Feb 14, 2008
Executives
Jacqueline Underdown - IR William G. Dorey - President and CFO William E.
Barton - Sr. VP and CFO Michael F.
Donnino - Sr. VP and Granite East Manager James H.
Roberts - Sr. VP and Granite West Manager Mark E.
Boitano - EVP and COO
Analysts
Robert Labick - CJS Securities Richard Wesolowski - Sidoti & Company Jeremy Pinchot - Monness, Crespi & Hardt Jack Kasprzak - BB&T Richard Paget - Morgan Joseph John Rogers - D.A. Davidson & Co.
Brian Rafn - Morgan Dempsey Todd Vencil - Davenport & Co. Avi Fisher - BMO Capital Market
Operator
Good morning. My name is Michael, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Granite Construction Fourth Quarter 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].
Thank you. I would now like to turn the call over to Ms.
Jackie Underdown. Ma'am you may begin.
Jacqueline Underdown – Investor Relations
Good morning, thank you for joining us today. Today I am joined by Bill Dorey, President and Chief Executive Officer, Mark Boitano, Executive Vice President and Chief Operating Officer, David Watts, Chairman of the Board, Bill Barton, Senior Vice President and Chief Financial Officer, Jim Roberts, Senior Vice President and Granite West Manager, Mike Donnino, Senior Vice President and Granite East Manager and a new member of our team, Leanne Stewart, Senior Vice President.
Today's call will be recorded. Please be aware that if you decide to ask a question, it will be included in both our live transmission as well as any future uses of recording.
As always, shareholders, analysts, and employees can listen to a live webcast of the call on our website. We will be making statements during this call that are forward looking.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's earnings press release and the comments made during this conference call and in the management’s discussion and analysis section of our form 10-K and other reports and filings with the SEC.
We do not undertake any duty to update any forward-looking statements. With that I will now turn the call over to Bill Dorey.
Bill?
William G. Dorey - President and Chief Executive Officer
Thanks Jackie. Good morning and thank you for joining us on Granite Construction’s fourth quarter 2007 earnings call.
Yesterday afternoon we announced the best financial results in Granite's history. I'm very proud of that and I'm very proud of the men and women at Granite who made these business results possible.
On our call today, I will address our record year including our segment results and the outlook for Granite West and Granite East, our Land Company results and the prospects for this business as well. We'll discuss G&A expense and lastly we'll discuss our recent announcements regarding the upcoming succession of our Chief Financial Officer.
Let us start with Granite West. Affiliancy of our Granite West business was very apparent in 2007.
Granite West posted another terrific year and we could not be happier with the continued excellent performance of this business. We believe this performance highlights the value of our vertically integrated business model and the wisdom of our geographic diversification strategy.
Most of our business units performed very well in 2007. Thanks to very dry weather in the fourth quarter, we had a strong finish to our year and came within $20 million of our record 2006 consolidated operating income.
This was well above our internal expectations for the year. All our Granite West construction numbers were very strong.
Gross margin and gross margin percentage are detailed in our press release and both improved quarter-over-quarter and year-over-year. However so we are clear from a comparative point of view, our 2006 real line Granite West gross margin included a write down of $20 million on the US 20 project for both the fourth quarter and for the year.
I would like to highlight our construction gross margin percentage, which was 19.2% for the quarter and 19% for the year. This is very impressive performance and it's a product of quality estimating, terrific field execution, our ability to adjust to a variety of market opportunities available to us throughout the west.
An example of this ability is our participation in fire cleanup work in San Diego. Our branch in Southern California has been working steadily to excavate and haul debris left in the wake of that devastating event.
We are one of two prime contractors selected to do this work. Our materials revenues and margin were affected by the slowdown in the residential construction.
Quarterly revenue for third-party material sales fell from $106.6 million in 2006 to $86 million in 2007. For the quarter, gross margins were also lower, $14.9 million or 17.3% in the fourth quarter compared to $24.2 million or 22.7% in the fourth quarter of 2006.
Specifically, demand for high quality concrete aggregates and other value driven products has declined. We are beginning to feel the effects of the housing slowdown in the Central Valley of California and in Northern Nevada, and that is challenging our ability to acquire backlog at the pace we have enjoyed over the last several years.
It should come as no surprise that these are also locations where we operate large construction materials businesses. Conversely we have branches elsewhere in California and in other western states that continue to benefit from strong public markets.
These branches posted record performances in 2007 and are looking forward to very promising… a very promising 2008. We are confident that public funding in the west will provide a platform upon which we can deliver a respectable performance in 2008 and beyond.
Proposition 1B Transportation bonds in California will provide our industry with many large project opportunities. However, because of the broad influence of market conditions in the West, we do not expect Granite West to deliver operating income near the level it has over the past two years.
Now let's discuss Granite East. As expected, our revenues for both the quarter and for the year were down from 2006, partially due to our strategy to focus attention on home markets and size this business to match our ability to execute at the project level with confidence.
Gross margins improved considerably for the quarter from a loss of $31.7 million in 2006 to a profit in 2007 of $17.3 million. For the year gross margin improved from a 2006 loss of $72.4 million to a profit of $25.8 million in 2007.
We are very pleased with the profit potential in our Granite East backlog today. The hard work done over the last several years to improve this business is paying off and we are beginning to see the results in our project performance.
Fourth quarter, we had three Granite East projects that had negative project forecast adjustments of over $1 million, but we had nine projects that had positive forecast adjustments of over $1 million. The net effect of those adjustments was an improvement in the Granite East project forecasts for the quarter of $22 million.
The key projects that we have been discussing on the last several calls, the World Trade Center, the ICC in Maryland and the I-64 in St. Louis are all progressing well, and we expect them all to contribute nicely to our 2008 bottom line.
Another important project you will likely be hearing a lot about is the Houston METRO. We are leading a team that has been selected to negotiate a contract to design and build that system.
And we have been on the ground for the last year, engaged in design and in a price and scope negotiation. If we are successful in completing that negotiation, it will provide stable backlog for our Central Region business for five to six years.
Generally, the market for large projects, particularly mega projects remains very active, and we believe there is ample opportunity to continue to acquire quality backlog in Granite East. I believe our realigned business structure provides Granite East with the foundation to be consistently profitable going forward.
Our guidance throughout last year was to break even in Granite East at the operating income level prior to minority interest adjustments. I'm pleased to report that we have achieved that performance goal, and I think it's worth emphasizing that this was achieved despite recognizing $34 million in consolidated losses on the SR-22.
I can report to you that the SR-22 project is behind us. Given the strength of our backlog, we expect Granite East to achieve low double-digit gross margins in 2008 on revenues near $700 million.
This would be a significant achievement. However, our expectations are that Granite East should reach gross margins in the mid-teens over time.
However as the I-64, the ICC and the Houston Metro, all of which are joint ventures begin to contribute reportable earnings, you should anticipate an increase in minority interest. I would like to recognize all of our Granite East employees throughout the country, who have stayed the course to work through the issues on our large projects.
