Granite Construction Inc (GVA) 2005 Q4 法說會逐字稿

Good morning. My name is Rebecca and I will be your conference operator. At this time, I would welcome everyone to the Granite Construction Q4 and Year-end Earnings Release Conference Call. [Operator Instructions]

Ms. Underdown, you may begin your conference.

Good morning and thank you for joining us today. This morning I’m joined by Bill Dorey, President and Chief Executive Officer; Mark Boitano, Executive Vice President and Chief Operating Officer; David Watts, our Chairman of the Board; Bill Barton, Senior Vice President and Chief Financial Officer; Mike Donnino, our Senior Vice President and Manager of our Heavy Construction Division; and Jim Roberts, Senior Vice President and Manager of the Branch Division.

You can find the earnings release and associated financials on the Investor Relations website at www.graniteconstruction.com. Today’s call will be recorded. Please be aware that if you decide to ask a question it will be included in both our live transmission as well as any future uses or recording. As always, shareholders, analysts and employees can listen to a live webcast of today’s call at the Granite Investor Relations 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 sections 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.

So, with that, I will turn the call over to Bill Dorey. Bill?

Thanks, Jacque. Welcome and good morning and thanks for your interest in Granite Construction.

On our call today I will address our fourth quarter, our 2005 rights, as well as the year ahead. David Watts is with us today to provide you with his insight into public funding and address the politics that affect our business. And Bill Barton is here and will respond to questions regarding our financial information.

So let’s review 2005. Obviously 2005 was a good year for Granite. Our overall financial results were excellent, revenue was the highest it’s ever been and more importantly, net income was considerably higher than ever before. Certainly our year really came together in the fourth quarter. Our fourth quarter was easily the best fourth quarter in our history.

So what drove this except performance? It starts with people, the quality the capability and commitment of our people. We are making a significant effort and investment to accelerate the development, the skills, and the collective capacity of our people throughout the Company and this effort is paying off and we are incredibly lucky to be blessed with people who are completely committed to our mission.

Secondly, our markets are generally very strong. There is a constant and overwhelming need to rebuild and develop more capacity in America’s infrastructure. The economy is strong. Interest rates, although rising, remain relatively low and the housing market, although slowing nationally, remain active in most of our markets. And population is growing in all of our markets, which serves as the long-term foundation of our business.

Simply put, the fundamentals that affect our business are creating one of the best markets we’ve experienced in some time. And this strength is both in the public as well as the private marketplace, which is very reassuring.

Let’s drill into our branch business and the branch performance. We are thrilled with the performance of our branch business in 2005, both in the quarter and the year. We certainly exceeded our expectations. The market conditions I just described are certainly evident in most of our branch markets and our branch performance reinforces the notion that we have developed a well-oiled network of businesses that can capitalize on these market conditions.

Certainly the increase in CalTran’s funding, as well as other Western states’ public funding, will play an important role in our Western markets in 2006. This has already contributed to a 30% increase in our branch division backlog compared to a year ago.

The private market is also important. It serves as the sponge that absorbs capacity that would otherwise be focused on the public market. Our ability to improve margins in our increased construction revenue was very important to our 2005 performance. Hats off to our construction people, including both our professional staff and our craft workforce.

Another highlight is the strength of our construction materials business in the West. 2005 was easily the best materials market we’ve ever experienced and we expect the fundamentals, which affect our construction materials business, to remain strong in 2006.

I think it’s worth noting that our construction materials business is a business that has improved gross margins from approximately $17 million in 1997 to approximately $73 million in 2005. And over that same time period, we’ve seen our gross margin percentage escalate from approximately 13% to 22%. This dramatic improvement in performance is the product of strong demand for our products and it continues to support significant price improvement.

I would like to recognize Randy Kremer our Vice President of Construction Materials and out materials people throughout the Company, for building a business that just gets better each year. As we suggested in our press release, we are very excited about the potential for our branch business in 2006 and we are optimistic that the branch operating performance will be similar to our record of 2005.

