Granite Construction Inc (GVA) 2011 Q2 法說會逐字稿

Good morning. My name is Lee and I'm your conference operator today. At this time, I would like to welcome everyone to the second quarter 2011 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. Fourchy, you may begin

Good morning. I'm here today with Jim Roberts, our President and Chief Executive Officer; and Laurel Krzeminski, Vice President and Chief Financial Officer. Before we get started, I'd 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 other information. Please see our filings with the SEC including our most annual report on Form 10-K for discussion of specific risk factors. With that I'll turn the call over to Jim Roberts, Granite's President.

Thank you, Jacque, and good morning, everyone. On today's call, I'll provide you with a brief overview of our second quarter financial results and an update on our current business environment. Laurel will provide further detail on our results by business segment as well as a recap of the 2011 guidance. Our second quarter got off to a slow start as weather hampered our ability to work in several markets throughout the west.

Despite the weather, the bidding environment remained active providing us the opportunity to increase our backlog of work particularly in the state of California. As we said last quarter, a few of our markets are seeing shorter bid lists as some of our competitors reached capacity. However, shorter bid lists are not necessarily translating into increased margins. Across the board, competition remains intense and margins continue to be under pressure.

Competition has also heated up for large projects, as companies look to maintain or increasemarket share in a very tough environment. In addition, we are seeing some bidding delays as owners struggle with funding challenges. As you're well aware, federal and state budget deficits coupled with the uncertaintysurrounding the re-authorization of the federal highway bill continue to hinder the planning and implementation of major capital programs.

While the large-project market is more competitive than it was a year ago, there's still a lot of opportunities for us to grow the business over the long term. We continue to target more than $9 billion in large projects that are scheduled to bid over the next 12 months. Two of the mega projects that we are targeting in the $1 billion range include the Dulles Metro rail extension project in Virginia and Goethals Bridge project in New York. Both are proceeding albeit somewhat behind schedule. We currently expect to bid both of those projects in first half of 2012. With regard to our existing backlog of work, the construction season is well underway and our teams are successfully building work across the country.

Starting in the west, at the SR 520 project in Washington, it's progressing on schedule with design approximately 50% complete. Typical for a design build project, construction work has begun with excavation and grading operations underway throughout the corridor. We anticipate booking profits on this project later this year. Our Mountain View Corridor project in Utah is forward in all five segments with major work items. Including utilities, earth work, drainage systems, bridge structures and asphalt paving. We'll be hosting an investor tour on this project later this month.

The Houston metro project is moving ahead in three corridors with most major work items including utilities, concrete paving and rail welding underway. We continue to make progress as the owner secures the remaining financing. The full funding grant agreement is now expected no later than November of this year . In the meantime, Houston metro appears to have sufficient funds for us to maintain our planned schedule of work.

We expect to begin recognizing profit on this project in the fourth quarter of this year. The Western Wake project in North Carolina continues to make good progress and is meeting all critical milestones in terms of design, permitting, and construction. The project began its first major phase of concrete paving in early May and is currently over 40% complete. On the Queens Bored tunnels construction project in New York, I'm pleased to say that the first boring machine began tunneling in mid-May and the second will start this month. Production rates to date have been encouraging but it's still far too early to be overly optimistic.

Okay, let me now address the funding situation at the federal level. On July 7, House Transportation Infrastructure Chairman John Mica unveiled a proposal that would authorize $230 billion over a six-year period for highway, transit, and safety programs. The $230 billion proposal equates to a 30% cut to current funding levels. An unacceptable proposal in my opinion.

In response, Senator Barbara Boxer released an outline of the Senate proposal that stipulates a two-year bill at current funding levels. While both the House and Senate transportation leadership remain confident that a bill will get passed this year, we are cautiously optimistic there is enough time on the congressional calendar after the August recess to reconcile and pass a bill by the end of the year. As many of you know, we are not sitting on the sidelines with this issue. Granite, along with other companies and associations in our industry are working together to ensure funding levels that at a minimum remain flat until the economy improves and the opportunity to increase funding is a feasible option.