Their hard working resilience as well as their support for our realignment to Granite West and Granite East has been important to the turnaround of our large project business. Let's turn to our Land Development Company.
Our real estate development activities are a profit center which currently has $46 million on an unconsolidated basis invested in a real estate portfolio which we believe has considerable upside value. We recognize profit in this business only when we sell a property, and in 2007 the Land Company recognized $12 million in consolidated operating income.
Included in the 2007 results is a $3 million write-down of the value of one of our investments in the Central Valley of California. The current value of this property has been affected by the reduced demand for new housing in this part of the state.
Overall, our portfolio is geographically diverse and conservatively leveraged. While it is impossible to predict future short-term real estate values, we are confident our real estate portfolio will continue to contribute to long-term shareholder value.
Now let's talk about overhead. G&A expense at Granite includes estimating project support and growth related expenses, in addition to what might be characterized as traditional and administrative costs.
G&A increased $14.5 million in the quarter and $42 million for the year, $12.4 million of which can be directly attributable to the administration and integration of our acquisition of the Superior Group in Eastern Washington. While G&A has increased considerably, we believe the increased investment will provide the infrastructure and oversight necessary to maximize the profitability of our work and execute our long-term growth strategy.
Our expectation is that the pace of growth of our G&A costs will be much smaller, but you should anticipate a modest increase in G&A expense in 2008. The last subject on my agenda to discuss with you today is Bill Barton's retirement and the introduction of Leanne Stewart as his successor.
Bill has been with Granite for 28 years, and has served as our CFO since 1990. He has been steady at the wheel and has provided Granite with solid financial leadership to our transition from a private company to a public company.
Our management team has grown up together and Bill has been an important contributor to our steady performance and growth of not only our company, but to the growth of shareholder value for our investors. We will miss having him as the source of knowledge and experience and we are grateful for his enormous contribution to Granite.
Leanne Stewart will succeed Bill as Senior Vice President and Chief Financial Officer on March 1st. After careful consideration, our senior management team as well as our Board agreed that Leanne's broad financial and operational experience make her the right candidate for this position.
Most importantly to all of us at Granite, she has the character and integrity we demand from all of our leaders. I want to welcome Leanne to the Granite family.
I'm also pleased to report that Bill will remain on Board with us through mid-year to ensure this important transition goes smoothly. On behalf of all of us here at Granite, thank you Bill for your commitment to Granite over the last 28 years.
In summary, our Granite West business is exhibiting great resilience and we are optimistic that we will perform at a high level despite the influences of the broad economy. We are thankful for the very active public marketplace in the west and we are poised to take full advantage of that opportunity.
We continue to invest in Granite West and believe these investments will build overall strengths and stability and contribute to the growth of this business. We are very pleased with the current condition and trends in Granite East.
We are excited about the quality of our backlog and the prospects for this business. Our markets are strong and our leadership is focused on delivering the financial goods.
I would like once again to acknowledge the hard work and dedication of our very special employees across this country. We've realigned our company this year, confronted some pretty challenging economic conditions in some of our markets turned our large project business around.
At the same time, we continue to grow our footprint of operations and we delivered the best financial performance in our history. I'm very proud of our recognition by Fortune magazine as one of the top 100 great places to work for the fifth straight year.
I want to express my appreciation to all our employees for all they do to nurture our culture, which is so important to making Granite not only a great place to work, but a great company. As this will be Bill Barton’s last official earnings call, I would like to turn this call over to Bill for some comments, before we take your questions.
Bill?
William E. Barton – Senior Vice President and Chief Financial Officer
Thank you Bill. Thanks for the kind words.
Certainly as I transition to... into retirement over the next several months, the one thing that stands out is the opportunity to be part of a remarkable organization, driven by some remarkable people.
And I'm certainly appreciative of that. Also though I also had the opportunity over the last 18 years, in a public company to interact with the investment public.
And that certainly has had the challenges, but it's also been an opportunity for learning, it's certainly been a joy to work with the multitude of people with different ideas about what is a good investment. And certainly one of the learnings I had over that time was, what is a good company and what is a good stock.
And fortunately for me, we were both. And as I slide into retirement here over the new term from an active working employee of Granite and become an alumni as well as an outside investor of Granite, I will continue to look forward to what I think will be a remarkable achievement, that is a legacy from the past that will continue in the future.
And hopefully over the next several months this transition takes place, I have an opportunity to talk to each and everyone of you and show my appreciation for being part of a remarkable story. And with that, I'll turn it over to the moderator to begin the questions.
Question and Answer
Operator
[Operator Instructions] Your first question comes from Bob Labick with CJS Securities.
Robert Labick - CJS Securities
Good morning.
William G. Dorey - President and Chief Executive Officer
Hi Bob.
Robert Labick - CJS Securities
First I want to say congratulations to Bill Barton. It's been a pleasure working with you, and really have enjoyed and learned a lot from you as well.
So, from everyone here at CJS, congratulations and we are all a little jealous for you.
William E. Barton - Senior Vice President and Chief Financial Officer
Thanks Bob.
Robert Labick - CJS Securities
Just getting over to business, I'd like to ask about Granite East. Bill, you've mentioned, for the last few months that there's been good visibility in outlook for 2008 gross profit.
I was wondering if you could just give us a little more detail on that visibility. Is it because several projects are at the 60% complete and therefore that's when you usually have the best visibility or just give us a sense of your confidence in that gross profit outlook for 2008 on Granite East?
William G. Dorey - President and Chief Executive Officer
Hi Bob, I'm going to... I'll give you a brief answer to that.
I think it might be appropriate to let Mike provide you with his insight as well. I mean there is no question we've gone through a really bad patch with our large projects.
It took longer to get it turned around I think than any of us believed it would. But we have done a lot of hard work at Granite, particularly from the people involved in those projects to get our backlog in order to work through the projects that were providing us with the grief, to get our forecasts in order so that we would not be faced with continued write downs.
And all that has occurred over the last couple of years. It took some time, it took some… I think some really tough decisions on the part of a lot of people to get us where we are.
But the fact is we don't have a lot of work in our backlog that we don't think is going to be profitable. We've shared some of those numbers with you in the past relative to the amount of work that's forecast to breakeven and that number keeps going down, and the work that we have, we think has the potential to deliver very strong profitability.
Mike you want to add to that?
Michael F. Donnino - Senior Vice President and Granite East Manager
Yeah. I think you've touched on all the points.
But I think we're much more confident in our system and on our risk evaluation, the processes we have in place now to execute on the projects and I think we've… if you could say it this way, I think we have reaped the benefit of some of the painful lessons we've learned over the last three or four years and have turned them around to processes that really will help us in the future.
Robert Labick - CJS Securities
Perfect.
Michael F. Donnino - Senior Vice President and Granite East Manager
As Bill said that... probably the best news is though that the number of projects and the volume of our backlog, that breakeven or lost jobs is continuing to go down.
Robert Labick - CJS Securities
Great. And then just, if I could ask a quick follow-up and I'll get back in queue.
