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Granite Construction, Inc. (NYSE:GVA)

2013 Annual Shareholder Meeting

June 06, 2013 1:30 pm ET

Executives

William H. Powell - Chairman, Chairman of Executive Committee, Member of Nominating & Corporate Governance Committee, Member of Compensation Committee and Member of Strategic Planning Committee

Richard A. Watts - Senior Vice President, Corporate Compliance Officer, Secretary and General Counsel

James H. Roberts - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Strategic Planning Committee

William H. Powell

Well, good morning, and welcome. I'm Bill Powell, Chairman of the Board and Director of Granite Construction Incorporated. Welcome to Granite's 2013 Annual Shareholders Meeting. I will now call the meeting to order.

During the meeting, we will discuss the 3 proposals on the ballot. Mr. James H. Roberts, our President and CEO, will then review the company's business and answer questions from shareholders and bona fide proxy holders. To allow time for all shareholders and proxy holders who may wish to speak during the Q&A session, we have adopted certain ground rules and you'll find these procedures on the back of today's agenda, which was on your chair when you came in.

Mr. Richard Watts has been appointed Secretary of this meeting to record the minutes. Mr. Watts is Senior Vice President, General Counsel, Corporate Compliance Officer and Secretary of the company.

Mr. Andrew M. Wilcox, on behalf of Broadridge Financial Solutions, has been appointed inspector of elections for the meeting, and he has signed his customary oath of inspector and it will be made a part of the minutes of this meeting.

If any shareholders or proxy holders present have not registered their presence, please go to the registration desk in the lobby to do so at this time.

The inspector of elections will determine the exact number of shares present at this meeting, and a report of the number of shares represented will be supplied prior to the voting.

While Mr. Wilcox is determining the number of shares of common stock present at the meeting, I would like to introduce a number of persons at the meeting and to introduce you to those members of the Board of Directors that are present: Mr. Claes Bjork; Mr. Gary Cusumano; Mr. David Kelsey; Ms. Rebecca McDonald; Mr. James Roberts; and Mr. Gaddi Vasquez. Also, Mr. John Ivers [ph] of PricewaterhouseCoopers LLP, Granite's independent-registered public accounting firm.

I will now call upon Mr. Watts, Secretary of the meeting, for his report.

Richard A. Watts

Thank you, Mr. Chairman. A notice of meeting or a notice regarding the availability of proxy materials was mailed to shareholders beginning April 24, 2013, and is available on Granite's website.

The notices and the list of registered shareholders of the company at the close of business on April 10, 2013, which is the record date of this meeting, are available for examination.

Only holders of common stock on the record date are entitled to vote at this meeting. I'm advised by the inspector of elections, Mr. Wilcox, that the holders of no less than 36 million shares or 93% of the stock eligible to vote are present at this meeting, in person and by proxies filed at/or before the meeting.

Therefore, a majority of the outstanding common stock is present or represented here today and a quorum is present. The meeting is authorized to transact business.

I'd like to now turn the meeting back over to Mr. Powell.

William H. Powell

It's now 10:35 a.m., June 6, 2013, and the polls are now open for our items of business. They will remain open until all items of business have been presented and discussed. If you've already voted by proxy, you do not need a ballot to vote at this meeting unless you wish to change your vote. If you do need a ballot, please raise your hand at this time.

We will collect and tally ballots after all of the proposals have been presented.

At this time, I would like to turn to the business items in the agenda to be voted upon today.

First is -- the first order of business is the election and ratification of Directors, who will hold office for the ensuing 3-year term, until their successors are elected and qualified. The Board of Directors consists of 9 directors, and today, we will elect 4 directors who will hold office until the end of the 3-year term in 2016. We'll also ratify one director's appointment as a Director for a term expiring in 2014.

