarter. LeAnne, you're saying that that's a good rate per quarter to use for 2010?

Yes, based on what we're seeing now, I think that's a good rate to use for the rest of the year.

Why would it be lower, meaningfully lower than -- it's been mid-to-high twenties for you guys over time?

The primary driver of that is that our non-controlling interest is a higher proportion of our overall net income.

Okay.

So, that's -- and that's the -- the non-controlling interest isn't taxable to us, and so that's the primary thing that's driving down the rates.

Okay, great. And SG&A expense, I mean, it was up a touch in the first quarter. Any reason reason to think, in terms of, by quarter for 2010 it would not be flat versus the same period last year, or should we be aware of anything in terms of doing a model.

Well, one of the things we have to factor in, as I mentioned in the script, and you'll see it when we file the Q, but the bad debt expense line is kind of screwing us up because we had a recovery last year and this year we've got some expense, it's not very big, but a little bit. But I think if you will factor that out, you can expect on a dollar basis for SG&A to be flat to slightly down.

Okay. Great. Thanks very much.

We have a follow-up question from the line of Rich Wesolowski from Sidoti & Company.

Thank you. And this, I think, is directed at Jim. On the pre-announcement call, you had responded to a question regarding your progress to win large jobs in the west and you mentioned that you are learning how to be more competitive and put a better project proposal together. My question is, is there something different in a large project bidding in the west versus what you do in the east or is it just replicating what you do in the east?

Rich, it is pretty similar. The projects are different themselves, the process is the same. And so, the people that we have in the west, although some of them did come from our previous HCD business, we really didn't have enough people that had that broad experience in large projects. But the format, the proposals, the statement of qualifications is all the same as we perform in the east. Now we actually have, and I think I mentioned it as well, gotten a lot of help from the group in the east and they're now partnering with our teams in the west and really creating better, stronger proposals. And so, that's a real strong movement towards getting some of this large work in the west.

Okay. So, when you say that you're learning how to put a better project proposal together, the Company isn't learning, but the people in the west who perhaps do not have the same level of experience are learning.

That's correct.

Okay, thanks.

And actually they are learning from a lot of those people who did had that experience in the east.

Thank you, again.

You bet.

Our next question is from the line of Kalpesh Patel with Jefferies & Company

Hello, everyone.

Hello, Kal.

I just wanted to get an update on the Utah CMGC projects and how those are progressing into backlog.

Sure, Kal. This is Jim. They're progressing well. There's actually two projects, one we've mentioned several times is the Mountain View Corridor, and a little different I think than our last quarter update, they've actually broken the job in half and they're -- we're looking at an award on -- it's about a $240 million project, we're looking at two awards, one very soon for about half of that. And we are progressing on the proposal and the cost estimate with the owner. As we mentioned previously, we would like it book that in the first half of the year.

And then, the second half of it will be worked on and negotiated after we book the first one, and that will hopefully be booked within the third quarter of this year. So, that's the Mountain View Corridor.

We have another project which is the Dixie Drive Interchange that we are working on as well, or getting very close to booking that one too. That's in southern Utah. And I don't know if we talked about that a lot last time. But that's about a $60 million job. We're a 40% partner on that. And we believe that that will be booked in the next month or two as well.

Now is this stuff on schedule or is it being delayed more than you anticipated?

A little slower than --

Is there something holding things up?

-- I think that they were both a little slower than we would have anticipated but with that being said it is a -- any time you do a CMGC job and you are working with an estimate and negotiating a project with an owner, you work at their pace, so that they're comfortable with what you are doing and all we're really doing here is making sure that both parties are happy with the finished project. It's taken a little longer than expected, but I would say maybe a month or two longer and that's about it.

Okay. And my follow-up question, regarding the weather delays that you guys experienced, is there going to be a profit impact to any of your projects or are your clients going to work with you to reschedule some of the deadlines?

Yes. Actually, there is a profit impact when you have weather as significant as we had in the first quarter. And we have actually put those impacts into our projections for the year already. We will have to accelerate in some cases on some jobs to make up for the lost time for the weather. And certainly, there are additional costs, maybe just by the negative impact of what it does to the soil and other parts of the project but that is all in our forecast as we speak.

So that's in your guidance?

Yes, it is.

Okay, great. Thank you. Good luck.

Thank you.

Thanks, CAL.

At this time, sir, there are no further questions. Mr. Dorey do you have any closing comments?

Yes. I just want to thank everyone for your interest in Granite Construction, your questions. If you have any other questions that come to mind later in the day, Jim, LeAnne, myself, Jacque, we'll all be here for most of the day so give us a call, appreciate your interest in the company, and thanks for joining us this morning.

Thank you for participating in today's conference call. You may now disconnect.