Given the forecast of low double-digit gross profit, could you give us a sense of the expected operating income range, because obviously this quarter has 9.5% gross profit, but 7.5… 7.7% op income range which is very small G&A. What is the kind of… what happened there and what are the appropriate expectations for that for 2008?
William G. Dorey - President and Chief Executive Officer
I think we have given you what we feel comfortable providing at this point. As we work through the year, if it becomes more clear, we might step up our guidance.
But at this point I think you have what we want to give you.
Robert Labick - CJS Securities
Okay. I will get back in queue.
Thanks.
Operator
Your next question comes from Richard Wesolowski with Sidoti & Company
Richard Wesolowski - Sidoti & Company
Hi good morning.
William G. Dorey - President and Chief Executive Officer
Good morning Rich.
Richard Wesolowski - Sidoti & Company
Bill, there seems to be a disconnect between the West gross profit, say the second half which is down mid-single digits and the operating income which is down more than 20%. I've recognized you have the $12 million you mentioned, the superior SG&A type costs, but that still leaves a big increase.
Can you help to maybe reconcile the timing of those investments with the steady decline of backlog we have seen in that segment since '06?
James H. Roberts - Senior Vice President and Granite West Manager
Rich, this is Jim Roberts. Maybe I can address that for you.
I am not sure I understand exactly what you're asking for, but I do believe that the discussion is that the gross margins have reduced somewhat, but the overall operating income has reduced greater. And I think that Bill mentioned in his discussion that the G&A there is some substantial increases.
One of those G&A increases was relative to the Superior Group acquisition. And there are others as well.
We certainly have stepped up our growth program from the G&A perspective as well and continued to spend some pretty substantial funds in terms of our research and our workout there on geographic expansion. So, that's certainly another opportunity that is out in front of us for the G&A side.
So, I think that's probably the biggest issues that our G&A is going up as well, and I think they also said that we are looking for modest increases next year. But we did have a pretty sizeable increase in Granite West in 2007 and probably we will not see those kinds of increases next year.
Richard Wesolowski - Sidoti & Company
Okay. At the end of October you had stated or somewhere in the magnitude stated that the meat of the Prop 1B would be let in '08 and '09.
Now you're sharing 2010, the fall off in 2011 and subsequent to that. Is that still the expectation?
James H. Roberts - Senior Vice President and Granite West Manager
Yeah Rich. We do see Prop 1B parts are starting to hit the Street now.
I think in the last phone call, we mentioned that we were looking at the actual bid letting us to start in the fourth quarter '07 and start increasing through the first quarter of '08, and hopefully later on the year. That is what's happening.
The bid lists are starting to get full and we do see a lot more change in the Street now, and we would think it will increase through the third and fourth quarter of '08.
Richard Wesolowski - Sidoti & Company
Okay. And finally, Jim would you suspect that the dedicated program that it has in 1B and also with the funds kind of siphoned off in 1A, do you think that is going to give the state an excuse to make deeper than usual cuts in the portion of the budget that's dependent on the general funds?
James H. Roberts - Senior Vice President and Granite West Manager
That's a good question. We've been told so far, we believe that hopefully this will be consistent going forward is that the transportation budget and we will talk about 1A versus 1B.
1B is certainly dedicated from the overall position and then you have the general fund that could attack 1A. But we have been told that's not a very good alternative for funding the general fund, because there are certain payback methods that would be required in a very short-term basis.
Basically over the next three years, they would have to repay that debt. So, our belief today and we have been told is that that will probably going to be the last program that might be attacked from the general budget.
But anything could happen obviously. But we are pretty confident right now that those funding levels will stay where they are at.
Richard Wesolowski - Sidoti & Company
Great. Thank you.
Operator
Your next question comes from Jeremy Pinchot with Monness, Crespi & Hardt.
Jeremy Pinchot – Monness, Crespi & Hardt
Thanks a lot for taking the questions. I just got a couple of them here.
In terms of SG&A, I apologize, I am still unclear as to what you guys are really saying. G&A going up modestly on an absolute dollar basis or is it just kind of revenue?
William G. Dorey - President and Chief Executive Officer
Absolute dollar basis.
Jeremy Pinchot - Monness Crespi & Hardt
Okay. And it is a little bit surprising to me that the top line isn't growing in either division, presumably in 2008, correct?
William G. Dorey - President and Chief Executive Officer
So, you're surprised by that?
Jeremy Pinchot - Monness Crespi & Hardt
A little bit, yeah.
William G. Dorey - President and Chief Executive Officer
Okay. Well...
Jeremy Pinchot - Monness Crespi & Hardt
I mean can you give a little bit more clarity on that?
William G. Dorey - President and Chief Executive Officer
Yeah. As we suggested clearly we have a strong public works program in California and a strong public works program throughout the Western states.
But we also... the reality is we are also facing the impacts of slowdown of residential construction which releases and has released certain amounts of capacity into the public works marketplace creating a competitive environment which is different from what we have experienced in most of our markets.
It's a lot different in the Central Valley, but in most of our markets we are feeling some effect of that, and that is impacting our ability to acquire working space we have over the last couple of years, and with the same margins that we have over the last couple of years. In the East, it's more of a, I think, a controlled environment that we are attempting to create, and we have chosen to size that business in the East down into that $700 million to $800 million range at this time, because that is the size that we feel that we can manage effectively and deliver appropriate margins at the same time.
Jeremy Pinchot - Monness Crespi & Hardt
Okay. I guess I would understand some of that.
I just don't understand why tax rate increases [ph], but I can circle back to you on that. In terms of margins in Granite West, have you guys given any colors in the backlog in terms of how that looks?
James H. Roberts - Senior Vice President and Granite West Manager
I will answer that. This is Jim.
We believe our backlog moving from 2007 and 2008 is good backlog, very good backlog. The real question is going to be what is the effect of the work, the term work as we call it, that we will bid and build in 2008.
So, what we're contemplating today is that we believe that that work in '08 will probably have a lot of gross margin attached to it than you've seen in the last couple of years. But the '08 work or the '07 work… I'm sorry, the backlog from '07 is high-quality backlog.
So, ultimately the mix will really determine what the overall gross margin in the work for '08 will be. Does that make sense to you?
Jeremy Pinchot - Monness Crespi & Hardt
It does. Okay.
Thank you. I appreciate it.
And then just one last quick question, any plans for use of cash?
William G. Dorey - President and Chief Executive Officer
We've got… I'll say this, we've got plenty of use of our capital. We have got a pretty aggressive growth program that we're working through in the West and we've talked with you all about that, I think on prior calls.
We've got numerous upgrades to our plants to build capacity and some instances to increase our aggregate reserves and some of our legacy locations as well as in new geography. We have plenty of use for that cash.
And we're really excited about the prospects of continuing to grow not only our geographic footprint in the West, but also to build capacity in our organic… organically in the business that we operate.
Jeremy Pinchot - Monness Crespi & Hardt
Share repurchase is still on the table?
William G. Dorey - President and Chief Executive Officer
Still on the table. No timetable, no commitments, but it's on the table.