The Nominating and Corporate Governance Committee, in accordance with its charter, has recommended to the Board of Directors, and the Board of Directors has nominated the following nominees to be Directors of the company to serve for the ensuing 3-year period and until their successors are duly elected and qualified: Mr. William G. Dorey; Ms. Rebecca A. McDonald; Mr. William H. Powell; Mr. Claes G. Bjork; and Mr. Gaddi H. Vasquez was appointed to the Board of Directors effective October 1, 2012. The Board request that the shareholders ratify his appointment as a Director for a term expiring in 2014.

Since there have been no further nominations as provided for in the Article 2, Section 7 of the bylaws, nominations are now closed.

Ballots have been distributed to those of you who requested them. Please note that there is 1 ballot for all of the matters being acted upon this morning. Please indicate your votes for directors in the space opposite the name of the director or directors you wish to vote for. If you are voting as a proxy for a particular shareholder, please write in the shareholder's name and sign your name as proxy. The Secretary will announce the results of your vote after the ballots are collected and tallied.

The next item for business is to consider the proposal to approve, on an advisory basis, the compensation of the named executive officers.

Information regarding the compensation of the named executive officers has been presented in our proxy statement, and the proposal is described on Page 42 of the proxy statement. Please indicate your vote for the proposal to approve, on an advisory basis, the compensation of Granite Construction Incorporated named executive officers, as disclosed in our proxy statement.

The next item for business is to ratify the appointment of PricewaterhouseCoopers LLP, as the company's independent-registered public accounting firm, for the fiscal year ending December 31, 2013.

Please indicate your vote for ratification of the appointment of PricewaterhouseCoopers LLP

to be -- to audit the company for 2013 fiscal year.

For those of you who have completed ballots at this meeting, please sign them and pass the ballots to the outside aisles for collection.

And I ask that the inspector of elections now collect and tally the ballots.

It is now 10:38, June 6, 2013, and the polls are now closed for all items of business.

We will now hear the report of the Secretary of the meeting regarding the preliminary results of the elections.

Richard A. Watts

Mr. Chairman, based on the preliminary report, Mr. Dorey, Ms. McDonald, Mr. Powell, and Mr. Bjork have received more than the required votes to be elected as Directors of the company to hold office for a 3-year term and until their successors are elected and qualified.

Also, Mr. Vasquez has received more than the required votes to ratify his appointment as the Director of the company for a term expiring in 2014 and until his successor is elected and qualified.

Based on the preliminary report, more than the majority of shareholders voted to approve the compensation of the named executive officers, as disclosed in the proxy statement.

Mr. Chairman, based on the preliminary report, the ratification of the appointment of PricewaterhouseCoopers LLP, as the company's independent-registered public accounting firm, has received more than the required number of votes to be approved.

Mr. Chairman, this concludes the report of the preliminary voting results. The final results will be available for all shareholders in a Form 8-K, which will be filed with the SEC no later than June 12, 2013. Shareholders may also obtain results by calling or writing the office of the Corporate Secretary.

William H. Powell

Thank you, Mr. Watts. The final matter before us today is to conclude the meeting. All those in favor of concluding the meeting, signify so by saying, aye.

[Voting]

William H. Powell

Those opposed, by saying no.

[Voting]

William H. Powell

The meeting is now concluded. Mr. Roberts will now review the company's business through a slide presentation, and after this presentation, he and I will be glad to answer your questions about our business. Mr. Roberts?

James H. Roberts

Thank you very much. Welcome, everybody. So I'm going to actually run through some of our business, some of the things that are going on our business, I'm going to do a little look back on '12, I'll do a look forward to 2013. And if you could hold your questions until the end, both Bill and I will be happy to address your questions at the end of the discussion.

So we always have a Safe Harbor, a discussion point at the very beginning, and really the intendant of -- intention of this is that the audience is cautioned not to place undue reliance on forward-looking statements, which means that as we speak today, these are issues that occur as of today.

Okay. We start every meeting off at Granite talking about safety. Safety is what we consider to be one of the utmost important issues in our company. "Make it personal/Take it personal" is our mantra. What we decided to do in 2013 was to actually make it a core value of Granite. You will see on the medallion up here, the medallion in front of the podium over here about safety, is now a core value. You see the upper left-hand corner. We had 8 core values, we now have a ninth. I'm very happy to have added safety as one of our core values in 2013.