Our heavy construction division, by contrast, did not perform as well as we had anticipated in 2005. We had expected a substantial improvement in our HCD performance and while we did improve our financial results in 2005, compared to 2004, the improvement was considerably less than we had hoped for.

The issue is one best described as our inability to consistently deliver on the work on our large job portfolio. We certainly had good work, but we also had work that continued to deteriorate and erode the positive contribution made from the projects that performed well.

I think it will be interesting for our audience to know, however, that we did make progress in settling several unresolved revenue issues in the fourth quarter. This was certainly welcome news and we hope to be able to report more of these resolutions going forward, which will, at the very least, serve to offset future unresolved issues that will no doubt develop.

We continue to work very hard on our HCD business. We are making progress to develop our regional structure, improve our project teams, and develop the depth of talent needed to consistently deliver the performance we know we must deliver and we know we are capable of delivering.

We are working diligently to increase bid day margins and to execute on our projects to deliver those bid day margins. Our people are committed and I remain confident in our plan, our HCD leadership, our HCD people throughout the country and the potential of our large projects business.

To summarize our HCD business, we began 2006 hopeful that the hard work, which has been done to position this business to succeed, will be apparent in our 2006 financial results.

Looking at the Company and the year ahead, we are entering 2006 with a great deal of enthusiasm regarding our markets and we are optimistic regarding our capability to harvest a bumper crop from those markets. The fundamentals are clearly in place to support strong 2006 performance and it will, as always, be up to us to operate effectively and capitalize on those opportunities.

Before I turn this call over to David Watts, I would like to thank all of our employees for their hard work and professionalism that made our outstanding 2005 performance possible.

Dave?

Thank you, Bill. Good morning. Politically, there are probably two areas I should comment on. Certainly very briefly, the federal government has excellent authorization to spend money on transportation, with the SAFETEA-LU authorization bill being passed last year. However, with the pressure on the federal government to reduce its deficit, there may be pressure in the current year appropriations against that authorization.

Secondly, in California there is extraordinary action in what is probably the biggest interest time for infrastructure spending that I have ever seen and probably since the Pat Brown days of decades ago. We have a governor and a legislature trying to compete against each other as to how and how much and what it will cover, in infrastructure bond measures, going over multiple years.

There are issues, certainly. The California State budget is out of balance on a structural standpoint, so even though the governor has his first round of the budget, proposed full funding for Prop 42, you never know what will happen once the budget negotiations really begin in May and June. But with the interest in infrastructure spending, I find it hard to believe that they will not do full funding and that’s probably $1.5 billion per year, at the current price of gasoline.

Remember, Prop 42 is a sales tax on gasoline, including a tax on the cents per gallon excise tax and it is, by Prop 42, supposed to go to transportation funding. The governor also has proposed payback of some $800 million of loans from this fund to the general fund of a couple of years ago.

There will be, politically, a lot of action this year. The industry is proposing and now is trying to qualify an initiative to provide protection for Prop 42 funds and that will probably be on the November ballot and this will provide constitutional language to keep those funds into the transportation fund, with only short-term loans to the general fund.

There are a number of half-cent ($0.05) sales taxes of several, up to six, counties that could be on the November ballot and then lastly, as I mentioned, there would be some sort of bond measure, probably on the November ballot. So November is going to be an important day for the transportation and other infrastructure construction interests this year.

That’s it for me, Bill.

Okay and I think that concludes our opening remarks and we’ll turn this call back to the moderator for questions.

[Operator Instructions] John Rogers with D. A. Davidson & Co.

Hi, good morning.

Good morning, John.

A couple of things, I guess, first of all, just financial. The relatively high level of minority interest costs, is that all Wilder?

It’s a combination. It’s Wilder. It’s kind of our majority-owned partnerships at Granite Land Company. It also has to do with our consolidated joint ventures we have in our books.

Okay and Bill, the Land Company, is that why the corporate revenue was so high too?

Well, certainly part of the other additions, there were, primarily in the fourth quarter, some transactions that did complete during that period, which certainly did add to the revenue. But it was a small amount.

Okay, because I get like $17 million difference between the variance.