Most recently, I joined my counterparts from Caterpillar, Vulcan, and Oldcastle in Washington D.C. where we met with over 30 members of Congress. As a group, we focused our efforts on the House Republican leaders and stressed the following key messages. Number one, congress needs to prioritize infrastructure spending as a key investment that will drive economic and job growth and help the US with its global competitiveness. Number two,fiscal year 2011 funding levels must be maintained. Number three, a six-year bill is important, but a two- or three-year bill at full funding is better than a six-year bill at 30% reductions. And lastly, a 30% cut will result in significant job losses throughout the industry, as well as reductions to state and local transportation programs.

In summary, we continue to operate in a very tough environment. Macroeconomic challenges are confronting many aspects of our business today and through at least the balance of this year. In response, we have and we continue to take steps to reduce our cost structure, optimize our asset base and improve operating efficiencies. It is also incumbent on us to remain selective about which jobs we bid and constantly be diligent in how we assess and price risk.

As I said before, our goal is not to build backlog over night, but to build high quality backlog that will provide the best return to our shareholders. While we are not out of the woods with this down turn, I'm pleased with the amount and quality of our current backlog and I remain confident in the long-term outlook for our business. I will now turn the call over to Laurel, who will review the second quarter

Thank you, Jim, and good morning, everyone. Looking first at the total company for the quarter, net income per diluted share was $0.13 cents compared with prior year's net loss per diluted share of $0.18. Revenues were $485 million, compared with $454 million in 2010.

The growth margin for the quarter was 9% compared with 11% in the second quarter of last year. Construction segment revenue for the quarter increased 10% to $261 million from $238 million a year ago. As a result of a more competitive bidding environment, gross profit margin for the second quarter decreased to 9% compared with 10% last year. Large construction projects revenues increased 6% to $162 million, compared with $153 million a year ago. Gross margin was 8% compared with 14% a year ago, due to an increase in revenue from projects that have not yet reached our profit recognition threshold.

Additionally, the second quarter of 2010 benefited from a settlement of a project design issue. Finally, revenues from the construction materials segment declined slightly to $58 million in the second quarter of 2011, compared with $61 million in the second quarter of 2010. The growth margin on material sales was 15%, compared with 7% in 2010 , reflecting increased production efficiencies to meet growing construction backlog. Turning to backlog, total contract backlog at the end of the second quarter was $2.1 billion compared with $1.6 billion a year ago.

Backlog in our construction segment increased 35% compared to last year due to a very active market in California. During the quarter, we were low bidder on a $64 million bridge redecking project in Florida which, pending final award, we expect to book into the third quarter backlog. Also not included in backlog is approximately$280 million associated with the Houston metro project, as well as $168 million associated with the highway project in Texas that we were low bidder on earlier in the year. All of this work we anticipate booking into backlog by year end.

Selling, general, and administrative expenses decreased to $39 million in the second quarter of 2011 compared with $51 million a year ago. Of the decrease, salaries and related expenses decreased $10 million and other expenses decreased $2 million, driven by our ongoing efforts to reduce our cost structure and discretionary spending. Granite's financial position and liquidity remains strong. Our cash and marketable securities totaled $318 million at the end of the second quarter, which includes $90 million associated with consolidated construction joint ventures. The tax rate in the second quarter of 2011 was 25%, and we currently expect our fiscal 2011 rate to be in the range of 23% to 27%.

Turning to guidance, we are reaffirming our guidance for the three operating segments and updating our range for non-controlling interests. Construction segment revenue is expected to be $1.0 to $1.2 billion with corresponding gross margins between 9% and 11%. Large project construction segment revenues are expected to be $650 million to $850 million, with 13% to 15% gross margins, and construction materials revenue is expected to be $170 million to $200 million with 7% to 9% gross margins. We now currently expect non-controlling interest for the total company to be in the range of approximately $12 million to $16 million for the year.

With that, I will now turn the call back over

Thank you, Laurel. So in summary, we have an excellent backlog that our field crews will deliver quite nicely on in all three segments during the remainder of the year. We also have a full pipeline of large projects to bid between now and the end of the year which, I believe, our bidding and field teams will deliver on in 2011. It is also clear; however, that we continue to face strong head winds.