The other thing I wanted -- before I talk about our business itself, I want to tell you how proud we are, being one of "World's Most Ethical Companies." We have been voted one of the "World's Most Ethical Companies" now for 4 years in a row, and it is a -- just an honor to be part of what the Ethisphere Institute describes as, internationally known as a company that treats its employees, its customers and its partners in an ethical manner at all times.

Now 4 years in a row, somewhere between 100 and 150 companies in the world make this list out of thousands and thousands of applications, and so again, 4 years in a row, we couldn't be more proud. It is our intention to stay in this list for quite a long time.

Okay. I want to reiterate to our shareholders our strategic themes in Granite. It is very important that our shareholders understand strategically where we are going, and then at the end of the discussion, I'm going to reiterate our vision, the company vision itself. But we have 4 strategic themes in Granite. They have been tweaked a little bit over the last couple of years, but they are basically the same 4 strategic themes that I, and others in our company, have related to our shareholders for quite some time now. Transform and grow the vertically integrated business, on the left-hand side of the screen. That is our Construction and Construction Materials business that is geographically located in certain regions throughout mostly the Western United States. We build work in the local markets. We actually are vertically integrated into the Materials business of aggregate and asphalt mostly. And this is a business, that during the economic downturn, we have transformed it to be a little more asset-light. We have every intention of growing it geographically. We think it is a very good business to be in, and we just need to be a little more focused on making it and transforming it into a little more asset-light business. Nice business, we like the asphalt model. We like the Construction model, and we think geographically, it has great opportunities across the U.S.

Second one is grow the Large Projects business. This is work that we define as being $75 million or larger, or has an alternative procurement type of approach towards the bid process, design build, design build finance or some other mechanism. This is a healthy business. This is about an $850 million business in Granite today. It has been growing sequentially year-over-year. Very nice gross profit margins, we see this as a very large part of our themes, strategic themes going forward, and it's doing quite well.

The third one, to the right here, is to diversify our business. We have been saying for quite some time that it is important that we look at different funding mechanisms for our customer base. If you're reliant on one source of funding, if that source of funding slows down, your company slows down.

So we made it very clear that we're going to diversify our business into different areas of markets, and as you can see on this slide, federal power, water, rail and industrial, and you're going to see in a minute, that's exactly what we've been doing. And we had an acquisition that we completed at the end of last year that helped us start to diversify our company and follow our strategic plan.

On the right-hand side, you will see optimize our business. If you look closely, it said business portfolio historically. We crossed off portfolio and said, not only do we look at optimizing our portfolio of assets, we look at optimizing the way we run our business.

Process improvement has been taking a large role in our company in 2013. We are challenging ourselves to do better and better at every single process inside of our company. And we have developed a continuous improvement program that will be gone, going for quite some time, going forward.

So let's look back at 2012. Where do we go? I'm going to show some financial slides quickly. You can see on the right-hand side of the bars, Granite had revenue at about $2.1 billion. We hit a low in 2010 at $1.8 billion. But you can see, we were up at $2.7 million at one time. We are coming back. We are growing the company again. During our restructuring in 2010, we are sequentially growing the company back, and we intend to continue to grow it as we move forward.

Gross profits. The important part about the gross profit slide here is that you'll see our gross profits are in the 11% to 12% range. And years ago, 3 or 4 years ago, you'll see them up in the 18% range. That is an economic-driven, that's a market-driven environment.

So for us, it's plateaued off to the 11%, 12% range. It is a range today that we can create a very healthy company, and have created a health company, but it is lower than what it was 3 or 4 years ago.