That would be primarily having to do with the Granite Land Company’s contribution.

Okay and I know that its very lumpy, but any thoughts on what that means in ‘06?

Well and I think that’s the real challenge. Since these are generally recorded at the time a transaction completes and cash exchanges hands, it has a lot to do when a particular transaction hits a particular quarter, for instance. And to anticipate when that might be is a little bit more challenging.

We are expecting that they will make a positive contribution in 2006. I’m just not sure what that level will be. But it could be at the same level.

Okay and then Bill Dorey, you mentioned the HCD, or the settlements that you received during the quarter or that you worked out during the quarter.

Yes.

What sort of an impact did they have? Can you quantify it all?

I’d prefer not to quantify precisely, but yes, what they did serve to do is to offset some of the issues that did develop during the quarter as well, but they had a fairly significant impact. I don’t know if that’s too misleading or too nebulous an answer. We settled some liquidated damage issues down in Florida. We were able to collect on some liquidated damage issues in Las Vegas. What else, Mike?

We had a [inaudible - multiple speakers] change order.

Oh, we settled a significant issue down in New Mexico as well. But we also some issues crop up, unfortunately. So hopefully, as I suggested in my opening remarks, John, that going forward we will at least have resolution to offset new issues, which will no doubt crop up, which will tend to balance out our portfolio. Which has been suffering from the creation of issues faster than we’ve been able to resolve them, as we’ve grown the portfolio from $200 billion [sic - see Press Release] to $1.0 billion, roughly, and because we’re growing the business so fast, we were creating more issues than we were resolving.

So, I think, arguably, if you want to be optimistic, you could speculate that now we’ve sort of settled on this revenue between $800 million and $1.0 billion that we could expect to see more of these issues resolved than we are creating. But if I were you, I probably wouldn’t try to anticipate that.

Okay. But on the margins -- and most of these, then, were in the HCD op business? It sounds like they’re the ones that you ticked off there.

Those were.

They were all HCD resolutions.

Yes, but I mean, still, even with that, some balancing out, I mean, you’re still operating with less than 2.0% operating margin in that business.

Yes. Yes, we’ve got a ways to go. My hope was to provide you, in my opening remarks, a very balanced view of our expectations in HCD. I mean, obviously we fully expect that that business, we will be able to improve the performance of that business.

As I suggested, we had expected to make more of an improvement, see more improvement than we saw in 2005 and in that regarding I’d guess you’d have to say we were disappointed with that. Having said that, I firmly believe that we are making a lot of progress and we’re doing the right things, particularly as it relates, John, to facing up to the condition of our backlog and developing forecasts to complete that work that are achievable.

And we’ve said on past calls, if we’re able to that then the work going forward will carry with it, the revenue will carry with it the margins associated with that revenue, which should contribute to operating income and we’ve worked really hard. I will tell you that Mike Donnino and his team have worked really hard this year to face up to the condition of that backlog and it remains to be seen whether or not that will prove to be true. But we’ve worked really hard to try to make that happen.

Okay. All right. Well, thank you and congratulations on the quarter.

Jack Kasprzak with BB & T Capital Markets.

Thanks, good morning, everyone, congratulations on the year.

Thank you.

Can you quantify the amount of writedowns in HCD for the full year ‘05?

Bill, do you want to do that or can we do that?

We actually --

Well, something will be coming out, I think, as released in the 10-K, right?

In the 10-K.

Okay. In ‘04, wasn’t it $40 million or so? Isn’t that what was in the K for ‘04, I believe?

I think that number sounds right and we’re probably looking at something less than that [inaudible - multiple speakers].

Okay and so, I mean, I don’t know if this is the right way to think about it, Bill, but given what you said about some recouping of revenue, I guess, offsetting writedowns. Maybe you have that in balance for HCD now. Looking into ‘06, just on a comparison basis, would we be up that $30 million or so for ‘06 versus ‘05? Would that we unrealistic to think?