While I don't see market conditions improving overnight, I'm confident that the necessary investments to sustain and improve our infrastructure will drive demand for our products and services over the long term. These are unprecedented times, and we have an extraordinary team in place to meet these challenges head-on.

I would like to take this opportunity to thank our employees from coast to coast for your diligence, your dedication, and your absolutely professionalism. You're doing a tremendous job, and I'm extremely appreciative for the work you do and the commitment you make to Granite each and every day.

With that, I'll now turn the call back to our moderator and we'll be able to take your questions. Thank you.

Moderator, we're ready for questions.

(Operator instructions). The first question is from Nick Coppola with Thompson Research. One moment, sir.

The top line came in light this quarter and guidance was maintained. So I'm wondering what gives you confidence in the second half of the year? And then maybe as kind of a follow-up to that, how much of the miss was from weather. I guess where you would assume that -- where everything's just being pushed forward.

Sorry, Nick, the first part of your question was cut off. Can you repeat it please?

Sure. Just talking about the topline came in light in the quarter but guidance was maintained, so what gives you confidence that the back half will kind of make up the difference?

Okay, Nick, well, I think that as we said, you know, the primary driver for our business I believe is the backlog. We have a really increased our backlog from $1.6 billion last year at this time to $2,1billion, so we have the work out in front of us. We did hit a little rough patch in April and May,and actually some of June as well. Very wet weather in the west. And really slowed down most of our asphalt paving operations and our smaller construction work.

That's where we believe that we will make that up quite easily in the second half because we have the work out in front of us and our crews are out building the work as we speak, and they anticipate to build all the work that we missed in the second half of the year. That's why we kept our guidance where it is because that work is still anticipated to be completed in the same timeframe.

Okay. And then just looking at the large project margin, I understand there's that $40 million differential in revenue that didn't hit proper recognition. Is that the biggest piece of the declining margin for large projects or are there also projects coming in at lower margins as well?Is that not the case?

Well, Nick, I think there's two components that drive that actual margin for the quarter. The first one certainly is the differential with that -- with the not meeting the threshold. I think there's about half of the differential can be attributed to the increase in not meeting threshold recognition and the other half really is the lumpiness of the business. Certainly we will -- if you heard the call relative to the fourth quarter, we will put some projects into the 25% completion of the fourth quarter, and we didn't have any of those that hit in the second quarter.

So again, we really tried to guide our investor community not to focus especially large projects on the quarter to quarter basis because of the lumpiness in that business. So again, it'snot because we had projects coming in less than anticipated margin. Actually, our projects are doing quite well andare within the range of expectation for bid-day margins.

Yeah, Nick, on the large project forecast changes, we had one project that was an increase and one that was a decrease and they netted out to be a decrease of about $300,000.

Okay. Thank you very much.

Yeah, Nick, more of a timing event than anything.

Understood. Thank you.

You bet.

Your next question is from John Rogers, DA Davidson.

Hi, good morning. Can you hear me?

You bet, John. Hi.

First of all, in terms of the -- I guess about $230 million worth of large project work that you were low bid on between the Houston light rail, Texas highway, and the Florida bridge work, did that all come in the third quarter or some time in the second half?

I would say safely some time in the second half. Certainly it will come in -- some of it could come in the third quarter, but that's why we said the second half of the year.

That's why I wanted some clarity. The $9 billion that you referred to in potential work out there, and you mentioned a couple of large projects, how does that compare to -- I don't know, where we were months ago, a year ago? What kind of a pipeline is that? Because I mean, there's always a fair amount of work that's potentially out there.

Yeah, I think that, John, as we looked at it, we still are turning down certain jobs to bid because we're trying to be more selective. So I would say that when we look at a pipeline of $9 billion for us, it's pretty static from what it was before.

Now, that doesn't mean that the market is better or worse. What it means is that our pipeline is really at that point in time filled up for opportunities for our company. So I can't tell you from a bigger perspective whether or not it's increasing or decreasing.

Okay. But in terms of for Granite, I mean, do you look at that as an improving opportunity given that you're targeting projects that you think can be, I'm assuming, more profitable than if you're going after everything?