SG&A. SG&A is selling, general and administrative costs, that's our overhead. And that's the overhead that is not charged to our projects or our plans themselves. This slide shows that historically, Granite has had overhead in the 10%, 11% -- or 11% to 10% range. Prior to 2011, we made some great strides reducing overhead down to 8%; had a little blip in the field this last year, as you can see. On a percentage basis, our overhead has risen a little bit relative to our revenue size. Our job, our challenge is to get our revenue down into the 7%, 7.5% of revenue range. It's very important that this overhead is driven sequentially with the size of the company we have. We still have work to do here.

$45 million of net income. So that was the bottom line of the company. We transmitted that to The Street in February, as of the end of 2012, and you can see it's pretty similar to where we were last year in 2011. We had approximately 39 million shares in the market, and on the right-hand side of the screen, you can say that equates to about $1.15 a share.

Backlog. Backlog is the amount of work that we have on our books under contract yet to be built. And you can see at the end of 2012, we had about $1.7 billion in backlog. But that really wasn't the story. The story was that we had spent a lot of energy in 2012 to bid some very, very large work, and we were very successful in the month of December. We found out that we were the low bidder, responsible bidder on a job in New York. I'll show you that one in a few minutes, with Tappan Zee Bridge and also a large job in Dallas, Texas.

When you added those 2 numbers onto the actual number at the end of 2012, it shows that our backlog at that point in time was actually about $2.7 billion, which is an all-time record in the company.

Its work, physically, didn't get into contract until the first and second quarter, but we did a lot -- most of the work to procure that work during 2012; a very healthy position, relative in the amount of backlog contract work yet to be built for the company going forward. That is a sign of the future. You want to keep that backlog out in front of you and you want to constantly be building backlog so that your crews and shareholders and people know, you've got work out in front of you. We have a lot of work out in front of us on our books today.

$433 million of cash and cash equivalents, marketable securities on our balance sheet. This is a very healthy company. Maintaining a strong balance sheet during the economic downturn was one of our prime drivers in making sure, strategically, we kept a very healthy company, cash on our balance sheet, so when opportunities come along, acquisitions, expansions, investments, we were capable of doing that, and we have done that into a very healthy company financially.

I'm going to play for you a couple-minute video now. This video is kind of a, the work that we built in 2012. It's got sound attached to it. It's pretty exciting stuff. So we build absolutely exciting work. And I think this video is going to show it to you. So this is a look back to 2012, of the work we built last year. And it's a drive-in. So you're driving in here, for those of you who remember drive-ins. You're driving in with your car into the movie theater here.

[Presentation]

James H. Roberts

So we've had the privilege of traveling all around the Granite offices this last year. Laurel Krzeminski, our CFO, and myself, we played this video, and every time I play the video at all of our employees, it makes you just so much proud about how the kind of work that we build is just amazing, and the finished product is something you touch, you feel, and it's a benefit to the communities in which we live in. So it's really exciting to be able to play this and show it to our shareholders as well.

Okay, let's look into 2013. A couple of things that are going on for 2013, and there are some changes in the company for 2013 that are really important for our shareholders to understand.

We are continuing to focus on Large Projects, a very healthy business, but in addition, our Construction and Construction Materials business has the opportunity continue to grow again, and we are focused on those regions, or in those businesses as well.

We also started, organically, a federal business. And I'm going to chat about that in a minute. We also acquired, through the Kenny acquisition, a tunnel business. And in addition in the Kenny acquisition, we acquired a power business and an underground or a pipeline rehabilitation business. And this is a change in the way Granite has historically looked at its work. And I want to explain that because it's very important, as we go forward in Granite, to look at 2 different types of approaches towards our business environment.

There's a map of the United States. We now cover basically almost the entire United States. No longer a regional player, just in 1 part of the country or another. But as we've done that, we have added 4 divisions. And a division in Granite, as you can see here on the bottom right-hand side, is an end market business unit. It works in all geographic parts of the country.

Historically, Granite's regions have been geographically bound. They work in a geography, they do all types of heavy civil work in the geography. Today, what we're doing is overlapping our end market business unit divisions, with our regions, and asking our regions to help bring these divisions into their local markets to enhance these divisions' opportunities.