Jeremy Pinchot - Monness Crespi & Hardt
Okay. Thank you.
Operator
Your next question comes from Jack Kasprzak with BB&T.
Jack Kasprzak - BB&T
Good morning everyone.
William G. Dorey - President and Chief Executive Officer
Good morning.
Jack Kasprzak - BB&T
Let me first offer Bill congratulations as well, enjoyed working with him over the years. I appreciated his accessibility.
William E. Barton – Senior Vice President and Chief Financial Officer
Thank you Jack.
Jack Kasprzak - BB&T
Comment… the comment with regard to the Granite West operating margin not being... performance, I guess, this year for '08 not being what may be seen over the last couple of years.
Bill, were you referring to gross… operating margin percentage or dollars in particular?
William G. Dorey - President and Chief Executive Officer
Both.
Jack Kasprzak - BB&T
Both. And when I look back to the '02, '03 time frame, more of a downturns scenario in the West… Granite West had 8.5-ish...
8% to 8.5% operating margin, given Jim's comments about carryover... good carryover backlog, but the turn work is maybe a bit uncertainty.
Is that the sort of level, I mean, that was a pretty tough time in California, do you see it going back to that sort of level? If you care to, try to...
if you care to comment on that?
William G. Dorey - President and Chief Executive Officer
I don't think we want to get real specific, Jack. I think that what we want to do is direct you away I think from the expectation that 2005 and 2006...
excuse me, 2006, 2007 should be the expectation, given the environment that we're in. The environment changed.
You see it in no doubt lots of industries as a result of what's happened in other financial markets and so forth. We are not immune from that and we're simply trying to ensure that folks that follow our company understand it, you know, some things have changed and the prospect of duplicating 2006 for example is probably not in the cards.
Jack Kasprzak - BB&T
Okay. Fair enough.
Thank you. And I guess for Jim Roberts, specific to the West again.
You talked… you mentioned, Jim, about Prop IB money hitting the streets, and I guess that's good news, but we've also talked recently about the competitive environment. How would you characterize that right now?
James H. Roberts - Senior Vice President and Granite West Manager
That's a good question Jack. Certainly it is very competitive in the marketplace today, no doubt about it.
But typically at this time of the year, in the first quarter of any given year, it is the most competitive bidding environment throughout the entire year. So, that's nothing really unusual, but we are seeing that migration of some of the private sector builders into the public sector, which we have been talking about now for several quarters.
And so it is very competitive, we're getting a share of it, probably not as high a share as we would have liked to have seen, but there is a lot of good work now hitting the Streets, very high quality work. And I think that we continue to target projects and really pay attention to what is coming out.
So, we are pretty comfortable about the market going forward, but it is very competitive.
Jack Kasprzak - BB&T
Are those Jim still the types of projects of medium and larger size, where you still might have the idea that competition could be a little less intense and you could bid them with a decent margin?
James H. Roberts - Senior Vice President and Granite West Manager
Certainly those are some of the projects that we are looking at absolutely. The projects...
the smaller projects are significantly larger versus our competitors.
Jack Kasprzak - BB&T
Yes, okay. Thanks very much.
Operator
Your next question comes from Richard Paget with Morgan Joseph.
Richard Paget - Morgan Joseph
Good morning everyone.
William G. Dorey - President and Chief Executive Officer
Good morning.
Richard Paget - Morgan Joseph
There's been a lot of talk about California in the Prop 1B money, but I wondered maybe if you could talk about the broader environment for the DOTs. You know, I think everyone knows they are generally conservative sort, and there is uncertainty out there, especially with state and local budgets.
I mean how are you seeing the bidding environment recently out there, I mean, have things gotten, I mean, put on the back burner at all?
James H. Roberts - Senior Vice President and Granite West Manager
Richard, this is Jim again. Are you focusing on California or all the DOTs in the west?
Richard Paget - Morgan Joseph
I would say kind of outside of California, because you've already kind of touched on that?
James H. Roberts - Senior Vice President and Granite West Manager
The other DOTs, and I [inaudible] I'll probably get away from just saying DOTs. Because the economic environment in the surrounding states on which we've worked, I look at it as really a melting pot of both private and public sector.
There are certain states outside California, actually we are seeing a fairly healthy private sector as well. And so we just don't focus on DOT, but I would say, about half of the other states in which we work have got very healthy DOT budgets, and some of them are struggling with their DOT budgets.
But outside of California overall, we see the bidding environment is fairly healthy. I am fairly upbeat on what's going on outside of California.
Richard Paget - Morgan Joseph
Okay. And then on the aggregates, with the margins coming down, I mean how much of that is reflective of pricing coming down a little bit and how much is volumes not being able to carry your fixed costs as much?
James H. Roberts - Senior Vice President and Granite West Manager
That's a good question, and what we saw in '07 was we did see across the board increases in pricing in all of our products. Again we did see a reduction in volume as you can imagine.
And in the fourth quarter that reduction was becoming pretty impaired because of the residential market. I think going forward our issue is going to be really from a volume standpoint on our materials business.
We don't see a reduction in pricing, but we don't see the type of increases in pricing that we have seen in the past as well. So, from a fairly static environment on pricing and really the key driver for us will be that volume to see if we can amortize some of those fixed costs over at reasonable amount of volume.
Richard Paget - Morgan Joseph
Okay, thanks. I'll get back in queue.
James H. Roberts - Senior Vice President and Granite West Manager
Thanks.
Operator
Your next question comes from John Rogers with D. A.
Davidson.
John Rogers - D. A. Davidson & Co.
Hi, good morning. And Bill, congratulations and thank you as well.
William E. Barton – Senior Vice President and Chief Financial Officer
Thanks John.
John Rogers - D. A. Davidson & Co.
Couple of questions. First of all in terms of the Granite West, can you give us a sense that with the recent acquisitions, how your capacity and your expansion in that market looks compared to what you had in 2006 and 2007?
James H. Roberts - Senior Vice President and Granite West Manager
John, when we talk about capacity, is it what we are capable of building from a [inaudible] standpoint?
John Rogers - D. A. Davidson & Co.
Yeah.
James H. Roberts - Senior Vice President and Granite West Manager
Certainly, it's definitely greater than it has been prior to the acquisitions. And certainly, the last acquisition that we completed last year was the Superior group, that's a pretty sizable company.
We certainly have a tremendous amount of volume capable from that business. And even within our current businesses, we've been… we have got a very strong team of people in all 15 of our businesses in the West.
We have expansion capacity. It's pretty significant above what we've been doing in the last year or so.
William G. Dorey - President and Chief Executive Officer
I think John it's a really good question and I like to weigh in here, because I think it helps to appreciate our G&A, the increase in G&A. I suspect not unlike a lot of businesses, but we have the capacity to do more work with the same amount of overhead until we reach a point where we begin to get up against that and then we need to add additional overhead and G&A to support additional growth.
We have a certain amount of elasticity, but at some point, we reached that point where we really need to step up again. And we've got to that point in 2006.