No, I’d rather not speculate, but I’d think that the important thing for you all maybe to appreciate is that facing up to the condition of our backlog contributed to the writedown that we reported in 2005. And in doing so, in facing up to that, to the condition of our backlog, it beat up our 2005 performance and that was hard for us to do, to come to grips with the condition of that backlog. And if we’ve done that properly, then we should not experience that level of deterioration going forward.

Now, having said that, so much of what we end up characterizing as deterioration turn out to be the timing issues that I described when were talking about settling unresolved issues. Because, in our account system, we book the problems as they occur but we don’t book the offsetting revenue until we resolve that issue. And we certainly had some of that in our fourth quarter, which contributed to the deterioration that we reported in our fourth quarter, which was to some degree offset by the resolutions that we were able to harvest as well.

And so, we will no doubt always be faced with that timing issue. But if we have been successful in facing up to the condition of our backlog, then we should have less of that going forward. We’re hopeful that that will be the case.

To clarify one thing I think to keep in perspective, the $30 million that we’re talking about, approximately $30 million represents a net amount of write-ups and writedown.

Right and I believe, if you’re looking at the K and you see that number last number last year, which was about $40 million and this year it’s about $30 million, we’d like to see that go to zero, which is what Bill alluded to early. In that the gains that we get on good projects as well as settlements offset the issues that we’re forced to book before we were able to -- the cost of which we’re forced to book before we’re able to collect the revenues. So we’d like to see that number go to zero and then bid margins that we’re putting on these jobs could stand on their own.

Okay, great. I have a question, too, about construction materials. Some of the bigger aggregates companies that have talked about and discussed in their rights recently have really seen some nice improvement in pricing, even inflection, in the last couple of quarters. Taking pricing to higher levels than, perhaps, the industry has seen before. I assume that’s happening in California, in particular, given the constraints on permitting, etc, on the resource.

Is that the case and can you maybe quantify the type of pricing that you’re seeing? Or if not that, just kind of characterize the pricing environment in construction materials?

Jack, this is Jim Roberts of the branch division. You’re right. We are seeing some upward escalation in pricing. It has been very good in the last 12 months. We’re also seeing some upward escalation in the volume of our materials as well.

So the combination of the two has actually created a very good environment for us and we believe that going forward there’s going to be both volume and price escalation as well. So you’re right. What’s happening in the other companies is happening at Granite as well.

Jack, just to give you just a little additional color, also as you mentioned, the difficulty around permitting. The cost of being in this business is escalated right alongside the escalation in pricing. So its important to know that the investments necessary to stay in this business have increased pretty dramatically in the past years and as a result, has necessitated the increase in price structure that you have referred to. So you got to put it all in perspective.

Okay. That’s helpful. Thank you very much.

Richard Pagett with Morgan Joseph.

Good morning, everybody.

Good morning.

Your comments on the housing market, I wondered if you could give us some more color on what your outlook going forward. Looking at the private sector backlog, should we expect maybe a slowdown in ‘06 in the housing market for you guys?

I think I’ll take that question. This is Jim Roberts again. The housing market, as everybody knows, in the last couple years is very strong. We’ve been able to kind of realign our business to be able to capture a certain share of that market that we’re comfortable with today.

We’ve also been able to develop some relationships with some of the builders that we’re very comfortable with and although there is a slowdown, as Bill said in his discussion, nationally, and a slowdown some of the areas in the West as well.

We’ve got some pretty good relationships with pretty strong builders and I think there may be a slowdown or a gradual calming of the housing market, but we’re pretty comfortable that we’re going to continue at a pace that’s pretty healthy in the housing market for 2006 as well. Now, going into 2007, I don’t know. But I think, for the next 12 months, we’re very comfortable with a very healthy environment for housing.

Have you guys seen any pick up in nonresidential commercial construction spending?

That’s a good question. I mean, typically what we see is the housing market takes the lead into a geographic region and then the commercial and the industrial follow. And we are seeing that and so our anticipation is that if the housing market does calm a little bit, that there could be an offset with the industrial and commercial end. We do a lot of the site work for a lot of those big industrial and commercial businesses and that’s just as good a business for us as the housing market.