Example, take the power business. The power business has been a very strong business in Kenny. They do a lot of construction management, materials management, and we have access in a lot of our regional environments. So we know the utility companies. We have access to the people we normally work for. Having a relationship with Granite can bring in the relationship and use the power division to do all of our power work, that all parts of the country creates consistency and opportunity. Same thing with the federal work, we started the federal division organically, so that we can start pursuing federal work consistently from coast-to-coast. We do a lot of federal work, but we used to do it region by region by region, and now we do it as an entire company, and we still build it with our local regions, but we use an oversight division that has consistency, capabilities and really, the focus on the end market, far better than we ever used to. These are our 4 divisions. The pipe rehabilitation, underground in-liner business, the power business, the tunnel business. All 3 of those businesses were acquired with the Kenny acquisition at the end of 2012, and the federal division is now an organically created division that we felt was very important for Granite going forward.

We also have started to do business in Canada. And you're going to see, as I just kind of refocus on our vision at the end, we want to go work north of the border. It is part of our strategic plan. It is a good environment, a healthy environment, and a good place to do business. But Kenny business had acquired, prior to the close of 2012, a large telling job up there that we are a joint-venture partner on a $280 million job in Toronto, and that job is just beginning today.

So now with the Kenny acquisition, we are moving north of the border, and we intend to enhance our position north of the border as well.

This is a really important slide. If you look on the left-hand side of the graph, you're going to see the 2 focused areas historically Granite has focused on, and that is the transportation sector.

This is an annualized amount of work that's done in this market sector. So you can see, there's about $117 billion market when you look at transportation highways, roads and bridges.

If you look at the expansion and diversification of Granite into the right-hand side of the graph, and the pie chart there, you're going to see that the new markets that we are moving into, in addition to the transportation market, is about twice the size of the transportation market, which allows us to be a player in a market which is in excess of $300 billion. Before, we were playing in a market of about $100 billion.

So the size of the market approach has changed, the diversity of the market approach has changed, which means the opportunities to grow our company in a very stabilized environment is stronger than ever.

That's all right. We'll wait a minute. Not a problem.

Okay. So for 2013, I want to show you some of the work that we are building this year. Obviously, we're building hundreds and thousands of projects across the U.S., but I picked a few projects to kind of show you the diversification of what we're doing. And I'm going to tell you why because it is important that we continue to really focus on diversifying our business and then being ready to capture a market when certain markets come back. Here's an example of one project, a small project down the road, Highway 101, Camp Roberts. Those of you from California probably know this location well. This is only a $10 million job. We're a subcontractor working for the California National Guard. But here's the interesting part, 30,000 lineal feet of utilities on this job. We're really not a utility contractor. We don't count ourselves as being an underground utility contractor. But our people have the skill sets, they have tremendous skill sets. We have some of the top operators, laborers in the entire area. They can do a lot of different things. Here's a prime example, a nice job diversifying out into a market we normally wouldn't be bidding. So good job and a nice opportunity to show what we can do.

This is even more so. This is a solar job down on the Mexican border, down south of Palm Springs, near El Centro. It is a $30-plus million job, and the key ingredient here is that we are driving over 170,000 of these posts up in the upper left-hand corner here. We're driving them and our people, on-site, developed the GPS laser-guided driving machine and they are driving these posts substantially faster than anticipated. The innovation and technology of the Granite people: brand-new type of work, different things, but making value for the company because of their intellectual capabilities.

Also after that, we're placing over 800,000 solar panels on those posts. So we actually are doing renewable work with our heavy civil skill sets that the company's people possess.

This is more of a typical job that we have historically done. It's a Caltrans job north of Ventura, over Highway 1 -- Highway 101. But here's the interesting part, the Caltrans work has slowed down dramatically. Our job is to diversify out and do other things while the transportation industry slows downs a little bit, but we are still a very strong player in the transportation industry, and we will retain our market share and certainly, our intention is to grow that part of our business as the opportunities allow themselves. This is a 5-mile widening, right along again, Mussel Shoals, which is north of Ventura.