We were running so hard, try to keep up with the growth that we were experiencing at that point that it did prompt some of the G&A increase that you all are seeing now. But what that will do is position us to take advantage of that mixed growth spurt and certainly position us to be able to absorb additional geographic growth now.
And so that's really our mission at this point is to… now that we have this infrastructure in place, to grow the topline of our business in the West. So, there is balance between our G&A and our revenues and we've got… really do have quite a program in place to try to make that happen through acquisition and geographic growth.
James H. Roberts - Senior Vice President and Granite West Manager
Another add to that Bill would be that we did not only have the realignment from HCD in the Branch Division under Granite West and Granite East. We also realigned our business inside of the Branch Division, which is now Granite West to add additional oversight and capability to be able to handle long-term growth.
So, that was a kind of dual alignment that occurred in Granite West in 2007. So, we are prepared as Bill said, today with the G&A that we have to grow the business quite a bit more than we have in the past.
John Rogers - D. A. Davidson & Co.
I know this is hard to define, I mean by people or equipment or whatever, but I mean are you 25% bigger?
James H. Roberts - Senior Vice President and Granite West Manager
What do you mean by 25%?
John Rogers - D. A. Davidson & Co.
I mean in terms of your capacity, the take on worth.
James H. Roberts - Senior Vice President and Granite West Manager
That's very hard to say…
William G. Dorey - President and Chief Executive Officer
Jim, maybe what you could do is, we said like with the infrastructure we have in place today, can we go out and build say 2.5 billion in the West and support it from an administrative standpoint?
James H. Roberts - Senior Vice President and Granite West Manager
I think it would depend where the work was and the type of work that it was. One of the things that we are capable of doing today that we weren't a year ago on this last call, was to go bid and build successfully these large projects, and these large projects certainly can add some very quick topline and some high quality bottom line in the market today.
So, to answer Bill's question, if we were to add volume if large projects, you certainly could increase at that 20, 25% level. But to do the day-to-day work, it takes a lot more supervision, [inaudible] it does and probably it would be difficult to do it in all the small and normal day-to-day work that we do in the business units.
John Rogers - D. A. Davidson & Co.
Okay. And then the second question is in terms of the Granite East.
You talked about some of the big projects that are out there in the Houston, [inaudible] other things. Do you expect those to start to flow in the backlog this year for benefits out into 2009, I mean is that the one we should start to see the top line growth, and sort of how do you see that phasing in?
Michael F. Donnino - Senior Vice President and Granite East Manager
Yes. If we are...
John this is Mike. If we are successful in negotiating this, they will...
construction will start next year and so, yes it will slow in the backlog. It could be similar to the World Trade Center where sections or segments get booked as they get executed.
And by the way, the World Trade Center, we expect more of that to hit the books as well as we execute packages on that project as well. So, we do have those two projects, which we expect to add volume in 2008 and in the future.
John Rogers - D. A. Davidson & Co.
Okay.
Michael F. Donnino - Senior Vice President and Granite East Manager
As far as the opportunities are out, there is certainly, I don't think, this is a secret, there is certainly numerous opportunities in the north east and in the Central region, I'd say there are as well. I am saying, there is 15 to 20 projects in these [inaudible] regions over the next 18 months that kind of...
are in our size range. The South East is still little bit slow, but there are a couple of major projects that we are looking at.
John Rogers - D. A. Davidson & Co.
Okay. And then when you said about the Northeast, I mean that is a marked improvement from what you've seen over the past year-and-a-half in terms of just volume of potential work?
Michael F. Donnino - Senior Vice President and Granite East Manager
No. It's been pretty heavy for the last several years, really since the 9/11 and all that rebuilding started.
Some of that work was so big that we weren't interested, while we were still working and getting the World Trade Center project going. And other segments that worked just not our type of work.
Some of the peer tunneling projects, for example. But there's been a pretty healthy stream of projects in the Northeast for a couple of years and it looks like it's going to continue for a while.
John Rogers - D. A. Davidson & Co.
Okay. And just last thing if I could in terms of Granite and, the...
with the decline in land values, especially in California and elsewhere, any risk there you have to reduce carrying values on anything?
William G. Dorey - President and Chief Executive Officer
We don't think so, at least not in the short run. We've taken a really hard look at our portfolio.
It did prompt to write-down of the one project in the Central Valley, just off the press now, which is one of the hardest hit areas of the state. As I suggested in the scripted remarks, our portfolio is very geographic, geographically diverse.
And a lot of our real estate portfolio is not in California, some of it is certainly, but we don't think that we are going to have to face another write-down at least in the near future. But I suppose that something I should not try to promise, because we just don't have control over the economy.
But we think not, at this point.
John Rogers - D. A. Davidson & Co.
Okay. Great.
Thank you very much and see you next time.
Operator
Your next question comes from Brian Rafn with Morgan Dempsey.
Brian Rafn - Morgan Dempsey
Can you give us a sense from the standpoint of what over the next few years the offset from the loss of the term business relative to residential construction versus the availability of awards in some of these... you talked about home market with Caltrans, it is $50 million to $150 million project.
Is that an offset in volume or is it too early to tell?
James H. Roberts - Senior Vice President and Granite West Manager
Brian, it's probably too early to tell. I think the key here is us really targeting certain projects and seeing if we can bring those home.
And so from a construction standpoint, we are not projecting overall in the West a reduction in volume. I think the key ingredient there has got to be the gross margins, not necessarily the volume and certainly that residential market where we have seen that significant slowdown.
And our big concern with that today is probably more in the materials part of the business than it is on the construction part of the business.
Brian Rafn - Morgan Dempsey
Okay, okay. Is there a difference in impact, Jim, in profitability or margins be it a benefit or impairment from doing your turn business where you're doing thousands and thousands of...
$1000 jobs versus say dozens or hundreds of $10 million jobs for the State. So, is there efficiency productivity on one side or there are much richer margins in doing some of that short-term business?
James H. Roberts - Senior Vice President and Granite West Manager
That's a good question. I think overall what our overall strategic plan has been over the years is to have a nice portfolio.
We think that's the way to optimize our business. And certainly when you're just focusing on large projects, it's not going to be quite as robust as it would be if you have a combination of both.
So, what we do see some of the opportunities on these very large projects to bring home similar returns that we see on the smaller projects. But we really believe it's too early to tell how it is going to affect us in '08.
It is really going to depend on the saturation of some capacity issues with our competitors. And so long term I don't think it is an issue of balancing the portfolio in one direction or another, but I do think in the short run, it's just a matter of the level of competition.
Brian Rafn - Morgan Dempsey
Okay. What are you seeing on some of these jobs?
You are seeing some of these private contractors migrate. Are you seeing jobs that may have had three or four bidders in the past and now have ten or...
can you give us some numerical idea on that?
William G. Dorey - President and Chief Executive Officer
I think you're pretty much beheaded on that.
Brian Rafn - Morgan Dempsey
Okay, okay.