Okay and then moving over to the benefits from the milder-than-usual weather. Is there any way quantify that and maybe if you could talk about how weather has trended so far this year?

Well that’s a good question. I’m not sure we can quantify it. I would suggest to you that the strong finish we had in the fourth quarter was certainly helped by the weather patterns that we experienced. But I think that equally as important, we just had a whole lot of momentum going into the fourth quarter and arguably that was more important even than the weather. Now we certainly wouldn’t have posted quite the performance that we did if we had had a rainy winter, early winter. But I think we’d have had a big fourth quarter either way, frankly.

Regarding the start to the season, we’ve had fairly mild weather. I think we’re off to a pretty good start. We’re expecting rain in the West this week, however, so that could change. It’s really hard to predict.

Back in December, with the floods up in Northern California, did you guys get any emergency work out of that or that was kind of just a small part?

This is Jim Roberts again. We got some work. Probably nothing in the nature of what we actually got last year from the flood work in Central California and Southern California. We do have some work ongoing today up in the North Coast. We actually had some damage done to some of our equipment in a facility from the rain as well. So I wouldn’t consider it a big event, positive or negative, for Granite anyway.

Okay and then finally, I know you guys have already talked about an aggregate pricing and volume. Any possibility to give us any sense of how much pricing you have gotten, whether it’s specifically in the fourth quarter or YTD?

That’s kind of a tough question to answer. I think it’s been very steady, the increasing of pricing and I think Mark brought up some good points relative to cost basis that’s gone up too, not just from the investment standpoint.

But from when you start talking about controlling related products and things that go into our business, finished products have gone up. We’ve been able to capture those costs in our finished materials pricing and so it’s awful difficult to say that was kind of the increases that have gone into the products. Although it has been significant and we continue to think this will have the same kind of opportunities going forward.

Okay. So I guess asphalt, for example, you’d pass through any impact from oil. If, for some reason oil does go down, will you be able to hold that pricing or you’ll have to give some of that back?

That’s a good business question. From a public sector standpoint, we have an escalation/de-escalation clause in a lot of our contracts. So, actually, if it goes past a certain threshold we would be required to give some of that gain back to certain agencies. But obviously, on the commercial side, we have firm pricing with our retail and commercial customers and we would retain that differential if the prices did go down.

And traditionally, when asphalt process are escalating, it does affect our business in a negative manner and if they were to drop off, there would no doubt be a windfall. How big I couldn’t tell you.

That’s pretty specific to our branch business. If you look at our large project side of our business in HCD, they do not have the same kinds of flexibility because of the duration of the jobs and depending on the timing in which those jobs were priced out. Whether it be fuel, whether it be asphalt-related and so forth, there’s more of an impact to the larger jobs just because of the long duration.

Okay, great. Thanks a lot and good quarter.

Greg with CJS Securities.

Good morning, this is Greg standing in for Robert. As you at the California construction market, obviously benefiting from state funding increases, is that evident in numbers yet or should we expect time for that to roll through? Just getting a better grasp of the timing of when we’ll see the benefits in ‘06.

Well, it’s clearly reflected in our backlog, but I’m not sure, particularly as it relates to California, Jim, that it’s really showed up much in our revenues at this point. Is that fair to say?

Yes that’s a good question. I think you saw some of the evidence of that in the fourth quarter, relative to materials pricing and opportunities that were captured in the fourth quarter. But Bill’s right, the backlog that we have relative to the public sector marketplace in California is healthy going into 2006. I think you will see some of the benefit in the 2006 public sector market.

Keep in mind that that funding that’s coming out of CalTran really just started on July 1st of ’05, the increased funding. So it takes a while before it gets through our systems.

And which is very consistent with what we’ve said in the last couple of calls, is that we expected that, particularly as it related to CalTran, that that would begin to show up in our 2006 business.

So as you look at the quarters, is there something we would expect to see second half of the year or something we might see earlier in the year?

Well, our season really starts in May, so particularly in the West. We’re in a rainy period, typically, this time of the year. It’s cold. The sun’s low on the horizon. We get rolling middle of April, so it’d show up in the middle of the year.