This is just -- I put this up here just to show, when we have aggregate reserves and materials facilities in the right locations, with the high-quality reserves, they are very profitable business for our company. This is in on the Wasatch front, over on the east side of Salt Lake City. This is our primary aggregate reserve in the Salt Lake market, a very nice reserve, and one of the primary reasons we are very successful in the Salt Lake Valley is because of the quality of this reserve right here.

This is another form of vertical integration, probably not well documented for a lot of our shareholders, but important to understand.

We have a large growing business called Intermountain Slurry Seal. This is where -- a pavement preservation business. We go preserve pavements so that they last longer, slurry seals, micro seals, chip seals, different kinds of seal methods to preserve the pavement. Here, we are investing in an emulsion facility in a location where we already have a large asphalt terminal, and emulsion is the binder they use for most of these products. So we are now investing into the development of our own facility. So we will actually supply our own emulsions.

This is a picture of, on the left, a deteriorated manhole in Chicago, in Bedford, Chicago. Now this is part of the pipe rehabilitation business that came along with the Kenny acquisition, a very unusual business.

Again, these are -- this is the vertical manhole before and after, but the majority of the work that they do in the pipeline rehabilitation business is horizontal pipe, sewer pipe, water pipe. It is about a $3 billion business in the U.S., and there are only a handful of players that are really capable of pursuing this work. Kenny is excellent at it. They have a high-quality team. They do a lot of work in the Chicago market, and part of our job, with the Kenny team, is to expand this business to other parts of the country as well.

This is a very interesting job, that along came with the Kenny business as well. They have a tunnel division. This is a $265 million job located in Columbus, Ohio. We are the sponsoring joint venture partner on this job, 23,000 lineal feet of 23-foot diameter tunnel. Water intrusion, typical job. Kenny brings to the table for Granite an organization that has the capability to build complex tunnels. Only handful of companies in the U.S. have that capability. We are now one of them. This is a nice new market for Granite.

This is a job in Texas, a 13-mile long new alignment in Joshua, Texas, $180 million. In Texas, we are a large highway player there. We're doing all the work here. We do the underground work, we do the dirt work, we do the structures, 19 different bridges on this job; typical, nice highway job. Nice job, if you think about this job, new alignment, no traffic, which makes it a lot cleaner job.

This is a transmission distribution job, part of the power division of Kenny, where we go work for owners and we actually are the construction manager and the materials manager for a lot of the larger utility companies throughout the U.S. This happens to be 153 mile-long, 500 kV distribution line, bringing energy in from the Palm Springs desert area into the L.A. basin. Nice job, and the Kenny team is doing a really fantastic job here.

This is down in San Diego, Miramar Air Force Base, and the reason I put up this one up here is because we are a line item joint venture with a vertical builder, building new aprons and hangers for the airport space here. We are also the contractor doing all of the concrete paving on the job. Not only are we a joint venture at the top end, we're also a subcontractor, or do actually a line item joint venture, doing the physical work on the job for the concrete paving as well.

Okay, and the last one I'm going to show you is Tappan Zee Bridge. A lot of you have heard about this. It's a big job in New York. This is a 17,000 lineal-foot, new alignment adjacent to the Tappan Zee Bridge. In excess of $3 billion, we have approximately about a 24% of this job as ours. There are 4 partners. The job has just started, a very exciting job for Granite, an exciting job for New York, an exciting job for the entire infrastructure community. So this is a big job and a signature job for Granite going forward.

Okay, I'm going to close out by just reiterating the company vision. We have a vision. We've had it in place for a while now, and I'm going to reiterate it to kind of show that we have set a path, we've set a vision, and we are doing what we said we were going to do.

Granite's vision, to be one of America's leading infrastructure companies, to be the company of choice for our employees, owners and partners. If you do not take care of your employees and you do not take care of your partners and your customers, you will not be in business for very long; #1 on our list.