James H. Roberts - Senior Vice President and Granite West Manager
I would say that would be in $5 million and less range where you could have double-digit levels of competitors.
Brian Rafn - Morgan Dempsey
Okay, okay, okay. From the standpoint you guys talked about bench strength.
You probably are fairly stable at relative to welders and masons and machinery operators?
James H. Roberts - Senior Vice President and Granite West Manager
The labor in the west is not an issue. We have really a very, very strong labor pool in the West.
Brian Rafn - Morgan Dempsey
Okay, okay. Let me ask Bill Dorey, you guys talked and it has certainly been a problem...
a tough problem on the heavy facility at the Granite East side. As you become more competitive and you may have to allow a little more detrimental discounting in the margins embedded in some of that term business.
Now these jobs are smaller in scope, shorter in duration and size. Given what you had obviously embedding some of those risks in the longer duration stuff with the heavy construction side, how well are you willing to kind of go on some of those bids that capture volume but not on bid they give away the job?
Mark E. Boitano – Executive Vice President and Chief Operating Officer
Brian, this is Mark Boitano. See if I can help you out here.
First of all it's not part of our game plan, and as we have been talking about over the last year or better, we're looking at quality projects that we can achieve, we consider quality gross margin. So, the market is not as Mike just stated, Mike said that market is pretty robust in most of the large project side of the business, and so that's not even a consideration at this point in time.
Brian Rafn - Morgan Dempsey
Okay, okay. Can you detail some of the… you have done a little that… how many in the backlog, how many design build projects you have and kind of the scope of other than the four that you mentioned, what's across the US some of the projects that you guys might be bidding on in '08?
Unidentified Company Representative
Mike, have you got --
Michael F. Donnino - Senior Vice President and Granite East Manager
I don't have the exact numbers, but we classify as design build or fixed prices getting up in the 90% of our backlog range, I believe.
Unidentified Company Representative
Yes. Mike on a… looking at design build as a percent of revenue for Granite East for year-to-date, we're running about 52% of the revenues coming from design build.
Michael F. Donnino - Senior Vice President and Granite East Manager
Okay. But do you… we also broke it out by fixed price versus…
Unidentified Company Representative
And fixed price is up in the territory that you were talking about.
Michael F. Donnino - Senior Vice President and Granite East Manager
Yes. Okay.
This project in the… put in the Central region, in the Dallas area there is a significant toll road program coming up on the George Bush Turnpike as well as State Highway 121. That's about a dozen projects in the hundred plus million-dollar range.
Of course, the Houston projects are huge project for us and there is an additional phase of that in the future. In the North East, it's a wide range of types of projects.
There is station tide projects coming out on the second half of subway. These are very large jobs that we would be looking to team on.
There is another series of bridge replacements anything from very large Alexander Hamilton Bridge down some other smaller ones in the $100 million to $150 million range. There is quite a bit of work coming up on either side of the river in New Jersey, some bridge work and highway work.
Brian Rafn - Morgan Dempsey
I wan to ask you guys, given the collapse of the Minneapolis Bridge, have you noticed anymore bid activity or anymore focus on that talking about bridges or is it just about normal, that was more of a media event?
Michael F. Donnino - Senior Vice President and Granite East Manager
I have seen some activity. I know in Missouri they had a program for replacement of 800 bridges, that kind of died and suddenly got rejuvenated when that issue came up.
So that's at least one place where I've seen that. Beyond that I think it's the background government talk that we hear about one to put more money into the infrastructure.
I mean, I think is politicians on both sides of that argument, but there are certainly more discussions about that I think.
Brian Rafn - Morgan Dempsey
Okay. On the Granite Land, how many projects do you guys have open in your portfolio?
William G. Dorey - President and Chief Executive Officer
At the current time, it's around 18 different projects in different stages of completion.
Brian Rafn - Morgan Dempsey
Okay. And then the Fresno project guys, is that something that just kind of mothballed for now, or is that something that was not even started, where is that, in what phase today?
William G. Dorey - President and Chief Executive Officer
It's in very early stages, and because of demand for new housing in that area, it is mothballed at this point, that prompts the write down. They are slowly going through the permitting stage, but it's ongoing.
Unidentified Company Representative
So, the prospect of actually selling that on schedule with the way to next year -- And there is value in that property, it is just out there.
Brian Rafn - Morgan Dempsey
It is just out there, right. Relative to the way the allocation of free cash flow, are you seeing as in the Superior deal, are you seeing more availability of guys or operations looking to partner with you or is the M&A thing about the same?
Has there been any change in multiples of EBITDA kind of going as you go into '08?
Unidentified Company Representative
It's really hard to respond to. I mean, certainly our hope is that out of the economic downturn, there is going to be some opportunities that will come our way and there may be, but I don't think it's dramatic one way or the other.
I think that the bigger thing for us is the fact that we have dedicated quite an effort to this, the prospect of growing our business geographically at this point and we have dedicated resources to make that happen and that in itself I think will stimulate our activity.
Brian Rafn - Morgan Dempsey
Bill is there any thought from your size and people talk about right sizing the businesses, is there any thought that you guys would maybe put the brakes on allowing business to roll off on the Heavy Construction on the Granite East side… is it something you're more comfortable with in 25% to 30% of the sales mix or is that exogenous?
Unidentified Company Representative
I'm not sure I fully understand --
Brian Rafn - Morgan Dempsey
Well, if you go back to the mix of where the Heavy Construction was, you had almost 10% EBIT margin back in ‘99 and then you grew that business very rapidly. You're now making that… some of that roll off and come back in, is there a better sense of what that size of the business that Granite East should be versus you know the total mix of Granite's portfolio?
Unidentified Company Representative
Yes, I think that I don't know that we have said in absolute percentage relative to our overall portfolio, but what we I think can tell you is that over the next couple of years… two, three years that we expect that business to be between 650 million, 700 million and 1 billion.
Brian Rafn - Morgan Dempsey
Okay good. I would be remiss without saying thanks to Bill Barton for all the years.
I went back and looked at our archives. We had 169 conversations with Bill since April 3, 1994.
So, your counsel Bill and your dialog have really anchored our whole business disposition.
Operator
Your next question comes from Todd Vencil with Davenport & Co.
Todd Vencil - Davenport & Co.
Hi, thanks guys. Most of my questions have been answered.
Would you guys want to maybe provide a little bit of an outlook for a way you think the minority interest is going to go, since you mentioned that in the prepared remarks?
William G. Dorey - President and Chief Executive Officer
Well, we said it would go up. You know, it's a little hard for us to try to predict that precisely, because it's a function of the success we have, not only of how much volume we're doing in a joint venture sort of arena, but how much success we are having, the more success obviously, the more minority interest we're going to have.
As the profits go up on that work our partners, our earnings profits as well. So I think it's a good sign really that the expectation is that the minority interest will increase.
But at this point I would not like to try to speculate.
Todd Vencil - Davenport & Co.
Fair enough. And then just looking at the East, I mean did you say the total net adjustment of project estimates was 22 million in the quarter?
William G. Dorey - President and Chief Executive Officer
Yes.