I don't know if it's call it improving, I'd call it pretty much the same, John. What we're trying to do is go after projects that we have the best advantages on and the best shot at being a little better on bid day or best value on bid day, I should say.

And also, opportunities to have higher increased gross margins. And there's plenty of those available to us. So that pipeline is still in the same environment it's been in.

Okay. And then in terms of -- on the smaller project work, California you mentioned and had a lot of activity in the second quarter. Was that just trying to get in ahead of the close of the budget or -- and does it fall off a lot in the second half, or can you give us some thoughts there?

Yeah, John, I don't think it is just a big onslaught to get ahead of budget time because as I look at California and the understanding of the current budget and next year's fiscal budget, the overall transportation budget is pretty static from this year to next year, which is actually very good news.

And so assuming that California goes to the bond market as planned, I think there's going to be a continually good run rate for bidding opportunities in the state of California. So I don't see any big surge for any apparent reason.

Okay. So the impact of the federal government's highway funding, when would that start to affect your business and prospects? 2012?

Again, depends on what they end up coming up with.

Yeah.

If you look at it, you know, it's this current extension expires on September 30th, listening to what I mentioned and I have been back east doing a little bit of my own homework. If there is a significant reduction in the bill, I think you'll see it in 2012. You know, I certainly am hopeful that will not happen.

I think that you looking at a static level of where we're at today is I think appropriate. If I had a crystal ball, I think that's where we'll end up. I don't think you'll see any significant changes or effects next year at all. So it really depends on what happens between now and the end of the year. I think it would see the effect of it in 2012 if something drastically changed.

Okay. Last thing if I could, in terms of your cost reduction plan, are you on target there?

We are. We are on target. And I'm very proud of the team, that they have done a wonderful job getting ourselves in alignment with our expectations for 2011. And we have things doing this year that are going to create more efficiencies for 2012 and beyond as well. So yes, we are on target.

Okay. So we'll see those benefits in 2012 or this year?

Both. You'll see us continue to meet our expectations in guidance for this year, and we have some additional things that we're working towards next year.

Okay. Great. Thanks, I appreciate the color. Thanks.

Your next question is from Jack Kasprzak with BB&T.

Thanks, good morning, everyone.

Good morning, Jack.

I guess my first question is related to the last one on SG&A. Is the run rate in the second quarter a pretty good run rate in terms of SG&A dollars, do you think, for the balance of the year? Is there more to come out? How should we view that?

Well, I think, Jack, we're going to kind of stick to our guns on this one, because we see the differential in the quarter over quarter basis on our SG&A. Remember, last year and early this year, we gave some level of guidance on SG&A to be $20 million to 25 million lower than last year's SG&A. That's still where we expect it to be. So on a quarter to quarter basis, I think it will move around.

Okay.

Yeah, you know, sorry, it's just -- I just wanted to point out, there's some costs that we have like incentive comp that are associated with incomes. So, you know, they'll be higher in the back half of the year.

Got it. So still -- okay, so still down $20 million, $25 million for the full year.

Correct.

Okay. That's good. And, you know, the comment, Jim, I think you guys have been talking about this for at least a couple of quarters, bid lists are shrinking, but don't let that fool you. It's still competitive out there. Why is that? I mean, it just seem like a bit of a contradiction. Can you talk more about that dynamic?

Well, I think that -- I'll give you my interpretation of it. I think the bid lists are shorter, but it seems, Jack, that there's always one or two players on that shorter bid list that are overly aggressive, and therefore, cause the environment to be really competitive still.

Certainly, you would think that over a period of time the shorter bid list would create higher margins, and it just seems to me that one or two players on every I'd say significantly sized jobs are overly competitive.

Okay. And also, Jim, your comments on the Queens Bored Tunnel project, I think you said something to the effect of the second machine is in place, you know, so things are looking good. We'll keep you posted.

Sorry, I can't remember exactly what you said, but was your point there, you know, you still hope to get it to completion recognition on the same schedule? I guess I wasn't following what the upshot of that comment was.

Well, I think the key ingredient for that entire job is the production rates of those machines, Jack.