#2, be the leading U.S. transportation contractor. Today, we are one of the leading U.S. transportation contractors, but we want to be the largest U.S. transportation contractor, and we have the capabilities of getting there.

#3, expand our presence in the multiple end markets. You can see we're starting to do that. We're maneuvering into the power market. We're maneuvering into the underground market. We're maneuvering into the tunnel and the federal market. We're moving into additional end markets to diversify our portfolio and to create a more stable funding mechanism for the company. Establish a meaningful presence in Canada, you saw that with the Kenny acquisition. We have moved to work north of the border. You'll see us doing more. U.S. Protectorates, we are on out on Guam, continuing to build work on Guam. And we think this is a good part of the business. We're still working for the U.S. government, but we're working in U.S. Protectorates outside of the Lower 48.

And then last, lead the construction industry in sustainability. We have the only sustainability plan that is a publicly documented sustainability plan from what we know of any heavy civil contractor in the United States. There are 6 colors to our sustainability plan, and we are focused on creating sustainability for Granite over the long term. And this is an important part of our company because we are not here for the short run, and sustainability just means that nobody's here for the short run and we play our part in sustaining not only the environment, but for sustaining Granite as well.

Okay. That's my presentation for you today, and I with Bill, you and I, would be happy to answer any questions anybody might have.

Question-and-Answer Session

William H. Powell

Are there any questions from the floor.

James H. Roberts

Yes, sir?

Unknown Attendee

You listed railway [indiscernible] in the earliest part of presentation. [indiscernible]?

James H. Roberts

Well, we -- and so the question is, for those of you that didn't hear that. I know there are some people on a webcast as well. So what is our role in rail, what has it been, and maybe what will it be going forward? We are doing some large rail work today. One of the largest rail projects in the United States is the Houston Metro rail job down -- or the Metro rail job in Houston. It's about a $1.2 billion job, and we are the contractor on building that out. We also build a lot of local rail, light rail, and we believe it is a market, long-term, that has value. So about 5 years ago, when President Obama was working on his platform for his first administration, rail was a priority. Unfortunately, during the economic downturn, it has taken a lower-level play over the last couple of years, and we've seen kind of a reduction in the investment in rail. We believe it will eventually come back, and we believe we should be a rail player, which means we should have in-house capabilities to really do a lot of the systems and the actual track work over a period of time. We've put it a little further down on our list of priorities because we don't see the immediacy of the size of the market growing today. But we think long-term, it will be. Does that answer your question, LJ [ph]? Okay.

William H. Powell

Other questions? Yes? Would you wait just for a moment for the microphone to come and please identify yourself?

Unknown Attendee

Good morning. Suzanne [ph]. The technology is incredibly advanced, and -- which is a great thing. I have a nephew that's down in Cal Poly going to school, on the computer getting things out there. To get that into the field, you've got great workers. How does Granite take that technology out of the classroom, out of the computer, and how are you educating our workers to be those people in key positions? And how does it stay contagious within Granite's core people? Are you educating? Are you getting to classrooms? Are you working with the unions?