Todd Vencil - Davenport & Co.
Okay. And that hits the gross margin… gross profit line, in the segment?
Unidentified Company Representative
Yes, it is gross profit offering and [inaudible].
Todd Vencil - Davenport & Co.
Yes, it comes in there. Okay.
So, is this the right way to think about this quarter? I mean, you know correct me if I am wrong, as my understanding will be, you do your best every quarter to estimate these things and sometimes they go up and sometimes they go down.
So, maybe a reasonable way to look at this is to strip it out of this quarter and say, okay you guys did an operating margin of something like… was it 4.9% in that quarter, is that reasonable in that… in that segment?
Unidentified Company Representative
I don't think I would look at it that way. I think I would… I think I'd give the value, I think the increased forecasts deserve and what I would suggest is that… and I said this in the prepared remarks that there has been a lot of hard work done to put forecasts in a position where we believe we have our cost is covered going forward.
And I think we've got that. And I am hopeful that you will see as we move through this work that we have in our portfolio now, where we have contingencies set up for events that we believe might occur on this work.
But if we are in control and we are doing a really good job of executing on this work, there is the potential to harvest contingencies and there is the potential to have forecasts improved. And that's my hope that we have our portfolio in order, where we'll see more of that and less of… less write-downs and forecast deterioration.
Todd Vencil - Davenport & Co.
That is certainly fair enough. Is it also the case and this is from your accounting standpoint, when you guys increase a project estimate, does that also translate to sort of a higher anticipated run rate on that same project in the future as you recognize profit?
Unidentified Company Representative
Yes, as a percent complete basis, yes.
Todd Vencil - Davenport & Co.
Fair enough. Okay.
And then final question, you guys have done a good job. Thanks for the color on the budgetary situation, particularly in California, just specifically as you look at the calendar which you said is beginning to shape up the way that you had expected, has there been any… back in the fall you talked about some sort of delaying a lot of the projects on the calendar may be due to the budget situation.
Have you seen in the last, say three months, any movement, one direction or another of the timing of planned projects or projects getting dropped off or anything like that.
James H. Roberts - Senior Vice President and Granite West Manager
Todd, this is Jim. Actually I think that the DOTs have actually stuck to their schedules very well, and they continue to tell us they are going to continue to stick to their schedule.
So, we are pretty comfortable right now that we are seeing what we told that we were going to see.
Todd Vencil - Davenport & Co.
That's great. Thanks very much.
And Bill congratulations.
William E. Barton – Senior Vice President and Chief Financial Officer
Thank you.
Operator
Your next question comes from Avi Fisher with BMO Capital Market.
Avi Fisher – BMO Capital Market
Good morning. Thanks for taking my question.
How much did the fire clean up work in San Diego contribute to West revenues and profit in the quarter?
James H. Roberts - Senior Vice President and Granite West Manager
Well, very little in last year. That work was literally led and began in '07.
So they are… majority of it is going to be probably in '08, but it's on going.
Unidentified Company Representative
Yeah, I think an example that we chose to use in regard to moving our business around being flexible in our economy is where it is today.
Avi Fisher – BMO Capital Market
So that's… that work will help revenues in the West in 1Q08, is that the…
Unidentified Company Representative
There is no…
Avi Fisher – BMO Capital Market
So, it's immaterial.
Unidentified Company Representative
Yeah. As Mark said and Bill said, it's an example.
Avi Fisher – BMO Capital Market
Okay. The three negative adjustments greater than 1 million, can you give any color of what they where, or how far along they are?
Michael F. Donnino - Senior Vice President and Granite East Manager
Yeah, this is Mike. Let us see.
One was the tail end of a non-sponsored joint venture in New York with some kind of close-out issues, one was an ongoing... and it's essentially complete.
We hope to settle some issues with them there. The other one was also in...
the second one was in New York, it's a job we've talked about before with unforeseen ground conditions that we're working through, and the third one was a project in Philadelphia that's… I think it's about 80%, 85% complete.
Avi Fisher – BMO Capital Market
So... just the second one you mentioned is still pretty early in the process.
Michael F. Donnino - Senior Vice President and Granite East Manager
Yeah, that one will go on through the year. The other two should finish this year.
Avi Fisher – BMO Capital Market
And since you mentioned ground conditions, I have to ask about the Oregon, is there any color on that, any updates from what you're hearing for the Oregon DOT, whether the project has itself frozen in the...
Unidentified Company Representative
Yeah, I think Jim can answer that.
James H. Roberts - Senior Vice President and Granite West Manager
Yeah, I sure can. The project is in a suspension timeframe right now.
So we are working closely with ODOT to look at litigation measures for those landslides and replace the job and we're basically in a suspension period negotiating with them as we speak.
Avi Fisher – BMO Capital Market
Okay, is it... I want to ask you about it, but I don't think you can tell me much about it is my guess, I'll ask anyway.
Is it your... do you want to finish the work or trying to reprise it in a way that you can do it on your own?
James H. Roberts - Senior Vice President and Granite West Manager
Well, I think that we do want to finish it. We want to close it with ODOT and cooperatively finish the job for the benefit of everybody.
Avi Fisher – BMO Capital Market
Gotcha.
Unidentified Company Representative
We've agreed to that actually at this point, we've executed a [inaudible] suspension and the obligation for both parties to work together, to find a solution, the cheapest solution to build this project, and there is some, in the terms of that suspension are that we will agree to [inaudible] if we can't agree to the responsibility for the slides, we'll put that to a third party. But I think the important message here with US 20 is that, both Granite and ODOT are working cooperatively to develop the best plan and best solution to a difficult problem for both parties.
And I think we are really pleased with the relationship that we have with ODOT, and I believe if you ask them, they would say the same thing.
Avi Fisher – BMO Capital Market
My understanding is that it's under some kind of arbitration with a panel, any dates on when we could expect?
Unidentified Company Representative
No, literally it's not under... it's not under arbitration.
In most of our projects, we have what we call a dispute review board, experts in the industry that do come together to help resolve some issues between the owner and the contractor. We're not necessarily heading in that direction today.
That is an alternative, that if we can't come to some agreement on certain costing issues, we can certainly go to the DRB, but it is not imminent today.
Avi Fisher – BMO Capital Market
Okay. So, any dates on when you expect to have a resolution on how to go forward?
Unidentified Company Representative
Well, no. Both ODOT and Granite would love to have the project issues resolved, and again work again in '08.
That is not necessarily… we are not totally confident that's going to happen. But even if we have designs and pricing issues relative to the land side issues, we certainly have to get permits and go to the regulatory agencies to make sure that we have [inaudible] and that could be more time-consuming than just the financial negotiations and the design negotiations.
Avi Fisher – BMO Capital Market
Got you, okay. I have a few other questions.
You said there was 12 billion of operating income in the land development, and that's kind of a big percentage of the total, is there any chance of competitive breakout, you had mentioned there are 18 projects at various stages, are they all residential or some of them commercial?