Okay. You discussed pricing on aggregate. Can you maybe talk a little bit about pricing, what you’re seeing in pricing and projects and expectations going forward in ‘06?

I’m not sure I quite understand that question, but yes. The basic answer to that is that there’s opportunities in the aggressive business. We’re seeing those pricing opportunities exist and we think the pricing opportunities will exist in the project side of the business as well in the West. I’m not sure that answers your question.

No that’s fine. Touching back on HCD, I know you’ve discussed it here, but your hope for HCD going forward. Is there any specific changes made or any major disappointing projects that have been rolled off or at least there’s expectations for some sort of recovery in ‘06?

I’m not sure -- could you repeat the question? I’m not sure I --?

Are there any specific projects that have rolled off on HCD?

Yes. Certainly there have been three or for that closed out the year that will go away, but as these big projects get going, they tend to create issues, as Bill said. So we’ve got about 45 active projects, depending on how you define active and less than half of them had a change in our forecast of $1.0 million greater or less. And about half of them, a little more than half of those, went down and less than half of them went up. So I think that’s a common occurrence.

Again, what we’re trying to do is get to where the bid margins that we’ve put on these projects stand alone and fall to the bottom line and are not eroded from the issues that are being created and resolved.

Yes. I think -- and if I’m understanding this question, I want the audience to appreciate how important the forecasting process is in determining our future and particularly in our HCD business where this work is very long. And we don’t necessarily need to have a job roll off of our backlog for it to become a contributor, if it’s a job that has deteriorated.

Because once we have faced up, if we get this forecasting right and we’ve faced up to the reality of a job that may have deteriorated and we get the cost to complete proper, properly able to do that -- which by the way, is not a real easy thing to do, some of this large, sophisticated work.

But if we face up to that and then the additional revenue that we are generating in the next or subsequent reporting periods will carry with it a margin. While it may be a reduced margin, it will have a margin associated with it, as opposed to a job where we have reported earnings that we then have to correct in a subsequent reporting period. Which is what we have experienced in this last year, to some degree.

And as I suggested, we have worked very hard to try to make that correction. It remains to be seen whether we will have accomplished that, but believe me, we’ve tried very hard in 2005 to make that correction.

Okay. Thank you very much.

Kalpesh Patel with Bear Stearns.

Hello, everyone.

Good morning.

I guess trying to understand earnings for next year and forward. You mentioned that the awesome fourth quarter was due to momentum and weather and then you also said that you would have had a great fourth quarter without the weather. So what I’m trying, I guess, to understand is whether we’re just at like a higher level of profitability and if that’s the kind of run rate we should apply going forward or not, because of the momentum.

[Inaudible - multiple speakers]

Because of the momentum.

That’s a really tough question to respond to. I’m not sure -- I mean, obviously what we tried to do in our opening remarks is to describe to you all how we view our market and clearly, our results are, to some degree, driven by the condition of our market. There’s no question about that.

When these markets are strong our capacity to harvest the term we use, the bumper crop out of the market, is certainly a lot easier to do. And so, rather than speculate on whether we’ve reached a new level of profitability, what we’ve tried to do is provide you with some insight into our markets. And of course it’s always up to us to try to do the best we can to get what we can out of these markets.

I will tell you that I think our business is -- it’s a very solid business with very capable people and generally, we get out of those markets quite a bit. So our markets are strong. We’re hopeful that we’ll be able to harvest that bumper crop.

Well, I mean, okay, so the markets are strong. So does that mean, like, it’s going to be like this for the next two or three years or the next five years or do you know what I mean? Like the aggregate pricing and volume is great. The housing market in California is great, the population growth. funding, all that sort of thing. So, I mean, do you see it peaking right now or is it still like the third inning? I mean, I’m sorry.

Yes --

I don’t know if you can answer this. I guess I’m just trying to understand it.

Well, I think that generally speaking, I think we think the market has some legs.

Okay. Okay, that helps.

Certainly, as Dave suggested, there’s a lot of good things that are being talked about in the public works marketplace, particularly here in California and whether that actually comes to pass is another matter. I certainly wouldn’t want to try to speculate on what the electorate in California is going to do with regard to bond issues and various things like that.