James H. Roberts

Okay. So do 2 different things. So the question relative to technology, this is a big issue in our industry. The construction industry has typically been fairly unequated, relative to technology. 2 things, business technology, one side, operational technology, let's talk about it on the other side. Business technology, we have just put in and spent a great deal of money on a new business system. The highest technology, the newest system available. We pushed the button on that system on January 12. We've been working the system, upgrading it and getting it in alignment over the last 14 months, and it is getting better and better. Huge investment for Granite on the technology side of our business system. Operationally, it is a fascinating environment. It is changing so rapidly. A lot of technology you saw, the GPS-guided, laser-guided post-driving machines down in Southern California, that was done from some of those bright young people that came out of college and devised that method out on the field on their own. So the diversification of our business is so different in all parts of it, that every part drives its own technology advancements, and it's very difficult to say that this part, that this part, and I will say, our estimating system, that technology has changed dramatically over the last few years. We have bought an entirely new estimating system, that we talk to each other all over the country today. Somebody in New York talks to somebody in California, talks to somebody in Texas, and they're all tied in with each other. And we'll be bidding -- we'll bid a job in Texas with people out of Minnesota, California and Florida now. Instead of having to have to come together, they use technology, they just tie in together and talk together. We've also started a brand-new program, which we are just launching, which is actually, and I'm going to call it correct me, Jacque, if I used the wrong terminology. It is a collaborative network that is somewhat of an in-house system now where we are starting to use a capability of talking to each other with all parts of the company, from the ground floor up, as to what technology we need. And whatever creates the most usage and the most opportunity will boil up from the bottom now, and not be a top-driven type of a format relative to technology. And then what we're going to be doing in this, and I'll call it a blog, internal blog-type of environment, is take the best ideas and then work those into the technology, the company going forward. Instead of having it top-down driven for technology, we are now blogging and talking to each other at the -- all levels of the company. What is it we want to do next, and there are a host of environments. Now the key environment here is you're going to get so many things going on. How do you prioritize? We have more projects and more technology advancements than we can actually finance in any one given time. So now, you prioritize them over a period of time. And we've done a lot of things with the prioritization. We have also added a continuous improvement program where we prioritize projects in Granite, which get the top investments. So that's really going to be key for us. The technology coming to us today from the groundswell is just a myth. The question is, how do you prioritize? Because you can do a lot of one-off things. So what we've done to our continuous improvement program as said, that we're going to invest in technology and improvements that hit the broadest part of our company first, so that it touches more people and more parts of the company first. So it's, again, a big investment in estimating. We estimate all over the country. Let's use that as a primary source. Where else do we touch a lot of parts of the company so that we're going to make an investment, more people can use it. So we are starting a new system today with this groundswell, and the idea behind it was all about technology.

William H. Powell

Other questions? Yes? Please wait for the microphone and identify yourself, please?

Unknown Attendee

My name is Tony Caris [ph]. I have one more question regarding your diversification. It requires additional equipment usually when you expand and diversify, and if that's the case, are you -- do you have enough equipment that would go from job to job? Or do you have to have additional equipment acquisitions down the road in the future? And what percentage of that would affect your total bottom line if you had to go deeper into equipment acquisitions?

James H. Roberts

Okay. So diversification. In some cases, the question is relative. I think the capital expenditure is relative to diversification. In some cases, a lot of our equipment and personnel today have the capacity to do a lot of diversification efforts. For example, the federal division. Our intention there is to diversify more into the higher-level federal work, we're directed for a federal agency rather than being a third-tier subcontractor, but physically doing the same kind of work. So that would not require a new capital expenditure. If you look at the markets that we are moving into with the Kenny acquisition, our intention is to grow, and we'll talk about a couple of them, which are intensive capital improvements, which would be in the tunnel division, for example, but that as we grow the business, there is more capital expenditures inside of that individual business. But the majority of it is done on a project-by-project basis. So there is a commensurate return or a commensurate revenue to offset the investment. Most of those are done at a project level because they're so large that the investment is made in the project and the return is made at the same time. Now on the other side, if you look at the power business that we're expanding into, that is really a people business. We are really doing construction management work and we're doing materials management work, very little investment relative to equipment, huge investment in having the logistical people who are capable of providing value to the owner. That's a people business. So I don't think you're going to see, as a level of our revenue, our capital expenditures as a percentage of our revenue, our bottom line, really changing as we grow the company. It's a different kind of business. I would say to you, if anything, our Construction and Construction Materials business has the highest capital expenditure relative to revenue. And as we diversify over, that pie will become a smaller portion of the overall pie, although we intend to grow the Construction and Materials business. So actually, I think you're going to see us probably minimize or lower our overall capital expenditure relative to revenue. Did that answer your question? Okay. Is there another part of the question I can answer? Okay.

William H. Powell

Any other questions? I see none. I'd like to thank all of you for your attendance at the meeting and wish you well, and hope to see you next year.

James H. Roberts

Thank you very much.

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