Okay.

And the production rate on the first machine that's been in the hole since May is doing well. But as I am constantly told from the people overseeing that job is that we want to get further down the road before we get totally comfortable with our production rates. Yes, we are on targeting for meeting the requirements of the job and the milestones, but really the key ingredient here on how the value creation of that job is on the overall production of the machines.

Okay.

There's nothing out of alignment at all relative to the job. It's more of us being a little cautionary before we suggest that we're doing as well as we think we are today because there's a lot of work yet to go.

Okay. Good. Fair enough. I just wanted to clarify that. Thanks very much.

Thank you.

Your next question is from (inaudible) with Citigroup.

Good morning. Thanks for taking my call. I had a question using the northeast as an example. So we see MTA capital construction and near-side DOT limiting how much future expenditures are going to have on future projects, on large projects, and in the northeast we see other large companies such as Skanska and China Construction partnering with other firms and trying to make these bids very, very competitive.

How do you see Granite positioning itself in the future for the second half of this year and in future bids to ensure that Granite is going to continue getting some of these big projects here?

Okay, well, I think that what you mentioned is really indicative of what's happening throughout the entire country on large projects. And when you look at the competitiveness on large projects you do several things. The teaming arrangement is there to create a more competitive team than if you stood alone by ourselves. So we do team with a lot of different players throughout the country, where we believe the combination of the two companies is a stronger bidding team than doing the work on our own.

Secondarily, we spread risk by doing that. Certainly you get on the large projects, you want to combine balance sheets, and minimize the risk for any one company. I think what I said earlier was thatwe are really focusing on jobs that we think we have a good shot at bidding and winning. Rather than just a large project in our back yard, so you may see Granite actually passing on some work that looks like we maybe should be bidding on it. If we don't think we have a strong opportunity to win the bid, then we will pass on it today.

So I think that's the things that we're doing, the teaming is really indicative of the entire industry. And targeting jobs for having a advantage on areimperative in this kind of environment.

Thank you very much.

You bet.

Our next question is from Michael Corelli, Barry Vogel & Associates.

Good morning. Two questions. Easier one first. I noticed your interest expense line was down a reasonable amount from the first quarter and from last year. Could you just discuss why that's the case and also, could you talk about some of your efforts at the first indication -- renewable energy in Guam and what's going on in those fronts?

Okay. This is Laurel. I'll start with the interest expense. That was associated with our real estate business, and it's primarily related to the one-time benefit related to a prior-period adjustment that was immaterial, and we still expect interest expense to be consistent with the prior year's, with the exception of that.

Thank you.

You bet. This is Jim, Michael. I'll address the second one on the diversification. We have said previously for several quarters and actually the last year or two of diversifying into separate funding streams which we believe is the right thing to do. We are continuing our efforts on renewable energy.

We have quite a bit of smaller backlog that we have accumulated over the last quarter as well. We're building solar facilities in the southern part of the U.S., mostly in southern California. And in the Arizona markets. So that is progressing. We have rail that we are building work on rail again.

I would emphasize we have the largest rail project in the U.S. in Houston on-going, and that's going quite well. On the federal side, we actually reallocated some of our work force to just strictly focusing on federal work. A lot of the federal work is in our backyard on bases that are near our current operations, so that effort has increased. Then on Guam, specifically , Michael, we still have two bids outstanding that have not been finalized as to where we stand on them Or hey have not awarded those.

We're fairly optimistic there's a chance of receiving one of those possibly. And overall, Guam has been pushed off little bit, I think, which is kind of the program today in a lot of respects. We anticipate all the work to be built out on Guam. But we do not anticipate bidding any more work this year on Guam. Most of the work has been pushed out to early next year now. So the program is there, it is just going on a little bit later than we had originallyanticipated, but we're still waiting on two fairly large projects we had

Thank you.

You betcha.

Our next question come is from Avi Fisher from BMO Capital Markets.

Hi, this is Camilia Suroop for Avi Fisher. Thanks for taking my question. The first thing I wanted to ask was where was there weather, specifically in the west?

Majority of our wet weather was in California and Nevada and in the Pacific Northwest.