Unidentified Company Representative
No, it's a variety of types of investments. We do have a pretty significant amount that is residential, but I think the important, maybe point is that a lot of those projects are in other states like for example Texas, State of Washington, where the impact of the residential slowdown has not been felt, certainly not to the degree that we have experienced in California.
Operator
Your next question comes from Rich Wesolowski with Sidoti & Company.
Richard Wesolowski - Sidoti & Company
Thanks. Do you have the stat on how much of this backlog is expected to breakeven?
Unidentified Company Representative
10% in Granite East, is that right Bill?
William E. Barton - Senior Vice President and Chief Financial Officer
That's is approximately correct, I don't have our cased on process.
Richard Wesolowski - Sidoti & Company
Okay, then the positive changes that you had on the East projects. Are those estimate changes on ongoing jobs, like releasing contingency or is the change order negotiations on ones you have already completed?
Michael F. Donnino - Senior Vice President and Granite East Manager
It's a little bit of every thing. One is Broadwick in Mississippi essentially finished up.
So we are able to recognize some of the contingency we had there for late completion that kind of thing. Others are just strictly doing better on the work, couple in the Southeast, where as you say finalizing kind of job completion change order type issue.
There was a wide range.
Richard Wesolowski - Sidoti & Company
So, out of all the money just a… maybe a blanket statement, can you give us a broad overview of how much money you have collected in the change order negotiation process relative to what you're going after? I mean is it still early in the game or is it, most of those already completed?
Michael F. Donnino - Senior Vice President and Granite East Manager
There is still a big number out there, but I can't tell you a percentage, because it's just kind of a living thing. I mean as you… as they go from a claim or a dispute into a change order, this becomes a part of a backlog.
So it's really difficult to put a percentage on that.
Richard Wesolowski - Sidoti & Company
Okay, thanks again.
Operator
Your next question comes from Richard Paget with Morgan Joseph.
Richard Paget - Morgan Joseph
Just a quick housekeeping, how should we think about the tax rate going forward?
Unidentified Company Representative
No, I'm sorry… the tax rate.
Unidentified Company Representative
The tax rate, I have been waiting for this question all morning. See, the tax rate, we're anticipating based on our forward-looking process.
That it's going be about 28.5% for next year, and that's a significant decrease, I think it is one comment. What are the changes?
Well one, we had additional tax rate that was added on because of the Wilder acquisition expense that doesn't have… it is not tax deductible. Therefore, it has affected us by about 1.5% in terms of the tax rate in 2006.
So, that won't be there in 2007. But more importantly what's really a decrease in the overall growth effective tax rate is minority interest in joint ventures is growing.
And in fact we're looking to see if there is enough variable that we can use to give you a sense for the size of the minority interest for the forecasted year of 2008. But that… again underlying what Bill was saying earlier by the minority interest growth.
Now those are the two major differences, there are some other minor things that happen as far as the effective tax rate.
Richard Paget - Morgan Joseph
Okay. Yes, that's a pretty good drop off there?
Thanks.
Operator
Your next question comes from John Rogers with D. A.
Davidson.
John Rogers - D. A. Davidson & Co.
Hi, just a follow up. In terms of the first quarter that we are in now, how has it been from a seasonal perspective?
Unidentified Company Representative
In the West, primarily in California but also… and some of our other regions. So, we haven't seen a winter like this for several years.
John Rogers - D. A. Davidson & Co.
Okay. Great.
Thank you.
Operator
Your next question comes from Avi Fisher with BMO Capital Markets.
Avi Fisher – BMO Capital Market
Hi, I just got cut off, I had two or three more questions. You mentioned that G&A increased $14.5 million over the quarter, roughly $12.5 million came from the Wilder acquisition.
Should we then look at that $2 million as a sort of the dollar run rate to look at in the quarter-to-quarter basis?
Unidentified Company Representative
No, the $12.4 million was spread over three quarters.
Unidentified Company Representative
And it was superior than Wilder.
Avi Fisher – BMO Capital Market
Okay. But if we take that out, should we look at it… it is such a significant jump, $10 million or $9 million on a year-over-year basis for the quarters?
Unidentified Company Representative
As I suggested, we have stepped up to try to ensure ourselves that we control the business that we're building. Some of that is to ensure that we can continue to grow.
And as I suggested in the scripted remarks, we expected to continue to grow at a modest rate.
Avi Fisher – BMO Capital Market
Are you… can you sort of quantify how many new branches you would want to add this year?
Unidentified Company Representative
I think that would be highly speculative. I mean certainly we would like to continue to acquire geographic expect businesses that provide us with geographic expansion.
But I think it would be speculative to suggest the time frame upon which we're doing.
Avi Fisher – BMO Capital Market
Got you. I have just two more questions.
I appreciate your patience. Someone answered earlier about looking at the '02, '03 margins, I wondered does it feel like it felt in 2002 and 2003?
Does the market sort of look that way at all to you or is there more public work out there than it was back then?
James H. Roberts - Senior Vice President and Granite West Manager
It actually… this is Jim Roberts. It's just the opposite almost.
We... back in the early 2000s, we had a private sector market that was fairly strong in a really, really poor public sector market in the West.
Now we've got a healthy, very healthy public sector, and obviously not a very healthy private sector. So, it's different.
So, I don't consider to be the same and I don't consider ourselves moving back to the early 2000 numbers, but certainly there will be some reduction what you see in the last couple of years.
Avi Fisher – BMO Capital Market
And when you talk about the healthy public, and I know you talked earlier about the term and the term projects and the large projects. When you look at the large size, what is kind of...
what are the size projects that you're going after, you can go after with their added capacity? Are we talking about $20 million to $50 million range or $50 million to $100 million range?
James H. Roberts - Senior Vice President and Granite West Manager
We've always had the capacity or the capability in the West to probably build work under $50 million. But now we certainly have more capacity to build work under $50 million, and the larger size work could be probably up to the $150 million to $200 million range.
So, the added capacity with the realignment really is focused on the $50 million to the $200 million work.
Avi Fisher – BMO Capital Market
And is there... is that work included in 1B?
If there a $50 million to $200 million sized projects in 1B or is that mostly all the 0 to 50?
James H. Roberts - Senior Vice President and Granite West Manager
There is quite a bit of the $50 million to $200 million work into 1B funds.
Avi Fisher – BMO Capital Market
Okay. All right.
I just want to wrap up. Thanks Bill for the time you spent on the phone with me, and good luck with your golf game.
William E. Barton – Senior Vice President and Chief Financial Officer
Thanks. I will need it.
Operator
There are no further questions at this time. I'll now turn the call back over to Bill Dorey.
William G. Dorey - President and Chief Executive Officer
Well, thank you all for joining us this morning. It has been a great dialogue.
We appreciate the interest in our company. Mark Boitano and I are leaving the office.
We will not be here for questions, but Bill and Jackie, and Jim will be, and if you have further questions, feel free to contact us in Watsonville. Thank you.
Operator
Ladies and gentlemen, thank you so much for dialing in for today's conference call. You may now disconnect.