But there is a lot of momentum, as Dave characterized it as a contest to see who can spend the most money. I don’t know if it’s quite that good, but it’s a very interesting time to be in the public works marketplace in California and in the West altogether.

The housing market, who knows? Will it slow down? Yes it probably will a little bit. Is that going to affect our business dramatically? Not unless it slows down quite a bit, I would think, and we don’t expect that to occur. So we think the market has some legs, I guess is the best way to describe it.

Okay. That actually segues into my next question with the California legislature and the governor there. You said there were bonding discussions or discussion regarding bonds and whatnot. It’s not like the funding is going to go down. It’s just more or less who’s going to get credit for it and where it’s going to go, right?

I’m not sure I understand the question.

Like the amount of money that’s going to be spent in California regarding infrastructure and public funding for roads and bridges and stuff like that. It’s not like the governor or the legislator is trying to reduce that spending. It’s just more or less we want to spend it on project A versus project B and who gets credit for it in the public eye is more of the issue.

I think the issue is that they want to spend more. They want to add to the total going to rejuvenate our roads, our levees, our prisons, our schools, whatever it may be, call it all infrastructure, but clearly the governor has made this a theme for his reelection for another term.

And the Democrats who control the legislature don’t want to be left standing at the station while the governor takes away with this theme. So they’re trying to compete with each other as to who is going to spend what on what project and for those of us in the industry, whatever they do, it all looks good.

Okay and I guess my final question is regarding people and capacity. I think you mentioned in the opening remarks how you’re making a significant investment in people in developing them. So I guess just a little more detail on that. Are you hiring a lot more people because of all this new activity that you’re getting? Are these new employees more expensive or is it more just training your existing staff?

It’s really all of the above. We’ve really stimulated our recruiting effort, put a lot more energy into that, because people are probably our -- I don’t want to characterize it as our biggest problem. But it’s the bottleneck that is keeping not just us but everyone from being able to grow as fast as our competitors as well to grow as fast as probably the market would support.

And as a result, we recognize that. We recognized that a few years back. We put in place, I think, a quite sophisticated and forward-thinking effort to develop the skills of our people. We’re spending considerable money in this effort. We have dedicated staff all through the organization to facilitate this effort and we’re trying to get better at it all the time and take it to a whole other level. Because we do think it sets us apart from a lot of our competitors, frankly.

Having said that, the issue of people is still and issue and to some degree that’s a problem. To some degree it is what is creating the market that we are the beneficiary of, because as our competitors face the same problem, the market is quite good as a result of that. So it’s sort of a “bad news/good news” situation and it is my personal belief that the companies that win this competition for people will be the ones that succeed. And I think we’re quite good at this, frankly, and better than most.

Bill, I’d like to add one thing. This is Jim Roberts. I would say, Kal, that the other thing that we’ve been able to accomplish is our people, in 2005, just stepped up to the plate and did an unbelievable job. So what we’re seeing is the ability of our people to produce has increased. Their capabilities are growing and their efforts are growing.

I think what we have today at Granite is a quality of people that has just outpaced the industry and so it isn’t just the quantity of people that we’re out looking for. But people that we’ve got in our business today have really -- we just can’t tell you how proud we are of what they’ve done and that sets apart, right there, from everybody else.

Okay. Congratulations on a great year and thank you for your time.

At this time we have no further questions. Are there any closing remarks?

Well, once again -- I’m sorry? Go ahead, Dave.

This is David Watts and I’d like to offer a comment from the Board of Directors and thank the entire Granite team for a very, very good year, for their hard work and committed effort, and to this management team. We are very pleased with the way the Company is taking advantage of the opportunities and solving its challenges and problems. So congratulations to the team.

Well, thanks, Dave. Speaking for our team, we appreciate that very much. Thank you. And that will conclude our remarks. We thank you all for joining us. We will be around this morning if any of you have any additional questions. Thank you.

Thank you for joining today’s Granite Construction conference call. You may now disconnect.

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