Okay. I do have a couple more questions, bear with me, thanks.

Sure.

So I want to know why the change in minority interest forecasts?

You know, it's just a matter of progression on jobs and which jobs are consolidated and which aren't.

Okay. It's really just a matter of what we expect for our partners' share going forward at the remainder of the year. It really is depending on forecasting, and depending on percentage of completion. Of the projects and it will continue to change quarter to quarter as we update or progression those jobs.

Okay. Great. And just like to say that bookings were good in the construction segment. And do you think you can continue these strong bookings?

First of all, thank you for that. We think bookings were very good in the construction segment. So far this entire year. I think that is , you know, one of the nice parts about that is the visibility on construction is starting to level off. And I think that we have been talking for a year now or two years about , you know, this reduction in opportunities on the construction segment of our business, and we knew that we thought we had hit the trough several quarters ago.

I think we're fairly confident now that we have, and as I mentioned in California, they have passed a new budget and they have a healthy transportation component to it . And if that's indicative of other states, then I think we'll see the continued bidding and opportunities out there consistent with what we did in the first half of the year. So we're pretty bullish on

Great. And in that segment, do you think pricing trends will be worse, the same, better? Could you give a little color on that?

I'm going to suggest today that as I mentioned, you know, the shorter bid list is a positive sign. But I'm not going to suggest that the margin expectations are going to get any better in the short run. I think that over the long run, if we are continuing to see this amount of work in the construction segment, I think margins will go up.

But in the short run, we are anticipating it to be very, very competitive. And we don't see that inflection point this year. And maybe next year if things continue on a trend in the construction segment we might see that inflection point, but we haven't seen it yet.

Great. And my last question, so what do you think we should expect on small construction booking? Will it be any different than what it was historically?

Can you maybe elaborate on that a little bit?

Pretty much like the -- what you received for, you know, construction segment. Do you think it will improve or will it be smaller than what it was historically?

The burn rate which means that the work actually build -- built during the quarter, is that the question?

Yes.

Yeah, I think we're going to have a very robust second half of the year, so I think our burn rate will be at probably the upper end of what the historicals have been. Especially relative to last year. And I don'thave the burn rates for the previous years out in front of me in the third and the fourth quarter. We have the backlog in front of us and we're running at full pace in most of our businesses on the construction segment and large projects for the second half of the year.

Thank you.

Your next question is from Brian Rafn with Morgan Dempsey.

Good morning, everybody.

Good morning.

Let me just talk a little bit -- I missed your opening comments. I was parked on the queuing line with the operator for a while, so forgive me if this is a bit redundant. In kind of the old branch turn business, how would you qualify or what would you -- if you look over the last few quarters, obviously, in the branch business, the construction business, the private construction, the residential construction is very, very tepid. It hasn't shown much improvement.

How would you qualify the smaller municipal county highway, state highway, some of the smaller projects? Not design build and those projects in states where you would call them your home market?

Well, I think that, Brian, to kind of go back on the statement of construction in general, in that segment, the first half of the year bidding wise was pretty healthy. So that was a good sign. And as I mentioned, I think the run rate going forward on the amount of work out to bid is fairly healthy as well. It's just very competitive.

But I will say that there is a lack of private sector work. That part certainly is struggling, and we have not seen that come back, nor do we anticipate it coming back. Municipalities, I would say that they are probably in the alignment with the state funding. They're certainly struggling in states that have not been able to meet their budgets. But they have been holding steadyfor us this year so far. So our estimation is that it's going to be pretty similar in the second half as it was in the first half of the year.

All right. Do you see any differences regionally at the state level between the -- say the Carolinas, the Dakotas, Indiana, Texas, versus states that have real budget issue, Illinois, and New York? Are you seeing any regional strengths budget wise?

I would say regional strengths, no. State by state variation, yes. And, again, you could talk about every state individually here, but they are certainly a variation from location to location. And also, how they individually affect transportation is different , even if they have a state budget crisis, some states are firewalling in transportation and some states aren't. So you have to dive deep to really figure out how it affects our business on the transportation side. So to be safe, I'm going to tell you every state is really in an individual situation today and I don't see necessarily

Okay. When you talk about your bid list, how many road builder bid date competitors do you see on the jobs, and what has been the trend?You said there's one or two guys that seem to be discounters. How many total bid quotes or how many competitive bids might you be seeing?

Remember a couple of years ago, we said there were in excess of 10 to 15 on bid day. I would say between five and ten typically would be a reasonable number of bidders on the construction segment, and large projects, I would say we're getting five to ten that are interested. But then we get them short listed down to three or four.

Okay.

Which changes the large project environment a little bit. But on bid day, most of the construction segment work in the five to ten range.

Does your ability being one of a handful that can really competitively manage a design build project, does that at all help you relative to your ability in selecting projects and availing yourself to projects, or is the whole joint venture alliances really create enough competition that being one of a handful of design build contractors doesn't really matter as much anymore?

Well, I think it does matter. I think the quality of your work force makes a huge difference. And also, having the experience and the qualifications to even bid some of this work is a big issue, Brian. So not everybody just because they have some experience in the design build phase even is qualified to build this work.

That's where the quality of the work force and the experience in our work force pays off because we have a diverse work force with a lot of history and experience that allow us to qualify. And which also makes us a good partner for other companies because they know we have that work force.

Yeah. Okay. On the projects that you mentioned, Florida decking and I think you mentioned the Texas that you haven't booked backlog yet, being the winning bidder, was your ability to capture that business primarily reliant on the fact that you're vertically integrated and it's supply chain with quarry aggregates and that type of thing or is there something else that you brought to the table?

Well, both of those jobs specifically, whether it was the job in Tampa or the job in Texas, we are not vertically integrated in either one of those markets. I would suggest to you that our teams both in Florida and in Texas did a tremendous job approaching them with an innovative method. They looked at the job differently andfigured out a better way tobuild it than the competition. So they did not have the vertical integration advantage.

That's what I thought. When you're looking at -- kind of going forward over the next few years, if you are -- there's more of an aptitude for partnering and joint ventures and alliances, sharing risk as you guys talk, does that at all allow you to -- as you work with some of these other road builders, is that at all allow you to perhaps consider merger and acquisitions down the road as you work and you become a little more intimate with another quality and given, obviously, the issues with the tepid private sector, would that possibly force some consolidations or make it easier for you to consolidate with other builders?

First of all, I would say that is not -- there is none of that thinking incorporated into the reasoning for partneringon projects. Strictly we look at it to share risk, to enhance our opportunities with a team that's more competitive and better suited for the project. So I would say, Brian, probably not. That is not any of the intentions relative to the teaming arrangement.

Okay. All right. And then one final one. Any capacity utilization, if you look at the last two to three quarters, are you seeing any more increase overall anecdotally in capacity utilization at the material side, the quarry side?

I would say that it's fairly flat on a utilization standpoint.

Okay. Is your mix then, Jim, between internal usage and external sales about the same?

Actually, if anything, I would suggest to you, Brian, that our utilization on internal is increasing.

Okay. All right. Good. Thanks much. Appreciate it.

Okay, Brian.

Our next question is from Gwen Foster with Guardian Life Insurance.

Hi, I just had a question about the real estate development projects that you had decided to exit, I think the write-down occurred in 2010. I just wondered are you making your way through those? What would you say the percentage of completion is and are you getting prices close to the written-down values and just a general status update on that?

Okay. We are executing in accordance with our plan, although it is a little slower than we had anticipated, and we are seeing some erosion in the prices, but at this point, nothing significant. You know, it was a three-year divestiture plan, and we're moving along in accordance with that, and we should have some good progress by the end of this year.

So the three years would be then 2011, 2012 and 2013?

Yes.

Okay. All right. Thank you.

You bet.

There are no further questions at this time. I'll now turn the call over to Jim Roberts.

Well, as always, everybody, I want to thank you for your questions and thank you for being an investor and listening to us today. If you have any additional questions, please don't hesitate to call myself, Jackie, or Laurel. We're here. We'll be all day to take your calls and help with any questions you have. Thank you again for your interest in Granite, everybody.

This concludes today's conference call. You may now disconnect.